<PAGE>
As filed with the Securities and Exchange Commission on September 1, 1994
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1933 Act Registration No. 33-
_______________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
[ ] Pre Effective Amendment No. __ [ ] Post Effective Amendment No. __
Smith Barney Shearson Fundamental Value Fund Inc.
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(Exact Name of Registrant as Specified in Charter)
Area Code and Telephone Number: (212) 464-8068
c/o Heath B. McLendon
Two World Trade Center -100th Floor
New York, New York 10048
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(Address of Principal Executive Offices) (Zip Code)
Christina T. Sydor
Smith Barney Inc.
1345 Avenue of the Americas
New York, New York 10105
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(Name and Address of Agent for Service)
Approximate date of proposed public offering: As soon as possible after
the effective date of this Registration Statement.
The Registrant has registered an indefinite amount of securities under
the
Securities Act of 1933 pursuant to Section 24(f) under the Investment Company
Act of 1940; accordingly, no fee is payable herewith.
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It is proposed that this filing shall become effective on October 1, 1994
pursuant to Rule 488.
<PAGE>
CROSS REFERENCE SHEET FOR
SMITH BARNEY SHEARSON FUNDAMENTAL VALUE FUND INC.
Item of Part A Location in
of Form N-14 Prospectus
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1 . . . . . . . . . . . . . . . Cross Reference Sheet; Cover Page
2 . . . . . . . . . . . . . . . Table of Contents
3 . . . . . . . . . . . . . . . Summary; Comparison of Investment
Objectives and Policies
4 . . . . . . . . . . . . . . . Reasons for the Transaction;
Information
About the Transaction; Comparative
Information on Shareholders' Rights
5 . . . . . . . . . . . . . . . Information About the Funds
6 . . . . . . . . . . . . . . . Information About the Funds
7 . . . . . . . . . . . . . . . Voting Information
8 . . . . . . . . . . . . . . . Summary
9 . . . . . . . . . . . . . . . Inapplicable
Item of Part B Location in Statement
of Form N-14 of Additional Information
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10 . . . . . . . . . . . . . . . Cover Page
11 . . . . . . . . . . . . . . . Cover Page
12 . . . . . . . . . . . . . . . Statement of Additional Information of
Smith
Barney Shearson Fundamental Value Fund Inc.
dated November 22, 1993
13 . . . . . . . . . . . . . . . Inapplicable
<PAGE>
Item of Part B Location in Statement
of Form N-14 of Additional Information
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14 . . . . . . . . . . . . . . . Statement of Additional Information of
Smith
Barney Shearson Fundamental Value Fund Inc.
dated November 22, 1993; Annual Report of
The
Advisors Fund L.P. for the year ended
December 31, 1993; Semi-Annual Report of
The
Advisors Fund L.P. for the period ended
June
30, 1994; Annual Report of Smith Barney
Shearson Fundamental Value Fund Inc. for
the
year ended September 30, 1993; Semi-Annual
Report of Smith Barney Shearson Fundamental
Value Fund Inc. for the period ended March
31, 1994; Pro Forma Financial Statements as
of March 31, 1994
THE ADVISORS FUND L.P.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
October __,
1994
Dear Shareholder:
During the first half of 1994, several of the portfolio managers of The
Advisors Fund L.P. (the "Fund") ended their involvement with the Fund. In
light
of this development, the Fund's Individual General Partners felt it
appropriate
to review the Fund's structure, operations, and investment performance since
its
inception. After considering these factors carefully, they have reviewed and
approved a proposal for a transaction which they judge to be in the best
interests of shareholders.
Under the terms of the proposal, Smith Barney Shearson Fundamental Value
Fund Inc. ("Fundamental Value Fund") would acquire all or substantially all of
the assets and certain identified liabilities of the Fund. After the
transaction, the Fund would be dissolved and you would become a shareholder of
Fundamental Value Fund, having received shares with an aggregate value equal
to
the aggregate net asset value of your Fund investment at the time of the
transaction. The proposal would result in a taxable transaction for Fund
shareholders, and shareholders should consult their tax advisers regarding its
effect in light of their individual circumstances.
SPECIAL MEETING OF SHAREHOLDERS: YOUR VOTE IS IMPORTANT
The Individual General Partners believe that the proposed transaction
would
result in substantial savings in expenses borne by the Fund's shareholders.
The
Fund currently bears a relatively high expense ratio, largely as a result of
its
complex structure; Fundamental Value Fund's expenses are significantly lower.
In addition, as a result of the transaction, shareholders of the Fund will
continue to receive the benefit of Smith Barney's investment management with
less risk than is traditionally associated with the complex investment methods
employed by the Fund. The Individual General Partners further believe that
Fundamental Value Fund's investment approach may produce above-average returns
under many conditions and can do so with lower cost to shareholders. We have
therefore called a Special Meeting of Shareholders to be held on November 21,
1994 to consider this transaction. WE STRONGLY INVITE YOUR PARTICIPATION BY
ASKING YOU TO REVIEW, COMPLETE AND RETURN YOUR PROXY NO LATER THAN 9:00 A.M.
ON
NOVEMBER 21, 1994.
Detailed information about the proposed transaction is described in the
enclosed proxy statement. On behalf of the Individual General Partners, I
thank
you for your participation as a shareholder and urge you to please exercise
your
right to vote by completing, dating and signing the enclosed proxy card. A
self-addressed, postage-paid envelope has been enclosed for your convenience.
If you have any questions regarding the proposed transaction, please feel
free to call your investment representative.
IT IS VERY IMPORTANT THAT YOUR VOTING INSTRUCTIONS BE RECEIVED NO LATER
THAN 9:00 A.M. ON NOVEMBER 21, 1994.
Sincerely,
Heath B. McLendon
Individual General Partner
THE ADVISORS FUND L.P.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 21, 1994
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of The Advisors Fund L.P. (the "Fund") will be held at the office
of
the Fund, Two World Trade Center, 100th Floor, New York, New York on November
21, 1994 at 9:00 a.m. for the following purposes:
1. To consider and act upon the Agreement and Plan of Sale and
Liquidation (the "Plan") dated as of September 1, 1994 providing for
(i) the acquisition of all or substantially all of the assets of the
Fund by Smith Barney Shearson Fundamental Value Fund Inc.
("Fundamental Value Fund") in exchange for shares of Fundamental
Value
Fund and the assumption by Fundamental Value Fund of certain
identified liabilities of the Fund, (ii) the distribution of such
shares of Fundamental Value Fund to shareholders of the Fund in
liquidation of the Fund and (iii) the subsequent dissolution and
termination of the Fund.
2. To transact any other business which may properly come before the
Meeting or any adjournment or adjournments thereof.
The Individual General Partners of the Fund have fixed the close of
business on September 30, 1994 as the record date for the determination of
shareholders of the Fund entitled to notice of and to vote at this Meeting or
any adjournment thereof.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO
NOT
EXPECT TO ATTEND IN PERSON ARE URGED TO SIGN AND RETURN WITHOUT DELAY THE
ENCLOSED PROXY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE, SO THAT
THEIR SHARES MAY BE REPRESENTED AT THE MEETING. INSTRUCTIONS FOR THE PROPER
EXECUTION OF PROXIES ARE SET FORTH ON THE FOLLOWING PAGE.
By order of the Individual General
Partners
CHRISTINA T. SYDOR
Designated Agent
October __, 1994
YOUR PROMPT ATTENTION TO THE ENCLOSED PROXY WILL HELP TO AVOID THE
EXPENSE
OF FURTHER SOLICITATION.
INSTRUCTIONS FOR EXECUTING PROXY CARDS
The following general rules for executing proxy cards may be of
assistance
to you and avoid the time and expense involved in validating your vote if you
fail to execute your proxy card properly.
1. Individual Accounts: Your name should be signed exactly as it
appears
in the registration on the proxy card.
2. Joint Accounts: Either party may sign, but the name of the party
signing should conform exactly to a name shown in the registration.
3. All Other Accounts: Should show the capacity of the individual
signing. This can be shown either in the form of the registration
itself or by the individual executing the proxy card. For example:
Registration Valid Signature
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A. CORPORATE ACCOUNTS
(1) ABC Corp.................... ABC Corp.
(2) ABC Corp.................... John Doe, Treasurer
(3) ABC Corp.
c/o John Doe,
Treasurer................. John Doe
(4) ABC Corp. Profit
Sharing Plan.............. John Doe, Trustee
B. TRUST ACCOUNTS
(1) ABC Trust................... Jane Doe, Trustee
(2) Jane Doe, Trustee
u/t/d 12/38/78............ Jane Doe
C. CUSTODIAL OR ESTATE ACCOUNTS
(1) John B. Smith, Custodian
f/b/o John B. Smith....... John B. Smith
(2) John B. Smith............... John B. Smith, Jr.
Executor
PROSPECTUS/PROXY STATEMENT DATED _____________,1994
ACQUISITION OF THE ASSETS OF
THE ADVISORS FUND L.P.
TWO WORLD TRADE CENTER,
NEW YORK, NEW YORK 10048
(212) 464-8068
BY AND IN EXCHANGE FOR CLASS A
AND CLASS B SHARES OF
SMITH BARNEY SHEARSON FUNDAMENTAL VALUE FUND INC.
TWO WORLD TRADE CENTER,
NEW YORK, NEW YORK 10048
(212) 464-8068
This Prospectus/Proxy Statement is being furnished to shareholders of The
Advisors Fund L.P. (the "Fund") in connection with a proposed Agreement and
Plan
of Sale and Liquidation (the "Plan"), which includes the dissolution of the
Fund
following the sale of all or substantially all of the assets of the Fund. The
Plan is being submitted to holders of shares representing limited partnership
interests ("Shareholders") in the Fund for consideration at a Special Meeting
of
Shareholders to be held on November 21, 1994 at 9:00 a.m., New York time, at
the
offices of the Fund, Two World Trade Center, New York, New York, 100th Floor
and
any adjournments thereof (collectively, the "Meeting"). The Plan provides for
all or substantially all of the assets of the Fund to be acquired by Smith
Barney Shearson Fundamental Value Fund Inc. ("Fundamental Value Fund") in
exchange for shares of Fundamental Value Fund and the assumption by
Fundamental
Value Fund of certain of the liabilities of the Fund. Following this
transfer,
the Fund will be dissolved, all remaining liabilities of the Fund will be
satisfied (whether by payment or the establishment of reasonable reserves for
payment) and shares of Fundamental Value Fund will be distributed to
shareholders of the Fund. As a result of the proposed transaction, each
shareholder of the Fund will receive that number of shares of Fundamental
Value
Fund having an aggregate net asset value equal to the aggregate net asset
value
of such shareholder's shares of the Fund. Holders of Class A shares in the
Fund
will receive Class A shares of Fundamental Value Fund, and no sales charge
will
be imposed on the Class A shares of Fundamental Value Fund received by Fund
shareholders. Holders of Class B shares in the Fund will receive Class B
shares
of Fundamental Value Fund; subsequent to the transaction any contingent
deferred
sales charge ("CDSC") which is applicable to a shareholder's investment in
Class
B shares of the Fund will continue to apply, and, in calculating the
applicable
CDSC, the period during which a Fund shareholder held Class B shares of the
Fund
will be counted.
The transfer of all or substantially all of the assets of the Fund to
Fundamental Value Fund will result in a taxable event for the Fund. Since the
Fund anticipates that it will be classified as a partnership for Federal
income
tax purposes, the Fund will not be subject to tax as a result of the transfer;
instead, shareholders of the Fund will report and pay tax on the Fund's
taxable
income. See "Reasons for the Transaction - Tax Considerations" and
"Information
About the Transaction - Federal Income Tax Consequences." Shareholders should
consult their tax advisers to determine the actual impact in light of their
individual tax circumstances.
Fundamental Value Fund is an open-end, diversified management investment
company and its principal investment objective is to seek long-term capital
growth with current income as a secondary objective. The Fund is a limited
partnership that is an open-end, non-diversified management investment company
with an investment objective to maximize total return. While the investment
objectives of the Fund and Fundamental Value Fund are generally similar, there
are certain important differences in investment policies, which are described
under "Comparison of Investment Objectives and Policies" in this
Prospectus/Proxy Statement.
Smith Barney Strategy Advisers Inc. ("Strategy Advisers") serves as
investment adviser for the Fund. Strategy Advisers allocates the Fund's
assets
among certain portfolio managers who select the Fund's investments. Strategy
Advisers, with the assistance of Tremont Partners, Inc., monitors and
evaluates
the performance of the portfolio managers and on the basis of such evaluations
allocates the Fund's assets. Smith Barney Asset Management Division ("Asset
Management") of Smith Barney Advisers, Inc. ("SBA"), through its Davis Skaggs
Investment Management division, serves as investment adviser for Fundamental
Value Fund. Both Strategy Advisers and SBA are affiliates of Smith Barney
Inc.
("Smith Barney"). Effective September 1, 1994, Asset Management became the
only
portfolio manager of the Fund. After the transaction, Asset Management will
continue as the investment adviser for Fundamental Value Fund. Asset
Management
is described in more detail under "Information About Asset Management."
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about Fundamental Value Fund
that a prospective investor should know before investing. Certain relevant
documents listed below, which have been filed with the Securities and Exchange
Commission ("SEC"), are incorporated in whole or in part by reference. A
Statement of Additional Information dated ______________, 1994, relating to
this
Prospectus/Proxy Statement and the Transaction, has been filed with the SEC
and
is incorporated by reference into this Prospectus/Proxy Statement. A copy of
the Statement of Additional Information is available upon request and without
charge by writing to the Fund at the address listed on the cover page of this
Prospectus/Proxy Statement or by calling toll-free 1-800-451-2010.
1 . The Prospectus of Fundamental Value Fund dated November 22, 1993, is
incorporated in its entirety by reference and a copy is included
herein.
2. The Prospectus of the Fund dated March 1, 1994 is incorporated in
its
entirety by reference.
Also accompanying this Prospectus/Proxy Statement as Exhibit A is a copy
of
the Agreement and Plan of Sale and Liquidation pertaining to the transaction.
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/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
PAGE
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Summary................................................ 4
Reasons for the Transaction............................ 10
Information About the Transaction...................... 12
Comparison of Investment Objectives and Policies....... 18
Comparative Information on Shareholders' Rights........ 20
Information About Asset Management..................... 23
Additional Information About Fundamental Value
Fund and the Fund.................................... 24
Other Business......................................... 25
Voting Information..................................... 25
Financial Statements and Experts....................... 26
Legal Matters.......................................... 27
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Exhibit A: Agreement and Plan of Sale
and Liquidation...................................... A-1
ADDITIONAL MATERIALS
Prospectus of Smith Barney Shearson Fundamental Value Fund Inc.
dated November 22, 1993.
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SUMMARY
This summary is qualified in its entirety by reference to the additional
information contained elsewhere in this Prospectus/Proxy Statement, the
Prospectus of Fundamental Value Fund dated November 22, 1993, the Prospectus
of
the Fund dated March 1, 1994, and the Agreement and Plan of Sale and
Liquidation, a copy of which is attached to this Prospectus/Proxy Statement as
Exhibit A.
PROPOSED REORGANIZATION. The Plan provides for the transfer of all or
substantially all of the assets of the Fund in exchange for shares of
Fundamental Value Fund and the assumption by Fundamental Value Fund of certain
liabilities of the Fund. The Plan also calls for the dissolution of the Fund
and the distribution of shares of Fundamental Value Fund to shareholders of
the
Fund. (The foregoing proposed transaction is referred to in this
Prospectus/Proxy Statement as the "Transaction.") As a result of the
Transaction, each shareholder of the Fund will become the owner of that number
of full and fractional shares of Fundamental Value Fund having an aggregate
net
asset value equal to the aggregate net asset value of the shareholder's shares
of the Fund as of the close of business on the date that the Fund's assets are
exchanged for shares of Fundamental Value Fund. (Shareholders of Class A and
Class B shares of the Fund will receive Class A and Class B shares,
respectively, of Fundamental Value Fund.) See "Information About the
Transaction."
For the reasons set forth below under "Reasons for the Transaction," the
Individual General Partners of the Fund, including all of the "non-interested"
Individual General Partners, as that term is defined in the Investment Company
Act of 1940, as amended (the "1940 Act"), have concluded that the Transaction
would be in the best interests of the shareholders of the Fund and that the
interests of the Fund's existing shareholders would not be diluted as a result
of the Transaction, and therefore have submitted the Plan for approval to the
Fund's shareholders. The Individual General Partners of the Fund recommend
approval of the Plan effecting the Transaction. The Board of Directors of
Fundamental Value Fund has also approved the Transaction.
Approval of the Transaction will require the affirmative vote of a
majority, as defined in the 1940 Act, of the outstanding shares of the Fund,
which is the lesser of: (i) 67% of the voting securities of the Fund present
at
the Meeting, if the holders of more than 50% of the outstanding voting
securities of the Fund are present or represented by proxy, or (ii) more than
50% of the outstanding voting securities of the Fund. See "Voting
Information."
Additionally, the Transaction is contingent upon the approval by
shareholders of Fundamental Value Fund of certain amendments to Fundamental
Value Fund's Articles of Incorporation to increase the number of authorized
Class A shares. Under applicable Washington law, the proposal to amend the
Articles of Incorporation will require the approval of 50% of the total
outstanding shares of Fundamental Value Fund. It is anticipated that a
special
meeting of shareholders of Fundamental Value Fund will be held on November 14,
1994 to vote on this amendment proposal.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS. Although the Fund and
Fundamental Value Fund have certain significant structural differences, the
Fund
and Fundamental Value Fund also share certain similarities with respect to
their
investment objectives, policies and restrictions. The investment objective of
the Fund is to maximize total return, which consists of interest and dividends
from underlying securities, capital appreciation realized from the purchase
and
sale of securities and income from futures and options. The principal
investment objective of Fundamental Value Fund is long-term capital growth,
with
current income as its secondary objective.
The Fund attempts to achieve its objective by investing at least 70% of
its
assets in long and short positions in domestic equity securities and options
on
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such securities, options on certain stock indexes, and stock index futures
contracts and options thereon. The Fund has sought to achieve its objective
by
utilizing several portfolio managers to manage its assets. Fundamental Value
Fund seeks to achieve its principal 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.
Although the respective investment objectives of the Fund and Fundamental
Value Fund are generally similar, shareholders of the Fund should consider
certain differences in the investment policies of, and portfolio securities
held
by, each Fund. For example, the Fund implements an aggressive investment
strategy that involves a high degree of risk as a result of its use of
futures,
options and other sophisticated investment strategies and techniques. While
Fundamental Value Fund may utilize certain transactions involving options,
which
are principally for hedging purposes, it generally employs a less aggressive
investment approach than does the Fund. See "Comparison of Investment
Objectives and Policies."
FEES AND EXPENSES. Fundamental Value Fund pays its investment adviser a
monthly fee computed at an annual rate of 0.55% of the value of its average
daily net assets.
The Fund pays Strategy Advisers a monthly advisory fee that is adjusted
to
reflect the Fund's performance. The monthly performance adjustment is based
upon the extent to which the investment performance of the Class B shares of
the
Fund, after deducting all expenses allocable to Class B shares, exceeds or is
exceeded by the percentage change in the investment record of the Standard &
Poor's 500 Composite Stock Price Index ("S&P 500") for the immediately
preceding
twelve calendar months on a rolling basis. The maximum monthly advisory fee
after the monthly performance adjustment is 4.0% per annum of the value of the
Fund's average daily net assets if the Class B shares of the Fund outperform
(after payment of all expenses allocable to Class B shares) the S&P 500 by
5.25
percentage points or more and the absolute performance of the Class B shares
of
the Fund is positive. If the Fund underperforms the S&P 500 by 4.75
percentage
points or more (after payment of all expenses allocable to Class B shares) no
monthly advisory fee would be payable. Further, the advisory fee is
structured
so that if the absolute performance (after payment of all expenses allocable
to
Class B shares) of the Class B shares of the Fund is negative, the monthly
advisory fee may be reduced to a fee lower than that called for under the
performance fee schedule.
Strategy Advisers retains 10% of the advisory fee and allocates the
remaining 90% of the fee to the Portfolio Managers. Strategy Advisers pays
each
Portfolio Manager a monthly management fee based upon the Portfolio Manager's
absolute performance (net of expenses charged to the Class B shares) compared
to
the performance of the S&P 500 on a rolling twelve calendar month basis. The
Fund does not pay a direct advisory fee to the Portfolio Managers. Strategy
Advisers pays Tremont Partners, Inc. a fee which equals 20% of the value of
any
advisory fees retained by Strategy Advisers.
The Fund and Fundamental Value Fund each also pay Smith Barney Advisers,
Inc. ("SBA"), which serves as administrator to each fund, a monthly fee at an
annual rate of 0.25% and 0.20%, respectively, of the value of each fund's
average daily net assets. Under separate sub-administration agreements
relating
to each fund, The Boston Company Advisors, Inc. ("Boston Advisors") is paid a
portion of the fee paid by each fund to SBA at a rate agreed upon from time to
time between Boston Advisors and SBA.
The expense ratio of Fundamental Value Fund is significantly lower than
that of the Fund. See "Reasons for the Transaction." Total Fundamental Value
Fund annualized operating expenses stated as a percentage of average net
assets
for Class A shares for the six-month period ended March 31, 1994 and for the
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fiscal year ended September 30, 1993 were 1.29% and 1.45%, respectively.
Total
annualized operating expenses of the Fund stated as a percentage of average
net
assets for Class A shares for the six-month period ended June 30, 1994 and for
the year ended December 31, 1993 were 3.05% and 4.54%, respectively. Total
Fundamental Value Fund annualized expense ratios for Class B shares for the
six-
month period ended March 31, 1994 and for the period from November 6, 1992
(the
date on which Fundamental Value Fund commenced selling Class B Shares) through
the year ended September 30, 1993 were 2.05% and 2.26%, respectively.
Annualized expense ratios for holders of Class B shares of the Fund for the
six-
month period ended June 30, 1994 and the period from June 1, 1993 (the date on
which the Fund commenced selling Class B shares) through December 31, 1993
were
3.82% and 5.29%, respectively. It is estimated that as a result of the
Transaction, the annual expense ratios for a Class A and Class B shareholder
of
Fundamental Value Fund will be 1.25% and 2.06%, respectively.
Shares of the Fund and Fundamental Value Fund are both sold subject to
distribution plans adopted pursuant to Rule 12b-1 under the 1940 Act. Under
their respective plans, Smith Barney is paid a service fee calculated at the
annual rate of 0.25% of the value of the average daily net assets attributable
to the respective fund's Class A and Class B shares. In addition, each fund's
Class B shares pay a distribution fee primarily intended to compensate Smith
Barney for its initial expense of paying financial consultants a commission
upon
sales of the respective shares. The distribution fees for both funds' Class B
shares are calculated at the annual rate of 0.75% of the value of the
respective
fund's average net assets attributable to Class B shares. However, eight
years
after the date of purchase, Class B shares of Fundamental Value Fund will
convert automatically to Class A shares, based on the relative net asset
values
of shares of each Class, and will no longer be subject to a distribution fee.
The Fund's Class B shareholders who receive Class B shares of Fundamental
Value
Fund will begin their eight year period as of the date they first purchased
Class B shares of the Fund. See "Distributor" in the accompanying Prospectus
of
Fundamental Value Fund.
PURCHASE AND REDEMPTION PROCEDURES. Purchase of shares of Fundamental
Value Fund and the Fund must be made through a brokerage account maintained
with
Smith Barney or with a broker that clears securities transactions through
Smith
Barney on a fully disclosed basis (an "Introducing Broker"). Class A shares
of
Fundamental Value Fund and the Fund are both sold subject to a maximum initial
sales charge of up to 5.00% of the public offering price. Class B shares of
both Fundamental Value Fund and the Fund are sold without an initial sales
charge but will be subject to certain higher expenses.
Class A shares of both Fundamental Value Fund and the Fund may be
redeemed
at their net asset value per share without charge and Class B shares of both
funds may be redeemed at their net asset value per share subject to a maximum
CDSC of 5.00%. Redemptions may be made by submitting a redemption request
through Smith Barney or an Introducing Broker or the fund's transfer agent.
See
"Redemption of Shares" in the accompanying Prospectus of Fundamental Value
Fund.
EXCHANGE PRIVILEGES. Shareholders of Fundamental Value Fund may exchange
shares of each class for shares of the same class in certain funds in the
Smith
Barney Group of Funds ("Group of Funds") to the extent shares are offered for
sale in the shareholder's state of residence. As a result of the Transaction,
each shareholder of Class A and Class B shares of the Fund who becomes the
owner
of the respective class of shares of Fundamental Value Fund will be entitled
to
the exchange privileges offered by that class of shares. Any exchange will be
a
taxable event for which a shareholder may have to recognize a gain or loss
under
Federal income tax provisions. For the purposes of any exchange of shares
acquired through the Transaction, Fund shareholders will be deemed to have
paid
the maximum sales charge currently applicable for shares of Fundamental Value
Fund. Fundamental Value Fund reserves the right to amend or terminate the
- 6 -
exchange privilege after providing notice to shareholders. See "Exchange
Privilege" in the accompanying Prospectus of Fundamental Value Fund.
DIVIDENDS. It is Fundamental Value Fund's policy to distribute its
investment income and net realized capital gains, if any, once a year,
normally
at the end of the year in which earned or at the beginning of the next year.
Unless a shareholder instructs that dividends and capital gains distributions
be
paid in cash and credited to the shareholder's account at Smith Barney,
dividends and capital gains distributions will be reinvested automatically in
additional shares of the fund at net asset value, without a sales charge or
CDSC. Fund shareholders that have elected to receive distributions in cash
will
continue to receive distributions in such manner from Fundamental Value Fund.
See "Dividends, Distributions and Taxes" in the accompanying Prospectus of
Fundamental Value Fund.
The Fund makes distributions to shareholders in such amounts and at such
times as the Individual General Partners, in their sole discretion, determine.
FEDERAL INCOME TAX CONSEQUENCES. In evaluating the tax effects of the
Transaction, shareholders need to consider separately the consequences of the
transfer of the Fund's assets to Fundamental Value Fund, which will be a
taxable
event resulting in tax consequences to shareholders, and the consequences of
the
exchange of Fund shares for Fundamental Value Fund shares which generally will
not be a taxable event. The overall effect is that the Transaction will be a
taxable event for shareholders. See "Information about the Transaction -
Federal Income Tax Consequences."
SHAREHOLDER VOTING RIGHTS. Fundamental Value Fund, a Washington
corporation, is required by Washington law to hold an annual meeting of its
Shareholders for the purposes of re-electing the Board of Directors of the
Fund
and appointing independent accountants to review its financial statements.
The
Fund, a Delaware limited partnership, generally does not hold annual meetings
of
shareholders, unless required by applicable law or the 1940 Act. The 1940 Act
requires that a shareholder meeting be called for the purpose of electing
Directors/ Individual General Partners at such time as fewer than a majority
of
Directors/Individual General Partners holding office have been elected by
shareholders. Individual General Partners of the Fund and Directors of
Fundamental Value Fund hold office until a successor is elected and qualified.
Shareholder meetings will be held for the removal of Directors/Individual
General Partners upon the written request of shareholders entitled to cast, in
the case of each Fund, at least 10% of all votes at the meeting. Fundamental
Value Fund acknowledges that it will assist in shareholder communications in
the
manner prescribed by Section 16(c) of the 1940 Act. See "Comparative
Information on Shareholders' Rights - Voting Rights."
APPRAISAL RIGHTS. Under the laws of the State of Washington,
shareholders
of Fundamental Value Fund do not have appraisal rights in connection with a
combination or acquisition of the assets of another fund. Under the Delaware
Revised Uniform Limited Partnership Act, shareholders of the Fund do not have
appraisal rights in connection with a combination or acquisition of the assets
of the Fund by another entity.
