P R O S P E C T U S 
 
                                                           SMITH BARNEY
                                                          Fundamental
                                                          Value Fund Inc.
                                                          
JANUARY 28, 1999
 
                                                  Prospectus begins on page one
 
 


[LOGO] Smith Barney Mutual Funds
       Investing for your future.
       Every day.(R)


<PAGE>
 
Prospectus                                                    January 28, 1999
 
 
Smith Barney
Fundamental Value
Fund Inc.
388 Greenwich Street
New York, New York 10013
800-451-2010
 
  Smith Barney Fundamental Value Fund Inc. (the "Fund") is a mutual fund with a
primary investment objective of long-term capital growth. Current income is a
secondary objective. The Fund seeks to achieve its primary objective by invest-
ing in a diversified portfolio of common stocks and common stock equivalents
and, to a lesser extent, in bonds and other debt instruments. The Fund's
investment emphasis is on securities which, in the judgment of the Fund's
investment adviser, are undervalued in the marketplace and, accordingly, have
above-average potential for capital growth.
 
  This Prospectus sets forth concisely certain information about the Fund,
including sales charges, distribution and service fees and expenses, that pro-
spective investors will find helpful in making an investment decision. Invest-
ors are encouraged to read this Prospectus carefully and retain it for future
reference.
 
  Additional information about the Fund is contained in a Statement of Addi-
tional Information dated January 28, 1999, as amended or supplemented from time
to time, that is available upon request and without charge by calling or writ-
ing the Fund at the telephone number or address set forth above or by contact-
ing a Salomon Smith Barney Financial Consultant. The Statement of Additional
Information has been filed with the Securities and Exchange Commission (the
"SEC") and is incorporated by reference into this Prospectus in its entirety.
 
CFBDS, Inc.
Distributor
 
Mutual Management Corp.
Investment Adviser and Administrator
 
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
 
                                                                               1
<PAGE>
 
Table of Contents
 
 
<TABLE>
<S>                                           <C>
Prospectus Summary                              3
-------------------------------------------------
Financial Highlights                           10
-------------------------------------------------
Investment Objective and Management Policies   15
-------------------------------------------------
Valuation of Shares                            20
-------------------------------------------------
Dividends, Distributions and Taxes             21
-------------------------------------------------
Purchase of Shares                             22
-------------------------------------------------
Exchange Privilege                             30
-------------------------------------------------
Redemption of Shares                           33
-------------------------------------------------
Minimum Account Size                           35
-------------------------------------------------
Performance                                    35
-------------------------------------------------
Management of the Fund                         36
-------------------------------------------------
Distribution                                   37
-------------------------------------------------
Additional Information                         38
-------------------------------------------------
</TABLE>
 
--------------------------------------------------------------------------------
 
  No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information or
representations must not be relied upon as having been authorized by the Fund
or the distributor. This Prospectus does not constitute an offer by the Fund or
the distributor to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such an offer or solicitation in such jurisdiction.
 
--------------------------------------------------------------------------------
 
2
<PAGE>
 
Prospectus Summary
 
  The following summary is qualified in its entirety by detailed information
appearing elsewhere in this Prospectus and in the Statement of Additional
Information. Cross references in this summary are to headings in the Prospec-
tus. See "Table of Contents."
 
Investment Objective The Fund is an open-end, diversified management invest-
ment company with a primary investment objective of long-term capital growth.
Current income is a secondary objective. The Fund seeks to achieve its princi-
pal objective by investing in a diversified portfolio of common stocks and
common stock equivalents and, to a lesser extent, in bonds and other debt
instruments. The Fund's investment emphasis is on securities which, in the
judgment of the Fund's investment adviser, are undervalued in the marketplace
and, accordingly, have above-average potential for capital growth. See "In-
vestment Objective and Management Policies."
 
Alternative Purchase Arrangements The Fund offers several classes of shares
("Classes") to investors designed to provide them with the flexibility of
selecting an investment best suited to their needs. The general public is
offered three classes of shares: Class A shares, Class B shares and Class L
shares, which differ principally in terms of sales charges and rate of
expenses to which they are subject. A fourth Class of shares, Class Y shares,
is offered to investors meeting an initial investment minimum of $15,000,000.
See "Purchase of Shares" and "Redemption of Shares."
 
  Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.00% and are subject to an annual service fee of 0.25%
of the average daily net assets of the Class. The initial sales charge may be
reduced or waived for certain purchases. Purchases of Class A shares of
$500,000 or more will be made at net asset value with no sales charge, but
will be subject to a contingent deferred sales charge ("CDSC") of 1.00% on
redemptions made within 12 months of purchase. See "Prospectus Summary--
Reduced or No Initial Sales Charge."
 
  Class B Shares. Class B shares are offered at net asset value subject to a
maximum CDSC of 5.00% of redemption proceeds, declining by 1.00% each year
after the date of purchase to zero. This CDSC may be waived for certain
redemptions. Class B shares are subject to an annual service fee of 0.25% and
an annual distribution fee of 0.75% of the average daily net assets of the
Class. The Class B shares' distribution fee may cause that Class to have
higher expenses and pay lower dividends than Class A shares.
 
  Class B Shares Conversion Feature. Class B shares will convert automatically
to Class A shares, based on relative net asset value, eight years after the
date of the original purchase. Upon conversion, these shares will no longer be
subject to an annual distribution fee. In addition, a certain portion of Class
B shares that have been acquired through the reinvestment of dividends and
distributions ("Class B
 
                                                                              3
<PAGE>
 
Prospectus Summary (continued)
 
Dividend Shares") will be converted at that time. See "Purchase of Shares--
Deferred Sales Charge Alternatives."

  Class L Shares. Class L shares are sold at net asset value plus an initial
sales charge of 1.00% of the purchase price. They are subject to an annual
service fee of 0.25% and an annual distribution fee of 0.75% of the average
daily net assets of the Class, and investors pay a CDSC of 1.00% if they
redeem Class L shares within 12 months of purchase. The CDSC may be waived for
certain redemptions. Until June 22, 2001, purchases of Class L shares by
investors who were holders of Class C shares of the Fund and other Smith Bar-
ney Mutual Funds on June 12, 1998 will not be subject to the 1.00% initial
sales charge. The Class L shares' distribution fee may cause that Class to
have higher expenses and pay lower dividends than Class A shares. Purchases of
Fund shares, which when combined with current holdings of Class L shares of
the Fund equal or exceed $500,000 in the aggregate, should be made in Class A
shares at net asset value with no sales charge, and will be subject to a CDSC
of 1.00% on redemptions made within 12 months of purchase. 
 
  Class Y Shares. Class Y shares are available only to investors meeting an
initial investment minimum of $15,000,000. Class Y shares are sold at net
asset value with no initial sales charge or CDSC. They are not subject to any
service or distribution fees.
 