RISK FACTORS. Because Fundamental Value Fund and the Fund have generally
similar investment objectives, and certain similar investment policies, their
respective investment risks have some similarities. These risks include those
that are generally associated with investing in equity securities and fixed-
income and money market instruments. However, the Fund employs certain
sophisticated investment techniques and strategies which are not available to
Fundamental Value Fund and are subject to greater risk. The Fund is deemed to
be a commodity pool, the operators of which are subject to regulation by the
Commodity Futures Trading Commission ("CFTC") under the Commodity Exchange Act
("CEA"). Fundamental Value Fund's policies are more restrictive than those of
- 7 -
the Fund and Fundamental Value Fund is not deemed to be a commodity pool. See
"Comparison of Investment Objectives and Policies" herein and "Investment
Objectives and Policies" in the accompanying Prospectus of Fundamental Value
Fund.
REASONS FOR THE TRANSACTION
The Individual General Partners of the Fund have determined that it is
advantageous for the Fund to enter into the proposed Transaction with
Fundamental Value Fund. The Fund and Fundamental Value Fund have generally
similar investment objectives and certain affiliated service providers.
ECONOMIC BENEFITS. The Individual General Partners of the Fund have
determined that the proposed Transaction should provide benefits to
shareholders
primarily due to the savings in expenses that can be achieved for
shareholders.
In making such determination, the Individual General Partners considered that
the Fund's expenses have been higher than those incurred by Fundamental Value
Fund and most other mutual funds because of the highly sophisticated nature of
the Fund's investment policies and techniques and the Fund's advisers being
compensated pursuant to a performance fee structure. For example, the Fund
has
the ability to invest in a wide variety of both global and domestic markets,
take both long and short positions, invest in low-rated and unrated
securities,
and engage in various options and futures transactions. The Fund is both an
investment company registered under the 1940 Act and a commodity pool the
operators of which are registered under the CEA. In addition, the Fund's
activities are managed by multiple portfolio managers, whose activities must
be
continually coordinated. The Fund has experienced redemptions over the past
several years which have caused its assets to decline and its expenses to
increase, so that the costs of operating the Fund's complex investment program
have become increasingly less economic.
INVESTMENT BENEFITS. The Individual General Partners have determined
that,
in addition to the savings in expenses, shareholders in the Fund are also
likely
to realize investment benefits as a result of the Transaction. Ardsley
Advisory
Partners and Mark Asset Management Corporation resigned as Portfolio Managers
of
the Fund, effective August __, 1994. At a meeting held on September 1, 1994,
the Individual General Partners approved a new portfolio management agreement
with Asset Management, the investment adviser of Fundamental Value Fund. In
selecting Asset Management as the Fund's new Portfolio Manager, the Individual
General Partners took particular note of the attractive performance record of
Asset Management. It was further concluded that as shareholders of
Fundamental
Value Fund, Fund shareholders would continue to receive the benefit of Smith
Barney's investment management without the level of risk associated with
investment in the Fund that utilizes leverage and other highly sophisticated
investment strategies. The Individual General Partners believe that the
approach followed by Fundamental Value Fund may produce comparable returns
under
many conditions and can do so with lower cost to shareholders.
TAX CONSIDERATIONS. Because of the Fund's organization as a limited
partnership, the Fund generally cannot be reorganized with a corporation, or
an
entity taxed as a corporation for federal income tax purposes, in a tax-free
transaction. While a tax-free reorganization is theoretically possible with
another limited partnership structured similarly to the Fund, it is not free
from doubt and would in any event require assurances from the Internal Revenue
Service. Obtaining such assurances would likely cause significant delays and
expense. In addition, the Individual General Partners are unaware of any
other
similarly structured limited partnership which employs similar investment
techniques.
Given the uncertainties involved in structuring a non-taxable
transaction,
the Individual General Partners reviewed the likely results of a taxable-
- 8 -
transaction on the typical shareholder of the Fund. See "Information About
the
Transaction - Federal Income Tax Consequences."
In light of the foregoing considerations, the Individual General Partners
of the Fund, including a majority of its non-interested Individual General
Partners, have decided that it is in the best interests of the Fund and its
shareholders to combine with Fundamental Value Fund. The Individual General
Partners of the Fund also determined that the proposed Transaction would not
result in a dilution of shareholders' interests.
CONSIDERATION OF THE DIRECTORS OF FUNDAMENTAL VALUE FUND. The Board of
Directors of Fundamental Value Fund also considered various factors in
approving
the Transaction and it has determined that it is advantageous to acquire the
assets of the Fund. Among other reasons, the Board of Directors of
Fundamental
Value Fund believes that: (1) the impact of the Transaction on the current
expenses of Fundamental Value Fund will be beneficial due in part to increased
economies of scale; and (2) through the Transaction, Fundamental Value Fund
would establish shareholder relationships with relatively high account
balances
thereby potentially decreasing the overall expense ratio. The Board also
considered that commencing September 1, 1994, the Fund's portfolio would be
managed by Asset Management, the current investment adviser of Fundamental
Value
Fund.
Accordingly, the Board of Directors of Fundamental Value Fund, including
a
majority of its non-interested Directors, determined that the Transaction is
in
the best interests of Fundamental Value Fund's shareholders and that the
interests of Fundamental Value Fund's shareholders will not be diluted as a
result of the Transaction.
INFORMATION ABOUT THE TRANSACTION
PLAN OF SALE AND LIQUIDATION. The following summary of the Plan is
qualified in its entirety by reference to the Plan (Exhibit A hereto). The
Plan
provides that (1) Fundamental Value Fund will acquire all or substantially all
of the assets of the Fund in exchange for shares of Fundamental Value Fund,
(2)
Fundamental Value Fund will assume certain identified liabilities of the Fund
on
December 2, 1994 or such later date as may be agreed upon by the parties (the
"Closing Date"), (3) the Fund will be dissolved in accordance with the terms
of
the Partnership Agreement, (4) all remaining liabilities of the Fund will be
satisfied whether by payment or the making of reasonable provision for payment
thereof, (5) Fundamental Value Fund shares will be distributed to shareholders
of the Fund, (6) the Fund will terminate its registration under the 1940 Act,
and (7) the Fund will be terminated upon the filing of a Certificate of
Cancellation of Certificate of Limited Partnership with the Secretary of State
of the State of Delaware and will take all other action to wind up the affairs
of the Fund. Prior to the Closing Date, the Fund will endeavor to discharge
all
of its known liabilities and obligations. Fundamental Value Fund will not
assume any liabilities or obligations of the Fund other than those reflected
in
an unaudited statement of assets and liabilities of the Fund prepared as of
the
close of regular trading on the New York Stock Exchange, Inc. (the "NYSE"),
currently 4:00 p.m. New York time, on the Closing Date. The number of full
and
fractional Class A and Class B shares of Fundamental Value Fund to be issued
to
the Fund shareholders will be determined on the basis of Fundamental Value
Fund's and the Fund's relative net asset values per Class A and Class B
shares,
respectively, computed as of the close of regular trading on the NYSE on the
Closing Date. The net asset value per share will be determined by dividing
assets, less liabilities, by the total number of outstanding shares.
Both the Fund and Fundamental Value Fund will utilize Boston Advisors as
agent to determine the value of their respective portfolio securities. The
Fund
and Fundamental Value Fund also will use the same independent pricing service
to
determine the value of each security so that SBA, as agent, can determine the
aggregate value of each fund's portfolio. The method of valuation employed
will
- 9 -
be consistent with Rule 22c-1 under the 1940 Act and with the interpretation
of
such rule by the SEC's Division of Investment Management.
As soon after the Closing Date as conveniently practicable, the Fund will
be dissolved and it will distribute in kind to shareholders of record as of
the
close of business on the Closing Date the full and fractional shares of
Fundamental Value Fund received by the Fund. Such distribution will be
accomplished by the establishment of accounts in the names of the Fund's
shareholders on the share records of Fundamental Value Fund's transfer agent.
Each account will represent the respective pro rata number of full and
fractional shares of Fundamental Value Fund due to the Fund's respective
shareholders.
The consummation of the Transaction is subject to the conditions set
forth
in the Plan including, without limitation, approval by shareholders of
Fundamental Value Fund of certain amendments to the Articles of Incorporation
of
Fundamental Value Fund to increase the number of authorized Class A shares.
Notwithstanding approval of the Fund's shareholders, the Plan may be
terminated
at any time at or prior to the Closing Date by (1) mutual agreement of the
Fund
and Fundamental Value Fund or (2) either party to the Plan upon a material
breach by the other party of any representation, warranty or agreement
contained
therein.
The Fund and Fundamental Value Fund shall each be liable for its
respective
expenses incurred in connection with entering into and carrying out the Plan,
whether or not the Transaction is consummated.
Approval of the Plan will require the affirmative vote of a majority, as
defined in the 1940 Act, of the outstanding voting securities of the Fund. If
the Transaction is not approved by shareholders of the Fund, Strategy Advisers
may recommend to the Individual General Partners other possible courses of
action for their consideration.
DESCRIPTION OF FUNDAMENTAL VALUE FUND'S SHARES. Full and fractional
shares
of the respective class of shares of common stock of Fundamental Value Fund
will
be issued to the Fund in accordance with the procedures detailed in the Plan
and
as described in Fundamental Value Fund's Prospectus. Generally, Fundamental
Value Fund does not issue share certificates to shareholders unless a specific
request is submitted to Fundamental Value Fund's transfer agent. The shares
of
Fundamental Value Fund to be issued to Fund shareholders and registered on the
shareholder records of the transfer agent will have no pre-emptive or
conversion
rights. However, eight years after the date of purchase, Class B shares of
Fundamental Value Fund will convert automatically to Class A shares, based on
the relative net asset values of shares of each Class, and will no longer be
subject to a distribution fee. Class B shareholders of the Fund who receive
Class B shares of Fundamental Value Fund will begin their eight year period as
of the date they first purchased Class B shares of the Fund. See "Comparative
Information on Shareholders' Rights" and Fundamental Value Fund's Prospectus
for
additional information with respect to the shares of Fundamental Value Fund.
FEDERAL INCOME TAX CONSEQUENCES. The following discussion summarizing
certain Federal income tax consequences of the Transaction is general in
nature
and for that reason, shareholders are urged to consult their own tax advisers
with respect to the specific tax consequences to them of the Transaction. For
example, shareholders who would be treated as dealers for tax purposes with
respect to investments held by the Fund may be subject to special rules. The
discussion is based upon the current provisions of the Internal Revenue Code
of
1986, as amended (the "Code"), United States Treasury Regulations, published
positions of the Internal Revenue Service (the "Service"), and judicial
decisions, all of which are subject to change.
The Fund has been advised by its counsel that, in counsel's opinion, the
Fund will be treated as a partnership and not as an association taxable as a
- 10 -
corporation for Federal income tax purposes for the period preceding the date
on
which Code Section 7704 (discussed below) becomes applicable to the Fund.
This
opinion is based upon, among other things, representations by the Individual
General Partners and the Corporate General Partner and is qualified by
reference
to the law and administrative interpretations thereof, as in effect on the
date
of the opinion, assumed anticipated facts and circumstances (the existence of
which cannot be, and is not hereby, assured) and the organization and
operation
of the Fund in accordance with the Partnership Agreement, and any notices,
regulations, rulings or other pronouncements of the Service regarding the
requirements for taxation as a partnership.
Under Code Section 7704, publicly traded partnerships are treated as
corporations for Federal income tax purposes. It is expected that the Fund
will
be classified as a publicly traded partnership under Code Section 7704. Under
certain transition rules, however, Code Section 7704 is not expected to apply
to
the Fund until 1998. The Fund has obtained a ruling (the "Ruling") from the
Service to the effect that Code Section 7704 will not apply to the Fund before
1998 provided that certain conditions are met. Accordingly, the Individual
General Partners believe that Code Section 7704 will not require the Fund to
be
classified as a corporation for Federal income tax purposes prior to the
Transaction if those conditions are met. The Fund intends to fulfill the
relevant conditions, but absolute assurance that the Fund would be able to do
so
and that they will be deemed to have been fulfilled cannot be given. If the
conditions in the Ruling are not satisfied or if the Fund is otherwise deemed
to
be a corporation for tax purposes, adverse tax consequences, both retroactive
and prospective, could ensue, which could include, among other things,
subjecting the Fund itself to income tax on its earnings and subjecting the
shareholders to income tax adjustments (which could involve interest and
penalty
charges). For further information about Code Section 7704 and the tax
consequences of treating the Fund as a corporation for tax purposes, see the
Fund's Statement of Additional Information.
The discussion that follows is based upon the assumption that the Fund
will
be classified as a partnership for Federal income tax purposes. The Fund will
not be subject to Federal income tax and each shareholder will be required to
report on a Federal income tax return (and possibly on other tax returns) the
shareholder's distributive share of the Fund's income, losses, deductions and
any other tax items for each taxable year of the Fund ending with or within
the
shareholder's taxable year, regardless of the amount of cash or other property
distributed to the shareholder. THUS, IT IS POSSIBLE THAT THE TAX LIABILITY
OF
A SHAREHOLDER WITH RESPECT TO HIS OR HER INVESTMENT IN THE FUND MAY EXCEED
AMOUNTS DISTRIBUTED TO HIM OR HER BY THE FUND. The Fund furnishes each
shareholder annually with tax information regarding his or her distributive
share of the Fund's tax items.
The Fund's tax items (income, gain, loss, deductions, and credits) are
generally allocated among the shareholders in a manner reflecting their
interests in the Fund although certain expenses, such as distribution
expenses,
may be allocated specially in accordance with the Fund's variable pricing
system. The Fund intends to comply with applicable requirements in this
regard.
However, since the tax law in this area is evolving and does not specifically
address all issues regarding allocations of tax items by entities such as the
Fund, a possibility exists that the Service could seek to reallocate items
among
shareholders, which could result in additional tax liability (including
interest
and penalties).
The Fund's Individual General Partners believe that the Fund should not
be
treated as a passive activity. Accordingly, the income and losses generated
by
the Fund should not be classified as passive, but instead should be treated as
portfolio income and loses. Portfolio income earned by the Fund generally may
not be offset by any passive losses a shareholder may have.
- 11 -
In the case of a shareholder that computes its tax under rules applicable
to individuals, miscellaneous itemized deductions (such as investment
expenses)
are allowable only to the extent those amounts exceed 2% of the taxpayer's
adjusted gross income. An individual shareholder's distributive share of the
Fund's investment expenses may be subject to this limitation.
The transfer of the Fund's assets to Fundamental Value Fund in exchange
for
Fundamental Value Fund shares will be a taxable disposition of the Fund's
assets. With certain exceptions, gain or loss recognized by the Fund on the
disposition of an asset will be capital gain or loss. However, the Fund may
recognize ordinary income or loss upon a disposition; for example, certain
foreign currency gains and losses will be treated as ordinary income or loss
and
the Fund may recognize ordinary income upon the disposition of (i) a debt
obligation with accrued market discount and (ii) stock in a foreign investment
company that is classified under the Code as a passive foreign investment
company ("PFIC"). Capital gain or loss will be short-term or long-term,
depending generally upon the length of time the Fund has held the asset.
As described above, each shareholder will be required to report on a
Federal income tax return (and possibly on other tax returns) the
shareholder's
distributive share of the Fund's tax items resulting from the transfer of
assets
to Fundamental Value Fund. A shareholder generally will increase its tax
basis
in Fund shares by the shareholder's distributive share of the Fund's net
income
and will decrease its basis by the shareholder's distributive share of the
Fund's tax deductions and net losses.
Shareholders will not recognize gain or loss on the exchange of their
shares in the Fund for shares of Fundamental Value Fund in liquidation of
their
interest in the Fund. A shareholder's basis in such shareholder's Fundamental
Value Fund shares will be equal to his or her adjusted tax basis in his or her
Fund shares, and the holding period for the Fundamental Value Fund shares will
include the Fund's holding period for the Fundamental Value Fund's shares.
Shareholders may be subject to taxes other than Federal income taxes,
including, but not limited to, state, local, and foreign income taxes, estate
taxes, inheritance taxes, and intangible property taxes that may be imposed in
various jurisdictions. For more information on the taxation of the Fund's
operations, and tax consequences to shareholders, see "Taxation" in the Fund's
Statement of Additional Information.
CAPITALIZATION. The following table shows the capitalization of
Fundamental Value Fund and the Fund as of July 31, 1994, and on a pro forma
basis as of that date, giving effect to the proposed acquisition of assets at
net asset value.
<PAGE>
CAPITALIZATION TABLE
AS OF JULY 31, 1994
<TABLE>
<CAPTION>
SBS The Pro Forma
Fundamental Value Advisors Fund for
CLASS A SHARES Fund L.P.
Reorganization
- -------------- ---- ---- -------------
- -
<S> <C> <C> <C>
Net assets $161,240,631 $76,961,282 $238,201,913
Net asset value per share $8.15 $24.82 $8.15
Shares outstanding 19,780,778 3,100,785 29,223,880
</TABLE>
- ------------------------------------------------------------------------------
- -
<TABLE>
<CAPTION>
SBS The Pro Forma
Fundamental Value Advisors Fund for
CLASS B SHARES Fund L.P.
Reorganization
- -------------- ---- ---- -------------
- -
<S> <C> <C> <C>
Net assets $425,056,802 $3,004,412 $428,061,215
Net asset value per share $8.12 $24.61 $8.12
Shares outstanding 52,343,103 122,091 52,713,105
</TABLE>
- ------------------------------------------------------------------------------
- -
<TABLE>
<CAPTION>
SBS The Pro Forma
Fundamental Value Advisors Fund for
CLASS D SHARES Fund L.P.
Reorganization
- -------------- ---- ---- -------------
- -
<S> <C> <C> <C>
Net assets $1,201,341 $1,201,341
Net asset value per share $8.12 $8.12
Shares outstanding 147,861 147,861
</TABLE>
- ------------------------------------------------------------------------------
- -
As of the Record Date, September 30, 1994, there were __________
outstanding Class A shares and _____________ outstanding Class B shares of the
Fund and _____________ outstanding Class A shares, __________ outstanding
Class
B shares and _________ outstanding Class D shares of Fundamental Value Fund.
(Class D shares of Fundamental Value Fund are offered only to participants in
the Smith Barney 401(k) Savings Plan). As of the Record Date, the officers
and
Directors of Fundamental Value Fund beneficially owned as a group less than 1%
of the outstanding shares of Fundamental Value Fund. To the best knowledge of
the Directors of Fundamental Value Fund, as of the Record Date, no other
shareholder or "group" (as that term is used in Section 13(d) of the Exchange
Act of 1934, as amended, the "Exchange Act") owned beneficially or of record
more than 5% of Fundamental Value Fund. As of the Record Date, the officers
and
Individual General Partners of the Fund beneficially owned as a group less
than
1% of the outstanding shares of the Fund. To the best knowledge of the Fund,
as
of the Record Date, no other shareholder or "group" (as that term is used in
Section 13(d) of the Exchange Act) owned beneficially or of record more than
5%
of the Fund.
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion comparing investment objectives, policies and
restrictions of the Fund and Fundamental Value Fund is based upon and
qualified
in its entirety by the respective investment objectives, policies and
restrictions sections of the prospectuses of the Fund and Fundamental Value
Fund. For a full discussion of the investment objectives, policies and
restrictions of Fundamental Value Fund, refer to Fundamental Value Fund's
Prospectus, which accompanies this Prospectus/Proxy Statement, under the
caption
"Investment Objective and Management Policies," and for a discussion of these
issues as they apply to the Fund, refer to the Fund's Prospectus under the
caption "Investment Objective and Policies."
INVESTMENT OBJECTIVE. The investment objective of the Fund is to
maximize
total return, which consists of interest and dividends from underlying
securities, capital appreciation realized from the purchase and sale of
securities and income from futures and options. The principal investment
objective of Fundamental Value Fund is long-term capital growth, with current
income as a secondary objective. Both the Fund's and Fundamental Value Fund's
investment objectives are considered fundamental policies which cannot be
changed without shareholder approval.
PRIMARY INVESTMENTS. Fundamental Value Fund invests in a diversified
portfolio of common stocks and common stock equivalents and, to a lesser
extent,
in bonds and other debt instruments. Fundamental Value Fund's investment
emphasis is on securities which, in the judgment of its investment adviser,
are
undervalued in the marketplace and, accordingly, have above-average potential
for capital growth. In general, Fundamental Value Fund invests in securities
of
companies which are temporarily unpopular among investors but which Asset
Management regards as possessing favorable prospects for earnings growth
and/or
improvements in the value of their assets and, consequently, as having a
reasonable likelihood of experiencing a recovery in market price.
- 13 -
The Fund invests at least 70% of its assets in long and short positions
in
domestic equity securities and options on such securities, options on certain
stock indexes, and stock index futures contracts and options thereon. In
addition, the Fund may invest a portion of its assets in debt securities,
preferred stocks, convertible securities, interest rate futures and options on
interest rate futures. The Fund may also invest in equity securities of
foreign
issuers. The Fund may hedge its securities investments by entering into
transactions involving financial futures and options on financial futures.
The
Fund also may engage in transactions involving certain financial futures and
options on financial futures for purposes other than hedging. The Fund
employs
an investment management approach whereby the Fund's assets are allocated
among
several portfolio managers; however, effective September 1, 1994, the Fund's
portfolio will be managed by only one portfolio manager, Asset Management (the
same investment adviser as that of Fundamental Value Fund).
INVESTMENT TECHNIQUES. Unlike Fundamental Value Fund, the Fund is formed
as a limited partnership and currently does not intend to qualify as a
regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended, and therefore is not subject to the 30% limit on gains from the sale
or
the disposition of securities, options, futures contracts and certain other
assets held for less than three months, which limitation applies to regulated
investment companies. Thus, the Fund may trade portfolio securities on a
short-
term basis to take advantage of fluctuating market conditions and price
changes
in individual securities to a greater extent than a regulated investment
company.
The Fund may leverage its investments by purchasing securities with
borrowed money. In leveraging its investments, the Fund will borrow money
only
from banks and in amounts not to exceed in the aggregate 33-1/3% of the value
of
the Fund's assets less liabilities. The Fund may use leverage when it is
expected that potential returns on available investments will exceed interest
rates and other expenses of leveraging, or, when market conditions make it
advantageous for the Fund to increase its investment capacity. Fundamental
Value Fund may borrow from banks for temporary or emergency (not leveraging)
purposes in an amount not exceeding 10% of the value of the Fund's total
assets.
From time to time, each fund may lend its portfolio securities to
brokers,
dealers and other financial organizations. These loans will not exceed 33-
1/3%
of the Fund's total assets or 20% of Fundamental Value Fund's total assets
taken
at value. Loans of portfolio securities by each fund must be collateralized
by
cash, letters of credit or obligations of the United States government and its
agencies and instrumentalities which are maintained at all times in an amount
equal to at least 100% of the current market value of the loaned securities.
Each fund may in certain circumstances invest in money market
instruments.
Each fund may also enter into repurchase agreements with certain member banks
of
the Federal Reserve System and with certain dealers on the Federal Reserve
Bank
of New York's list of reporting dealers.
Each fund may sell securities short and may enter into short sales
against
the box. A short sale is a transaction in which the fund sells securities it
does not own (but has borrowed) in anticipation of a decline in the market
price
of the securities. A short sale against the box involves a short sale of
common
stock such that when the short position is open, the fund owns an equal amount
of preferred stock or debt securities, convertible or exchangeable without
payment of further consideration, into an equal number of shares of the common
stock sold short.
The Fund has authority to engage in a greater number of transactions and
strategies involving financial futures than those in which a typical mutual
fund
may engage; the use of these techniques results in the Fund being deemed a
commodity pool, the operators of which are subject to regulation by the CFTC
under the CEA. Among the financial futures contracts in which the Fund may
trade
- 14 -
are futures contracts on domestic and foreign stock indexes, domestic and
foreign government securities, and foreign currencies. All of such
instruments
are currently traded on U.S.-regulated futures exchanges, although the Fund
also
may enter into such instruments on foreign futures exchanges. The Fund may
not
enter into financial futures and related options for which the aggregate
initial
margin and premiums exceed 10 percent of the fair market value of the Fund's
assets after taking into account unrealized profits and unrealized losses on
any
such contracts it has entered into. The Fund may trade such commodity
interests
in a manner solely incidental to its securities trading activities and for
purposes other than hedging. In entering into transactions involving futures
contracts and options on futures contracts, Fundamental Value Fund complies
with
requirements of the CFTC with respect to mutual funds.
The Fund is classified as a "non-diversified" investment company under
the
1940 Act, which means that the Fund is not limited by the 1940 Act in the
amount
of its assets that it may invest in the securities of a single issuer. The
Fund's ability to invest large portions of its assets in the securities of a
smaller number of issuers may present greater risk than an investment in a
diversified investment company. Fundamental Value Fund is classified as a
diversified investment company which means that it may not invest more than 5%
of the value of its total assets in the securities of a single issuer, except
that up to 25% of the value of its assets may be invested without regard to
this
5% limitation.
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS
GENERAL. Fundamental Value Fund is an open-end diversified management
investment company registered under the 1940 Act which continuously offers
shares at their current net asset value. Fundamental Value Fund is a
Washington
corporation and is governed by its Articles of Incorporation, By-laws and
Board
of Directors.
The Fund is an open-end, non-diversified management investment company
registered under the 1940 Act, which continuously offers shares at their
current
net asset value. The Fund is a limited partnership that was formed under the
laws of the State of Delaware and is governed by the Partnership Agreement and
the Delaware Revised Uniform Limited Partnership Act. Both the Fund and
Fundamental Value Fund are also governed by applicable state and Federal law.
Certain differences and similarities between the two funds are summarized
below.
A special meeting of the shareholders of Fundamental Value Fund has been
scheduled for November 14, 1994, at which meeting shareholders will be asked
to
approve, among other things, the reincorporation of Fundamental Value Fund
from
a Washington corporation to a Maryland corporation. Approval of the proposal
to
reincorporate will require the approval of 66 2/3% of the total outstanding
shares of Fundamental Value Fund. It cannot be predicted whether this
proposal
will be approved by shareholders. In the event it is approved, shareholders
of
Fundamental Value Fund would become shareholders of a Maryland corporation
that
would carry on the business of Fundamental Value Fund. Shareholders of
Fundamental Value Fund would be subject to applicable Maryland corporate law
as
well as the Articles of Incorporation and By-Laws of the Maryland corporation.
DIRECTORS. The By-laws of Fundamental Value Fund provide that the term
of
office of each Director shall be from the time of his election and
qualification
until the annual election of Directors next succeeding his election and until
his successor shall have been elected and shall have qualified, or until the
earlier of his death, resignation or removal. Any Director may be removed by
the shareholders by a majority of the votes entitled to be cast for the
election
of Directors. Vacancies on the Board of Fundamental Value Fund may be filled
by
the Directors remaining in office. A meeting of shareholders will be required
for the purpose of electing additional Directors whenever fewer than a
majority
of the Directors then in office were elected by shareholders.
- 15 -
INDIVIDUAL GENERAL PARTNERS. The Fund has two classes of Partners,
general
partners ("General Partners") and limited partners ("Limited Partners"). The
General Partners include a number of individuals, referred to as Individual
General Partners, and one Corporate General Partner, Strategy Advisers. The
Individual General Partners have complete and exclusive control over the
management, conduct and operation of the Fund's business. A General Partner's
interest shall not terminate unless the General Partner (1) dies; (2) is
adjudicated incompetent; (3) voluntarily retires upon not less than ninety
days'
written notice to the other Partners; (4) is removed; (5) assigns his or her
interest; or (6) otherwise ceases to be a Partner under the Delaware Revised
Uniform Limited Partnership Act. A person may be added or substituted as a
General Partner only upon his approval and election by the Partners and each
General Partner, by becoming a General Partner, consents to the admission as
an
added or substituted General Partner of any person approved and elected by the
Partners in accordance with the Partnership Agreement. A meeting of the
Partners is required for approving additional General Partners whenever fewer
than a majority of the General Partners then in office have been elected by
the
Partners.
SHAREHOLDER LIABILITY. Under Washington law, Fundamental Value Fund's
shareholders do not have personal liability for the fund's corporate acts and
obligations. Generally, Limited Partners are not personally liable for
obligations of the Fund unless the Limited Partners participate in the control
of the business of the Fund. Under the terms of the Partnership Agreement,
the
Limited Partners do not have the right to participate in the control of the
Fund's business, but they may exercise the right to vote on matters requiring
approval under the 1940 Act and on certain other matters, including amendments
to the Partnership Agreement. Courts in states other than Delaware to whose
jurisdiction the Fund may become subject may not apply Delaware law or, in
applying Delaware law, may interpret the law to subject the Limited Partners
to
liability as General Partners.
VOTING RIGHTS. The Fund does not hold annual meetings of shareholders,
except for purposes of voting on certain matters as required under the 1940
Act.
Special meetings of shareholders may be called upon the written request of
holders of not less than 10% of the Fund's then outstanding voting securities.
Under Washington law, Fundamental Value Fund holds an annual meeting of its
shareholders for purposes of approving the Board of Directors and appointing
independent accountants for the upcoming fiscal year. Additionally,
Fundamental
Value Fund will convene a meeting of its shareholders upon the written request
of holders of not less than 10% of the then outstanding voting securities of
the
fund. On each matter submitted to a vote of the shareholders of Fundamental
Value Fund or the Fund, each shareholder is entitled to one vote for each
whole
share owned and a proportionate fractional vote for any fractional share
outstanding in the shareholder's name on the entity's books.
LIQUIDATION OR DISSOLUTION. In the event of the liquidation or
dissolution
of Fundamental Value Fund, the shareholders of that fund are entitled to
receive, when, and as declared by the Directors, the excess of the assets over
the liabilities belonging to the fund. The assets so distributed to
shareholders of the fund will be distributed among the shareholders in
proportion to the number of shares of the fund held by them and recorded on
the
books of the fund.
LIABILITY OF DIRECTORS. The By-laws of Fundamental Value Fund provide
that
the fund will indemnify Directors and officers of Fundamental Value Fund
against
liabilities and expenses incurred in connection with litigation in which they
may be involved because of their positions with the fund to the fullest extent
permitted by Washington law. However, the By-laws of Fundamental Value Fund
do
not purport to protect or indemnify a director or officer against any
liability
to which such person would otherwise be subject by reason of willful
misfeasance,
- 16 -
bad faith, gross negligence or reckless disregard of the duties involved in
the
conduct of such person's office.
RIGHTS OF INSPECTION. Shareholders of the Fund or his or her duly
authorized representative have access to the books and records of the Fund and
the right to inspect and copy them at all reasonable times for any purpose
reasonably related to such shareholder's interest as a shareholder in the
Fund.
Washington law permits any shareholder of Fundamental Value Fund or his or her
agent to inspect the Fund's records, accounts and books on file at its
principal
office.
The foregoing is only a summary of certain characteristics of the
operations of Fundamental Value Fund and the Fund, Fundamental Value Fund's
Articles of Incorporation and By-laws, the Fund's Partnership Agreement and
Delaware and Washington law. The foregoing is not a complete description of
the
documents cited. Shareholders should refer to the provisions of such
documents
and state laws governing each fund for a more thorough description.
INFORMATION ABOUT ASSET MANAGEMENT
Fundamental Value Fund's current investment adviser is Asset Management
through its Davis Skaggs Investment Management Division. The Fund's current
investment adviser is Strategy Advisers and effective September 1, 1994, Asset
Management through its Davis Skaggs Investment Management Division became
portfolio manager of the Fund pursuant to a contract approved by the
Individual
General Partners at a meeting held on September 1, 1994. After the
Transaction,
Asset Management will continue as investment adviser and Fundamental Value
Fund's current portfolio manager, John G. Goode, will continue as portfolio
manager. Both Asset Management and Strategy Advisers are affiliates of Smith
Barney.
Asset Management is located at Two World Trade Center, New York, New York
10048. Asset Management (through its predecessors) has been in the investment
counseling business since 1940 and renders investment advice to a wide variety
of individual, institutional and investment company clients with aggregate
assets under management as of ___________, 1994, in excess of $______ billion.
The annual rate of Asset Management's fee payable by Fundamental Value Fund is
0.55% of the value of the fund's average daily net assets. For further
information regarding Asset Management, see "Management of the Fund" in
Fundamental Value Fund's accompanying Prospectus.
Mr. Goode, President and Chief Executive Officer of Davis Skaggs
Investment
Management, a division of Asset Management, has served as Vice President and
Investment Officer of Fundamental Value Fund since November 1990.
ADDITIONAL INFORMATION ABOUT
FUNDAMENTAL VALUE FUND AND THE FUND
THE FUND. Information about the Fund is included in its current
prospectus
dated March 1, 1994 which is incorporated herein by reference, and in its
Statement of Additional Information ("SAI") dated March 1, 1994 which is
available upon request, both of which have been filed with the SEC. A copy of
the prospectus and the SAI are available upon request and without charge by
writing the Fund at the address listed on the cover page of this
Prospectus/Proxy Statement or by calling toll-free 1-800-451-2010.
FUNDAMENTAL VALUE FUND. Information concerning the operation and
management of Fundamental Value Fund is incorporated herein by reference from
its current prospectus dated November 22, 1993 and its Statement of Additional
Information dated November 22, 1993. A copy of such Statement of Additional
Information is available upon request and without charge by writing
Fundamental
Value Fund at Two World Trade Center, New York, New York 10048 or by calling
toll-free 1-800-451-2010.
- 17 -
Both the Fund and Fundamental Value Fund are subject to the informational
requirements of the Exchange Act and in accordance therewith file reports and
other information including proxy material, reports and charter documents with
the SEC. These reports can be inspected and copies obtained at the Public
Reference Facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the New York Regional Office of the SEC, 7 World
Trade Center, New York, New York 10048. Copies of such material can also be
obtained from the Public Reference Branch, Office of Consumer Affairs and
Information Services, SEC, Washington, D.C. 20549 at prescribed rates.
OTHER BUSINESS
The Individual General Partners of the Fund do not intend to present any
other business at the Meeting. If, however, any other matters are properly
brought before the Meeting, the persons named in the accompanying form of
proxy
will vote thereon in accordance with their judgment.
VOTING INFORMATION
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Individual General Partners of the Fund to be
used at the Special Meeting of Shareholders of the Fund to be held at 9:00
a.m.
on November 21, 1994, at Two World Trade Center, New York, New York 10048-0002
and at any adjournments thereof. This Prospectus/Proxy Statement, along with
a
Notice of the Meeting and a proxy card, is first being mailed to shareholders
of
the Fund on or about October __, 1994. Only shareholders of record as of the
close of business on the Record Date, September 30, 1994, will be entitled to
notice of, and to vote at, the Meeting or any adjournment thereof. The
holders
of a majority of the shares of the Fund outstanding at the close of business
on
the Record Date present in person or represented by proxy will constitute a
quorum for the Meeting. If the enclosed form of proxy is properly executed
and
returned in time to be voted at the Meeting, the proxies named therein will
vote
the shares represented by the proxy in accordance with the instructions marked
thereon. Unmarked proxies will be voted FOR the proposed Transaction and FOR
any other matters deemed appropriate. For purposes of determining the
presence
of a quorum for transacting business at the Meeting, abstentions and broker
"non-votes" (that is, proxies from brokers or nominees indicating that such
persons have not received instructions from the beneficial owner or other
persons entitled to vote shares on a particular matter with respect to which
the
brokers or nominees do not have discretionary power) will be treated as shares
that are present but which have not been voted. A proxy may be revoked at any
time on or before the Meeting by written notice to the Designated Agent for
the
Fund, Christina T. Sydor, 1345 Avenue of the Americas, New York, New York
10017.
Unless revoked, all valid proxies will be voted in accordance with the
specifications thereon or, in the absence of such specifications, for approval
of the Plan and the Transaction contemplated thereby.
Approval of the Plan will require the affirmative vote of a majority, as
defined in the 1940 Act, of the outstanding voting securities of the Fund,
which
is the lesser of: (i) 67% of the voting securities of the Fund present at the
Meeting, if the holders of more than 50% of the outstanding voting securities
of
the Fund are present or represented by proxy, or (ii) more than 50% of the
outstanding voting securities of the Fund. Shareholders of the Fund are
entitled to one vote for each share. Fractional shares are entitled to
proportional voting rights.
Proxies are solicited by mail. Additional solicitations may be made by
telephone, telegraph or personal contact by officers or employees of Smith
Barney and its affiliates or by proxy soliciting firms retained by Smith
Barney.
Smith Barney has retained Management Information Systems to provide proxy
solicitation
- 18 -
services in connection with the Meeting at an estimated cost of $________.
The
cost of the solicitation will be borne by shareholders of the Fund.
In the event that sufficient votes to approve the Transaction are not
received by 9:00 a.m. on November 21, 1994, the persons named as proxies may
propose one or more adjournments of the Meeting to permit further solicitation
of proxies. In determining whether to adjourn the Meeting, the following
factors may be considered: the percentage of votes actually cast, the
percentage
of negative votes actually cast, the nature of any further solicitation and
the
information to be provided to shareholders with respect to the reasons for the
solicitation. Any such adjournment will require an affirmative vote by the
holders of a majority of the shares present in person or by proxy and entitled
to vote at the Meeting. The persons named as proxies will vote upon such
adjournment after consideration of the best interests of all shareholders of
the
Fund.
The votes of the shareholders of Fundamental Value Fund are not being
solicited, since their approval or consent is not necessary for the
Transaction
to take place. Shareholders of Fundamental Value Fund must, however, approve
certain amendments to Fundamental Value Fund's Articles of Incorporation to
increase the number of authorized Class A shares of Fundamental Value Fund.
It
is anticipated that a special meeting of shareholders of Fundamental Value
Fund
will be held on November 14, 1994 to consider this proposal.
FINANCIAL STATEMENTS AND EXPERTS
The audited financial statements of the Fund and Fundamental Value Fund
as
of December 31, 1993 and September 30, 1993, respectively, and the respective
statements of operations for the years then ended and changes in net assets
for
the two years then ended and condensed financial highlights have been
incorporated by reference into this Prospectus/Proxy Statement in reliance on
the reports of Coopers & Lybrand and Deloitte & Touche, independent
accountants
for the Fund and Fundamental Value Fund, respectively, given on the authority
of
such firms as experts in accounting and auditing. In addition, the unaudited
financial statements for the Fund for the semi-annual period ended June 30,
1994
and for Fundamental Value Fund for the semi-annual period ended March 31, 1994
are incorporated by reference.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of Fundamental
Value Fund will be passed upon by Willkie Farr & Gallagher, One Citicorp
Center,
153 East 53rd Street, New York, New York 10022.
THE INDIVIDUAL GENERAL PARTNERS OF THE FUND, INCLUDING THE "NON-
INTERESTED"
INDIVIDUAL GENERAL PARTNERS, RECOMMEND APPROVAL OF THE PLAN INCLUDING THE SALE
OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF THE FUND TO FUNDAMENTAL VALUE
FUND,
THE DISSOLUTION OF THE FUND AND THE DISTRIBUTION OF SHARES OF FUNDAMENTAL
VALUE
FUND TO SHAREHOLDERS OF THE FUND, AND ANY UNMARKED PROXIES WITHOUT
INSTRUCTIONS
TO THE CONTRARY WILL BE VOTED IN FAVOR OF APPROVAL OF THE PLAN.
- 19 -
VOTE THIS VOTING INSTRUCTION CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
(Please Detach at Perforation Before Mailing)
. . . . . . . . .
Please indicate your vote by an "X" in the appropriate box below.
This proxy, if properly executed, will be voted in the manner directed by the
undersigned shareholder.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE PROPOSAL.
Please refer to the Prospectus/Proxy Statement for a discussion of the
Proposal.
1. To approve the Agreement and Plan of Sale and Liquidation dated as of
September 1, 1994 providing for (i) the acquisition of substantially all of
the assets of The Advisors Fund L.P. (the "Fund") by Smith Barney Shearson
Fundamental Value Fund Inc. ("Fundamental Value Fund") in exchange for shares
of Fundamental Value Fund and the assumption by Fundamental Value Fund of
certain identified liabilities of the Fund, (ii) the distribution of such
shares of Fundamental Value Fund to shareholders of Fund in liquidation of the
Fund and (iii) the subsequent dissolution and termination of the Fund.
FOR * AGAINST * ABSTAIN *
VOTE THIS VOTING INSTRUCTION CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
(Please Detach at Perforation Before Mailing)
. . . . . . . . .
THE ADVISORS FUND L.P.
PROXY SOLICITED BY THE INDIVIDUAL GENERAL PARTNERS
The undersigned holder of shares of The Advisors Fund L.P. ( the
"Fund"), a Delaware limited partnership, hereby appoints Heath B.
McLendon, Christina T. Sydor and Lee D. Augsburger attorneys and
proxies for the undersigned with full powers of substitution and
revocation, to represent the undersigned and to vote on behalf of the
undersigned all shares of the Fund that the undersigned is entitled
to vote at the Special Meeting of Shareholders of the Fund to be held
at the offices of the Fund, Two World Trade Center, New York, New
York on November 21, 1994 at 9:00 a.m., and any adjournment or
adjournments thereof. The undersigned hereby acknowledges receipt of
the Notice of Special Meeting and Prospectus/Proxy Statement dated
September 1, 1994 and hereby instructs said attorneys and proxies to
vote said shares as indicated herein. In their discretion, the
proxies are authorized to vote upon such other business as may
properly come before the Special Meeting. A majority of the proxies
present and acting at the Special Meeting in person or by substitute
(or, if only one shall be so present, then that one) shall have and
may exercise all of the power and authority of said proxies
hereunder. The undersigned hereby revokes any proxy previously
given.
PLEASE SIGN, DATE AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE
Note: Please sign exactly as your name appears on this
Proxy. If joint owners, EITHER may sign this Proxy.
When signing as attorney, executor, administrator,
trustee, guardian or corporate officer, please give your
full title.
DATE: _________________________________________
_______________________________________________
_______________________________________________
Signature(s) (Title(s), if applicable)
AGREEMENT AND PLAN OF SALE AND LIQUIDATION
THIS AGREEMENT AND PLAN OF SALE AND LIQUIDATION (the "Agreement") is made
as of this 1st day of September, 1994, by and between Smith Barney Shearson
Fundamental Value Fund Inc. (the "Acquiring Fund"), a Washington corporation,
with its principal place of business at Two World Trade Center, New York, New
York 10048, and The Advisors Fund L.P. (the "Acquired Fund"), a Delaware
limited
partnership, with its principal place of business at Two World Trade Center,
New
York, New York 10048.
The transaction contemplated by this Agreement will consist of the
transfer
of all or substantially all of the assets of the Acquired Fund in exchange
solely for Class A and Class B shares of common stock of the Acquiring Fund
(the
"Acquiring Fund Shares"), and the assumption by the Acquiring Fund of certain
identified liabilities of the Acquired Fund and the distribution, after the
Closing Date hereinafter referred to, of Acquiring Fund Shares to the
shareholders of the Acquired Fund in liquidation of the Acquired Fund as
provided herein, all upon the terms and conditions hereinafter set forth in
this
Agreement.
WHEREAS, the Acquiring Fund and the Acquired Fund are registered
investment
companies of the management type and the Acquired Fund owns securities that
generally are assets of the character in which the Acquiring Fund is permitted
to invest; and
WHEREAS, the Acquiring Fund is authorized to issue shares of common stock
and the Acquired Fund is authorized to issue shares of partnership interest;
and
WHEREAS, the Individual General Partners of the Acquired Fund have
determined that the exchange of all or substantially all of the assets and
certain of the identified liabilities of the Acquired Fund for Acquiring Fund
Shares and the assumption of such liabilities by the Acquiring Fund is in the
best interests of the Acquired Fund's shareholders and that the interests of
the
existing shareholders of the Acquired Fund would not be diluted as a result of
this transaction; and
WHEREAS, the Board of Directors of the Acquiring Fund has determined that
the exchange of all or substantially all of the assets and certain of the
identified liabilities of the Acquired Fund for Acquiring Fund Shares and the
assumption of such liabilities by the Acquiring Fund is in the best interests
of
the Acquiring Fund's shareholders and that the interests of the existing
shareholders of the Acquiring Fund would not be diluted as a result of this
transaction.
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR ACQUIRING FUND
SHARES AND ASSUMPTION OF THE ACQUIRED FUND'S STATED LIABILITIES AND
LIQUIDATION OF THE ACQUIRED FUND
1.1 Subject to the terms and conditions herein set forth and on the
basis
of the representations and warranties contained herein, the Acquired Fund
agrees
to transfer the Acquired Fund's assets as set forth in paragraph 1.2 to the
Acquiring Fund, and the Acquiring Fund agrees in exchange therefor: (i) to
deliver to the Acquired Fund the number of Class A Acquiring Fund Shares,
including fractional Class A Acquiring Fund Shares, determined by dividing the
value of the Acquired Fund's net assets attributable to its Class A shares,
computed in the manner and as of the time and date set forth in paragraph 2.
1,
by the net asset value of one Acquiring Fund Class A Share, computed in the
manner and as of the time and date set forth in paragraph 2.2; (ii) to deliver
to the Acquired Fund the number of Class B Acquiring Fund Shares, including
fractional Class B Acquiring Fund Shares, determined by dividing the value of
the Acquired Fund's net assets attributable to its Class B shares, computed in
the manner and as of the time and date set forth in paragraph 2. 1, by the net
asset value of one Acquiring Fund Class B share, computed in the manner and as
of the time and date set forth in paragraph 2.2; and (iii) to assume certain
liabilities of the Acquired Fund, as set forth in paragraph 1.3. Such
transactions shall take place at the closing provided for in paragraph 3.1
(the
"Closing").
1.2 (a) The assets of the Acquired Fund to be acquired by the Acquiring
Fund shall consist of all property including, without limitation, all cash,
securities, commodities and futures interests and dividend or interest
receivables which are owned by the Acquired Fund and any deferred or prepaid
expenses shown as an asset on the books of the Acquired Fund on the closing
date
provided in paragraph 3.1 (the "Closing Date").
(b) The Acquired Fund has provided the Acquiring Fund with a list
of
all of the Acquired Fund's assets as of the date of execution of this
Agreement.
The Acquired Fund reserves the right to sell any of these securities but will
not, without the prior approval of the Acquiring Fund, acquire any additional
securities other than securities of the type in which the Acquiring Fund is
permitted to invest. The Acquiring Fund will, within a reasonable time prior
to
the Closing Date, furnish the Acquired Fund with a statement of the Acquiring
Fund's
investment objectives, policies and restrictions and a list of the securities,
if any, on the Acquired Fund's list referred to in the first sentence of this
paragraph which do not conform to the Acquiring Fund's investment objectives,
policies and restrictions. In the event that the Acquired Fund holds any
investments which the Acquiring Fund may not hold, the Acquired Fund will
dispose of such securities prior to the Closing Date. In addition, if it is
determined that the portfolios of the Acquired Fund and the Acquiring Fund,
when
aggregated, would contain investments exceeding certain percentage limitations
imposed upon the Acquiring Fund with respect to such investments, the Acquired
Fund, if requested by the Acquiring Fund, will dispose of and/or reinvest a
sufficient amount of such investments as may be necessary to avoid violating
such limitations as of the Closing Date.
1.3 The Acquired Fund will endeavor to discharge all the Acquired Fund's
known liabilities and obligations prior to the Closing Date. The Acquiring
Fund
shall assume all liabilities, expenses, costs, charges and reserves reflected
on
an unaudited Statement of Assets and Liabilities of the Acquired Fund prepared
by The Boston Company Advisors, Inc. ("Boston Advisors"), as sub-administrator
of the Acquiring Fund and the Acquired Fund, as of the Valuation Date (as
defined in paragraph 2. 1), in accordance with generally accepted accounting
principles consistently applied from the prior audited period. The Acquiring
Fund shall assume only those liabilities of the Acquired Fund reflected in
that
unaudited statement of assets and liabilities and shall not assume any other
liabilities.
1.4 As provided in paragraph 3.4, as soon after the Closing Date as is
conveniently practicable (the "Liquidation Date"), the Acquired Fund will
liquidate and distribute pro rata to the Acquired Fund's shareholders of
record
determined as of the close of business on the Closing Date (the "Acquired Fund
Shareholders") the Acquiring Fund Shares it receives pursuant to paragraph
1.1.
Such liquidation and distribution will be accomplished by the transfer of the
Acquiring Fund Shares then credited to the account of the Acquired Fund on the
books of the Acquiring Fund to open accounts on the share records of the
Acquiring Fund in the name of the Acquired Fund's shareholders and
representing
the respective pro rata number of the Acquiring Fund Shares due such
shareholders. All issued and outstanding shares of the Acquired Fund will
simultaneously be canceled on the books of the Acquired Fund. The Acquiring
Fund shall not issue certificates representing the Acquiring Fund Shares in
connection with such exchange.
1.5 Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund's transfer agent. Shares of the Acquiring Fund will be issued
in
the manner described in the Acquiring Fund's current prospectus and statement
of
additional information.
1.6 Any transfer taxes payable upon issuance of the Acquiring Fund
Shares
in a name other than the registered holder of the Acquired Fund Shares on the
books of the Acquired Fund as of that time shall, as a condition of such
issuance and transfer, be paid by the person to whom such Acquiring Fund
shares
are to be issued and transferred.
1.7 Any reporting responsibility of the Acquired Fund is and shall
remain
the responsibility of the Acquired Fund up to and including the Closing Date
and
such later dates on which the Acquired Fund is dissolved and deregistered.
1.8 The Acquired Fund shall file a Certificate of Cancellation of
Certificate of Limited Partnership with the Secretary of State of the State of
Delaware, promptly following the Closing Date, after satisfying all
liabilities
of the Acquired Fund (whether by payment or the making of reasonable
provisions
for payment thereof) and the making of all distributions pursuant to paragraph
1.4 and shall apply for an order under Section 8(f) of the 1940 Act declaring
that it has ceased to be an investment company.
2. VALUATION
2.1 The value of the Acquired Fund's assets to be acquired by the
Acquiring Fund hereunder shall be the value of such assets computed as of the
close of regular trading on the New York Stock Exchange, Inc. (the "NYSE") on
the Closing Date (such time and date being hereinafter called the "Valuation
Date"), using the valuation procedures set forth in the Acquiring Fund's then
current prospectus or statement of additional information.
2.2 The net asset value of each class of Shares of the Acquiring Fund
shall be the net asset value per share computed as of the Valuation Date,
using
the valuation procedures set forth in the Acquiring Fund's then current
prospectus or statement of additional information.
2.3 All computations of value shall be made by Boston Advisors in
accordance with its regular practice as pricing agent for the Acquiring Fund.
-2-
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be December 2, 1994, or such later date as
the
parties may agree to in writing. All acts taking place at the Closing shall
be
deemed to take place simultaneously as of the close of business on the Closing
Date unless otherwise provided. The Closing shall be held as of 5:00 p.m., at
the offices of Boston Advisors, One Boston Place; Boston, Massachusetts 02108,
or at such other time and/or place as the parties may agree.
3.2 Boston Safe Deposit and Trust Company, as custodian for the
Acquiring
Fund (the "Custodian"), shall deliver at the Closing a certificate of an
authorized officer stating that: (a) the Acquired Fund's portfolio securities,
cash and any other assets shall have been delivered in proper form to the
Acquiring Fund within two business days prior to or on the Closing Date and
(b)
all necessary taxes payable by the Acquired Fund or the Acquiring Fund,
including all applicable federal and state stock transfer stamps, if any,
shall
have been paid, or provision for payment shall have been made, in conjunction
with the delivery of portfolio securities.
3.3 In the event that on the Valuation Date (a) the NYSE or another
primary trading market for portfolio securities of the Acquiring Fund or the
Acquired Fund shall be closed to trading or trading thereon shall be
restricted
or (b) trading or the reporting of trading on the NYSE or elsewhere shall be
disrupted so that accurate appraisal of the value of the net assets of the
Acquiring Fund or the Acquired Fund is impracticable, the Closing Date shall
be
postponed until the first business day after the day when trading shall have
been fully resumed and reporting shall have been restored.
3.4 The Acquired Fund shall deliver at the Closing a list of the names
and
addresses of the Acquired Fund's shareholders and the number, class and
percentage ownership of outstanding Shares owned by each such shareholder
immediately prior to the Closing, certified on behalf of the Acquired Fund by
its Principal Individual General Partner. The Acquiring Fund shall issue and
deliver a confirmation evidencing the Acquiring Fund Shares to be credited to
the Acquired Fund's account on the Closing Date to the designated agent acting
in the capacity of Secretary of the Acquired Fund or provide evidence
satisfactory to the Acquired Fund that such Acquiring Fund Shares have been
credited to the Acquired Fund's account on the books of the Acquiring Fund.
At
the Closing, each party shall deliver to the other such bills of sale, checks,
assignments, share certificates, if any, receipts or other documents as such
other party or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Acquired Fund represents and warrants to the Acquiring Fund as
follows:
(a) The Acquired Fund is a Delaware limited partnership, duly
organized, validly existing and in good standing under the laws of the State
of
Delaware;
(b) The Acquired Fund is a registered investment company classified
as management company of the open-end type and its registration with the
Securities and Exchange Commission (the "Commission") as an investment company
under the Investment Company Act of 1940 (the " 1940 Act") is in full force
and
effect;
(c) The Acquired Fund is not, and the execution, delivery and
performance of this Agreement will not result, in a material violation of its
Amended and Restated Agreement of Limited Partnership or of any agreement,
indenture, instrument, contract, lease or other undertaking to which the
Acquired Fund is a party or by which it is bound;
(d) The Acquired Fund has no material contracts or other
commitments
(other than this Agreement) which will be terminated with liability to the
Acquired Fund prior to the Closing Date;
(e) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently pending
or threatened against the Acquired Fund or any of its properties or assets,
except as previously disclosed in writing to the Acquiring Fund. The Acquired
Fund knows of no facts which might form the basis for the institution of such
proceedings and is not a party to or subject to the provisions of any order,
decree or judgment of any court or governmental body which materially and
adversely affects its business or its ability to consummate the transactions
contemplated herein;
(f) The Statement of Assets and Liabilities of the Acquired Fund
for
the period from June 28, 1990 (commencement of operations) through December
31,
1990 and for the fiscal years ended December 31, 1991 through December 31,
1993
have been audited by Coopers & Lybrand, certified public accountants, and are
-3-
in accordance with generally accepted accounting principles consistently
applied, and such statements (copies of which have been furnished to the
Acquiring Fund) fairly reflect the financial condition of the Acquired Fund as
of such dates, and there are no known contingent liabilities of the Acquired
Fund as of such dates not disclosed therein,
(g) Since December 31, 1993, there has not been any material
adverse
change in the Acquired Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business, or
any
incurrence by the Acquired Fund of indebtedness maturing more than one year
from
the date that such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Acquiring Fund. For the purposes of this subparagraph
(g),
a decline in net asset value per share of the Acquired Fund shares shall not
constitute a material adverse change;
(h) All issued and outstanding shares of the Acquired Fund are, and
at the Closing Date will be, duly and validly issued and outstanding, fully
paid
and non-assessable. All of the issued and outstanding shares of the Acquired
Fund will, at the time of Closing, be held by the persons and in the amounts
set
forth in the records of the transfer agent as provided in paragraph 3.4. The
Acquired Fund does not have outstanding any options, warrants or other rights
to
subscribe for or purchase any of the Acquired Fund's shares, nor is there
outstanding any security convertible into any of the Acquired Fund's shares;
(i) At the Closing Date, the Acquired Fund will have good and
marketable title to its assets to be transferred to the Acquiring Fund
pursuant
to paragraph 1.2 and full right, power and authority to sell, assign, transfer
and deliver such assets hereunder and, upon delivery and payment for such
assets, the Acquiring Fund will acquire good and marketable title thereto,
subject to no restrictions on the full transfer thereof, including such
restrictions as might arise under the Securities Act of 1933, as amended (the
"1933 Act"), other than as disclosed to the Acquiring Fund;
(j) The execution, delivery and performance of this Agreement has
been duly authorized by all necessary actions on the part of the Acquired
Fund's
Individual General Partners, and subject to the approval of the Acquired
Fund's
shareholders, this Agreement will constitute a valid and binding obligation of
the Acquired Fund, enforceable in accordance with its terms, subject to
enforcement of bankruptcy, insolvency, reorganization, moratorium and other
laws
relating to or affecting creditors' rights and to general equity principles;
(k) The information to be furnished by the Acquired Fund for use in
no-action letters, applications for exemptive orders, registration statements,
proxy materials and other documents which may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations thereunder applicable thereto;
(l) The proxy statement of the Acquired Fund (the "Proxy
Statement")
to be included in the Registration Statement referred to in paragraph 5.6
(other
than information therein that relates to the Acquiring Fund) will, on the
effective date of the Registration Statement and on the Closing Date, not
contain any untrue statement of a material fact or omit to state a material
fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not
materially
misleading.