  In deciding which Class of Fund shares to purchase, investors should con-
sider the following factors, as well as any other relevant facts and circum-
stances:
 
  Intended Holding Period. The decision as to which Class of shares is more
beneficial to an investor depends on the amount and intended duration of his
or her investment. Shareholders who are planning to establish a program of
regular investment may wish to consider Class A shares; as the investment
accumulates shareholders may qualify for reduced sales charges and the shares
are subject to lower ongoing expenses over the term of the investment. As an
investment alternative, Class B shares are sold without any initial sales
charge so the entire purchase price is immediately invested in the Fund. Any
investment return on these additional invested amounts may partially or wholly
offset the higher annual expenses of these Classes. Because the Fund's future
return cannot be predicted, however, there can be no assurance that this would
be the case.
 
  Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, while Class L shares have a shorter CDSC period than Class
B shares, they do not have a conversion feature, and therefore, are subject to
an ongoing distribution fee. Thus, Class B shares may be more attractive than
Class L shares to investors with longer term investment outlooks.
 
  Reduced or No Initial Sales Charge. The initial sales charge on Class A
shares may be waived for certain eligible purchasers, and the entire purchase
price will be immediately invested in the Fund. In addition, Class A share
purchases of $500,000
 
4
<PAGE>
 
Prospectus Summary (continued)

or more will be made at net asset value with no initial sales charge, but will
be subject to a CDSC of 1.00% on redemptions made within 12 months of pur-
chase. The $500,000 investment may be met by adding the purchase to the net
asset value of all Class A shares held in other Smith Barney Mutual Funds
listed under "Exchange Privilege." Class A share purchases may also be eligi-
ble for a reduced initial sales charge. See "Purchase of Shares." Because the
ongoing expenses of Class A shares may be lower than those for Class B and
Class L shares, purchasers eligible to purchase Class A shares at net asset
value or at a reduced sales charge should consider doing so. 
 
  Salomon Smith Barney Financial Consultants may receive different compensa-
tion for selling different Classes of shares. Investors should understand that
the purpose of the CDSC on the Class B and Class L shares is the same as that
of the initial sales charge on the Class A shares.
 
  See "Purchase of Shares" and "Management of the Fund" for a complete
description of the sales charges and service and distribution fees for each
Class of shares and "Valuation of Shares," "Dividends, Distributions and Tax-
es" and "Exchange Privilege" for other differences between the Classes of
shares.
 
Smith Barney 401(k) and ExecChoicetm Programs Investors may be eligible to
participate in the Smith Barney 401(k) Program, which is generally designed to
assist plan sponsors in the creation and operation of retirement plans under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
as well as other types of participant directed, tax-qualified employee benefit
plans. Investors may also be eligible to participate in the Smith Barney
ExecChoiceTM Program. Class A and Class L shares are available without a sales
charge as investment alternatives under both of these programs. See "Purchase
of Shares--Smith Barney 401(k) and ExecChoiceTM Programs."
 
Distributor The Fund has entered into an agreement with CFBDS, Inc. ("CFBDS")
to distribute the Fund's shares.

Purchase of Shares Investors may purchase shares from a Salomon Smith Barney
Financial Consultant, an investment dealer in the selling group or a broker
that clears securities through Salomon Smith Barney Inc. ("Salomon Smith Bar-
ney"). (An investment dealer in the selling group and a broker that clears
securities through Salomon Smith Barney are collectively referred to as
"Dealer Representatives.") In addition, certain investors, including qualified
retirement plans and investors purchasing through certain Dealer Representa-
tives, may purchase shares directly from the Fund through the Fund's transfer
agent, First Data Investor Services Group, Inc. (the "Transfer Agent"). See
"Purchase of Shares." 
 
Investment Minimums Investors in Class A, Class B and Class L shares may open
an account by making an initial investment of at least $1,000 for each
account, or $250 for an individual retirement account ("IRA") or a Self-
Employed
 
                                                                              5
<PAGE>
 
Prospectus Summary (continued)
 
Retirement Plan. Investors in Class Y shares may open an account for an ini-
tial investment of $15,000,000. Subsequent investments of at least $50 may be
made for all Classes. There is no minimum investment requirement in Class A
for unitholders who invest distributions from a unit investment trust ("UIT")
sponsored by Salomon Smith Barney. The minimum investment requirements for
purchases of Fund shares through the Systematic Investment Plan are described
below. See "Purchase of Shares."
 
Systematic Investment Plan The Fund offers shareholders a Systematic Invest-
ment Plan under which they may authorize the automatic placement of a purchase
order each month or quarter for Fund shares. The minimum initial investment
requirement for Class A, Class B and Class L shares and the subsequent invest-
ment requirement for all Classes for shareholders purchasing shares through
the Systematic Investment Plan on a monthly basis is $25 and on a quarterly
basis is $50. See "Purchase of Shares."
 
Redemption of Shares Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and
"Redemption of Shares."

Management of the Fund Mutual Management Corp. ("MMC"), a wholly owned subsid-
iary of Salomon Smith Barney Holdings Inc. ("Holdings"), serves as the Fund's
investment adviser and administrator. Holdings is a wholly owned subsidiary of
Citigroup Inc. ("Citigroup"). Citigroup businesses produce a broad range of
financial services--asset management, banking and consumer finance, credit and
charge cards, insurance, investments, investment banking and trading--and use
diverse channels to make them available to consumer and corporate customers
around the world. Among these businesses are Citibank, Commercial Credit,
Primerica Financial Services, Salomon Smith Barney, SSBC Asset Management,
Travelers Life & Annuity, and Travelers Property Casualty. See "Management of
the Fund." 
 
Exchange Privilege Shares of a Class may be exchanged for shares of the same
Class of certain other funds of the Smith Barney Mutual Funds at the respec-
tive net asset values next determined. See "Exchange Privilege."
 
Valuation of Shares Net asset value of the Fund for the prior day generally is
quoted daily in the financial section of most newspapers and is also available
from a Salomon Smith Barney Financial Consultant. See "Valuation of Shares."
 
Dividends and Distributions Dividends from net investment income and distribu-
tions of net realized capital gains, if any, are paid annually. See
"Dividends, Distributions and Taxes."
 
Reinvestment of Dividends Dividends and distributions paid on shares of a
Class will be reinvested automatically, unless otherwise specified by an
investor, in additional shares of the same Class at current net asset value.
Shares acquired by
 
6
<PAGE>
 
Prospectus Summary (continued)
 
dividend and distribution reinvestments will not be subject to any sales charge
or CDSC. Class B shares acquired through dividend and distribution reinvest-
ments will become eligible for conversion to Class A shares on a pro rata
basis. See "Dividends, Distributions and Taxes."
 