4.2 The Acquiring Fund represents and warrants to the Acquired Fund as
follows:
(a) The Acquiring Fund is a Washington corporation, duly organized,
validly existing and in good standing under the laws of the State of
Washington,
(b) The Acquiring Fund is a registered investment company
classified
as a management company of the open-end type and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect;
(c) The current prospectus and statement of additional information
of
the Acquiring Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations of
the Commission thereunder and do not include any untrue statement of a
material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not materially misleading;
(d) At the Closing Date, the Acquiring Fund will have good and
marketable title to its assets;
-4-
(e) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in a material violation of its
Articles of Incorporation or By-Laws or of any agreement, indenture,
instrument,
contract, lease or other undertaking to which the Acquiring Fund is a party or
by which it is bound;
(f) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently pending
or threatened against the Acquiring Fund or any of its properties or assets,
except as previously disclosed in writing to the Acquired Fund. The Acquiring
Fund knows of no facts which might form the basis for the institution of such
proceedings and is not a party to or subject to the provisions of any order,
decree or judgment of any court or governmental body which materially and
adversely affects its business or its ability to consummate the transactions
contemplated herein;
(g) The Statement of Assets and Liabilities of the Acquiring Fund
for
the fiscal years ended September 30, 1983 through September 30, 1993 have been
audited by Deloitte & Touche, certified public accountants, and are in
accordance with generally accepted accounting principles consistently applied,
and such statements (copies of which have been furnished to the Acquired Fund)
fairly reflect the financial condition of the Acquiring Fund as of such dates,
and there are no known contingent liabilities of the Acquiring Fund as of such
dates not disclosed therein;
(h) Since September 30, 1993 there has not been any material
adverse
change with respect to the Acquiring Fund's financial condition, assets,
liabilities or business other than changes occurring in the ordinary course of
business, or any incurrence by the Acquiring Fund of indebtedness maturing
more
than one year from the date that such indebtedness was incurred. For the
purposes of this subparagraph (h), a decline in net asset value per share of
the
Acquiring Fund Shares shall not constitute a material adverse change;
(i) At the Closing Date, all federal and other tax returns and
reports of the Acquiring Fund required by law to have been filed by such date
shall have been filed, and all federal and other taxes shall have been paid so
far as due, or provision shall have been made for the payment thereof, and, to
the best of the Acquiring Fund's knowledge, no such return or report is
currently under audit and no assessment has been asserted with respect to such
returns or reports;
(j) For each taxable year of its operation the Acquiring Fund has
met
the requirements of Subchapter M of the Code for qualification and treatment
as
a regulated investment company and has elected to be treated as such, and the
Acquiring Fund intends to do so in the future;
(k) At the date hereof, all issued and outstanding Acquiring Fund
Shares are, and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and nonassessable, with no personal liability
attaching
to the ownership thereof. The Acquiring Fund does not have outstanding any
options, warrants or other rights to subscribe for or purchase any Acquiring
Fund shares, nor is there outstanding any security convertible into any
Acquiring Fund shares;
(l) The execution, delivery and performance of this Agreement has
been duly authorized by all necessary actions on the part of the Acquiring
Fund's Board of Directors and this Agreement constitutes a valid and binding
obligation of the Acquiring Fund enforceable in accordance with its terms,
subject to enforcement of bankruptcy, insolvency, reorganization, moratorium
and
other laws relating to or affecting creditors' rights and to general equity
principles;
(m) The Acquiring Fund Shares to be issued and delivered to the
Acquired Fund, for the account of the Acquired Fund's shareholders, pursuant
to
the terms of this Agreement, at the Closing Date, have been duly authorized
and,
when so issued and delivered, will be duly and validly issued Acquiring Fund
Shares, and will be fully paid and non-assessable with no personal liability
attaching to the ownership thereof,
(n) The information to be furnished by the Acquiring Fund for use
in
no-action letters, applications for exemptive orders, registration statements,
proxy materials and other documents which may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto;
(o) The Proxy Statement to be included in the Registration
Statement
(only insofar as it relates to the Acquiring Fund) will, on the effective date
of the Registration Statement and on the Closing Date, not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not materially
misleading;
and
-5-
(p) The Acquiring Fund agrees to use all reasonable efforts to
obtain
the approvals and authorizations required by the 1933 Act, the 1940 Act and
such
of the state Blue Sky or securities laws as it may deem appropriate in order
to
continue its operations after the Closing Date.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND.
5.1 The Acquiring Fund and the Acquired Fund each will operate its
business in the ordinary course between the date hereof and the Closing Date,
except that the Acquired Fund ceased offering its shares for sale to the
public
as of August 19, 1994. It is understood that such ordinary course of business
will include the declaration and payment of customary dividends and
distributions.
5.2 The Acquired Fund will call a meeting of the Acquired Fund's
shareholders to consider and act upon this Agreement and to take all other
actions necessary to obtain approval of the transactions contemplated herein.
5.3 The Acquired Fund covenants that the Acquiring Fund Shares to be
issued hereunder are not being acquired for the purpose of making any
distribution thereof other than in accordance with the terms of this
Agreement.
5.4 The Acquired Fund will assist the Acquiring Fund in obtaining such
information as the Acquiring Fund reasonably requests concerning the
beneficial
ownership of the Acquired Fund's Shares.
5.5 Subject to the provisions of this Agreement, the Acquiring Fund and
the Acquired Fund each will take, or cause to be taken, all action, and do or
cause to be done, all things reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement.
5.6 The Acquired Fund will provide the Acquiring Fund with information
reasonably necessary for the preparation of a prospectus (the "Prospectus")
which will include the Proxy Statement referred to in paragraph 4.1(n), all to
be included in a registration statement on Form N-14 of the Acquiring Fund
(the
"Registration Statement"), in compliance with the 1933 Act, the Securities
Exchange Act of 1934 (the "1934 Act") and the 1940 Act in connection with the
meeting of the Acquired Fund's shareholders to consider approval of this
Agreement and the transactions contemplated herein.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to complete the transactions
provided
for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all of the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following further
conditions:
6.1 All representations and warranties of the Acquiring Fund contained
in
this Agreement shall be true and correct in all material respects as of the
date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date, with the same force and effect as if
made on and as of the Closing Date;
6.2 The Acquiring Fund shall have delivered to the Acquired Fund a
certificate executed in its name by its President or Vice President and its
Treasurer or Assistant Treasurer, in a form reasonably satisfactory to the
Acquired Fund and dated as of the Closing Date, to the effect that the
representations and warranties of the Acquiring Fund made in this Agreement
are
true and correct at and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement and as to such other
matters
as the Acquired Fund shall reasonably request; and
6.3 The Acquired Fund shall have received on the Closing Date a
favorable
opinion from Willkie Farr & Gallagher, counsel to the Acquiring Fund, dated as
of the Closing Date, in a form reasonably satisfactory to Christina T. Sydor,
Esq. as Secretary to the Acquired Fund, covering the following points:
That (a) the Acquiring Fund is a validly existing Washington corporation and
in
good standing under the laws of the State of Washington and has the corporate
power to own all of its properties and assets and to carry on its business as
presently conducted; (b) the Agreement has been duly authorized, executed and
delivered by the Acquiring Fund and, assuming that the Prospectus,
Registration
Statement and Proxy Statement comply with the 1933 Act, the 1934 Act and the
1940 Act and the rules and regulations thereunder and, assuming due
authorization, execution and delivery of the Agreement by the Acquired Fund,
is
a valid and binding obligation of
-6-
the Acquiring Fund enforceable against the Acquiring Fund in accordance with
its
terms, subject as to enforcement to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors' rights generally
and to general equity principles; (c) the Acquiring Fund Shares to be issued
and
delivered to the Acquired Fund's shareholders as provided by this Agreement
are
duly authorized and upon such delivery will be validly issued and outstanding
and are fully paid and non-assessable with no personal liability attaching to
ownership thereof, and no shareholder of the Acquiring Fund has any preemptive
rights to subscription or purchase in respect thereof; (d) the execution and
delivery of this Agreement did not, and the consummation of the transactions
contemplated hereby will not, result in a material violation of the Acquiring
Fund's Articles of Incorporation or By-Laws or any provision of any agreement
(known to such counsel) to which the Acquiring Fund is a party or by which it
is
bound or, to the knowledge of such counsel, result in the acceleration of any
obligation or the imposition of any penalty, under any agreement, judgment, or
decree to which the Acquiring Fund is a party or by which it is bound; (e) to
the knowledge of such counsel, no consent, approval, authorization or order of
any court or governmental authority of the United States, the State of New
York,
State of Washington or State of Delaware is required for the consummation by
the
Acquiring Fund of the transactions contemplated herein, except such as have
been
obtained under the 1933 Act, the 1934 Act and the 1940 Act, and such as may be
required under state securities law; (f) only insofar as they relate to the
Acquiring Fund, the descriptions in the Proxy Statement of statutes, legal and
governmental proceedings and contracts and other documents, if any, are
accurate
and fairly present the information required to be shown; (g) such counsel does
not know of any legal or governmental proceedings, only insofar as they relate
to the Acquiring Fund, existing on or before the effective date of the
Registration Statement or the Closing Date, required to be described in the
Registration Statement or to be filed as exhibits to the Registration
Statement
which are not described as required; (h) the Acquiring Fund is registered as
an
investment company under the 1940 Act and its registration with the Commission
as an investment company under the 1940 Act is in full force and effect; and
(i)
to the best knowledge of such counsel, no litigation or administrative
proceeding or investigation of or before any court or governmental body is
presently pending or threatened as to the Acquiring Fund or any of its
properties or assets, nor is it a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which materially
and
adversely affects the Acquiring Fund's business, other than as previously
disclosed in the Registration Statement. In addition, such counsel also shall
state that they have participated in conferences with officers and other
representatives of the Acquiring Fund at which the contents of the Proxy
Statement and related matters were discussed and, although they are not
passing
upon and do not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Proxy Statement (except to the
extent indicated in paragraph (f) of their above opinion), on the basis of the
foregoing (relying as to materiality to a large extent upon the opinions of
officers and other representatives of the Acquiring Fund), no facts have come
to
their attention that lead them to believe that the Proxy Statement as of its
date, as of the date of the Acquired Fund shareholders' meeting, and as of the
Closing Date, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein regarding the Acquiring
Fund
or necessary to make the statements therein regarding the Acquiring Fund, in
the
light of the circumstances under which they were made, not misleading. Such
opinion may state that such counsel does not express any opinion or belief as
to
the financial statements or other financial data or as to the information
relating to the Acquired Fund, contained in the Proxy Statement or
Registration
Statement, and that such opinion is solely for the benefit of the Acquired
Fund,
its Individual General Partners and its designated agents. Such counsel may
rely as to matters governed by the laws of the State of Washington on an
opinion
of Washington counsel. Such opinion also shall include such other matters
incident to the transaction contemplated hereby as the Acquired Fund may
reasonably request. Finally, such opinion need not opine with respect to the
applicability of Section 17(a) under the 1940 Act and Rule 17a-8 thereunder.
In this paragraph 6.3, references to the Proxy Statement include and
relate
only to the text of such Proxy Statement and not to any exhibits or
attachments
thereto or to any documents incorporated by reference therein.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND.
The obligations of the Acquiring Fund to complete the transactions
provided
for herein shall be subject, at its election, to the performance by the
Acquired
Fund of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following further conditions:
7.1 All representations and warranties of the Acquired Fund contained in
this Agreement shall be true and correct in all material respects as of the
date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date, with the same force and effect as if
made on and as of the Closing Date;
7.2 The Acquired Fund shall have delivered to the Acquiring Fund a
statement of the Acquired Fund's assets and liabilities as of the Closing
Date,
certified by the Treasurer or Assistant Treasurer of the Acquired Fund;
-7-
7.3 The Acquired Fund shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its Principal Individual
General Partner and its designated agent acting in the capacity of Treasurer
or
Assistant Treasurer, in form and substance satisfactory to the Acquiring Fund
and dated as of the Closing Date, to the effect that the representations and
warranties of the Acquired Fund made in this Agreement are true and correct at
and as of the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement, and as to such other matters as the Acquiring
Fund shall reasonably request;
7.4 The Acquiring Fund shall have received on the Closing Date a
favorable
opinion of Dechert Price & Rhoads, counsel to the Acquired Fund, in a form
satisfactory to Christina T. Sydor, Esq., as Secretary to the Acquiring Fund,
covering the following points:
That (a) the Acquired Fund is a limited partnership organized under the
laws of the State of Delaware validly existing and in good standing under the
laws of the State of Delaware and has the statutory power to own all of its
properties and assets and to carry on its business as presently conducted; (b)
the Agreement has been duly authorized, executed and delivered by the Acquired
Fund and, assuming that the Prospectus, the Registration Statement and the
Proxy
Statement comply with the 1933 Act, the 1934 Act and the 1940 Act and the
rules
and regulations thereunder and, assuming due authorization, execution and
delivery of the Agreement by the Acquiring Fund, is a valid and binding
obligation of the Acquired Fund enforceable against the Acquired Fund in
accordance with its terms, subject to enforcement of bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors'
rights generally and to general equity principles; (c) the execution and
delivery of the Agreement did not, and the consummation of the transactions
contemplated hereby will not, result in a material violation of the Acquired
Fund's Partnership Agreement or any provision of any agreement (known to such
counsel) to which the Acquired Fund is a party or by which it is bound or, to
the knowledge of such counsel, result in the acceleration of any obligation or
the imposition of any penalty, under any agreement, judgment or decree to
which
the Acquired Fund is a party or by which it is bound; (d) to the knowledge of
such counsel, no consent, approval, authorization or order of any court or
governmental authority of the United States, the State of New York, the State
of
Washington or State of Delaware is required for the consummation by the
Acquired
Fund of the transactions contemplated herein, except such as have been
obtained
under the 1933 Act, the 1934 Act and the 1940 Act, and such as may be required
under state securities laws; (e) only insofar as they relate to the Acquired
Fund, the descriptions in the Proxy Statement of statutes, legal and
governmental proceedings and contracts and other documents, if any, are
accurate
and fairly present the information required to be shown; (f) such counsel does
not know of any legal or governmental proceedings, only insofar as they relate
to the Acquired Fund, existing on or before the effective date of the
Registration Statement or the Closing Date, required to be described in the
Proxy Statement or to be filed as exhibits to the Registration Statement which
are not described and filed as required; (g) the Acquired Fund is registered
as
an investment company under the 1940 Act and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect; and (h) to the best knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to the Acquired Fund
or
any of its respective properties or assets and the Acquired Fund is neither a
party to nor subject to the provisions of any order, decree or judgment of any
court or governmental body, which materially and adversely affects its
business
other than as previously disclosed in the Proxy Statement. Such counsel also
shall state that they have participated in conferences with officers and other
representatives of the Acquired Fund at which the contents of the Proxy
Statement and related matters were discussed and, although they are not
passing
upon and do not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Proxy Statement (except to the
extent indicated in paragraph (e) of their above opinion), on the basis of the
foregoing (relying as to materiality to a large extent upon the opinions of
officers and other representatives of the Acquired Fund), no facts have come
to
their attention that lead them to believe that the Proxy Statement as of its
date, as of the date of the Acquired Fund's shareholder meeting, and as of the
Closing Date, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein regarding the Acquired
Fund
or necessary in the light of the circumstances under which they were made, to
make the statements therein regarding the Acquired Fund not misleading. Such
opinion may rely as to matters governed by the laws of the State of Delaware,
on
an opinion of Delaware counsel. Such opinion may state that such counsel does
not express any opinion or belief as to the financial statements or other
financial data, or as to the information relating to the Acquiring Fund,
contained in the Proxy Statement or Registration Statement, and that such
opinion is solely for the benefit of the Acquiring Fund and its Directors and
officers. Such opinion also shall include such other matters incident to the
transaction contemplated hereby as the Acquiring Fund may reasonably request.
Finally, the opinion need not opine upon any issues arising from the
applicability of Section 17(a) under the 1940 Act and Rule 17a-8 thereunder.
In this paragraph 7.4, references to the Proxy Statement include and
relate
to only the text of such Proxy Statement and not to any exhibits or
attachments
thereto or to any documents incorporated by reference therein.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE
ACQUIRED FUND.
-8-
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Acquiring Fund, the Acquired Fund shall, and
if
any of such conditions do not exist on or before the Closing Date with respect
to the Acquired Fund, the Acquiring Fund shall, at their respective option,
not
be required to consummate the transactions contemplated by this Agreement:
8.1 The Agreement and the transactions contemplated herein shall have
been
approved by the requisite vote of the holders of the outstanding shares of the
Acquired Fund in accordance with the provisions of the Acquired Fund's
Partnership Agreement and certified copies of the votes evidencing such
approval
shall have been delivered to the Acquiring Fund. Notwithstanding anything
herein to the contrary, neither the Acquiring Fund nor the Acquired Fund may
waive the conditions set forth in this paragraph 8.1;
8.2 On the Closing Date no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this
Agreement or the transactions contemplated herein;
8.3 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including those of
the Commission and of state securities authorities, including "no-action"
positions of and exemptive orders from such federal and state authorities)
deemed necessary by the Acquiring Fund or the Acquired Fund to permit
consummation, in all material respects, of the transactions contemplated
hereby
shall have been obtained, except where failure to obtain any such consent,
order
or permit would not involve a risk of a material adverse effect on the assets
or
properties of the Acquiring Fund or the Acquired Fund, provided that either
party hereto may for itself waive any of such conditions;
8.4 The Registration Statement shall have become effective under the
1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending,
threatened
or contemplated under the 1933 Act;
8.5 The Articles of Incorporation of the Acquiring Fund shall have been
amended in accordance with applicable Washington law providing for an increase
in the number of authorized Class A Shares of the Acquiring Fund pursuant to
the
requisite vote of the holders of the outstanding shares of the Acquiring Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund
nor
the Acquired Fund may waive the conditions set forth in this paragraph 8.5.
9. BROKERAGE FEES AND EXPENSES
9.1 The Acquiring Fund represents and warrants to the Acquired Fund, and
the Acquired Fund represents and warrants to the Acquiring Fund, that there
are
no brokers or finders entitled to receive any payments in connection with the
transactions provided for herein.
9.2 (a) Except as may be otherwise provided herein, the Acquired Fund
and
the Acquiring Fund shall each be liable for its expenses incurred in
connection
with entering into and carrying out the provisions of this Agreement, whether
or
not the transactions contemplated hereby are consummated. The expenses
payable
by the Acquired Fund hereunder shall include the expenses of: (i) its counsel
and independent accountants associated with the proposed transaction; (ii)
printing and mailing the Prospectus/Proxy Statement and soliciting proxies in
connection with the meeting of shareholders of the Acquired Fund referred to
in
paragraph 5.2 hereof, (iii) all fees and expenses related to the liquidation
of
the Acquired Fund; (iv) fees and expenses of the Acquired Fund's custodian and
transfer agent incurred in connection with the transactions; and (v) any
special
pricing fees associated with the valuation of the Acquired Fund's portfolio on
the Closing Date. The expenses payable by the Acquiring Fund hereunder shall
include: (i) fees and expenses of its counsel and independent accountants
associated with the transaction; (ii) expenses associated with preparing this
Agreement and preparing and filing the Registration Statement under the 1933
Act
covering the Acquiring Fund Shares to be issued in the transaction; (iii)
registration or qualification fees and expenses of preparing and filing such
forms, if any, necessary under applicable state securities laws to qualify the
Acquiring Fund Shares to be issued in connection with the transaction; (iv)
any
fees and expenses of the Acquiring Fund's custodian and transfer agent
incurred
in connection with the Reorganization; and (v) any special pricing fees
associated with the valuation of the Acquiring Fund's portfolio on the Closing
Date.
(b) Consistent with the provisions of paragraph 1.3, the Acquired
Fund, prior to the Closing, shall pay for or include in the unaudited
Statement
of Assets and Liabilities prepared pursuant to paragraph 1.3 all of its known
and reasonably estimated expenses associated with the transactions
contemplated
by this Agreement.
-9-
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Fund and the Acquired Fund agree that neither party
has
made any representation, warranty or covenant not set forth herein and that
this
Agreement constitutes the entire agreement among the parties.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith
shall survive the consummation of the transactions contemplated hereunder.
11. TERMINATION
11.1 This Agreement may be terminated at any time at or prior to the
Closing Date by: (1) mutual agreement of the Acquired Fund and the Acquiring
Fund; (2) the Acquired Fund in the event the Acquiring Fund shall, or the
Acquiring Fund in the event the Acquired Fund shall, materially breach any
representation, warranty or agreement contained herein to be performed at or
prior to the Closing Date; or (3) either party if a condition herein expressed
to be precedent to the obligations of the terminating party has not been met
and
it reasonably appears that it will not or cannot be met.
11.2 In the event of any such termination, there shall be no liability
for
damages on the part of either the Acquiring Fund or the Acquired Fund, or
their
respective Directors and Individual General Partners, respectively, to the
other
party, but each shall bear the expenses incurred by it incidental to the
preparation and carrying out of this Agreement as provided in paragraph 9.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the designated agents of the
Acquired
Fund and the authorized officers of the Acquiring Fund; provided, however,
that
following the meeting of the Acquired Fund's shareholders called by the
Acquired
Fund pursuant to paragraph 5.2 of this Agreement, no such amendment may have
the
effect of changing the provisions for determining the number of the Acquiring
Fund Shares to be issued to the Acquired Fund's Shareholders under this
Agreement to the detriment of such shareholders without their further
approval.
13. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy or certified mail addressed to the Acquiring Fund, Two
World
Trade Center, Floor 100, New York, New York 10048, Attention: Heath B.
McLendon;
or to the Acquired Fund, Two World Trade Center, Floor 100, New York, New York
10048, Attention: Heath B. McLendon.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF
LIABILITY
14.1 The article and paragraph headings contained in this Agreement are
for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each
of
which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
14.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein
expressed
or implied is intended or shall be construed to confer upon or give any
person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
-10-
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to
be executed by the Acquiring Fund's Chairman of the Board, President or Vice
President and the Acquired Fund's Principal Individual General Partner and its
seal to be affixed thereto.
SMITH BARNEY SHEARSON FUNDAMENTAL VALUE FUND INC.
By:
-------------------------
Name:
-----------------------------------
Title:
-----------------------------------
Attest:
-----------------------
THE ADVISORS FUND L.P.
By:
-------------------------
Name:
-----------------------------------
Title:
-----------------------------------
Attest:
-----------------------
-11-
STATEMENT OF ADDITIONAL INFORMATION
ACQUISITION OF THE ASSETS OF
The Advisors Fund L.P.
Two World Trade Center
New York, New York 10048
Telephone (212) 464-8068
BY AND IN EXCHANGE FOR CLASS A AND CLASS B SHARES OF
Smith Barney Shearson Fundamental Value Fund Inc.
Two World Trade Center
New York, New York 10048
Telephone (212) 464-8068
This Statement of Additional Information, relating specifically to the
proposed acquisition of all or substantially all of the assets of The Advisors
Fund L.P. (the "Fund") by Smith Barney Shearson Fundamental Value Fund Inc.
("Fundamental Value Fund") in exchange for shares of Fundamental Value Fund,
consists of this cover page and the following described documents, each of
which
is attached hereto and incorporated by reference herein:
(1) The Statement of Additional Information of Fundamental Value
Fund dated November 22, 1993.
(2) The Annual Report of Fundamental Value Fund for the year ended
September 30, 1993.
(3) The Semi-Annual Report of Fundamental Value Fund for the
period ended March 31, 1994.
(4) The Annual Report of The Advisors Fund L.P. for the year
ended December 31, 1993.
(5) The Semi-Annual Report of The Advisors Fund L.P. for the
period ended June 30, 1994.
(6) Pro forma financial statements as of March 31, 1994.
This Statement of Additional Information is not a prospectus. A Proxy
Statement/Prospectus dated October __, 1994 relating to the above-referenced
matter may be obtained by calling (800) 451-2010. This Statement of
Additional
Information relates to, and should be read in conjunction with, such Proxy
Statement/ Prospectus.
The date of this Statement of Additional Information is October __, 1994.
---------- SMITH BARNEY SHEARSON
FUNDAMENTAL VALUE FUND INC.
TWO WORLD TRADE CENTER - NEW YORK, NEW YORK 10048 - (212) 720-9218
STATEMENT OF ADDITIONAL INFORMATION NOVEMBER 22,
1993
This Statement of Additional Information expands upon and supplements the
information contained in the current Prospectus of Smith Barney Shearson
Fundamental Value Fund Inc. (the 'Fund'), dated November 22, 1993, as amended
or
supplemented from time to time, and should be read in conjunction with the
Fund's Prospectus. The Fund's Prospectus may be obtained from any Smith Barney
Shearson Financial Consultant or by writing or calling the Fund at the address
or phone number listed above. This Statement of Additional Information,
although
not in itself a prospectus, is incorporated by reference into the Prospectus
in
its entirety.
---------- CONTENTS
<TABLE>
For ease of reference, the same section headings are used in both the
Prospectus and this Statement of Additional Information, except where shown
below.
<S>
<C>
Management of the
Fund....................................................... 1
Investment Objective and Management
Policies................................. 5
Purchase of
Shares........................................................... 16
Redemption of
Shares......................................................... 17
Distributor..................................................................
18
Valuation of
Shares.......................................................... 19
Exchange
Privilege........................................................... 20
Performance Data (See in the Prospectus 'The Fund's
Performance')............ 21
Taxes (See in the Prospectus 'Dividends, Distributions and
Taxes')........... 22
Custodian and Transfer Agent (See in the Prospectus 'Additional
Information')..............................................................
25
Organization of the Fund (See in the Prospectus 'Additional
Information').... 25
Financial
Statements......................................................... 26
</TABLE>
---------- MANAGEMENT OF THE FUND
<TABLE>
The executive officers of the Fund are employees of certain of the
organizations that provide services to the Fund. These organizations are as
follows:
<CAPTION>
NAME SERVICE
--------------------------------------------- --------------------------
- ----------------
<S> <C>
Smith Barney Shearson Inc.................... Distributor
('Smith Barney Shearson')
Smith Barney Shearson Asset Management
Division of Smith, Barney Advisers, Inc.... Investment Adviser
('Asset Management')
The Boston Company Advisors, Inc............. Administrator
('Boston Advisors')
Boston Safe Deposit and Trust Company........ Custodian
('Boston Safe')
The Shareholder Services Group, Inc.,
('TSSG'), a subsidiary of First Data
Corporation................................ Transfer Agent
</TABLE>
These organizations and the functions they perform for the Fund are
discussed in the Prospectus and in this Statement of Additional Information.
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE FUND
The Directors and executive officers of the Fund, together with
information
as to their principal business occupations during the past five years, are set
forth below. Each Director who is an 'interested person' of the Fund, as
defined
in the Investment Company Act of 1940, as amended (the '1940 Act'), is
indicated
by an asterisk.
Lloyd J. Andrews, Director. Private investor; Director of North Coast
Life
Insurance Company and Flow Systems, Inc.; Past Vice Chairman and Director of
Chem-Nuclear Systems, Inc. His address is East 10110 Green Bluff Road, Mead,
Washington 98021.
Robert M. Frayn, Jr., President and Director of Book Publishing Company.
His address is 201 Westlake No. Seattle, Washington 98109.
Leon P. Gardner, Director. Private investor; Chairman of Fargo's Pizza
Company. His address is 2310 N.E. Blue Ridge Drive, Seattle, Washington 98117.
Howard J. Johnson, Director. President and Chairman of Howard Johnson &
Co., an actuary and pension consultant; Secretary and Director of Wurts
Johnson
and Company; Director of Spring Street Securities, Inc.; Director of Ranier
Trust Company; Director ex-officio of American Society of Pension Actuaries.
His
address is Suite 370, 375 Park Avenue, New York, New York 10152.
David E. Maryatt, Director. Director of ALS Co., a textile rental
services
firm; Private Investor. His address is 771 Valley Street, Seattle, Washington
98109.
*Heath B. McLendon, Chairman of the Board. Executive Vice President of
Smith Barney Shearson; and Chairman of Smith Barney Shearson Strategy Advisers
Inc., an investment advisory affiliate of Smith Barney Shearson ('SBSSA').
Prior
to July 1993, Senior Executive Vice President of Shearson Lehman Brothers Inc.
('Shearson Lehman Brothers'); Vice Chairman of the Board of Shearson Asset
Management, a member of the Asset Management Group of Shearson Lehman
Brothers;
a Director of PanAgora Asset Management Inc. and PanAgora Asset Management
Limited. His address is Two World Trade Center, New York, New York 10048.
*William J. Rex, Director and Vice President. Executive Vice President of
Lehman Brothers Inc.; President of Foster & Marshall Inc. His address is 999
Third Avenue, 40th Floor, Seattle, Washington 98104.
Jerry A. Viscione, Director. Dean of Albers School of Business and
Economics, Seattle University. His address is 3480 Northeast 155 Street,
Seattle, Washington 98155.
Julie W. Weston, Director. Attorney; prior to 1987, Secretary and General
Counsel of Skinner Corporation, a distributor of consumer and industrial
products. Her address is 416 34th Avenue, Seattle, Washington 98122.
Richard P. Roelofs, President. Managing Director of Smith Barney
Shearson;
President of SBSSA. Prior to July 1993, Senior Vice President of Shearson
Lehman
Brothers, Vice President of Shearson Lehman Investment Strategy Advisors Inc.,
an investment advisory affiliate of Shearson Lehman Brothers. His address is
Two
World Trade Center, New York, New York 10048.
John G. Goode, Vice President and Investment Officer. President and Chief
Executive Officer of Davis Skaggs Investment Management, a division of Asset
Management. His address is One Sansome Street, 38th Floor, San Francisco,
California 94104.
2
<PAGE>
Peter Hable, Investment Officer. Senior Vice President of Davis Skaggs
Investment Management, a division of Asset Management. His address is One
Sansome Street, 38th Floor, San Francisco, California 94104.
Vincent Nave, Treasurer. Senior Vice President of Boston Advisors and
Boston Safe. His address is One Boston Place, Boston, Massachusetts 02108.
Francis J. McNamara, III, Secretary. Senior Vice President and General
Counsel of Boston Advisors; Prior to June 1989, Vice President and Associate
Counsel of Boston Advisors. His address is One Boston Place, Boston,
Massachusetts 02108.
Mr. McLendon and Mr. Roelofs also serve as trustees, directors and/or
general partners of other mutual funds for which Smith Barney Shearson serves
as
principal underwriter.
As of September 30, 1993, the Directors and officers of the Fund, as a
group, beneficially owned less than 1% of the outstanding common stock of the
Fund.
No officer, director or employee of Smith Barney Shearson or Boston
Advisors or of any parent or subsidiary of those corporations receives any
compensation from the Fund for serving as an officer or Director of the Fund.
The Fund pays each Director who is not an officer or employee of Smith Barney
Shearson or Boston Advisors or any of their affiliates a fee of $2,000 per
annum
plus $500 for each Board or Committee meeting attended and reimburses them for
travel and out-of-pocket expenses. During the fiscal year ended September 30,
1993, such fees and expenses totalled $ .
INVESTMENT ADVISER--ASSET MANAGEMENT
ADMINISTRATOR--BOSTON ADVISORS
Asset Management serves as investment adviser to the Fund pursuant to a
written agreement dated July 30, 1993 (the 'Advisory Agreement'), which was
most
recently approved by the Board of Directors, including a majority of the
Directors who are not 'interested persons' of the Fund or Asset Management, on
April 7, 1993 and by the shareholders of the Fund on June 22, 1993. Asset
Management pays the salary of any officer and employee who is employed by both
it and the Fund. Asset Management bears all expenses in connection with the
performance of its services. The services provided by Asset Management under
the
Advisory Agreement are described in the Prospectus. Asset Management is a
division of Smith Barney Advisers Inc. ('SBA'). SBA is a wholly-owned
subsidiary
of Smith Barney Shearson Holdings Inc., which is in turn a wholly-owned
subsidiary of Primerica Corporation ('Primerica').
As compensation for Asset Management's services rendered to the Fund, the
Fund pays a fee, computed daily and paid monthly at the annual rate of 0.55%
of
the value of the Fund's average daily net assets. Asset Management bears all
of
its expenses in connection with the performance of its services. For the
fiscal
years ended September 30, 1993, 1992 and 1991, the Fund paid Asset Management
and its predecessor $ , $370,317 and $321,009, respectively, in
investment advisory fees.
Boston Advisors serves as administrator to the Fund pursuant to a written
agreement dated May 21, 1993 (the 'Administration Agreement'), which was first
approved by the Board of Directors, including a majority of the Directors who
are not 'interested persons' of the Fund or Boston Advisors, on December 1,
1992. Prior to the close of business on May 21, 1993, Boston Advisors acted in
the capacity of sub-investment adviser and administrator to the Fund. Boston
Advisors is a wholly owned subsidiary of The Boston
3
<PAGE>
Company, Inc. ('TBC'), a financial services holding company, which is in turn
a
wholly-owned subsidiary of Mellon Bank Corporation ('Mellon').
Prior to the close of business on May 21, 1993 (the 'Closing'), Boston
Advisors was an affiliate of Shearson Lehman Brothers Inc. ('Shearson Lehman
Brothers') and in connection with its sale to Mellon, Shearson Lehman Brothers
conditionally agreed (with certain exceptions including one for certain of
Shearson Lehman Brothers' current businesses) not to provide custody services,
administration services or master trust services to certain clients of TBC and
Boston Advisors and their subsidiaries for periods of one to seven years. In
addition, for a seven-year period commencing on May 22, 1993, Shearson Lehman
Brothers (and its successors) agreed, consistent with its fiduciary duties and
assuming certain service quality standards are met, (a) to recommend TBC and
Boston Advisors and its subsidiaries as the providers of such custody
services,
administration services and investment advisory services as were provided by
TBC
and Boston Advisors and their subsidiaries to the investment companies for
which
Shearson Lehman Brothers served as investment advisor or principal
underwriter,
and (b) to recommend TBC and Boston Advisors as the provider of custody
services
and administration services for all new investment companies for which
Shearson
Lehman Brothers agrees to serve as investment advisor or principal
underwriter.
Certain of the services provided to the Fund by Boston Advisors are
described in the Prospectus under 'Management of the Fund.' In addition to
those
services, Boston Advisors pays the salaries of all officers and employees who
are employed by both it and the Fund, maintains office facilities for the
Fund,
furnishes the Fund with statistical and research data, clerical help and
accounting, data processing, bookkeeping, internal auditing and legal services
and certain other services required by the Fund, prepares reports to the
Fund's
shareholders and prepares tax returns, reports to and filings with the
Securities and Exchange Commission (the 'SEC') and state blue sky authorities.
Boston Advisors bears all expenses in connection with the performance of its
services.
As compensation for Boston Advisors' services rendered to the Fund, the
Fund pays a fee, computed daily and paid monthly at the annual rate of 0.20%
of
the value of the Fund's average daily net assets. For the period from October
1,
1992 to May 21, 1993, and the fiscal years ended September 30, 1992 and 1991,
the Fund paid $ , $134,661 and $116,731, respectively, in sub-investment
advisory and administration fees. For the period from May 22, 1993 to
September
30, 1993, the Fund paid $ in administration fees.
The Fund bears expenses incurred in its operation, including taxes,
interest, brokerage fees and commissions, if any; fees of Directors who are
not
officers, directors, shareholders or employees of Asset Management, Smith
Barney
Shearson or Boston Advisors; SEC fees and state blue sky qualification fees;
charges of custodians; transfer and dividend disbursing agent's fees; certain
insurance premiums; outside auditing and legal expenses; costs of maintenance
of
corporate existence; investor services (including allocated telephone and
personnel expenses); and costs of preparation and printing of prospectuses for
regulatory purposes and for distribution to shareholders, shareholders'
reports
and meetings.
Asset Management and Boston Advisors have agreed that if in any fiscal
year
the aggregate expenses of the Fund (including fees paid pursuant to the
Advisory
Agreement and the Administration Agreement, but excluding interest, taxes,
brokerage and, with the prior written consent of the necessary state
securities
commissions, extraordinary expenses) exceed the expense limitation of any
state
having jurisdiction over the Fund, Asset Management and Boston Advisors will,
to
the extent required by law, reduce their
4
<PAGE>
management fees by the amount of such excess expense, such amount to be
allocated between them in the proportion that their respective fees bear to
the
aggregate of such fees paid by the Fund. Such a fee reduction, if any, will be
reconciled on a monthly basis. The most restrictive state expense limitation
applicable to the Fund would require Asset Management and Boston Advisors to
reduce their fees in any year that such excess expenses exceed 2.5% of the
first
$30 million of average daily net assets, 2% of the next $70 million of average
daily net assets and 1.5% of the remaining average daily net assets. No such
fee
reduction was required for the fiscal years ended September 30, 1993, 1992 and
1991.
COUNSEL AND AUDITORS
Willkie Farr & Gallagher serves as legal counsel to the Fund. The
Directors
who are not 'interested persons' of the Fund have selected Stroock & Stroock &
Lavan as their counsel. Lane Powell Spears Lubersky of Seattle, Washington,
acts
as counsel to the Fund in areas involving issues under Washington law.
Deloitte & Touche, independent public accountants, 125 Summer Street,
Boston, Massachusetts 02110, serve as auditors of the Fund. Deloitte & Touche
renders an opinion on the Fund's financial statements annually.
---------- INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Prospectus discusses the Fund's investment objective and the policies
it employs to achieve that objective. The following discussion supplements the
description of the Fund's investment objective and management policies in the
Prospectus.
The Fund's primary investment objective is long-term capital growth.
Current income is a secondary objective. The Fund seeks to achieve its
objective
through investment in common stocks and common stock equivalents, including
preferred stocks and other securities convertible into common stocks. The Fund
also invests to a lesser extent in bonds and other debt instruments. There is
no
guarantee that the Fund will achieve its investment objective.
Asset Management places emphasis on securities which, in its judgment,
are
undervalued in the marketplace and, accordingly, have above-average growth
potential. Undervaluation of a security can result from a variety of factors,
such as a lack of investor recognition of (a) the underlying value of a
company's fixed assets, (b) the value of a consumer or commercial franchise,
(c)
changes in the economic or financial environment particularly affecting a
company, (d) new, improved or unique products or services, (e) new or rapidly
expanding markets, (f) changes in management of a company, (g) technological
developments or advancements affecting a company or its products or (h)
changes
in governmental regulations, political climate or competitive conditions. In
general, the Fund will invest in securities of companies which temporarily are
unpopular among investors but which Asset Management regards as possessing
favorable prospects for earnings growth and/or improvement in the value of
their
assets and, consequently, as having a reasonable likelihood of experiencing a
recovery in market price. Secondary consideration will be given to a company's
dividend record and the potential for an improved dividend return.
Because securities markets typically are influenced (and, to some extent,
dominated) by institutional investors, undervalued securities in which the
Fund
invests may tend to be those of less well-established
5
<PAGE>
companies or companies whose capitalizations are less than the capitalizations
of larger, better-known companies. To the extent securities held in the Fund's
portfolio do not attract investor interest, these investments may not
participate in rising securities markets. By the same token, in many instances
the selection of undervalued securities for investment may involve a smaller
risk of capital loss because such lack of investor interest is reflected in
the
price of the securities at the time of purchase.
FOREIGN SECURITIES AND AMERICAN DEPOSITARY RECEIPTS
The Fund has the authority to invest up to 25% of its assets in foreign
securities and American Depositary Receipts ('ADRs'). ADRs are
dollar-denominated receipts issued generally by domestic banks representing
the
deposit with the bank of a security of a foreign issuer. ADRs are publicly
traded on exchanges or over-the-counter in the United States.
Investing in the securities of foreign companies involves special risks
and
considerations not typically associated with investing in U.S. companies.
These
include differences in accounting, auditing and financial reporting standards,
generally higher commission rates on foreign portfolio transactions, the
possibility of expropriation or confiscatory taxation, adverse changes in
investment or exchange control regulations, political instability which could
affect U.S. investments in foreign countries, and potential restrictions on
the
flow of international capital. Additionally, foreign securities often trade
with
less frequency and volume than domestic securities and therefore may exhibit
greater price volatility. Many of the foreign securities held by the Fund will
not be registered with, nor the issuers thereof be subject to, the reporting
requirements of the SEC. Accordingly, there may be less publicly available
information about the securities and about the foreign company issuing them
than
is available about a domestic company and its securities. Moreover, individual
foreign economies may differ favorably or unfavorably from the U.S. economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payment positions. The
Fund may invest in securities of foreign governments (or agencies or
subdivisions thereof), and therefore many, if not all, of the foregoing
considerations apply to such investments as well.
LENDING OF PORTFOLIO SECURITIES
As discussed in the Prospectus, the Fund has the ability to lend
securities
from its portfolio to brokers, dealers and other financial organizations. Such
loans, if and when made, may not exceed 20% of the Fund's total assets. The
Fund
may not lend its portfolio securities to Smith Barney Shearson or its
affiliates
unless it has applied for and received specific authority from the SEC. Loans
of
portfolio securities by the Fund will be collateralized by cash, letters of
credit or securities issued or guaranteed by the U.S. government, its agencies
or instrumentalities ('U.S. government securities'), which will be maintained
at
all times in an amount equal to at least 100% of the current market value of
the
loaned securities. From time to time, the Fund may return a part of the
interest
earned from the investment of collateral received for securities loaned to the
borrower and/or a third party, which is unaffiliated with the Fund or with
Smith
Barney Shearson, and which is acting as a 'finder.'
In lending its portfolio securities, the Fund can increase its income by
continuing to receive interest on the loaned securities as well as by either
investing the cash collateral in short-term instruments or obtaining yield in
the form of interest paid by the borrower when government securities are used
as
collateral. Requirements of the SEC, which may be subject to future
modifications, currently provide that the following conditions must be met
whenever portfolio securities are loaned: (a) the Fund must receive at least
100% cash collateral or
6
<PAGE>
equivalent securities from the borrower; (b) the borrower must increase such
collateral whenever the market value of the securities rises above the level
of
such collateral; (c) the Fund must be able to terminate the loan at any time;
(d) the Fund must receive reasonable interest on the loan, as well as an
amount
equal to any dividends, interest or other distributions on the loaned
securities, and any increase in market value; (e) the Fund may pay only
reasonable custodian fees in connection with the loan; and (f) voting rights
on
the loaned securities may pass to the borrower; however, if a material event
adversely affecting the investment occurs, the Fund's Board of Directors must
terminate the loan and regain the right to vote the securities. The risks in
lending portfolio securities, as with other extensions of secured credit,
consist of possible delay in receiving additional collateral or in the
recovery
of the securities or possible loss of rights in the collateral should the
borrower fail financially. Loans will be made to firms deemed by Asset
Management or Boston Advisors to be of good standing and will not be made
unless, in the judgment of Asset Management or Boston Advisors, the
consideration to be earned from such loans would justify the risk.
MONEY MARKET INSTRUMENTS
As stated in the Prospectus, the Fund may invest for defensive purposes
in
corporate and government bonds and notes and money market instruments. Money
market instruments in which the Fund may invest include U.S. government
securities; certificates of deposit, time deposits and bankers' acceptances
issued by domestic banks (including their branches located outside the United
States and subsidiaries located in Canada), domestic branches of foreign
banks,
savings and loan associations and similar institutions; high grade commercial
paper; and repurchase agreements with respect to the foregoing types of
instruments. The following is a more detailed description of such money market
instruments.
Bank Obligations. Certificates of deposit ('CDs') are short-term
negotiable obligations of commercial banks; time deposits ('TD's') are
non-negotiable deposits maintained in banking institutions for specified
periods
of time at stated interest rates; and bankers' acceptances are time drafts
drawn
on commercial banks by borrowers usually in connection with international
transactions.
Domestic banks organized under Federal law are supervised and examined by
the Comptroller of the Currency and are required to be members of the Federal
Reserve System and to be insured by the Federal Deposit Insurance Corporation
(the 'FDIC'). Domestic banks organized under state law are supervised and
examined by state banking authorities but are members of the Federal Reserve
System only if they elect to join. Most state banks are insured by the FDIC
(although such insurance may not be of material benefit to the Fund, depending
upon the principal amounts of CDs of each bank held by the Fund) and are
subject
to Federal examination and to a substantial body of Federal law and
regulation.
As a result of governmental regulations, domestic branches of domestic banks
are
generally required to, among other things, maintain specified levels of
reserves, and are subject to other supervision and regulation designed to
promote financial soundness.
Obligations of foreign branches of domestic banks, such as CDs and TDs,
may
be general obligations of the parent bank in addition to the issuing branch,
or
may be limited by the terms of a specific obligation and government
regulation.
Such obligations are subject to different risks than are those of domestic
banks
or domestic branches of foreign banks. These risks include foreign economic
and
political developments, foreign governmental restrictions that may adversely
affect payment of principal and interest on the obligations, foreign exchange
controls and foreign withholding and other taxes on interest income. Foreign
branches of domestic banks are not necessarily subject to the same or similar
regulatory requirements that
7
<PAGE>
apply to domestic banks, such as mandatory reserve requirements, loan
limitations, and accounting, auditing and financial recordkeeping
requirements.
In addition, less information may be publicly available about a foreign branch
of a domestic bank than about a domestic bank. CDs issued by wholly owned
Canadian subsidiaries of domestic banks are guaranteed as to repayment of
principal and interest (but not as to sovereign risk) by the domestic parent
bank.
Obligations of domestic branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by governmental regulation
as
well as governmental action in the country in which the foreign bank has its
head office. A domestic branch of a foreign bank with assets in excess of $1
billion may or may not be subject to reserve requirements imposed by the
Federal
Reserve System or by the state in which the branch is located if the branch is
licensed in that state. In addition, branches licensed by the Comptroller of
the
Currency and branches licensed by certain states ('State Branches') may or may
not be required to: (a) pledge to the regulator by depositing assets with a
designated bank within the state, an amount of its assets equal to 5% of its
total liabilities; and (b) maintain assets within the state in an amount equal
to a specified percentage of the aggregate amount of liabilities of the
foreign
bank payable at or through all of its agencies or branches within the state.
The
deposits of State Branches may not necessarily be insured by the FDIC. In
addition, there may be less publicly available information about a domestic
branch of a foreign bank than about a domestic bank.
In view of the foregoing factors associated with the purchase of CDs and
TDs issued by foreign branches of domestic banks or by domestic branches of
foreign banks, Asset Management will carefully evaluate such investments on a
case-by-case basis.
Savings and loan associations whose CDs may be purchased by the Fund are
supervised by the Office of Thrift Supervision and are insured by the Savings
Association Insurance Fund, which is administered by the FDIC and is backed by
the full faith and credit of the U.S. government. As a result, such savings
and
loan associations are subject to regulation and examination.
WRITING OF COVERED CALL AND PUT OPTIONS
The principal reason for writing covered call options on securities is to
attempt to realize, through the receipt of premiums, a greater return than
would
be realized on the securities alone. In return for a premium, the writer of a
covered call option forfeits the right to any appreciation in the value of the
underlying security above the strike price for the life of the option (or
until
a closing purchase transaction can be effected). Nevertheless, the call writer
retains the risk of a decline in the price of the underlying security.
Similarly, the principal reason for writing covered put options is to realize
income in the form of premiums. The writer of a covered put option accepts the
risk of a decline in the price of the underlying security. The size of the
premiums the Fund may receive may be adversely affected as new or existing
institutions, including other investment companies, engage in or increase
their
option-writing activities.
Options written by the Fund will normally have expiration dates between
one
and six months from the date written. The exercise price of the options may be
below, equal to, or above the current market values of the underlying
securities
at the times the options are written. In the case of call options these
exercise
prices are referred to as 'in-the-money,' 'at-the-money' and 'out-of-the-
money,'
respectively.
8
<PAGE>
The Fund may write (a) in-the-money call options when Asset Management
expects the price of the underlying security to remain flat or decline
moderately during the option period, (b) at-the-money call options when Asset
Management expects the price of the underlying security to remain flat or
advance moderately during the option period and (c) out-of-the-money call
options when Asset Management expects that the price of the security may
increase but not above a price equal to the sum of the exercise price plus the
premiums received from writing the call option. In any of the preceding
situations, if the market price of the underlying security declines and the
security is sold at this lower price, the amount of any realized loss will be
offset wholly or in part by the premium received. Out-of-the-money, at-the-
money
and in-the-money put options (the reverse of call options as to the relation
of
exercise price to market price) may be utilized in the same market
environments
as such call options are used in equivalent transactions.
So long as the obligation of the Fund as the writer of an option
continues,
the Fund may be assigned an exercise notice by the broker-dealer through which
the option was sold, requiring it to deliver, in the case of a call, or take
delivery of, in the case of a put, the underlying security against payment of
the exercise price. This obligation terminates when the option expires or the
Fund effects a closing purchase transaction. The Fund can no longer effect a
closing purchase transaction with respect to an option once it has been
assigned
an exercise notice. To secure its obligation to deliver the underlying
security
when it writes a call option, or to pay for the underlying security when it
writes a put option, the Fund will be required to deposit in escrow the
underlying security or other assets in accordance with the rules of the
Options
Clearing Corporation or similar clearing corporation and the securities
exchange
on which the option is written.
An option position may be closed out only where there exists a secondary
market for an option of the same series on a recognized securities exchange or
in the over-the-counter market. The Fund expects to write options only on
national securities exchanges or in the over-the-counter market.
The Fund may realize a profit or loss upon entering into a closing
transaction. In cases in which the Fund has written an option, it will realize
a
profit if the cost of the closing purchase transaction is less than the
premium
received upon writing the original option and will incur a loss if the cost of
the closing purchase transaction exceeds the premium received upon writing the
original option.
Although the Fund generally will write only those options for which Asset
Management believes there is an active secondary market so as to facilitate
closing transactions, there is no assurance that sufficient trading interest
to
create a liquid secondary market on a securities exchange will exist for any
particular option or at any particular time, and for some options no such
secondary market may exist. A liquid secondary market in an option may cease
to
exist for a variety of reasons. In the past, for example, higher than
anticipated trading activity or order flow, or other unforeseen events, have
at
times rendered certain of the facilities of national securities exchanges
inadequate and resulted in the institution of special procedures, such as
trading rotations, restrictions on certain types of orders or trading halts or
suspensions in one or more options. There can be no assurance that similar
events, or events that may otherwise interfere with the timely execution of
customers' orders, will not recur. In such event, it might not be possible to
effect closing transactions in particular options. If, as a covered call
option
writer, the Fund is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying security until
the
option expires or it delivers the underlying security upon exercise.
Securities exchanges generally have established limitations governing the
maximum number of calls and puts of each class which may be held or written,
or
exercised within certain periods, by an investor or group of investors acting
in
concert (regardless of whether the options are written on the same or
different
9
<PAGE>
securities exchanges or are held, written or exercised in one or more accounts
or through one or more brokers). It is possible that the Fund and other
clients
of Asset Management and certain of their affiliates may be considered to be
such
a group. A securities exchange may order the liquidation of positions found to
be in violation of these limits, and it may impose certain other sanctions.
In the case of options written by the Fund that are deemed covered by
virtue of the Fund's holding convertible or exchangeable preferred stock or
debt
securities, the time required to convert or exchange and obtain physical
delivery of the underlying common stocks with respect to which the Fund has
written options may exceed the time within which the Fund must make delivery
in
accordance with an exercise notice. In these instances, the Fund may purchase
or
temporarily borrow the underlying securities for purposes of physical
delivery.
By so doing, the Fund will not bear any market risk because the Fund will have
the absolute right to receive from the issuer of the underlying security an
equal number of shares to replace the borrowed stock, but the Fund may incur
additional transaction costs or interest expenses in connection with any such
purchase or borrowing.
Although Asset Management will attempt to take appropriate measures to
minimize the risks relating to the Fund's writing of put and call options,
there
can be no assurance that the Fund will succeed in its option-writing program.
Stock Index Options. The Fund may purchase put and call options and
write
call options on domestic stock indexes listed on domestic exchanges in order
to
realize its investment objective of capital appreciation or for the purpose of
hedging its portfolio. A stock index fluctuates with changes in the market
values of the stocks included in the index. Some stock index options are based
on a broad market index such as the New York Stock Exchange Composite Index or
the Canadian Market Portfolio Index, or a narrower market index such as the
Standard & Poor's 100. Indexes also are based on an industry or market segment
such as the American Stock Exchange Oil and Gas Index or the Computer and
Business Equipment Index.
Options on stock indexes are generally similar to options on stock except
that the delivery requirements are different. Instead of giving the right to
take or make delivery of stock at a specified price, an option on a stock
index
gives the holder the right to receive a cash 'exercise settlement amount'
equal
to (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise, multiplied by
(b)
a fixed 'index multiplier.' Receipt of this cash amount will depend upon the
closing level of the stock index upon which the option is based being greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option. The amount of cash received will be equal to such
difference between the closing price of the index and the exercise price of
the
option expressed in dollars or a foreign currency, as the case may be, times a
specified multiple. The writer of the option is obligated, in return for the
premium received, to make a delivery of this amount. The writer may offset its
position in stock index options prior to expiration by entering into a closing
transaction on an exchange or it may let the option expire unexercised.