Risk Factors and Special Considerations There can be no assurance that the
Fund's investment objective will be achieved. Certain of the investments held
by the Fund and certain of the investment strategies that the Fund may employ
might expose it to certain risks. The investments presenting the Fund with
risks are securities of less well-established companies or companies whose
capitalizations are less than the capitalizations of larger, better-known
companies and foreign securities. In addition, the Fund may assume additional
risk by entering into repurchase agreements, lending portfolio securities and
entering into transactions involving options. See "Investment Objective and
Management Policies."

The Fund's Expenses The following expense table lists the costs and expenses an
investor will incur either directly or indirectly as a shareholder of the Fund,
based on the maximum sales charge or maximum CDSC that may be incurred at the
time of purchase or redemption and the Fund's operating expenses for its most
recent fiscal year: 
 
<TABLE>
<CAPTION>
  Smith Barney Fundamental Value Fund Inc.     Class A Class B Class L Class Y
------------------------------------------------------------------------------
  <S>                                          <C>     <C>     <C>     <C>
  Shareholder Transaction Expenses
    Maximum sales charge imposed on purchases
     (as a percentage of offering price)        5.00%   None    1.00%   None
    Maximum CDSC
      (as a percentage of original cost or
      redemption proceeds, whichever is
      lower)                                    None*   5.00%   1.00%   None
  Annual Fund Operating Expenses
    (as a percentage of average net assets)
    Management fees                             0.75%   0.75%   0.75%   0.75%
    12b-1 fees**                                0.25    1.00    1.00    None
    Other expenses                              0.15    0.17    0.18    0.04
------------------------------------------------------------------------------
  TOTAL FUND OPERATING EXPENSES                 1.15%   1.92%   1.93%   0.79%
------------------------------------------------------------------------------
</TABLE>
   * Purchases of Class A shares of $500,000 or more will be made at net asset
     value with no sales charge, but will be subject to a CDSC of 1.00% on
     redemptions made within 12 months of purchase.
  ** Upon conversion of Class B shares to Class A shares, such shares will no
     longer be subject to a distribution fee. Class L shares do not have a
     conversion feature and, therefore, are subject to an ongoing distribution
     fee. As a result, long-term shareholders of Class L shares may pay more
     than the economic equivalent of the maximum front-end sales charge
     permitted by the National Association of Securities Dealers, Inc.
 
  Class A shares of the Fund purchased through the Salomon Smith Barney
AssetOne Program will be subject to an annual asset-based fee, payable quarter-
ly, in lieu of the initial sales charge. The fee will vary to a maximum of
1.50%, depending on the amount of assets held through the Program. For more
information, please call a Salomon Smith Barney Financial Consultant.
 
                                                                               7
<PAGE>
 
Prospectus Summary (continued)

  The sales charge and CDSC set forth in the above table are the maximum
charges imposed on purchases or redemptions of Fund shares and investors may
actually pay lower or no charges, depending on the amount purchased and, in
the case of Class B, Class L and certain Class A shares, the length of time
the shares are held and whether the shares are held through the Smith Barney
401(k) or ExecChoiceTM Programs. See "Purchase of Shares" and "Redemption of
Shares." Salomon Smith Barney receives an annual 12b-1 service fee of 0.25% of
the value of average daily net assets of Class A shares. Salomon Smith Barney
also receives, with respect to Class B and Class L shares, an annual 12b-1 fee
of 1.00% of the value of average daily net assets of the respective Class,
consisting of a 0.75% distribution fee and a 0.25% service fee. "Other
expenses" in the above table include fees for shareholder services, custodial
fees, legal and accounting fees, printing costs and registration fees. 
 
 Example
 
  The following example is intended to assist an investor in understanding the
various costs that an investor in the Fund will bear directly or indirectly.
The example assumes payment by the Fund of operating expenses at the levels
set forth in the table above. See "Purchase of Shares," "Redemption of Shares"
and "Management of the Fund."
 
<TABLE>
<CAPTION>
  Smith Barney Fundamental Value Fund Inc.    1 year 3 years 5 years 10 years*
------------------------------------------------------------------------------
  <S>                                         <C>    <C>     <C>     <C>
  An investor would pay the following
  expenses on a $1,000 investment, assuming
  (1) 5.00% annual return and (2) redemption
  at the end of each time period:
    Class A..................................  $61     $85    $110     $183
    Class B..................................   69      90     114      205
    Class L..................................   39      70     113      233
    Class Y..................................    8      25      44       98
  An investor would pay the following
  expenses on the same investment, assuming
  the same annual return and no redemption:
    Class A..................................  $61     $85    $110     $183
    Class B..................................   19      60     104      205
    Class L..................................   29      70     113      233
    Class Y..................................    8      25      44       98
---------------------------------------------------------------y Mutual Fund that
is offered with a sales charge) and who wish to reinvest their redemption pro-
ceeds in the Fund, provided the reinvestment is made within 60 calendar days of
the redemption; (e) purchases by accounts managed by registered investment
advisory subsidiaries of Citigroup; (f) direct rollovers by plan participants
of distributions from a 401(k) plan offered to employees of Citigroup or its
subsidiaries or a 401(k) plan enrolled in the Smith Barney 401(k) Program
(Note: subsequent investments will be subject to the applicable sales charge);
(g) purchases by separate accounts used to fund certain unregistered variable
annuity contracts; (h) investments of distributions from a UIT sponsored by
Salomon Smith Barney; (i) purchases by investors participating in a Salomon
Smith Barney fee-based arrangement; and (j) purchases by Section 403(b) or Sec-
tion 401(a) or (k) accounts associated with Copeland Retirement Programs. In
order to obtain such discounts, the purchaser must provide sufficient informa-
tion at the time of purchase to permit verification that the purchase would
qualify for the elimination of the sales charge. 
 
 Right of Accumulation

  Class A shares of the Fund may be purchased by "any person" (as defined
above) at a reduced sales charge or at net asset value determined by aggregat-
ing the dollar amount of the new purchase and the total net asset value of all
Class A shares of the Fund and of other Smith Barney Mutual Funds offered with
a sales charge as currently listed under "Exchange Privilege" then held by such
person and applying the sales charge applicable to such aggregate. In order to
obtain such discount, the purchaser must provide sufficient information at the
time of purchase to permit verification that the purchase qualifies for the
reduced sales charge. The right of accumulation is subject to modification or
discontinuance at any time with respect to all shares purchased thereafter.

 Letter of Intent
 
  Class A Shares. A Letter of Intent for an amount of $50,000 or more provides
an opportunity for an investor to obtain a reduced sales charge by aggregating
investments over a 13 month period, provided that the investor refers to such
Letter when placing orders. For purposes of a Letter of Intent, the "Amount of
Investment" as referred to in the preceding sales charge table includes (i) all
Class A shares of the Fund and other Smith Barney Mutual Funds offered with a
sales charge acquired during the term of the Letter plus (ii) the value of all
Class A shares previously purchased and still owned. Each investment made dur-
ing the period receives the
 
                                                                              25
<PAGE>
 
Purchase of Shares (continued)
 
reduced sales charge applicable to the total amount of the investment goal. If
the goal is not achieved within the period, the investor must pay the differ-
ence between the sales charges applicable to the purchases made and the charges
previously paid, or an appropriate number of escrowed shares will be redeemed.
The term of the Letter will commence upon the date the Letter is signed, or at
the option of the investor, up to 90 days before such date. Please contact a
Salomon Smith Barney Financial Consultant or the Transfer Agent to obtain a
Letter of Intent application.
 