The effectiveness of purchasing or writing stock index options as a
hedging
technique will depend upon the extent to which price movements in the portion
of
the securities portfolio of the Fund correlate with price movements of the
stock
index selected. Because the value of an index option depends upon movements in
the level of the index rather than the price of a particular stock, whether
the
Fund will realize a gain or loss from the purchase or writing of options on an
index depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indexes, in an industry or market
segment,
rather than
10
<PAGE>
movements in the price of a particular stock. Accordingly, successful use by
the
Fund of options on stock indexes will be subject to Asset Management's ability
to predict correctly movements in the direction of the stock market generally
or
of a particular industry. This requires different skills and techniques than
predicting changes in the price of individual stocks.
Futures Contracts and Options on Futures Contracts. The Fund may invest
in
stock index futures contracts and options on futures contracts that are traded
on a domestic exchange or board of trade. These investments may be made by the
Fund solely for the purpose of hedging against changes in the value of its
portfolio securities due to anticipated changes in interest rates and market
conditions and not for purposes of speculation. In entering into transactions
involving futures contracts and options on futures contracts, the Fund will
comply with applicable requirements of the Commodities Futures Trading
Commission (the 'CFTC') which require that its transactions in futures and
options be engaged in for 'bona fide hedging' purposes or other permitted
purposes, provided that aggregate initial margin deposits and premiums
required
to establish positions other than those considered by the CFTC to be 'bona
fide
hedging' will not exceed 5% of the Fund's net asset value, after taking into
account unrealized profits and unrealized losses on any such contracts.
The purpose of entering into a futures contract by the Fund is to protect
the Fund from fluctuations in the value of securities without actually buying
or
selling the securities. For example, in the case of stock index futures
contracts, if the Fund anticipates an increase in the price of stocks that it
intends to purchase at a later time, the Fund could enter into contracts to
purchase the stock index (known as taking a 'long' position) as a temporary
substitute for the purchase of stocks. If an increase in the market occurs
that
influences the stock index as anticipated, the value of the futures contracts
increases and thereby serves as a hedge against the Fund's not participating
in
a market advance. The Fund then may close out the futures contracts by
entering
into offsetting futures contract to sell the stock index (known as taking a
'short' position) as it purchases individual stocks. The Fund can accomplish
similar results by buying securities with long maturities and selling
securities
with short maturities. But by using futures contracts as an investment tool to
reduce risk, given the greater liquidity in the futures market than in the
cash
market, it may be possible to accomplish the same result more easily and more
quickly.
No consideration will be paid or received by the Fund upon the purchase
or
sale of a futures contract. Initially, the Fund will be required to deposit
with
the broker an amount of cash or cash equivalents equal to approximately 1% to
10% of the contract amount (this amount is subject to change by the exchange
or
board of trade on which the contract is traded and brokers or members of such
board of trade may charge a higher amount). This amount is known as 'initial
margin' and is in the nature of a performance bond or good faith deposit on
the
contract which is returned to the Fund, upon termination of the futures
contract, assuming all contractual obligations have been satisfied. Subsequent
payments, known as 'variation margin,' to and from the broker, will be made
daily as the price of the index or securities underlying the futures contract
fluctuates, making the long and short positions in the futures contract more
or
less valuable, a process known as 'marking-to-market.' In addition, when the
Fund enters into a long position in a futures contract or an option on a
futures
contract, it must deposit into a segregated account with the Fund's custodian
an
amount of cash or cash equivalents equal to the total market value of the
underlying futures contract, less amounts held in the Fund's commodity
brokerage
account at its broker. At any time prior to the expiration of a futures
contract, the Fund may elect to close the position by taking an opposite
position, which will operate to terminate the Fund's existing position in the
contract.
11
<PAGE>
There are several risks in connection with the use of futures contracts
as
a hedging device. Successful use of futures contracts by the Fund is subject
to
the ability of Asset Management to predict correctly movements in the stock
market or in the direction of interest rates. These predictions involve skills
and techniques that may be different from those involved in the management of
investment in securities. In addition, there can be no assurance that there
will
be a perfect correlation between movements in the price of the securities
underlying the futures contract and movements in the price of the securities
that are the subject of the hedge. A decision of whether, when and how to
hedge
involves the exercise of skill and judgment, and even a well-conceived hedge
may
be unsuccessful to some degree because of market behavior or unexpected trends
in market behavior or interest rates.
Positions in futures contracts may be closed out only on the exchange on
which they were entered into (or through a linked exchange) and no secondary
market exists for those contracts. In addition, although the Fund intends to
enter into futures contracts only if there is an active market for the
contracts, there is no assurance that an active market will exist for the
contracts at any particular time. Most futures exchanges and boards of trade
limit the amount of fluctuation permitted in futures contract prices during a
single trading day. Once the daily limit has been reached in a particular
contract, no trades may be made that day at a price beyond that limit. It is
possible that futures contract prices could move to the daily limit for
several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of futures positions and subjecting some futures traders to
substantial losses. In such event, and in the event of adverse price
movements,
the Fund would be required to make daily cash payments of variation margin; in
such circumstances, an increase in the value of the portion of the portfolio
being hedged, if any, may partially or completely offset losses on the futures
contract. As described above, however, no assurance can be given that the
price
of the securities being hedged will correlate with the price movements in a
futures contract and thus provide an offset to losses on the futures contract.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions for the
protection of shareholders. Restrictions 1 through 9 cannot be changed without
approval by the holders of a majority of the outstanding shares of the Fund,
defined as the lesser of (a) 67% of the Fund's shares present at a meeting, if
the holders of more than 50% of the outstanding shares are present in person
or
by proxy, or (b) more than 50% of the Fund's outstanding shares. The remaining
restrictions may be changed by the Fund's Board of Directors at any time. The
Fund may not:
1. With respect to 75% of the value of its total assets, invest
more
than 5% of its total assets in securities of any one issuer, except
securities issued or guaranteed by the U.S. government, or purchase more
than 10% of the outstanding voting securities of such issuer.
2. Issue senior securities as defined in the 1940 Act and any rules
and orders thereunder, except insofar as the Fund may be deemed to have
issued senior securities by reason of: (a) borrowing money or purchasing
securities on a when-issued or delayed-delivery basis; (b) purchasing or
selling futures contracts and options on futures contracts and other
similar instruments; and (c) issuing separate classes of shares.
3. Invest more than 25% of its total assets in securities, the
issuers of which are in the same industry. For purposes of this
limitation,
U.S. government securities and securities of state or municipal
12
<PAGE>
governments and their political subdivisions are not considered to be
issued by members of any industry.
4. Borrow money, except that the Fund may borrow from banks for
temporary or emergency (not leveraging) purposes, including the meeting
of
redemption requests which might otherwise require the untimely
disposition
of securities, in an amount not exceeding 10% of the value of the Fund's
total assets (including the amount borrowed) valued at market less
liabilities (not including the amount borrowed) at the time the borrowing
is made. Whenever borrowings exceed 5% of the value of the Fund's total
assets, the Fund will not make any additional investments.
5. Engage in the business of underwriting securities issued by
other
persons, except to the extent that the Fund may technically be deemed to
be
an underwriter under the Securities Act of 1933, as amended, in disposing
of portfolio securities.
6. Purchase any securities on margin (except for such short-term
credits as are necessary for the clearance of purchases and sales of
portfolio securities) or sell any securities short (except against the
box). For purposes of this restriction, the deposit or payment by the
Fund
of initial or maintenance margin in connection with futures contracts and
related options and options on securities is not considered to be the
purchase of a security on margin.
7. Purchase or sell real estate, real estate mortgages, commodities
or commodity contracts, but this shall not prevent the Fund from: (a)
investing in real estate investment trust securities traded on the New
York, Inc. ('NYSE'), American Stock Exchange or the National Association
of
Securities Dealers, Inc.'s Automated Quotation System ('NASDAQ'); (b)
investing in securities of issuers engaged in the real estate business
and
securities which are secured by real estate or interests therein; or (c)
holding or selling real estate received as a result of a default on
securities it holds.
8. Make loans of its funds or securities. This restriction does not
apply to: (a) the purchase of debt obligations in which the Fund may
invest
consistent with its investment objective and policies; (b) repurchase
agreements; and (c) loans of its portfolio securities as described in the
Prospectus and in this Statement of Additional Information under
'Investment Objective and Management Policies.'
9. Write, purchase or sell puts, calls or combinations thereof or
engage in transactions involving futures contacts and related options,
except that the Fund (a) may write covered call options with respect to
its
portfolio securities and enter into closing transactions with respect to
such options, and (b) may, for hedging purposes, (i) write call options,
and purchase put options, on broad-based domestic stock indexes and enter
into closing transactions with respect to such options and (ii) engage in
transactions involving futures contracts and related options, including
broad-based domestic stock index futures contracts.
10. Invest more than 5% of the value of the Fund's total assets in
the securities of any issuer which has been in continuous operation for
less than three years. This restriction does not apply to U.S. government
securities.
11. Invest in other investment companies (except as part of a
merger,
consolidation, reorganization or acquisition of assets).
13
<PAGE>
12. Invest in interests in oil, gas or other mineral exploration or
development programs (except that the Fund may invest in the securities
of
issuers which operate, invest in or sponsor such programs).
13. Purchase or retain the securities of any issuer if, to the
knowledge of the Fund, any officer or Director of the Fund or of Asset
Management owns beneficially more than 1/2 of 1% of the outstanding
securities of such issuer and the persons so owning more than 1/2 of 1%
of
such securities together own beneficially more than 5% of such
securities.
14. Purchase warrants if, thereafter, more than 2% of the value of
the Fund's net assets would consist of such warrants, but warrants
attached
to other securities or acquired in units by the Fund are not subject to
this restriction.
15. Purchase or otherwise acquire any security if, as a result,
more
than 15% of its net assets would be invested in securities that are
illiquid.
16. Invest in any company for the purpose of exercising control or
management.
17. Purchase or sell real estate limited partnership interests.
Certain restrictions listed above permit the Fund without shareholder
approval to engage in investment practices that the Fund does not currently
pursue. The Fund has no present intention of altering its current investment
practices as otherwise described in the Prospectus and this Statement of
Additional Information and any future change in those practices would require
Board approval. If any percentage restriction described above is complied with
at the time of an investment, a later increase or decrease in percentage
resulting from a change in values or assets will not constitute a violation of
the restriction. The Fund may make commitments more restrictive than the
fundamental restrictions listed above so as to permit the sale of Fund shares
in
certain states. Should the Fund determine that any such commitment is no
longer
in the best interests of the Fund and its shareholders, it will revoke the
commitment by terminating sales of its shares in the states involved.
PORTFOLIO TURNOVER
While the Fund does not intend to trade in securities for short-term
profits, securities may be sold without regard to the amount of time they have
been held by the Fund when warranted by the circumstances. The Fund's
portfolio
turnover rate is calculated by dividing the lesser of purchases or sales of
portfolio securities for a year by the monthly average value of portfolio
securities for the year. Securities with remaining maturities of one year or
less at the date of acquisition are excluded from the calculation. A portfolio
turnover rate of 100% would occur, for example, if all the securities in the
Fund's portfolio were replaced once during a period of one year. A high rate
of
portfolio turnover in any year will increase brokerage commissions paid and
could result in high amounts of realized investment gain subject to the
payment
of taxes by shareholders. Any realized short-term investment gain will be
taxed
to shareholders as ordinary income. For the 1993 and 1992 fiscal years, the
Fund's portfolio turnover rates were % and 142%, respectively.
14
<PAGE>
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for the Fund are made by Asset
Management, subject to the overall supervision and review of the Fund's Board
of
Directors. Portfolio securities transactions for the Fund are effected by or
under the supervision of Asset Management.
Transactions on stock exchanges involve the payment of negotiated
brokerage
commissions. There generally is no stated commission in the case of securities
traded in the over-the-counter markets, but the price of those securities
includes an undisclosed commission or mark-up. The cost of securities
purchased
from underwriters includes an underwriting commission or concession, and the
prices at which securities are purchased from and sold to dealers include a
dealer's mark-up or mark-down. For the fiscal years ended September 30, 1993,
1992 and 1991, the Fund paid total brokerage commissions of $ , $218,116
and $244,425 respectively.
In executing portfolio transactions and selecting brokers or dealers, it
is
the Fund's policy to seek the best overall terms available. The Advisory
Agreement between the Fund and Asset Management provides that, in assessing
the
best overall terms available for any transaction, Asset Management shall
consider the factors it deems relevant, including the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission,
if
any, for the specific transaction and on a continuing basis. In addition, the
Advisory Agreement authorizes Asset Management, in selecting brokers or
dealers
to execute a particular transaction and in evaluating the best overall terms
available, to consider the brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934) provided to
the
Fund and/or other accounts over which Asset Management or an affiliate
exercises
investment discretion.
The Fund's Board of Directors periodically will review the commissions
paid
by the Fund to determine if the commissions paid over representative periods
of
time were reasonable in relation to the benefits inuring to the Fund. It is
possible certain of the services received will primarily benefit one or more
other accounts for which investment discretion is exercised. Conversely, the
Fund may be the primary beneficiary of services received as a result of
portfolio transactions effected for other accounts. Asset Management's fee
under
the Advisory Agreement is not reduced by reason of Asset Management's
receiving
such brokerage and research services.
The Fund's Board of Directors has determined that any portfolio
transaction
for the Fund may be executed through Smith Barney Shearson if, in Asset
Management's judgment, the use of Smith Barney Shearson is likely to result in
price and execution at least as favorable as those of other qualified brokers,
and if in the transaction, Smith Barney Shearson charges the Fund a commission
rate consistent with those charged by Smith Barney Shearson to comparable
unaffiliated customers in similar transactions. Smith Barney Shearson will not
participate in commissions from brokerage given by the Fund to other brokers
or
dealers and will not receive any reciprocal brokerage business resulting
therefrom. Over-the-counter purchases and sales are transacted directly with
principal market makers except in those cases in which better prices and
executions may be obtained elsewhere. For the fiscal years ended September 30,
1993, 1992 and 1991, the Fund paid $ , $30,000, and $21,921,
respectively,
in brokerage commissions to Smith Barney Shearson (formerly Shearson Lehman
Brothers). For the 1993 fiscal year, Smith Barney Shearson received % of the
brokerage commissions paid by the Fund and effected % of the total dollar
amount of the Fund's transactions involving the payment of brokerage
commissions.
15
<PAGE>
Under rules recently adopted by the SEC, Smith Barney Shearson may
execute
transactions for the Fund on the floor of any national securities exchange,
provided: (i) the Board of Directors has expressly authorized Smith Barney
Shearson to effect such transactions; and (ii) Smith Barney Shearson annually
advises the Fund of the aggregate compensation it earned on such transactions.
For the year ended September 30, 1993, Smith Barney Shearson received $
from such transactions.
While investment decisions for the Fund are made independently from those
of the other accounts managed by Asset Management, or certain affiliates of
Asset Management, investments of the type the Fund may make also may be made
by
such other accounts. In such instances, available investments or opportunities
for sales will be allocated in a manner believed by Asset Management to be
equitable to each. In some cases, this procedure may adversely affect the
price
paid or received by the Fund or the size of the position obtained for or
disposed of by the Fund.
---------- PURCHASE OF SHARES
VOLUME DISCOUNTS
The schedule of sales charges on Class A shares described in the
Prospectus
applies to purchases made by any 'purchaser,' which is defined to include the
following: (a) an individual; (b) an individual, his or her immediate family
purchasing shares for his or her own account; (c) a trustee or other fiduciary
purchasing shares for a single trust estate or single fiduciary account; (d) a
pension, profit-sharing or other employee benefit plan qualified under Section
401(a) of the Internal Revenue Code of 1986, as amended (the 'Code'), and
qualified employee benefit plans of employers who are 'affiliated persons' of
each other within the meaning of the 1940 Act; (e) tax-exempt organizations
enumerated in Section 501(c)(3) or (13) of the Code; (f) any other organized
group of persons, provided the organization has been in existence for at least
six months and was organized for a purpose other than the purchase of
investment
company securities at a discount; and (g) a trustee or other professional
fiduciary (including a bank or an investment adviser registered with the SEC
under the Investment Advisers Act of 1940, as amended) purchasing shares of
the
Fund for one or more trust estates or fiduciary accounts. Purchasers who wish
to
combine purchase orders to take advantage of volume discounts on Class A
shares
should contact their Smith Barney Shearson Financial Consultants.
COMBINED RIGHT OF ACCUMULATION
Reduced sales charges, in accordance with the schedule in the Prospectus,
apply to any purchase of Class A shares if the aggregate investment in Class A
shares of the Fund and in Class A shares of other funds in the Smith Barney
Shearson Group of Funds that are sold with a sales charge, including the
purchase being made, to any 'purchaser' (as defined above) is $25,000 or more.
The reduced sales charge is subject to confirmation of the shareholder's
holdings through a check of appropriate records. The Fund reserves the right
to
terminate or amend the combined rights of accumulation at any time after
notice
to shareholders. For further information regarding the right of accumulation,
shareholders should contact their Smith Barney Shearson Financial Consultants.
DETERMINATION OF PUBLIC OFFERING PRICE
The Fund offers its shares to the public on a continuous basis. The
public
offering price per Class A share of the Fund is the net asset value per share
at
the time of purchase plus a sales charge based on the
16
<PAGE>
aggregate amount of the investment. The public offering price per Class B
share
and Class D share (and Class A share purchases, including applicable rights of
accumulation, equalling or exceeding $1 million), is equal to the net asset
value per share at the time of purchase and no sales charge is imposed at the
time of purchase. A contingent deferred sales charge ('CDSC'), however, is
imposed on certain redemptions of Class B shares and Class A shares when
purchased in amounts equalling or exceeding $1 million. The method of
computing
the public offering price is shown in the Fund's financial statements
incorporated by reference into this Statement of Additional Information.
---------- REDEMPTION OF SHARES
The right of redemption may be suspended or the date of payment postponed
(a) for any periods during which the NYSE is closed (other than for customary
weekend and holiday closings), (b) when trading in the markets the Fund
normally
utilizes is restricted, or an emergency exists as determined by the SEC so
that
disposal of the Fund's investments or determination of its net asset value is
not reasonably practicable or (c) for such other periods as the SEC by order
may
permit for the protection of the Fund's shareholders.
DISTRIBUTIONS IN KIND
If the Board of Directors determines that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make a redemption
payment wholly in cash, the Fund may pay, in accordance with rules adopted by
the SEC, any portion of a redemption in excess of the lesser of $250,000 or 1%
of the Fund's net assets by a distribution in kind of portfolio securities in
lieu of cash. Portfolio securities issued in a distribution in kind will be
readily marketable, although shareholders receiving distributions in kind may
incur brokerage commissions when subsequently disposing of those securities.
AUTOMATIC CASH WITHDRAWAL PLAN
An automatic cash withdrawal plan (the 'Withdrawal Plan') is available to
shareholders who own shares with a value of at least $10,000 ($5,000 for
retirement plan accounts) and who wish to receive specific amounts of cash
periodically. Withdrawals of at least $50 monthly may be made under the
Withdrawal Plan by redeeming as many shares of the Fund as may be necessary to
cover the stipulated withdrawal payment. Any applicable CDSC will not be
imposed
on amounts withdrawn by shareholders that exceed 2% per month of the value of
a
shareholder's shares at the time the Withdrawal Plan commences. To the extent
withdrawals exceed dividends, distributions and appreciation of a
shareholder's
investment in the Fund, there will be a reduction in the value of the
shareholder's investment and continued withdrawal payments may reduce the
shareholder's investment and ultimately exhaust it. Withdrawal payments should
not be considered as income from investment in the Fund. Furthermore, as it
generally would not be advantageous to a shareholder to make additional
investments in the Fund at the same time he or she is participating in the
Withdrawal Plan, purchases by such shareholders in amounts of less than $5,000
ordinarily will not be permitted.
Shareholders who wish to participate in the Withdrawal Plan and who hold
their shares in certificate form must deposit their share certificates with
TSSG
as agent for Withdrawal Plan members. All dividends and distributions on
shares
in the Withdrawal Plan are automatically reinvested at net asset value in
additional shares of the Fund. All applications for participation in the
Withdrawal Plan must be received by
17
<PAGE>
TSSG as Withdrawal Plan agent no later than the eighth day of the month to be
eligible for participation beginning with that month's withdrawal. The
Withdrawal Plan will not be carried over on exchanges between Funds or classes
('Classes'). A new Withdrawal Plan application is required to establish the
Withdrawal Plan in the new fund or Class. For additional information,
shareholders should contact their Smith Barney Shearson Financial Consultants.
---------- DISTRIBUTOR
Smith Barney Shearson serves as the Fund's distributor on a best efforts
basis pursuant to a written distribution agreement (the 'Distribution
Agreement'). For the fiscal years ended September 30, 1993, 1992 and 1991,
Smith
Barney Shearson (formerly Shearson Lehman Brothers) received $ ,
$650,569
and $117,352, respectively, in sales charges for the sale of the Fund's Class
A
shares, and did not reallow any portion thereof to dealers. For the period
from
November 6, 1992 through September 30, 1993, Smith Barney Shearson received $
representing CDSC fees on redemptions of the Fund's Class B shares.
Smith Barney Shearson forwards investors' funds for the purchase of Fund
shares five business days after placement of purchase orders (that is, the
'settlement date'). When payment is made by the investor before the settlement
date, unless otherwise directed by the investor, the funds will be held as a
free credit balance in the investor's brokerage account, and Smith Barney
Shearson may benefit from the temporary use of the funds. The investor may
designate another use for the funds prior to the settlement date, such as an
investment in a money market fund (other than the Smith Barney Shearson Money
Market Fund) in the Smith Barney Shearson Group of Funds. If the investor
instructs Smith Barney Shearson to invest the funds in a money market fund,
the
amount of the investment will be included as part of the average daily net
assets of both the Fund and the money market fund in the Smith Barney Shearson
Group of Funds. The amount of the investment will be included as part of the
average daily net assets of both the Fund and the money market fund, and
affiliates of Smith Barney Shearson which serve the funds in an investment
advisory capacity will benefit from the fact that they are receiving fees from
both such investment companies for managing these assets computed on the basis
of their average daily net assets. The Fund's Board of Directors has been
advised of the benefits to Smith Barney Shearson resulting from five-day
settlement procedures and will take such benefits into consideration when
reviewing the Advisory and Distribution Agreements for continuance.
DISTRIBUTION ARRANGEMENTS
Shares of the Fund are distributed on a best efforts basis by Smith
Barney
Shearson as exclusive sales agent of the Fund pursuant to the Distribution
Agreement. To compensate Smith Barney Shearson for the services it provides
and
for the expense it bears under the Distribution Agreement, the Fund has
adopted
a services and distribution plan (the 'Plan') pursuant to Rule 12b-1 under the
1940 Act. Under the Plan, the Fund pays Smith Barney Shearson a service fee,
accrued daily and paid monthly, calculated at the annual rate of 0.25% of the
value of the Fund's average daily net assets attributable to the Class A,
Class
B and Class D shares. In addition, Class B and Class D shares pay a
distribution
fee primarily intended to compensate Smith Barney Shearson for its initial
expense of paying Financial Consultants a commission upon sales of the
respective shares. The Class B and Class D distribution fees, accrued daily
and
paid monthly, are calculated at the annual rate of 0.75% of the value of the
Fund's average net assets attributable to the shares of the respective Class.
For the period from November 6, 1992 through September 30, 1993, the
18
<PAGE>
Fund's Class A and Class B shares paid $ and $ , respectively, in
service fees. For the same period, the Fund's Class B shares paid $ in
distribution fees. As of September 30, 1993, the Fund has not issued any
publicly owned Class D shares and, therefore, no service and distribution fees
were paid in respect to Class D shares.
Under its terms, the Plan continues from year to year, provided such
continuance is approved annually by vote of the Fund's Board of Directors,
including a majority of the Directors who are not interested persons of the
Fund
and who have no direct or indirect financial interest in the operation of the
Plan (the 'Independent Directors'). The Plan may not be amended to increase
the
amount to be spent for the services provided by Smith Barney Shearson without
shareholder approval, and all amendments of the Plan also must be approved by
the Directors in the manner described above. The Plan may be terminated with
respect to a class at any time, without penalty, by vote of a majority of the
Independent Directors or by a vote of a majority of the outstanding voting
securities of the Class (as defined in the 1940 Act) on not more than 30 days'
written notice to any other party to the Plan. Pursuant to the Plan, Smith
Barney Shearson will provide the Board of Directors with periodic reports of
amounts expended under the Plan and the purpose for which such expenditures
were
made.
---------- VALUATION OF SHARES
The Prospectus discusses the time at which the net asset value of shares
of
each Class is determined for purposes of sales and redemptions. Because of the
differences in distribution fees and Class-specific expenses, the per share
net
asset value of each Class will differ. The following is a description of the
procedures used by the Fund in valuing its assets.
Each security, including covered options, in the Fund's portfolio which
is
listed or traded on any securities exchange is valued at the last reported
sale
price on the principal exchange on which it is listed or traded. Securities
(except covered options) for which there were no exchange trades, or which are
traded in the over-the-counter market, are valued at the last reported bid
price. Options, in the absence of a sale price, are valued at the last offered
price. Securities for which market quotations are not readily available or
which
are not readily marketable, and all other assets of the Fund, are valued at
fair
value as determined in good faith by the Board of Directors. Short-term
securities with maturities of 60 days or less are valued at amortized cost,
which constitutes fair value as determined by the Board of Directors.
Amortized
cost involves valuing an instrument at its cost initially and, thereafter,
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument.
Premiums received for writing options are included as an asset and an
equivalent liability and recorded in the Fund's Statement of Assets and
Liabilities. The liability is subsequently marked-to-market to reflect the
current value of the options written. If an option expires or the Fund enters
into a closing transaction, the Fund will realize a gain or loss without
regard
to any unrealized gain or loss on the underlying security, and the liability
related to the option will expire. If the option is exercised, the Fund will
realize a gain or loss from the sale of the underlying security equal to the
difference between the cost of the security and the proceeds of the sale plus
the premium originally received.
19
<PAGE>
---------- EXCHANGE PRIVILEGE
Class A, Class B and Class D shares of the Fund may be exchanged for
shares
of the respective class of many of the funds in the Smith Barney Shearson
Group
of Funds, as indicated in the Prospectus, to the extent such shares are
offered
for sale in the shareholder's state of residence.
Except as noted below, shareholders of any fund in the Smith Barney
Shearson Group of Funds may exchange all or part of their shares for shares of
the same Class of other funds in the Smith Barney Shearson Group of Funds on
the
basis of relative net asset value per share at the time of exchange as
follows:
A. Class A shares of any fund purchased with a sales charge may be
exchanged for Class A shares of any of the other funds, and the sales
charge differential, if any, will be applied. Class A shares of any
fund may be exchanged without a sales charge for shares of the funds
that are offered without a sales charge. Class A shares of any fund
purchased without a sales charge may be exchanged for shares sold
with
a sales charge, and the appropriate sales charge differential will be
applied.
B. Class A shares of any fund acquired by a previous exchange of shares
purchased with a sales charge may be exchanged for Class A shares of
any of the other funds, and the sales charge differential, if any,
will
be applied.
C. Class B shares of any fund may be exchanged without a sales charge.
Class B shares of a fund exchanged for Class B shares of another fund
will be subject to the higher applicable CDSC of the two funds and,
for
purposes of calculating CDSC rates and conversion periods, will be
deemed to have been held since the date the shares being exchanged
were
purchased.