  Class Y Shares. A Letter of Intent may also be used as a way for investors to
meet the minimum investment requirement for Class Y shares (except purchases of
Class Y shares by Smith Barney Concert Allocation Series Inc., for which there
is no minimum purchase amount). Such investors must make an initial minimum
purchase of $5,000,000 in Class Y shares of the Fund and agree to purchase a
total of $15,000,000 of Class Y shares of the Fund within 13 months from the
date of the Letter. If a total investment of $15,000,000 is not made within the
13 month period, all Class Y shares purchased to date will be transferred to
Class A shares, where they will be subject to all fees (including a service fee
of 0.25%) and expenses applicable to the Fund's Class A shares, which may
include a CDSC of 1.00%. Please contact a Salomon Smith Barney Financial Con-
sultant or the Transfer Agent for further information.
 
 Deferred Sales Charge Provisions
 
  "CDSC Shares" are: (a) Class B shares; (b) Class L shares; and (c) Class A
shares that were purchased without an initial sales charge but are subject to a
CDSC. A CDSC may be imposed on certain redemptions of these shares.
 
  Any applicable CDSC will be assessed on an amount equal to the lesser of the
original cost of the shares being redeemed or their net asset value at the time
of redemption. CDSC Shares that are redeemed will not be subject to a CDSC to
the extent that the value of such shares represents: (a) capital appreciation
of Fund assets; (b) reinvestment of dividends or capital gain distributions;
(c) with respect to Class B shares, shares redeemed more than five years after
their purchase; or (d) with respect to Class L shares and Class A shares that
are CDSC Shares, shares redeemed more than 12 months after their purchase.
    
  Class L shares and Class A shares that are CDSC Shares are subject to a 1.00%
CDSC if redeemed within 12 months of purchase. In circumstances in which the
CDSC is imposed on Class B shares, the amount of the charge will depend on the
number of years since the shareholder made the purchase payment from which the
amount is being redeemed. Solely for purposes of determining the number of
years since a purchase payment, all purchase payments made during a month will
be aggregated and deemed to have been made on the last day of the preceding
Salomon Smith Barney statement month. The following table sets forth the rates
of the charge for redemptions of Class B shares by shareholders. 
     
26
<PAGE>
 
Purchase of Shares (continued)
 


</TABLE>
<TABLE>
<CAPTION>
      Year Since Purchase
      Payment Was Made      CDSC
---------------------------------
      <S>                   <C>
      First                 5.00%
      Second                4.00
      Third                 3.00
      Fourth                2.00
      Fifth                 1.00
      Sixth and thereafter  0.00
---------------------------------
</TABLE>

  Class B shares will convert automatically to Class A shares eight years after
the date on which they were purchased and thereafter will no longer be subject
to any distribution fees. There will also be converted at that time such pro-
portion of Class B Dividend Shares owned by the shareholder as the total number
of his or her Class B shares converting at the time bears to the total number
of outstanding Class B shares (other than Class B Dividend Shares) owned by the
shareholder. See "Prospectus Summary--Alternative Purchase Arrangements--Class
B Shares Conversion Feature." 
 
  The length of time that CDSC Shares acquired through an exchange have been
held will be calculated from the date that the shares exchanged were initially
acquired in one of the other Smith Barney Mutual Funds, and Fund shares being
redeemed will be considered to represent, as applicable, capital appreciation
or dividend and capital gain distribution reinvestments in such other funds.
For Federal income tax purposes, the amount of the CDSC will reduce the gain or
increase the loss, as the case may be, on the amount realized on redemption.
The amount of any CDSC will be paid to Salomon Smith Barney.
 
  To provide an example, assume an investor purchased 100 Class B shares at $10
per share for a cost of $1,000. Subsequently, the investor acquired 5 addi-
tional shares through dividend reinvestment. During the fifteenth month after
the purchase, the investor decided to redeem $500 of his or her investment.
Assuming at the time of the redemption the net asset value had appreciated to
$12 per share, the value of the investor's shares would be $1,260 (105 shares
at $12 per share). The CDSC would not be applied to the amount which represents
appreciation ($200) and the value of the reinvested dividend shares ($60).
Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would be
charged at a rate of 4.00% (the applicable rate for Class B shares) for a total
deferred sales charge of $9.60.
 
 Waivers of CDSC
 
  The CDSC will be waived on: (a) exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal to or less than 1.00% per month of
the value of the shareholder's shares at the time the withdrawal plan commences
 
                                                                              27
<PAGE>
 
Purchase of Shares (continued)
 
(see "Automatic Cash Withdrawal Plan") (provided, however, that automatic cash
withdrawals in amounts equal to or less than 2.00% per month of the value of
the shareholder's shares will be permitted for withdrawal plans that were
established prior to November 7, 1994); (c) redemptions of shares within 12
months following the death or disability of the shareholder; (d) redemptions
of shares made in connection with qualified distributions from retirement
plans or IRAs upon the attainment of age 59; (e) involuntary redemptions; and
(f) redemptions of shares to effect a combination of the Fund with any invest-
ment company by merger, acquisition of assets or otherwise. In addition, a
shareholder who has redeemed shares from other Smith Barney Mutual Funds may,
under certain circumstances, reinvest all or part of the redemption proceeds
within 60 days and receive pro rata credit for any CDSC imposed on the prior
redemption.
 
  CDSC waivers will be granted subject to confirmation (by Salomon Smith Bar-
ney in the case of shareholders who are also Salomon Smith Barney clients or
by the Transfer Agent in the case of all other shareholders) of the sharehold-
er's status or holdings, as the case may be.
 
 Smith Barney 401(k) and ExecChoice(TM) Programs
 
  Investors may be eligible to participate in the Smith Barney 401(k) Program
or the Smith Barney ExecChoice(TM) Program. To the extent applicable, the same
terms and conditions, which are outlined below, are offered to all plans par-
ticipating ("Participating Plans") in these programs.
 
  The Fund offers to Participating Plans Class A and Class L shares as invest-
ment alternatives under the Smith Barney 401(k) and ExecChoice(TM) Programs.
Class A and Class L shares acquired through the Participating Plans are sub-
ject to the same service and/or distribution fees as the Class A and Class L
shares acquired by other investors; however, they are not subject to any ini-
tial sales charge or CDSC. Once a Participating Plan has made an initial
investment in the Fund, all of its subsequent investments in the Fund must be
in the same Class of shares, except as otherwise described below.
 