Dealers other than Smith Barney Shearson must notify TSSG of the
investor's
prior ownership of Class A shares of Smith Barney Shearson -- High Income Fund
and the account number in order to accomplish an exchange of shares of the
High
Income Fund under paragraph B above.
The exchange privilege enables shareholders to acquire shares of the same
class in a fund with different investment objectives when they believe a shift
between funds is an appropriate investment decision. This privilege is
available
to shareholders residing in any state in which the fund shares being acquired
may legally be sold. Prior to any exchange, the investor should obtain and
review a copy of the current prospectus of each fund into which an exchange is
being considered. Prospectuses may be obtained from any Smith Barney Shearson
Financial Consultant.
Upon receipt of proper instructions and all necessary supporting
documents,
shares submitted for exchange are redeemed at the then-current net asset value
and, subject to any applicable CDSC, the proceeds are immediately invested, at
a
price as described above, in shares of the fund being acquired. Smith Barney
Shearson reserves the right to reject any exchange request. The exchange
privilege may be modified or terminated at any time after notice to
shareholders.
20
<PAGE>
---------- PERFORMANCE DATA
From time to time, the Fund may quote total return in advertisements or
in
reports and other communications to shareholders. To the extent any
advertisement or sales literature of the Fund describes the expenses or
performance of a Class, it will also disclose such information for the other
Classes.
<TABLE>
AVERAGE ANNUAL TOTAL RETURN
A Class' 'average annual total return' figures, as described and shown in
the Prospectus, are computed according to a formula prescribed by the SEC. The
formula can be expressed as follows:
P(1 + T) = ERV
<S> <C> <C>
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical
$1,000 investment
made at the beginning of the 1-, 5-or 10-year period
at the end of
the 1-, 5-or 10-year period (or fractional
portion thereof),
assuming reinvestment of all dividends and
distributions.
</TABLE>
The following total return figures calculated in accordance with the
above
formula assume that the maximum sales charge or maximum applicable CDSC, as
the
case may be, has been deducted from the hypothetical $1,000 initial investment
at the time of purchase.
For Class A Shares the average annual total return was as follows for the
periods indicated:
% for the one-year period from October 1, 1992 through September
30,
1993;
% for the five-year period from October 1, 1988 through September
30,
1993;
% per annum during the ten year period from October 1, 1983 through
September 30, 1993.
These average annual total return figures assume that the maximum 5.0%
sales charge has been deducted from the investment at the time of purchase.
<TABLE>
AGGREGATE TOTAL RETURN
A Class' aggregate total return figures, as described and shown in the
Prospectus, represent the cumulative change in the value of an investment in
the
Class for the specified period and are computed by the following formula:
AGGREGATE TOTAL RETURN =ERV-P
P
<S> <C> <C>
Where: P = a hypothetical initial payment of $10,000.
ERV = Ending Redeemable Value of a hypothetical
$10,000 investment
made at the beginning of the 1-, 5-or 10-year period
at the end of
the 1-, 5-or 10-year period (or fractional
portion thereof),
assuming reinvestment of all dividends and
distributions.
</TABLE>
21
<PAGE>
The aggregate total returns for Class A shares were as follows for the
periods indicated:
% for the one-year period from October 1, 1992 through September
30, 1993;
% for the five-year period from October 1, 1988 through
September
30, 1993;
% for the ten-year period from October 1, 1983 through September
30, 1993.
These aggregate total return figures do not assume that the maximum 5.00%
sales charge has been deducted from the investment at the time of purchase. If
the maximum sales charge had been deducted at the time of purchase, the Class
A
shares aggregate total return for the same periods would have been %,
% and %, respectively.
The aggregate total return for Class B shares for the period November 6,
1992 (commencement of operations) through September 30, 1993 was %. If the
maximum sales charge had been deducted at the time of purchase the aggregate
total return would have been -- %.
It is important to note that the total return figures set forth above are
based on historical earnings and are not intended to indicate future
performance.
As of September 30, 1993, the Fund had not publicly issued any Class D
shares. Accordingly, no meaningful performance data is available at this time.
A Class's performance will vary from time to time depending upon market
conditions, the composition of the Fund's portfolio and operating expenses and
the expenses exclusively attributable to the Class. Consequently, any given
performance quotation should not be considered representative of the Class
performance for any specified period in the future. Because performance will
vary, it may not provide a basis for comparing an investment in the Class with
certain bank deposits or other investments that pay a fixed yield for a stated
period of time. Investors comparing the Class' performance with that of other
mutual funds should give consideration to the quality of the respective
investment companies' portfolio securities.
---------- TAXES
The following is a summary of selected Federal income tax considerations
that may affect the Fund and its shareholders. The summary is not intended as
a
substitute for individual tax advice and investors are urged to consult their
own tax advisors as to the tax consequences of an investment in the Fund.
TAX STATUS OF FUND
The Fund has qualified and intends to continue to qualify each year as a
regulated investment company under the Code. Provided the Fund (a) is a
regulated investment company and (b) distributes at least 90% of its net
investment income (including, for this purpose, net realized short-term
capital
gains), the Fund will not be liable for Federal income taxes to the extent its
net investment income and its net realized long-and short-term capital gains,
if
any, are distributed to its shareholders. Although the Fund expects to be
relieved of all or substantially all Federal, state, and local income or
franchise taxes, depending upon the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located, or in which it is otherwise deemed to be
conducting business, that portion of the Fund's income which is treated as
earned in any such state or locality could be subject to state and local tax.
Any such taxes paid by the Fund would reduce the amount of income and gains
available for distribution to shareholders. All of a shareholder's dividends
and
distributions payable by the Fund will be reinvested
22
<PAGE>
automatically in additional shares of the same Class of the Fund at net asset
value, unless the shareholder elects to receive dividends and distributions in
cash.
TAXATION OF INVESTMENT BY THE FUND
Gain or loss on the sale of a security by the Fund generally will be
long-term capital gain or loss if the Fund has held the securities for more
than
one year. Gain or loss on the sale of securities held for not more than one
year
will be short-term. If the Fund acquires a debt security at a substantial
discount, a portion of any gain upon the sale or redemption will be taxed as
ordinary income, rather than capital gain to the extent it reflects accrued
market discount.
Dividends of net investment income and distributions of net realized
short-term capital gains will be taxable to shareholders as ordinary income
for
Federal income tax purposes, whether received in cash or reinvested in
additional shares. Dividends received by corporate shareholders will qualify
for
the dividends-received deduction only to the extent that the Fund designates
the
amount distributed as a dividend and the amount so designated does not exceed
the aggregate amount of dividends received by the Fund from domestic
corporations for the taxable year. The Federal dividends-received deduction
for
corporate shareholders may be further reduced or disallowed if the shares with
respect to which dividends are received are treated as debt-financed or are
deemed to have been held for less than 46 days.
Foreign countries may impose withholding and other taxes on dividends and
interest paid to the Fund with respect to investments in foreign securities.
However, certain foreign countries have entered into tax conventions with the
United States to reduce or eliminate such taxes.
Distributions of long-term capital gains will be taxable to shareholders
as
such, whether paid in cash or reinvested in additional shares and regardless
of
the length of time that the shareholder has held his or her interest in the
Fund. If a shareholder receives a distribution taxable as long-term capital
gain
with respect to his or her investment in the Fund and redeems or exchanges the
shares before he or she has held them for more than six months, any loss on
the
redemption or exchange that is less than or equal to the amount of the
distribution will be treated as a long-term capital loss.
If a shareholder (a) incurs a sales charge in acquiring or redeeming
shares
of the Fund, and (b) disposes of those shares and acquires within 90 days
after
the original acquisition shares in a mutual fund for which the otherwise
applicable sales charge is reduced by reason of reinvestment right (i.e., an
exchange privilege), the original sales charge increases the shareholder's tax
basis in the original shares only to the extent the otherwise applicable sales
charge for the second acquisition is not reduced. The portion of the original
sales charge that does not increase the shareholder's tax basis in the
original
shares would be treated as incurred with respect to the second acquisition
and,
as a general rule, would increase the shareholder's tax basis in the newly
acquired shares. Furthermore, the same rule also applies to a disposition of
the
newly acquired or redeemed shares made within 90 days of the second
acquisition.
This provision prevents a shareholder from immediately deducting the sales
charge by shifting his or her investment in a family of mutual funds.
Investors considering buying shares of the Fund just prior to a record
date
for a taxable dividend or capital gain distribution should be aware that,
regardless of whether the price of the Fund shares to be purchased reflects
the
amount of the forthcoming dividend or distribution payment, any such payment
will be a taxable dividend or distribution payment.
23
<PAGE>
If a shareholder fails to furnish a correct taxpayer identification
number,
fails to report his or her dividend or interest income in full, or fails to
certify that he or she has provided a correct taxpayer identification number,
and that he or she is not subject to such withholding, the shareholder may be
subject to a 31% 'backup withholding' tax with respect to (a) any taxable
dividends and distributions and (b) any proceeds of any redemption of Fund
shares. An individual's taxpayer identification number is his or her social
security number. The 31% backup withholding tax is not an additional tax and
may
be credited against a shareholder's regular Federal income tax liability.
Options Transactions. The tax consequences of options transactions
entered
into by the Fund will vary depending on the nature of the underlying security
and whether the 'straddle' rules, discussed separately below, apply to the
transaction. When the Fund writes a call or put option on an equity or debt
security, it will receive a premium that will, subject to the 'section 1256
contract' and straddle rules discussed below, be treated as follows for tax
purposes. If the option expires unexercised, or if the Fund enters into a
closing purchase transaction, the Fund will realize a gain (or loss if the
cost
of the closing purchase transaction exceeds the amount of the premium) without
regard to any unrealized gain or loss on the underlying security. Any such
gain
or loss will be short-term capital gain or loss, except that any loss on a
'qualified' covered call option not treated as part of a straddle may be
treated
as long-term capital loss. If a call option written by the Fund is exercised,
the Fund will recognize a capital gain or loss from the sale of the underlying
security, and will treat the premium as additional sales proceeds. Whether the
gain or loss will be long-term or short-term will depend on the holding period
of the underlying security. If a put option written by the Fund is exercised,
the amount of the premium will reduce the tax basis of the security the Fund
then purchases.
The Code imposes a special 'mark-to-market' system for taxing section
1256
contracts which include options on nonconvertible debt securities (including
U.S. government securities). In general, gain or loss with respect to section
1256 contracts will be taken into account for tax purposes when actually
realized (by a closing transaction, by exercise, by taking delivery or by
other
termination). In addition, any section 1256 contracts held at the end of a
taxable year will be treated as sold at their year-end fair market value (that
is, marked-to-market), and the resulting gain or loss will be recognized for
tax
purposes. Provided section 1256 contracts are held as capital assets and are
not
part of a straddle, both the realized and unrealized year-end gain or loss
from
these investment positions (including premiums on options that expire
unexercised) will be treated as 60% long-term and 40% short-term capital gain
or
loss, regardless of the period of time particular positions are actually held
by
the Fund.
In order to continue to qualify as a regulated investment company, the
Fund
may have to limit its transactions in section 1256 contracts.
Straddles. The Code contains rules applicable to 'straddles,' that is,
'offsetting positions in actively traded personal property.' Such personal
property includes offsetting puts of the same class, section 1256 contracts or
other investment contracts. Where applicable, the straddle rules generally
override the other provisions of the Code. In general, investment positions
will
be offsetting if there is a substantial diminution in the risk of loss from
holding one position by reason of holding one or more other positions
(although
certain covered call options would not be treated as part of a straddle). The
Fund is authorized to enter into covered call and covered put positions.
Depending on what other investments are held by the Fund, at the time it
enters
into one of the above transactions, the Fund may create a straddle for
purposes
of the Code.
24
<PAGE>
If two (or more) positions constitute a straddle, recognition of a
realized
loss from one position (including a marked-to-market loss) must be deferred to
the extent of unrecognized gain in an offsetting position. Also, long-term
capital gain may be recharacterized as short-term capital gain, or short-term
capital loss as long-term capital loss. Furthermore, interest and other
carrying
charges allocable to personal property that is part of a straddle must be
capitalized.
If the Fund chooses to identify a particular offsetting position as being
one component of a straddle, a realized loss on any component of the straddle
will be recognized no earlier than upon the liquidation of all of the
components
of the straddle. Special rules apply to 'mixed' straddles (that is, straddles
consisting of a section 1256 contract and an offsetting position that is not a
section 1256 contract). If the Fund makes certain elections, the section 1256
contract components of such mixed straddles will not be subject to the 60%/40%
mark-to-market rules. If any such election is made, the amount, the nature (as
long-or short-term) and the timing of the recognition of the Fund's gains or
losses from the affected straddle positions will be determined under rules
that
will vary according to the type of election made.
Wash Sales. 'Wash sale' rules will apply to prevent the recognition of
loss with respect to a position where an identical or substantially identical
position is or has been acquired within a prescribed period.
The foregoing is only a summary of certain Federal tax considerations
generally affecting the Fund and its shareholders and is not intended as a
substitute for careful tax planning. Shareholders are urged to consult their
tax
advisors with specific reference to their own tax situations, including their
state and local tax liabilities.
---------- CUSTODIAN AND TRANSFER AGENT
Boston Safe, a wholly owned subsidiary of TBC, is located at One Boston
Place, Boston, Massachusetts 02108, and serves as the custodian of the Fund.
Under the Fund's custody agreement, Boston Safe holds the Fund's portfolio
securities and keeps all necessary accounts and records. For its services,
Boston Safe receives a monthly fee based upon the month-end value of
securities
held in custody and receives securities transactions charges. Boston Safe is
authorized to establish separate accounts for foreign securities owned by the
Fund to be held in foreign branches of other U.S. banks as well as with
certain
foreign banks and securities depositories. The assets of the Fund are held
under
bank custodianship in compliance with the 1940 Act.
TSSG, a subsidiary of First Data Corporation, is located at Exchange
Place,
Boston, Massachusetts 02109, and serves as the Fund's transfer agent. Under
the
Fund's transfer agency agreement, TSSG maintains the shareholder account
records
for the Fund, handles certain communications between shareholders and the
Fund,
and distributes dividends and distributions payable by the Fund. For these
services, TSSG receives a monthly fee computed on the basis of the number of
shareholder accounts it maintains for the Fund during the month and is
reimbursed for out-of-pocket expenses.
---------- ORGANIZATION OF THE FUND
The Fund was incorporated under the laws of the State of Washington on
March 17, 1981, under the name Foster & Marshall Growth Fund, Inc. On November
21, 1989, the Fund changed its name from Shearson Lehman Fundamental Value
Fund
Inc. to SLH Fundamental Value Fund Inc. On August 12, 1992, the
25
<PAGE>
Fund changed its name to Shearson Lehman Brothers Fundamental Value Fund Inc.
and on August 17, 1993 changed its name to Smith Barney Shearson Fundamental
Value Fund Inc.
In the interest of economy and convenience, certificates representing
shares in the Fund are not physically issued except upon specific request made
by a shareholder to TSSG, the Fund's transfer agent. TSSG maintains a record
of
each shareholder's ownership of Fund shares. Shares do not have cumulative
voting rights, which means that holders of more than 50% of the shares voting
for the election of Directors can elect all Directors. Shares are transferable
but have no preemptive, conversion or subscription rights.
---------- FINANCIAL STATEMENTS
The Fund's Annual Report for the fiscal year ended September 30, 1993 is
incorporated herein by reference in its entirety.
26
<PAGE>
------------------------------------------------
- -
SMITH
BARNEY
SHEARSON
FUNDAMENTAL
VALUE
FUND
INC.
<TABLE>
<S> <C>
---------------------
- ------
STATEMENT OF
---------------------
- ------
---------------------
- ------
ADDITIONAL
INFORMATION
---------------------
- ------
---------------------
- ------
---------------------
- ------
---------------------
- ------
---------------------
- ------
---------------------
- ------
---------------------
- ------
---------------------
- ------
---------------------
- ------
---------------------
- ------
---------------------
- ------
---------------------
- ------
---------------------
- ------
---------------------
- ------
---------------------
- ------
---------------------
- ------
NOVEMBER 22, 1993
---------------------
- ------
</TABLE>
SMITH BARNEY SHEARSON
FUNDAMENTAL VALUE FUND INC.
Two World Trade Center
New York, New York 10048 Fund 10
[Paste Up Logo]
ANNUAL REPORT September 30, 1993
--------------------------------------------------------------------
- --
Description of Art Work on Report Cover
Small box above fund name showing a leather portfolio with a notebook and pen.
Also shown is a Hewlett Packard calculator and a stock guide.
--------------------------------------------------------------------
- --
SMITH BARNEY SHEARSON
Fundamental
Value
Fund Inc.
[SMITH BARNEY SHEARSON LOGO]
<PAGE>
- ---------------------------------------------------
SMITH BARNEY SHEARSON
Fundamental
Value
Fund Inc.
A professionally managed
portfolio designed for
investors who seek long-
term growth of capital
through an investment in
the stocks of undervalued
companies. Current
income is a secondary
objective.
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------
HISTORICAL PERFORMANCE
<CAPTION>
NET ASSET CAPITAL GAINS
TOTAL
YEAR VALUE DISTRIBUTED
DIVIDENDS RETURN**
ENDED CLASS A CLASS B CLASS D CLASS CLASS CLASS
CLASS PAID CLASS CLASS CLASS
DECEMBER 31 BEGIN END BEGIN END BEGIN END A B D A
CLASS B CLASS D A B D
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------
- ------------------------------------------------
10/1/83 -
12/31/83 $6.78 $6.25 -- -- -- -- $ .54 -- -- $
.11 -- -- 1.90 % -- --
- ------------------------------------------------------------------------------
- --------------------------------------------------
1984 6.25 6.32 -- -- -- -- .30 -- --
.22 -- -- 9.64 -- --
- ------------------------------------------------------------------------------
- --------------------------------------------------
1985 6.32 7.02 -- -- -- -- .34 -- --
.19 -- -- 19.73 -- --
- ------------------------------------------------------------------------------
- --------------------------------------------------
1986 7.02 6.31 -- -- -- -- .74 -- --
.32 -- -- 4.62 -- --
- ------------------------------------------------------------------------------
- --------------------------------------------------
1987 6.31 5.18 -- -- -- -- 1.03 -- --
.26 -- -- 2.54 -- --
- ------------------------------------------------------------------------------
- -------------------------------------------------
1988 5.18 5.84 -- -- -- -- .33 -- --
.10 -- -- 21.08 -- --
- ------------------------------------------------------------------------------
- --------------------------------------------------
1989 5.84 6.17 -- -- -- -- .57 -- --
.18 -- -- 18.48 -- --
- ------------------------------------------------------------------------------
- --------------------------------------------------
1990 6.17 5.13 -- -- -- -- .29 -- --
.23 -- -- (8.41) -- --
- ------------------------------------------------------------------------------
- --------------------------------------------------
1991 5.13 6.60 -- -- -- -- -- -- --
.14 -- -- 31.44 -- --
- ------------------------------------------------------------------------------
- --------------------------------------------------
1992* 6.60 7.06 $7.31 $7.06 -- -- .46 $.46 --
.06 $.05 -- 14.86 3.60 % --
- ------------------------------------------------------------------------------
- --------------------------------------------------
1/1/93*-
9/30/93 7.06 8.42 7.06 8.37 $8.15 $8.37 -- -- --
- -- -- -- 19.26 18.56 2.70%
- ------------------------------------------------------------------------------
- --------------------------------------------------
TOTAL $4.60 $.46 --
$1.81 $.05 --
- ------------------------------------------------------------------------------
- --------------------------------------------------
CUMULATIVE TOTAL RETURN - CLASS A (10/1/83 -
9/30/93) 239.45%
- ------------------------------------------------------------------------------
- ------------------------------------------------------
CUMULATIVE TOTAL RETURN - CLASS B (11/6/92 -
9/30/93) 22.82%
- ------------------------------------------------------------------------------
- ------------------------------------------------------
CUMULATIVE TOTAL RETURN - CLASS D (8/10/93 -
9/30/93) 2.70%
- ------------------------------------------------------------------------------
- ------------------------------------------------------
<FN>
* The Fund commenced operations on November 12, 1981 and on November 6, 1992
its existing shares were designated Class A shares. On November 6, 1992 and
on August 10, 1993 the Fund commenced selling Class B shares and Class D
shares, respectively.
** Figures assume reinvestment of all dividends and capital gain distributions
at net asset value and do not reflect deduction of the applicable sales
charge.
</TABLE>
IT IS THE FUND'S POLICY TO DISTRIBUTE DIVIDENDS
AND CAPITAL GAINS, IF ANY, ANNUALLY.
AVERAGE ANNUAL TOTAL RETURN*** -- CLASS A SHARES
<TABLE>
<CAPTION>
WITHOUT SALES CHARGE
WITH SALES CHARGE
<S> <C>
<C>
- ------------------------------------------------------------------------------
- ----------
YEAR ENDED 9/30/93 25.23%
18.96%
- ------------------------------------------------------------------------------
- ----------
FIVE YEARS ENDED 9/30/93 14.49
13.32
- ------------------------------------------------------------------------------
- ----------
TEN YEARS ENDED 9/30/93 13.00
12.42
- ------------------------------------------------------------------------------
- ----------
<FN>
*** All average annual total return figures shown reflect reinvestment of
dividends and capital gains at net asset value. Average annual total
return
figures assume the deduction of the maximum 5% front-end sales charge.
</TABLE>
NOTE: Class A shares are subject to a maximum 5% front-end sales charge. The
Fund's rates of return would have been lower had service fees been in effect
prior to November 6, 1992. Class B shares are subject to a maximum of 5%
contingent deferred sales charge (CDSC). The Fund's cumulative total returns
for
Class B shares without the deduction of the CDSC from commencement of
operations
(November 6, 1992) through September 30, 1993 was 22.82%; assuming the
deduction
of the maximum 5% CDSC this figure was 17.82%. On January 29, 1993 the Fund
began offering Class D shares for purchase by participants in the Smith Barney
Shearson 401(k) Program and these shares were first purchased by the public on
August 10, 1993. Class D shares are sold at net asset value per share and are
not subject to an initial sales charge or CDSC. The Fund's cumulative total
return for Class D shares from commencement of operations (August 10, 1993)
through September 30, 1993 was 2.70%. Please consult the Notes to Financial
Statements for complete information on fees and expenses.
<PAGE>
<TABLE>
Description of Mountain Chart in Shearson Covers
A line graph depicting the total growth (including reinvestment of dividends
and capital gains) of a hypothetical investment of $10,000 in Fundamental
Value
Fund's Class A shares on October 1, 1983 through September 30, 1993 as
compared
with the growth of a $10,000 investment in Standard & Poor's 500 Composite
Stock Price Index. The plot points used to draw the line graph are as follows:
<CAPTION>
GROWTH OF $10,000
INVESTMENT IN THE
GROWTH OF $10,000 STANDARD & POOR'S 500
INVESTED IN CLASS A SHARES COMPOSITE STOCK
MONTH ENDED OF THE FUND PRICE INDEX
<S> <C> <C>
09/83 $ 9,500 $10,000
10/83 $ 9,416 $ 9,884
12/83 $ 9,680 $10,040
03/84 $ 9,618 $ 9,800
06/84 $ 9,370 $ 9,549
09/84 $10,300 $10,475
12/84 $10,614 $10,671
03/85 $11,571 $11,651
06/85 $12,007 $12,509
09/85 $11,604 $11,996
12/85 $12,707 $14,061
03/86 $13,323 $16,044
06/86 $13,486 $16,989
09/86 $13,106 $15,804
12/86 $13,294 $16,685
03/87 $16,012 $20,248
06/87 $16,770 $21,264
09/87 $17,613 $22,667
12/87 $13,631 $17,561
03/88 $14,789 $18,558
06/88 $16,105 $19,794
09/88 $16,394 $19,860
12/88 $16,505 $20,466
03/89 $17,296 $21,917
06/89 $18,879 $23,848
09/89 $20,207 $26,398
12/89 $19,554 $26,940
03/90 $19,174 $26,130
06/90 $20,917 $27,770
09/90 $16,924 $23,958
12/90 $17,909 $26,103
03/91 $20,947 $29,888
06/91 $20,947 $29,817
09/91 $22,588 $31,407
12/91 $23,540 $34,038
03/92 $24,467 $33,179
06/92 $25,038 $33,809
09/92 $25,751 $34,875
12/92 $27,039 $36,627
03/93 $29,375 $38,224
06/93 $30,524 $38,407
09/93 $32,247 $39,397
<FN>
+ Hypothetical illustration of $10,000 invested in Class A shares on October
1,
1983, assuming deduction of the maximum 5% sales charge at the time of
investment and reinvestment of dividends and capital gains at net asset
value
through September 30, 1993, compared to the Standard & Poor's 500 Composite
Stock Price Index ("S&P 500"). The performance of the Fund's other classes
will be greater than or less than the performance shown based on the
differences in loads and fees paid by shareholders investing in the
different
classes of shares.
</TABLE>
The S&P 500 is an index composed of 500 widely held common stocks listed on
the New York Stock Exchange, American Stock Exchange and over-the-counter
market.
This period was one in which common stock prices fluctuated and the results
should not be considered as a representation of the dividend income or
capital
gain or loss which may be realized from an investment in the Fund today. No
adjustment has been made for shareholder tax liability on dividends or
capital
gains.
NOTE: All figures cited here and on the following pages represent past
performance and do not guarantee future results. Investment return and
principal value of an investment will fluctuate so that an investor's shares
upon redemption may be worth more or less than original cost.
FOR A GLOSSARY OF TERMS, PLEASE TURN TO THE END OF THIS REPORT.
<PAGE>
- ------------------------------------------------------------------------------
- --
PORTFOLIO HIGHLIGHTS SEPTEMBER 30, 1993
- ------------------------------------------------------------------------------
- --
<TABLE>
INDUSTRY BREAKDOWN
Description of Pie Charts in Shareholder Report
Industry Breakdown
Pie chart depicting the allocation of the Fundamental Value Fund's investment
securities held at September 30, 1993 by industry classification. The pie is
broken in
pieces representing industries in the following percentages:
<CAPTION>
INDUSTRY PERCENTAGE
<S> <C>
Banking and Finance 8.8%
Energy and Energy Services 16.8%
Corporate Note, Short Term Investments,
Purchased Options and Net Other Assets 27.5%
Convertible Preferred Stocks 5.9%
Other Common Stocks 6.0%
Consumer Goods 3.0%
Computer-Related 3.0%
Real Estate 3.9%
Consumer Services 7.7%
Communications 9.0%
Capital Goods 8.4%
</TABLE>
<TABLE>
TOP TEN HOLDINGS
<CAPTION>
Percentage of
Company Net Assets
<S> <C>
- ---------------------------------------------------------------------------
TRINET CORPORATE, REALTY TRUST 3.9%
GENERAL MOTORS CORPORATION 3.5
PHILLIPS NV 3.4
PARAMOUNT COMMUNICATIONS INC. 3.3
K MART CORPORATION 3.0
EASTMAN KODAK COMPANY 3.0
DEUTSCHE BANK A.G. ADR 2.8
SEARS ROEBUCK & COMPANY 2.7
IMPERIAL OIL LTD. 2.6
DRESSER INDUSTRIES INC. 2.5
</TABLE>
4
<PAGE>
<TABLE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- ------------------------------------------------------------------------------
- --
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1993
<CAPTION>
MARKET VALUE
SHARES
(NOTE 1)
<C> <S>
<C>
---------------------------------------------------------------------------
- ----------
COMMON STOCKS - 66.6%
ENERGY AND ENERGY SERVICES - 16.8%
1,500,000 American Exploration Company+ $
2,250,000
50,000 Atlantic Richfield Company
5,718,750
55,000 Burlington Resources Inc.