  Class A Shares. Class A shares of the Fund are offered without any sales
charge or CDSC to any Participating Plan that purchases $1,000,000 or more of
Class A shares of one or more Smith Barney Mutual Funds.
 
  Class L Shares. Class L shares of the Fund are offered without any sales
charge or CDSC to any Participating Plan that purchases less than $1,000,000
of Class L shares of one or more Smith Barney Mutual Funds.
 
  401(k) and ExecChoice(TM) Plans Opened On or After June 21, 1996. If, at the
end of the fifth year after the date the Participating Plan enrolled in the
Smith Barney 401(k) Program or the Smith Barney ExecChoice(TM) Program, a
Participating Plan's total Class L holdings in all non-money market Smith
Barney Mutual Funds equal at least $1,000,000, the Participating Plan will be
offered the opportunity to
 
28
<PAGE>
 
Purchase of Shares (continued)
 
exchange all of its Class L shares for Class A shares of the Fund. (For
Participating Plans that were originally established through a Salomon Smith
Barney retail brokerage account, the five year period will be calculated from
the date the retail brokerage account was opened.) Such Participating Plans
will be notified of the pending exchange in writing within 30 days after the
fifth anniversary of the enrollment date and, unless the exchange offer has
been rejected in writing, the exchange will occur on or about the 90th day
after the fifth anniversary date. If the Participating Plan does not qualify
for the five year exchange to Class A shares, a review of the Participating
Plan's holdings will be performed each quarter until either the Participating
Plan qualifies or the end of the eighth year.
 
  401(k) Plans Opened Prior to June 21, 1996. In any year after the date a
Participating Plan enrolled in the Smith Barney 401(k) Program, if its total
Class L holdings in all non-money market Smith Barney Mutual Funds equal at
least $500,000 as of the calendar year-end, the Participating Plan will be
offered the opportunity to exchange all of its Class L shares for Class A
shares of the Fund. Such Plans will be notified in writing within 30 days after
the last business day of the calendar year and, unless the exchange offer has
been rejected in writing, the exchange will occur on or about the last business
day of the following March.

  Any Participating Plan in the Smith Barney 401(k) or ExecChoice(TM) Program,
whether opened before or after June 21, 1996, that has not previously qualified
for an exchange into Class A shares will be offered the opportunity to exchange
all of its Class L shares for Class A shares of the Fund, regardless of asset
size, at the end of the eighth year after the date the Participating Plan
enrolled in the Smith Barney 401(k) or ExecChoice(TM) Program. Such Plans will
be notified of the pending exchange in writing approximately 60 days before the
eighth anniversary of the enrollment date and, unless the exchange has been
rejected in writing, the exchange will occur on or about the eighth anniversary
date. Once an exchange has occurred, a Participating Plan will not be eligible
to acquire additional Class L shares of the Fund but instead may acquire Class
A shares of the Fund. Any Class L shares not converted will continue to be sub-
ject to the distribution fee. 
 
  Participating Plans wishing to acquire shares of the Fund through the Smith
Barney 401(k) Program or the Smith Barney ExecChoice(TM) Program must purchase
such shares directly from the Transfer Agent. For further information regarding
these Programs, investors should contact a Salomon Smith Barney Financial
Consultant.
 
 
                                                                              29
<PAGE>
 
Exchange Privilege
 
 
  Except as otherwise noted below, shares of each Class may be exchanged at the
net asset value next determined for shares of the same Class in the following
Smith Barney Mutual Funds, to the extent shares are offered for sale in the
shareholder's state of residence. Exchanges of Class A, Class B and Class L
shares are subject to minimum investment requirements, and all shares are sub-
ject to the other requirements of the fund into which exchanges are made.
 
 Fund Name
  Growth Funds
    Concert Peachtree Growth Fund
    Concert Social Awareness Fund
    Smith Barney Aggressive Growth Fund Inc.
    Smith Barney Appreciation Fund Inc.
    Smith Barney Balanced Fund
    Smith Barney Contrarian Fund
    Smith Barney Convertible Fund
    
    Smith Barney Funds, Inc.--Large Cap Value Fund 
    Smith Barney Large Cap Blend Fund
    Smith Barney Large Capitalization Growth Fund
    Smith Barney Mid Cap Blend Fund
    Smith Barney Natural Resources Fund Inc.
    Smith Barney Premium Total Return Fund
    Smith Barney Small Cap Blend Fund, Inc.
    
    Smith Barney Small Cap Value Fund 
    Smith Barney Special Equities Fund
 
  Taxable Fixed-Income Funds
    **Smith Barney Adjustable Rate Government Income Fund
    Smith Barney Diversified Strategic Income Fund
    +++Smith Barney Funds, Inc.--Short-Term High Grade Bond Fund
    Smith Barney Funds, Inc.--U.S. Government Securities Fund
    Smith Barney Government Securities Fund
    Smith Barney High Income Fund
    Smith Barney Investment Grade Bond Fund
    Smith Barney Managed Governments Fund Inc.
    Smith Barney Total Return Bond Fund
 
  Tax-Exempt Funds
    Smith Barney Arizona Municipals Fund Inc.
    Smith Barney California Municipals Fund Inc.
    *Smith Barney Intermediate Maturity California Municipals Fund
    *Smith Barney Intermediate Maturity New York Municipals Fund
    Smith Barney Managed Municipals Fund Inc.
    Smith Barney Massachusetts Municipals Funds
    Smith Barney Municipal High Income Fund
    Smith Barney Muni Funds--Florida Portfolio
 
30
<PAGE>
 
Exchange Privilege (continued)
 
    Smith Barney Muni Funds--Georgia Portfolio
    *Smith Barney Muni Funds--Limited Term Portfolio
    Smith Barney Muni Funds--National Portfolio
    Smith Barney Muni Funds--New York Portfolio
    Smith Barney Muni Funds--Pennsylvania Portfolio
    Smith Barney New Jersey Municipals Fund Inc.
    Smith Barney Oregon Municipals Fund
 
  Global--International Funds
    Smith Barney Hansberger Global Small Cap Value Fund
    Smith Barney Hansberger Global Value Fund
    Smith Barney World Funds, Inc.--Emerging Markets Portfolio
    Smith Barney World Funds, Inc.--European Portfolio
    Smith Barney World Funds, Inc.--Global Government Bond Portfolio
    Smith Barney World Funds, Inc.--International Balanced Portfolio
    Smith Barney World Funds, Inc.--International Equity Portfolio
    Smith Barney World Funds, Inc.--Pacific Portfolio
 
  Smith Barney Concert Allocation Series Inc.
    Smith Barney Concert Allocation Series Inc.--Balanced Portfolio
    
    Smith Barney Concert Allocation Series Inc.--Conservative Portfolio
    
    Smith Barney Concert Allocation Series Inc.--Global Portfolio 
    Smith Barney Concert Allocation Series Inc.--Growth Portfolio
    Smith Barney Concert Allocation Series Inc.--High Growth Portfolio
    Smith Barney Concert Allocation Series Inc.--Income Portfolio
 
  Money Market Funds
    +Smith Barney Exchange Reserve Fund
    ++Smith Barney Money Funds, Inc.--Cash Portfolio
    ++Smith Barney Money Funds, Inc.--Government Portfolio
    ***Smith Barney Money Funds, Inc.--Retirement Portfolio
    +++Smith Barney Municipal Money Market Fund, Inc.
    +++Smith Barney Muni Funds--California Money Market Portfolio
    +++Smith Barney Muni Funds--New York Money Market Portfolio
--------------------------------------------------------------------------------
  * Available for exchange with Class A, Class L and Class Y shares of the
    Fund.
 ** Available for exchange with Class A and Class B shares of the Fund. In
    addition, shareholders who own Class L shares of the Fund through the Smith
    Barney 401(k) Program may exchange those shares for Class L shares of this
    fund.
*** Available for exchange with Class A shares of the Fund.
  + Available for exchange with Class B and Class L shares of the Fund.

 ++ Available for exchange with Class A and Class Y shares of the Fund. In
    addition, Participating Plans opened prior to June 21, 1996 and investing
    in Class L shares may exchange Fund shares for Class L shares of this fund.
    
+++ Available for exchange with Class A and Class Y shares of the Fund.
 
                                                                              31
<PAGE>
 
Exchange Privilege (continued)
 
 
  Class B Exchanges. In the event a Class B shareholder wishes to exchange all
or a portion of his or her shares in any of the funds imposing a higher CDSC
than that imposed by the Fund, the exchanged Class B shares will be subject to
the higher applicable CDSC. Upon an exchange, the new Class B shares will be
deemed to have been purchased on the same date as the Class B shares of the
Fund that have been exchanged.
 
  Class L Exchanges. Upon an exchange, the new Class L shares will be deemed to
have been purchased on the same date as the Class L shares of the Fund that
have been exchanged.
 
  Class A and Class Y Exchanges. Class A and Class Y shareholders of the Fund
who wish to exchange all or a portion of their shares for shares of the respec-
tive Class in any of the funds identified above may do so without imposition of
any charge.
 
  Additional Information Regarding the Exchange Privilege. Although the
exchange privilege is an important benefit, excessive exchange transactions can
be detrimental to the Fund's performance and its shareholders. MMC may deter-
mine that a pattern of frequent exchanges is excessive and contrary to the best
interests of the Fund's other shareholders. In this event, the Fund may, at its
discretion, decide to limit additional purchases and/or exchanges by a share-
holder. Upon such a determination, the Fund will provide notice in writing or
by telephone to the shareholder at least 15 days prior to suspending the
exchange privilege and during the 15 day period the shareholder will be
required to (a) redeem his or her shares in the Fund or (b) remain invested in
the Fund or exchange into any of the Smith Barney Mutual Funds ordinarily
available, which position the shareholder would be expected to maintain for a
significant period of time. All relevant factors will be considered in deter-
mining what constitutes an abusive pattern of exchanges.
 
  Certain shareholders may be able to exchange shares by telephone. See "Re-
demption of Shares--Telephone Redemption and Exchange Program." Exchanges will
be processed at the net asset value next determined. Redemption procedures dis-
cussed below are also applicable for exchanging shares, and exchanges will be
made upon receipt of all supporting documents in proper form. If the account
registration of the shares of the fund being acquired is identical to the reg-
istration of the shares of the fund exchanged, no signature guarantee is
required. A capital gain or loss for tax purposes will be realized upon the
exchange, depending upon the cost or other basis of shares redeemed. Before
exchanging shares, investors should read the current prospectus describing the
shares to be acquired. The Fund reserves the right to modify or discontinue
exchange privileges upon 60 days' prior notice to shareholders.
 
32
<PAGE>
 
Redemption of Shares
 
 
  The Fund is required to redeem the shares of the Fund tendered to it, as
described below, at a redemption price equal to the net asset value per share
next determined after receipt of a written request in proper form at no charge
other than any applicable CDSC. Redemption requests received after the close
of regular trading on the NYSE are priced at the net asset value next deter-
mined.
 
  If a shareholder holds shares in more than one Class, any request for
redemption must specify the Class being redeemed. In the event of a failure to
specify which Class, or if the investor owns fewer shares of the Class than
specified, the redemption request will be delayed until the Transfer Agent
receives further instructions from Salomon Smith Barney, or if the sharehold-
er's account is not with Salomon Smith Barney, from the shareholder directly.
The redemption proceeds will be remitted on or before the third business day
following receipt of proper tender, except on any day on which the NYSE is
closed or as permitted under the Investment Company Act of 1940, as amended
(the "1940 Act") in extraordinary circumstances. Generally, if the redemption
proceeds are remitted to a Salomon Smith Barney brokerage account, these funds
will not be invested for the shareholder's benefit without specific instruc-
tion and Salomon Smith Barney will benefit from the use of temporarily
uninvested funds. Redemption proceeds for shares purchased by check, other
than a certified or official bank check, will be remitted upon clearance of
the check, which may take up to ten days or more.

  Shares held by Salomon Smith Barney as custodian must be redeemed by submit-
ting a written request to a Salomon Smith Barney Financial Consultant. Shares
other than those held by Salomon Smith Barney as custodian may be redeemed
through an investor's Financial Consultant or Dealer Representative or by sub-
mitting a written request for redemption to: 
 
  Smith Barney Fundamental Value Fund Inc.
  Class A, B, L or Y (please specify)
  c/o First Data Investor Services Group, Inc.
  P.O. Box 9134
  Westborough, Massachusetts 01581-5128
 
  A written redemption request must (a) state the Class and number or dollar
amount of shares to be redeemed, (b) identify the shareholder's account number
and (c) be signed by each registered owner exactly as the shares are regis-
tered. If the shares to be redeemed were issued in certificate form, the cer-
tificates must be endorsed for transfer (or be accompanied by an endorsed
stock power) and must be submitted to the Transfer Agent together with the
redemption request. Any signature appearing on a share certificate, stock
power or on a written redemption request in excess of $10,000 must be guaran-
teed by an eligible guarantor institution such as a domestic bank, savings and
loan institution, domestic credit union, member bank of the Federal Reserve
System or member firm of a national securities exchange. Written redemption
requests of $10,000 or less do not require a signature
 
                                                                             33
<PAGE>
 
Redemption of Shares (continued)
 
guarantee unless more than one such redemption request is made in any 10-day
period. Redemption proceeds will be mailed to an investor's address of record.
The Transfer Agent may require additional supporting documents for redemptions
made by corporations, executors, administrators, trustees or guardians. A
redemption request will not be deemed properly received until the Transfer
Agent receives all required documents in proper form.
 
 Telephone Redemption and Exchange Program 

  Shareholders who do not have a Salomon Smith Barney brokerage account may be
eligible to redeem and exchange Fund shares by telephone. To determine if a
shareholder is entitled to participate in this program, he or she should con-
tact the Transfer Agent at (800) 451-2010. Once eligibility is confirmed, the
shareholder must complete and return a Telephone/Wire Authorization form,
including a signature guarantee, which will be provided by the Transfer Agent
upon request. (Alternatively, an investor may authorize telephone redemptions
on the new account application with a signature guarantee when making his/her
initial investment in the Fund.) 
 
  Redemptions. Redemption requests of up to $10,000 of any Class or Classes of
the Fund's shares may be made by eligible shareholders by calling the Transfer
Agent at (800) 451-2010. Such requests may be made between 9:00 a.m. and 4:00
p.m. (Eastern time) on any day the NYSE is open. Redemptions of shares (i) by
retirement plans or (ii) for which certificates have been issued are not per-
mitted under this program.
 
  A shareholder will have the option of having the redemption proceeds mailed
to his/her address of record or wired to a bank account predesignated by the
shareholder. Generally, redemption proceeds will be mailed or wired, as the
case may be, on the next business day following the redemption request. In
order to use the wire procedures, the bank receiving the proceeds must be a
member of the Federal Reserve System or have a correspondent relationship with
a member bank. The Fund reserves the right to charge shareholders a nominal
fee for each wire redemption. Such charges, if any, will be assessed against
the shareholder's account from which shares were redeemed. In order to change
the bank account designated to receive redemption proceeds, a shareholder must
complete a new Telephone/Wire
Authorization Form and, for the protection of the shareholder's assets, will
be required to provide a signature guarantee and certain other documentation.
 
  Exchanges. Eligible shareholders may make exchanges by telephone if the
account registration of the fund being acquired is identical to the registra-
tion of the shares of the fund exchanged. Such exchange requests may be made
by calling the Transfer Agent at (800) 451-2010 between 9:00 a.m. and 4:00
p.m. (Eastern time) on any day on which the NYSE is open.
 
  Additional Information regarding Telephone Redemption and Exchange
Program. Neither the Fund nor its agents will be liable for following instruc-
tions
 
34
<PAGE>
 
Redemption of Shares (continued)
 
communicated by telephone that are reasonably believed to be genuine. The Fund
and its agents will employ procedures designed to verify the identity of the
caller and legitimacy of instructions (for example, a shareholder's name and
account number will be required and phone calls may be recorded). The Fund
reserves the right to suspend, modify or discontinue the telephone redemption
and exchange program or to impose a charge for this service at any time fol-
lowing at least seven (7) days' prior notice to shareholders.
 
 Automatic Cash Withdrawal Plan
 
  The Fund offers shareholders an automatic cash withdrawal plan, under which
shareholders who own shares with a value of at least $10,000 may elect to
receive periodic cash payments of at least $50 monthly or quarterly. Retire-
ment plan accounts are eligible for automatic cash withdrawal plans only where
the shareholder is eligible to receive qualified distributions and has an
account value of at least $5,000. The withdrawal plan will be carried over on
exchanges between funds or Classes of the Fund. Any applicable CDSC will not
be waived on amounts withdrawn by a shareholder that exceed 1.00% per month of
the value of the shareholder's shares subject to the CDSC at the time the
withdrawal plan commences. (With respect to withdrawal plans in effect prior
to November 7, 1994, any applicable CDSC will be waived on amounts withdrawn
that do not exceed 2.00% per month of the value of a shareholder's shares sub-
ject to the CDSC.) For further information regarding the automatic cash with-
drawal plan, shareholders should contact a Salomon Smith Barney Financial Con-
sultant.
 
Minimum Account Size
 
 
  The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Fund if the aggregate net asset value of the shares held in the
Fund account is less than $500. (If a shareholder has more than one account in
the Fund, each account must satisfy the minimum account size.) The Fund, how-
ever, will not redeem shares based solely on market reductions in net asset
value. Before the Fund exercises such right, shareholders will receive written
notice and will be permitted 60 days to bring accounts up to the minimum to
avoid involuntary liquidation.
 
Performance
 
 
  From time to time the Fund may include its total return, average annual
total return and current dividend return in advertisements and/or other types
of sales literature. These figures are computed separately for Class A, Class
B, Class L and Class Y shares of the Fund. These figures are based on histori-
cal earnings and are not intended to indicate future performance. Total return
is computed for a speci-

                                                                             35
<PAGE>
 
Performance (continued)
 
fied period of time assuming deduction of the maximum sales charge, if any,
from the initial amount invested and reinvestment of all income dividends and
capital gain distributions on the reinvestment dates at prices calculated as
stated in this Prospectus, then dividing the value of the investment at the
end of the period so calculated by the initial amount invested and subtracting
100%. The standard average annual total return, as prescribed by the SEC, is
derived from this total return, which provides the ending redeemable value.
Such standard total return information may also be accompanied with nonstan-
dard total return information for differing periods computed in the same man-
ner but without annualizing the total return or taking sales charges into
account. The Fund calculates current dividend return for each Class by
annualizing the most recent monthly distribution and dividing by the net asset
value or the maximum public offering price (including sales charge) on the
last day of the period for which current dividend return is presented. The
current dividend return for each Class may vary from time to time depending on
market conditions, the composition of its investment portfolio and operating
expenses. These factors and possible differences in the methods used in calcu-
lating current dividend return should be considered when comparing a Class'
current return to yields published for other investment companies and other
investment vehicles. The Fund may also include comparative performance infor-
mation in advertising or marketing its shares. Such performance information
may include data from Lipper Analytical Services, Inc. and other financial
publications.
 
Management of the Fund
 
 
 Board of Directors
 
  Overall responsibility for management and supervision of the Fund rests with
the Fund's Board of Directors. The Directors approve all significant agree-
ments between the Fund and the companies that furnish services to the Fund,
including agreements with the Fund's distributor, investment adviser, adminis-
trator, custodian and transfer agent. The day-to-day operations of the Fund
are delegated to the Fund's investment adviser and administrator. The State-
ment of Additional Information contains general background information regard-
ing each Director and executive officer of the Fund.
    
 Investment Adviser and Administrator
     
  MMC, located at 388 Greenwich Street, New York, New York 10013, serves as
the Fund's investment adviser and administrator. MMC (through its predecessor
entities) has been in the investment counseling business since 1968 and ren-
ders investment management and administration services to a wide variety of
individual, institutional and investment company clients having aggregate
assets under management as of September 30, 1998 in excess of $108 billion.
 
36
<PAGE>
 
Management of the Fund (continued)
 
 
  Subject to the supervision and direction of the Fund's Board of Directors,
MMC manages the Fund's portfolio in accordance with the Fund's stated invest-
ment objective and policies, makes investment decisions for the Fund, places
orders to purchase and sell securities and employs professional portfolio man-
agers and securities analysts who provide research services to the Fund. Under
an investment advisory agreement, the Fund pays MMC a monthly fee at the annual
rate of 0.55% of the value of its average daily net assets up to $1.5 billion
and 0.50% of the value of its average daily net assets in excess of $1.5 bil-
lion.

  As administrator, MMC oversees all aspects of the Fund's administration and
operation. For administration services rendered to the Fund, the Fund pays MMC
a fee at the annual rate of 0.20% of the value of the Fund's average daily net
assets. 

  On October 8, 1998, Travelers Group Inc. and Citicorp consummated their
merger, creating a new entity called Citigroup. Citigroup is a bank holding
company subject to regulation under the Bank Holding Company Act of 1956, the
requirements of the Glass-Steagall Act and certain other laws and regulations.
MMC does not believe that its compliance with the applicable laws will have a
material adverse effect on its ability to continue to provide the Fund with the
same level of investment advisory and administrative services that the Fund
currently receives. 
 
 Portfolio Management
 
  John G. Goode, Managing Director of Salomon Smith Barney and Chairman and
Chief Investment Officer of Davis Skaggs Investment Management, a division of
MMC, has served as Vice President and Investment Officer of the Fund since
November 1990 and manages the day-to-day operations of the Fund, including mak-
ing all investment decisions.
 
  Mr. Goode's management discussion and analysis of the Fund's performance dur-
ing the fiscal year ended September 30, 1998 is included in the Fund's Annual
Report to Shareholders dated September 30, 1998. The Fund's Annual Report may
be obtained upon request and without charge from a Salomon Smith Barney Finan-
cial Consultant or by writing or calling the Fund at the address or phone num-
ber listed on page one of this Prospectus.
 
Distribution
 
 
  CFBDS is located at 21 Milk Street, Boston, MA 02109-5408. CFBDS distributes
shares of the Fund as principal underwriter and as such conducts a continuous
offering pursuant to a "best efforts" arrangement requiring CFBDS to take and
pay for only such securities as may be sold to the public. The Fund has adopted
a plan
 
                                                                              37
<PAGE>
 
Distribution (continued)
 
of distribution under Rule 12b-1 under the 1940 Act (the "Plan"), pursuant to
which Salomon Smith Barney is paid a service fee with respect to Class A, Class
B and Class L shares of the Fund at the annual rate of 0.25% of the average
daily net assets of the respective Class. Salomon Smith Barney is also paid a
distribution fee with respect to Class B and Class L shares at the annual rate
of 0.75% of the average daily net assets attributable to those Classes. Class B
shares that automatically convert to Class A shares eight years after the date
of original purchase will no longer be subject to a distribution fee. The fees
are used by Salomon Smith Barney to pay its Financial Consultants for servicing
shareholder accounts and, in the case of Class B and Class L shares, to cover
expenses primarily intended to result in the sale of those shares. These
expenses include: advertising expenses; the cost of printing and mailing pro-
spectuses to potential investors; payments to and expenses of Salomon Smith
Barney Financial Consultants and other persons who provide support services in
connection with the distribution of shares; interest and/or carrying charges;
and indirect and overhead costs of Salomon Smith Barney associated with the
sale of Fund shares, including lease, utility, communications and sales promo-
tion expenses.
 
  The payments to Salomon Smith Barney Financial Consultants for selling shares
of a Class include a commission or fee paid by the investor or Salomon Smith
Barney at the time of sale and, with respect to Class A, Class B and Class L
shares, a continuing fee for servicing shareholder accounts for as long as a
shareholder remains a holder of that Class. Salomon Smith Barney Financial Con-
sultants may receive different levels of compensation for selling different
Classes of shares.
 
  Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Salomon Smith Barney and the
payments may exceed distribution expenses actually incurred. The Fund's Board
of Directors will evaluate the appropriateness of the Plan and its payment
terms on a continuing basis and in so doing will consider all relevant factors,
including expenses borne by Salomon Smith Barney, amounts received under the
Plan and the proceeds of the CDSC.
 
Additional Information

  The Fund was originally incorporated under the laws of the State of Washing-
ton on March 17, 1981, and is registered with the SEC as a diversified, open-
end management investment company. On January 27, 1995, shareholders approved
the reincorporation of the Fund as a Maryland corporation, which subsequently
occurred on May 24, 1995. 
 
  The Fund currently offers shares of common stock classified into four Clas-
ses, A, B, L and Y. Each Class of shares represents an identical pro rata
interest in the Fund's investment portfolio. As a result, the Classes have the
same rights, privi-

 
38
<PAGE>
 
Additional Information (continued)
 
leges and preferences, except with respect to: (a) the designation of each
Class; (b) the effect of the respective sales charges, if any, for each Class;
(c) the distribution and/or service fees borne by each Class; (d) the expenses
allocable exclusively to each Class; (e) voting rights on matters exclusively
affecting a single Class; (f) the exchange privilege of each Class; and (g)
the conversion feature of the Class B shares. The Board of Directors does not
anticipate that there will be any conflicts among the interests of the holders
of the different share Classes of the Fund. The Directors, on an ongoing
basis, will consider whether any such conflict exists and, if so, take appro-
priate action.
 
  The Fund is not required to hold annual meetings, however the Directors will
call a meeting for any purpose upon written request of shareholders holding at
least 10% of the Fund's outstanding shares and the Fund will assist sharehold-
ers in calling such a meeting as required by the 1940 Act. When matters are
submitted for shareholder vote, shareholders of each Class will have one vote
for each full share owned and proportionate, fractional votes for fractional
shares held.
 
  PNC Bank, National Association, located at 17th and Chestnut Streets, Phila-
delphia, Pennsylvania 19103, serves as custodian of the Fund's investments.
 
  The Transfer Agent is located at Exchange Place, Boston, Massachusetts
02109.
 
  The Fund sends its shareholders a semi-annual report and an audited annual
report, which include listings of investment securities held by the Fund at
the end of the reporting period. In an effort to reduce the Fund's printing
and mailing costs, the Fund plans to consolidate the mailing of its semi-
annual and annual reports by household. This consolidation means that a house-
hold having multiple accounts with the identical address of record will
receive a single copy of each report. Any shareholder who does not want this
consolidation to apply to his or her account should contact his or her Salomon
Smith Barney Financial Consultant or the Transfer Agent.
 
 
                                                                             39
<PAGE>
 
 
 
 
                      [This page intentionally left blank]
<PAGE>
 
 
                                                    SalomonSmithBarney
                                                    ----------------------------
                                                    A member of citigroup [LOGO]
 
            Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
 
 

                                                               SMITH BARNEY
                                                                FUNDAMENTAL
                                                                 VALUE
                                                                  FUND INC.
 
                                                       388 Greenwich Street
                                                       New York, New York 10013
 
                                                                    FD0206 1/99