2,791,250
100,000 Coastal Corporation
2,737,500
275,000 Dresser Industries Inc.
5,878,125
525,000 Forest Oil Corporation+
2,657,813
450,000 Global Marine Inc.+
2,250,000
170,000 Imperial Oil Ltd
6,120,000
365,000 Maxus Energy Corporation+
2,920,000
400,000 Parker Drilling Company+
3,000,000
125,000 Unocal Corporation
3,515,625
- ------------------------------------------------------------------------------
- ----------
39,839,063
- ------------------------------------------------------------------------------
- ----------
COMMUNICATIONS - 9.0%
50,000 Grupo Televisa SA de CV ADR++
2,362,500
100,000 Paramount Communications Inc.
7,887,500
100,000 Sprint Corporation
3,662,500
200,000 Tele Communications Inc., Class A+
5,000,000
50,000 Telefonos de Mexico SA ADR+++
2,525,000
- ------------------------------------------------------------------------------
- ----------
21,437,500
- ------------------------------------------------------------------------------
- ----------
BANKING AND FINANCE - 8.8%
75,000 BankAmerica Corporation
3,300,000
14,000 Deutsche Bank A. G. ADR
6,643,000
75,000 First Interstate Bancorp
4,996,875
200,000 Great Western Financial Corporation
3,925,000
1,142,857 Unionfed Financial Corporation+
1,999,999
- ------------------------------------------------------------------------------
- ----------
20,864,874
- ------------------------------------------------------------------------------
- ----------
CAPITAL GOODS - 8.4%
200,000 General Motors Corporation
8,350,000
932,800 Interlake Corporation+
3,381,400
400,000 Phillips NV+
8,150,000
- ------------------------------------------------------------------------------
- ----------
19,881,400
- ------------------------------------------------------------------------------
- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
<TABLE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- ------------------------------------------------------------------------------
- --
PORTFOLIO OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 1993
<CAPTION>
MARKET VALUE
SHARES
(NOTE 1)
<C> <S>
<C>
-----------------------------------------------------------------------------
- ----------
COMMON STOCKS (CONTINUED)
CONSUMER SERVICES - 7.7%
300,000 K Mart Corporation $
7,237,500
200,000 Limited Inc.
4,525,000
120,000 Sears Roebuck & Company
6,465,000
- ------------------------------------------------------------------------------
- ----------
18,227,500
- ------------------------------------------------------------------------------
- ----------
REAL ESTATE - 3.9%
325,000 TriNet Corporate, Realty Trust
9,262,500
- ------------------------------------------------------------------------------
- ----------
COMPUTER-RELATED - 3.0%
100,000 Digital Equipment Corporation+
3,675,000
1,250,000 International Microelectronics+
2,968,750
400,000 SEEQ Technology Inc.+
550,000
- ------------------------------------------------------------------------------
- ----------
7,193,750
- ------------------------------------------------------------------------------
- ----------
CONSUMER GOODS - 3.0%
120,000 Eastman Kodak Company
7,110,000
- ------------------------------------------------------------------------------
- ----------
INSURANCE - 1.9%
145,500 Allstate Corporation
4,619,625
- ------------------------------------------------------------------------------
- ----------
HEALTH CARE - 1.9%
50,000 American Home Products Corporation
3,043,750
98,000 Aphton Corporation+#
1,494,500
- ------------------------------------------------------------------------------
- ----------
4,538,250
- ------------------------------------------------------------------------------
- ----------
NATURAL RESOURCES - 1.7%
100,000 Amax Inc.
2,212,500
400,000 Nord Resources Corporation+
1,900,000
- ------------------------------------------------------------------------------
- ----------
4,112,500
- ------------------------------------------------------------------------------
- ----------
OTHER - 0.5%
249,000 URS Corporation+
1,245,000
- ------------------------------------------------------------------------------
- ----------
TOTAL COMMON STOCKS (Cost $137,262,094)
158,331,962
---------------------------------------------------------------------------
- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
<TABLE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- ------------------------------------------------------------------------------
- --
PORTFOLIO OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 1993
<CAPTION>
MARKET VALUE
SHARES
(NOTE 1)
<C> <S>
<C>
- ------------------------------------------------------------------------------
- ----------
CONVERTIBLE PREFERRED STOCKS - 5.9%
60,000 Amax Inc., Series A, Conv. Pfd.++ $
3,945,000
220,000 Boise Cascade Corporation, Depositary Shares, Represents
1/10 Conv. Pfd., Series G
4,730,000
100,000 Delta Air Lines Inc., Depositary Shares, Represents 1/1000
Conv. Pfd., Series C
5,375,000
- ------------------------------------------------------------------------------
- ----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost $12,849,775)
14,050,000
- ------------------------------------------------------------------------------
- ----------
<CAPTION>
FACE
VALUE
<C> <S>
<C>
- ------------------------------------------------------------------------------
- ----------
CORPORATE NOTE - 1.0% (Cost $2,429,500)
$2,450,000 Westwood One Inc., Sr. Sub. Deb., 9.000% due 10/15/2002
2,450,000
- ------------------------------------------------------------------------------
- ----------
EURO-TIME DEPOSITS - 16.7%
5,058,000 Berliner Handelsbanken, 3.375% due 10/01/1993
5,058,000
11,500,000 Banco Espir Santo, 3.437% due 10/01/1993
11,500,000
11,500,000 San Paolo U.S. Financial, 3.500% due 10/01/1993
11,500,000
11,500,000 Republic National Bank, 3.250% due 10/01/1993
11,500,000
- ------------------------------------------------------------------------------
- ----------
TOTAL EURO-TIME DEPOSITS (Cost $39,558,000)
39,558,000
- ------------------------------------------------------------------------------
- ----------
REPURCHASE AGREEMENTS - 9.7%
11,500,000 Agreement with Morgan Stanley, dated 9/30/93 bearing 3.300%
to be repurchased at $11,501,054 on 10/01/1993,
collateralized by $8,760,000 U.S. Treasury Bond, 8.875%
due 2/15/2019
11,500,000
11,500,000 Agreement with Union Bank of Switzerland, dated 9/30/1993
bearing 3.350% to be repurchased at $11,501,070 on
10/01/1993, collateralized by $11,705,000 U.S. Treasury
Note, 3.875% due 5/31/1995
11,500,000
- ------------------------------------------------------------------------------
- ----------
TOTAL REPURCHASE AGREEMENTS (Cost $23,000,000)
23,000,000
- ------------------------------------------------------------------------------
- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
<TABLE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- ------------------------------------------------------------------------------
- --
PORTFOLIO OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 1993
<CAPTION>
NUMBER OF EXPIRATION STRIKE
MARKET VALUE
CONTRACTS DATE PRICE
(NOTE 1)
<S> <C> <C> <C>
<C>
- ------------------------------------------------------------------------------
- -----------------
PUT OPTIONS PURCHASED - 0.3%
(Cost $912,500)
1,250 S & P 500 Index Dec. 1993 $450.00
$ 796,875
- ------------------------------------------------------------------------------
- -----------------
TOTAL INVESTMENTS (Cost $216,011,869*) 100.2%
238,186,837
- ------------------------------------------------------------------------------
- -----------------
CALL OPTIONS WRITTEN - (0.0%)
(Premiums received $138,620)
500** Telefonos de Mexico SA ADR Jan. 1995 65.00 (0.0)
(134,375)
OTHER ASSETS AND LIABILITIES (NET) (0.2)
(409,943)
- ------------------------------------------------------------------------------
- -----------------
NET ASSETS 100.0%
$237,642,519
- ------------------------------------------------------------------------------
- -----------------
<FN>
* Aggregate cost for Federal tax purposes.
** One contract relates to 100 shares.
# Security loaned at 9/30/93 has a market value of $526,125 (See Note 7).
+ Non-income producing security.
++ Security exempt from registration under Rule 144A of the Securities Act of
1933.
These securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
+++ Security on which options were written (share amounts subject to call have
a
market value of $2,525,000).
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
<TABLE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- ------------------------------------------------------------------------------
- --
STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 1993
<S> <C> <C>
ASSETS:
Investments, at value (Cost $216,011,869) (Note 1)
See accompanying portfolio
$238,186,837
Receivable for Fund shares sold
3,817,546
Receivable for investment securities sold
1,638,896
Dividends and interest receivable
519,350
- ------------------------------------------------------------------------------
- ----------
TOTAL ASSETS
244,162,629
- ------------------------------------------------------------------------------
- ----------
LIABILITIES:
Due to custodian $4,621,116
Payable for investment securities purchased 668,825
Stock loan collateral (Note 7) 582,900
Call options written, at value (Premiums received $138,620)
(Note 1) See accompanying portfolio 134,375
Investment advisory fee payable (Note 2) 103,034
Payable for Fund shares redeemed 93,649
Distribution fee payable (Note 3) 65,382
Service fees payable (Note 3) 46,869
Administration fee payable (Note 2) 37,467
Transfer agent fees payable (Notes 2 and 4) 24,159
Custodian fees payable (Note 2) 14,188
Accrued Directors' fees and expenses (Note 2) 10,000
Accrued expenses and other payables 118,146
- ------------------------------------------------------------------------------
- ----------
TOTAL LIABILITIES
6,520,110
- ------------------------------------------------------------------------------
- ----------
NET ASSETS
$237,642,519
- ------------------------------------------------------------------------------
- ----------
NET ASSETS CONSIST OF:
Undistributed net investment income $
973,681
Accumulated net realized gain on investments
16,275,565
Net unrealized appreciation of investments and written options
22,179,213
Paid-in capital
198,214,060
- ------------------------------------------------------------------------------
- ----------
TOTAL NET ASSETS
$237,642,519
- ------------------------------------------------------------------------------
- ----------
NET ASSET VALUE:
CLASS A SHARES:
NET ASSET VALUE and redemption price per share
($123,188,012 / 14,639,098 shares of common stock outstanding) $
8.42
- ------------------------------------------------------------------------------
- ----------
Maximum offering price per share ($8.42 / .95) (based on sales
charge of 5% of offering price on September 30, 1993) $
8.86
- ------------------------------------------------------------------------------
- ----------
CLASS B SHARES:
NET ASSET VALUE and offering price per share+
($114,146,208 / 13,640,415 shares of common stock outstanding) $
8.37
- ------------------------------------------------------------------------------
- ----------
CLASS D SHARES:
NET ASSET VALUE, offering and redemption price per share
($308,299 / 36,843 shares of common stock outstanding) $
8.37
- ------------------------------------------------------------------------------
- ----------
<FN>
+ Redemption price per share for Class B shares is equal to Net Asset Value
less any applicable contingent deferred sales charge.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
<TABLE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- ------------------------------------------------------------------------------
- --
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1993
<S> <C>
<C>
INVESTMENT INCOME:
Dividends (Net of withholding tax of $14,481) $
2,195,332
Interest
1,191,322
- ------------------------------------------------------------------------------
- ----------
TOTAL INVESTMENT INCOME
3,386,654
- ------------------------------------------------------------------------------
- ----------
EXPENSES:
Investment advisory fee (Note 2) $ 759,836
Service fees (Note 3) 324,611
Distribution fee (Note 3) 309,949
Sub-investment advisory and administration fee (Note 2) 276,304
Transfer agent fees (Notes 2 and 4) 212,534
Registration and filing fees 117,947
Legal and audit fees 80,343
Directors' fees and expenses (Note 2) 53,719
Custodian fees (Note 2) 51,795
Other 155,491
- ------------------------------------------------------------------------------
- ----------
TOTAL EXPENSES
2,342,529
- ------------------------------------------------------------------------------
- ----------
NET INVESTMENT INCOME
1,044,125
- ------------------------------------------------------------------------------
- ----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTES 1 AND 5):
Net realized gain on investments sold during the year
16,338,329
Net change in appreciation/(depreciation) of:
Investments 13,269,324
Written options 4,245
---------
Net unrealized appreciation of investments during the
year
13,273,569
- ------------------------------------------------------------------------------
- ----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
29,611,898
- ------------------------------------------------------------------------------
- ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$30,656,023
- ------------------------------------------------------------------------------
- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
<TABLE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- ------------------------------------------------------------------------------
- --
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
YEAR
YEAR
ENDED
ENDED
9/30/93
9/30/92
<S> <C>
<C>
Net investment income $ 1,044,125 $
1,056,527
Net realized gain on investments sold during the year 16,338,329
7,276,569
Net unrealized appreciation of investments and written options
during the year 13,273,569
156,501
- ------------------------------------------------------------------------------
- ----------
Net increase in net assets resulting from operations 30,656,023
8,489,597
Distributions to shareholders (Note 1):
Distributions from net investment income:
Class A (654,186)
(1,260,364)
Class B (45,593)
- --
Distributions from net realized gain on investments:
Class A (5,026,441)
- --
Class B (403,270)
- --
Net increase in net assets from share transactions (Note 6):
Class A 29,251,169
11,254,590
Class B 105,722,124
- --
Class D 301,147
- --
- ------------------------------------------------------------------------------
- ----------
Net increase in net assets 159,800,973
18,483,823
NET ASSETS:
Beginning of year 77,841,546
59,357,723
- ------------------------------------------------------------------------------
- ----------
End of year (including undistributed net investment
income of $973,681 and $264,040, respectively) $237,642,519
$77,841,546
- ------------------------------------------------------------------------------
- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
<TABLE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- ------------------------------------------------------------------------------
- --
FINANCIAL HIGHLIGHTS
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR.*
<CAPTION>
YEAR YEAR YEAR
YEAR YEAR
ENDED ENDED ENDED
ENDED ENDED
9/30/93 9/30/92 9/30/91
9/30/90 9/30/89
<S> <C> <C> <C> <C>
<C>
Net asset value, beginning of year $ 7.22 $ 6.47 $ 5.34 $
7.15 $ 6.23
- ------------------------------------------------------------------------------
- -------------
Income from investment operations:
Net investment income 0.07 0.11 0.15
0.16 0.17
Net realized and unrealized gain/(loss)
on investments and written options 1.65 0.78 1.50
(1.22) 1.18
- ------------------------------------------------------------------------------
- -------------
Total from investment operations 1.72 0.89 1.65
(1.06) 1.35
Less distributions:
Distributions from net investment
income (0.06) (0.14) (0.23)
(0.18) (0.10)
Distributions from net realized capital
gains (0.46) -- (0.29)
(0.57) (0.33)
- ------------------------------------------------------------------------------
- -------------
Total distributions (0.52) (0.14) (0.52)
(0.75) (0.43)
- ------------------------------------------------------------------------------
- -------------
Net asset value, end of year $ 8.42 $ 7.22 $ 6.47 $
5.34 $ 7.15
- ------------------------------------------------------------------------------
- -------------
Total return++ 25.23% 14.01% 33.47%
(16.25%) 23.26%
- ------------------------------------------------------------------------------
- -------------
Ratios to average net
assets/supplemental data:
Net assets, end of year (in 000's) $123,188 $77,842 $59,358
$63,159 $89,048
Ratio of expenses to average net
assets 1.45% 1.28% 1.30%
1.20% 1.10%
Ratio of net investment income to
average
net assets 1.00% 1.57% 2.24%
2.40% 2.50%
Portfolio turnover rate 111% 142% 116%
94% 62%
- ------------------------------------------------------------------------------
- -------------
<FN>
* On November 6, 1992, the Fund commenced selling Class B shares. Those
shares in
existence prior to November 6, 1992 were designated Class A shares. On
August
10, 1993, the Fund commenced selling Class D shares.
++ Total return represents aggregate total return for the period indicated
including reinvestment of any dividends and distributions and does not
reflect
any applicable sales charges.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
<TABLE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- ------------------------------------------------------------------------------
- --
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<CAPTION>
YEAR YEAR YEAR
YEAR YEAR
ENDED ENDED ENDED
ENDED ENDED
9/30/88 9/30/87 9/30/86
9/30/85 9/30/84**
<S> <C> <C> <C> <C>
<C>
Net asset value, beginning of year $ 8.36 $ 7.24 $ 6.91 $
6.65 $ 6.78
- ------------------------------------------------------------------------------
- ----------------
Income from investment operations:
Net investment income 0.15 0.18 0.31
0.19 0.20
Net realized and unrealized
gain/(loss)
on investments and written options (0.99) 2.00 0.55
0.59 0.32
- ------------------------------------------------------------------------------
- ----------------
Total from investment operations (0.84) 2.18 0.86
0.78 0.52
Less distributions:
Distributions from net investment
income (0.26) (0.32) (0.19)
(0.22) (0.11)
Distributions from net realized
capital gains (1.03) (0.74) (0.34)
(0.30) (0.54)
- ------------------------------------------------------------------------------
- ----------------
Total distributions (1.29) (1.06) (0.53)
(0.52) (0.65)
- ------------------------------------------------------------------------------
- ----------------
Net asset value, end of year $ 6.23 $ 8.36 $ 7.24 $
6.91 $ 6.65
- ------------------------------------------------------------------------------
- ----------------
Total return++ (6.92%) 34.39% 12.94%
12.67% 8.42%
- ------------------------------------------------------------------------------
- ----------------
Ratios to average net
assets/supplemental
data:
Net assets, end of year (in 000's) $84,670 $111,693 $101,563
$114,529 $42,386
Ratio of expenses to average net
assets 1.20% 1.00% 1.10%
1.20% 1.50%
Ratio of net investment income to
average
net assets 2.10% 2.10% 3.70%
4.00% 4.60%
Portfolio turnover rate 120% 66% 91%
64% 45%
- ------------------------------------------------------------------------------
- ----------------
<FN>
** As of May 1, 1984, the Fund changed its investment adviser from Foster &
Marshall Management Inc. to Shearson Asset Management. Subsequent to July
30,
1993 Shearson Asset Management changed its name to Smith Barney Shearson
Asset Management.
++ Total return represents aggregate total return for the period indicated
including reinvestment of any dividends and distributions and does not
reflect
any applicable sales charges.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
<TABLE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- ------------------------------------------------------------------------------
- --
FINANCIAL HIGHLIGHTS
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<CAPTION>
PERIOD
ENDED
9/30/93*
<S>
<C>
Net asset value, beginning of period
$ 7.31
- ------------------------------------------------------------------------------
- ---------
Income from investment operations:
Net investment income
0.05
Net realized and unrealized gain on investments
1.52
- ------------------------------------------------------------------------------
- ---------
Total from investment operations
1.57
Less distributions:
Distributions from net investment income
(0.05)
Distributions from net realized capital gains
(0.46)
- ------------------------------------------------------------------------------
- ---------
Total distributions
(0.51)
- ------------------------------------------------------------------------------
- ---------
Net asset value, end of period
$8.37
- ------------------------------------------------------------------------------
- ---------
Total return++
22.82%
- ------------------------------------------------------------------------------
- ---------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's)
$114,146
Ratio of expenses to average net assets
2.26%+
Ratio of net investment income to average net assets
0.19%+
Portfolio turnover rate
111%
- ------------------------------------------------------------------------------
- ---------
<FN>
* The Fund commenced selling Class B shares on November 6, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated
including reinvestment of any dividends and distributions and does not
reflect
any applicable sales charges.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
<TABLE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- ------------------------------------------------------------------------------
- --
FINANCIAL HIGHLIGHTS
FOR A CLASS D SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<CAPTION>
PERIOD
ENDED
9/30/93*
<S>
<C>
Net asset value, beginning of period
$8.15
- ------------------------------------------------------------------------------
- -------
Income from investment operations:
Net investment income
0.00#
Net realized and unrealized gain on investments
0.22
- ------------------------------------------------------------------------------
- -------
Total from investment operations
0.22
- ------------------------------------------------------------------------------
- -------
Net asset value, end of period
$8.37
- ------------------------------------------------------------------------------
- -------
Total return++
2.70%
- ------------------------------------------------------------------------------
- -------
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's)
$ 308
Ratio of expenses to average net assets
2.25%+
Ratio of net investment income to average net assets
0.20%+
Portfolio turnover rate
111%
- ------------------------------------------------------------------------------
- -------
<FN>
* The Fund commenced selling Class D shares on August 10, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period.
# Amount represents less than $.01 per Fund share.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- ------------------------------------------------------------------------------
- --
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Shearson Fundamental Value Fund Inc. (the "Fund") is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as a diversified, open-end management investment company. The Fund was
incorporated on March 17, 1981 and commenced operations on November 12, 1981.
Prior to the close of business on July 30, 1993, the Fund was doing business
as
Shearson Lehman Brothers Fundamental Value Fund Inc. As of November 6, 1992,
the
Fund offered two classes of shares to the general public: Class A and Class B
shares. Class A shares are sold with a front-end sales charge. Class B shares
may be subject to a contingent deferred sales charge upon redemption. Class B
shares will convert automatically to Class A shares approximately eight years
after the date of purchase. As of January 29, 1993, the Fund offered a third
class of shares, Class D shares, to investors eligible to participate in the
Smith Barney Shearson Inc. ("Smith Barney Shearson") 401(k) program. Class D
shares are offered without a front-end sales load or contingent deferred sales
charge. All classes of shares have identical rights and privileges except with
respect to the effect of the respective sales charges to each class, if any,
the
distribution and/or service fees borne by each class, expenses allocable
exclusively to each class, voting rights on matters affecting a single class,
the exchange privilege of each class and the conversion feature of Class B
shares. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements.
Portfolio valuation: Securities for which the principal market is a
national securities exchange are valued at the last reported sales price;
securities traded in the over-the-counter market and for which the principal
market is a national securities exchange, but for which no sale was reported,
are valued at the last reported bid price. Short-term securities with
maturities
of 60 days or less are valued at amortized cost, which constitutes fair value
as
determined by the Fund's Board of Directors.
Option accounting principles: Upon the purchase of a put option or a
call
option by the Fund, the premium paid is recorded as an investment, the value
of
which is marked-to-market daily. When a purchased option expires, the Fund
will
realize a loss in the amount of the cost of the option. When the Fund enters
into a closing sale transaction, the Fund will realize a gain or loss
depending
on whether the sales proceeds from the closing sale transaction are greater or
less than the cost of the option. When the Fund exercises a put option, it
will
realize a gain or loss from the sale of the underlying security and the
16
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- ------------------------------------------------------------------------------
- --
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
proceeds from such sale will be decreased by the premium originally paid. When
the Fund exercises a call option, the cost of the security which the Fund
purchases upon exercise will be increased by the premium originally paid.
When the Fund writes a call option or a put option, an amount equal to
the
premium received by the Fund is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, the Fund realizes a
gain
equal to the amount of the premium received. When the Fund enters into a
closing
purchase transaction, the Fund realizes a gain (or loss if the cost of the
closing purchase transaction exceeds the premium received when the option was
sold) without regard to any unrealized gain or loss on the underlying
security,
and the liability related to such option is eliminated. When a call option is
exercised, the Fund realizes a gain or loss from the sale of the underlying
security and the proceeds from such sale are increased by the premium
originally
received. When a put option is exercised, the amount of the premium originally
received will reduce the cost of the security that the Fund purchased upon
exercise.
The risk associated with purchasing options is limited to the premium
originally paid. The risk in writing a call option is that the Fund may forego
the opportunity of profit if the market price of the underlying security or
index increases and the option is exercised. The risk in writing a put option
is
that the Fund may incur a loss if the market price of the underlying security
or
index decreases and the option is exercised. In addition, there is the risk
that
the Fund may not be able to enter into a closing transaction because of an
illiquid secondary market.
Repurchase Agreements: The Fund may engage in repurchase agreement
transactions. Under the terms of a typical repurchase agreement, the Fund
takes
possession of an underlying debt obligation subject to an obligation of the
seller to repurchase, and the Fund to resell, the obligation at an agreed-upon
price and time, thereby determining the yield during the Fund's holding
period.
This arrangement results in a fixed rate of return that is not subject to
market
fluctuations during the Fund's holding period. The value of the collateral is
at
least equal at all times to the total amount of the repurchase obligations,
including interest. In the event of counterparty default, the Fund has the
right
to use the collateral to offset losses incurred. There is potential loss to
the
Fund in the event the Fund is delayed or prevented from exercising its rights
to
dispose of the collateral securities, including the risk of a possible decline
in the value of the underlying securities during the period while the Fund
seeks
to assert its
17
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- ------------------------------------------------------------------------------
- --
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
rights. The Fund's investment adviser or administrator, acting under the
supervision of the Board of Directors, reviews the value of the collateral and
the creditworthiness of those banks and dealers with which the Fund enters
into
repurchase agreements to evaluate potential risks.
Securities transactions and investment income: Securities transactions
are
recorded as of the trade date. Dividend income and distributions to
shareholders
are recorded on the ex-dividend date. Interest income is recorded on the
accrual
basis. Realized gains and losses on investments sold are recorded on the basis
of identified cost. Investment income and realized and unrealized gains and
losses are allocated based upon the relative net assets of each class.
Dividends and distributions to shareholders: Dividends from net
investment
income are determined on a class level. Distributions from net realized
capital
gains are determined on a fund level. The Fund intends to declare and
distribute
annually dividends equal to its net dividend and interest income and its net
short-term capital gains, if any, in excess of its net long-term capital
losses.
Additional distributions of net investment income and capital gains may be
made
at the discretion of the Fund's Board of Directors in order to avoid the 4%
nondeductible excise tax to which the Fund is subject with respect to certain
undistributed amounts of net investment income and capital gains. The Fund
expects to make such additional distributions as may be necessary to avoid the
application of this tax.
Income distributions and capital gain distributions on a Fund level are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences will primarily be
due to differing treatments of income and gains on various investment
securities
held by the Fund, timing differences and differing characterization of
distributions made by the Fund as a whole.
Federal income taxes: It is the policy of the Fund to qualify as a
regulated investment company, if such qualification is in the best interest of
its shareholders, by complying with the requirements of the Internal Revenue
Code of 1986, as amended, applicable to regulated investment companies and by
distributing substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
Reclassifications: During the current period, the Fund adopted Statement
of Position 93-2 "Determination, Disclosure, and Financial Statement
Presentation of Income, Capital Gain, and Return of Capital Distributions by
Invest-
18
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- ------------------------------------------------------------------------------
- --
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
ment Companies." Accordingly, certain reclassifications have been made to the
components of capital in the Statement of Net Assets to conform with the
accounting and reporting guidelines of this statement. Distributions in excess
of book basis accumulated realized gains or undistributed net investment
income
that were the result of permanent book and tax accounting differences have
been
reclassified to paid-in capital. Accordingly, the cumulative effect of
adopting
the Statement of Position 93-2 was a decrease in paid-in capital, an increase
in
undistributed net investment income and a decrease in accumulated net realized
gains of $37,805, $365,295 and $327,490, respectively, compared with amounts
previously reported through September 30, 1992.
2. INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND OTHER RELATED PARTY
TRANSACTIONS
Prior to July 30, 1993, the Fund had entered into an investment advisory
agreement (the "Advisory Agreement") with Shearson Lehman Brothers Inc.
("Shearson Lehman Brothers") on behalf of Shearson Asset Management ("Asset
Management"), a member of the Asset Management Group of Shearson Lehman
Brothers. Under the Advisory Agreement, the Fund paid a monthly fee at the
annual rate of 0.55% of the value of its average daily net assets.
As of the close of business on July 30, 1993, Primerica Corporation
("Primerica") and Smith Barney, Harris Upham & Co. Incorporated completed the
acquisition of substantially all of the domestic retail brokerage and asset
management businesses of Shearson Lehman Brothers and Smith Barney, Harris
Upham
& Co. Incorporated was renamed Smith Barney Shearson Inc. In connection with
this acquisition, Smith Barney Shearson Asset Management, a division of Smith
Barney Advisers, Inc., which is controlled by Smith Barney Shearson Holdings
Inc. ("Holdings"), succeeded Asset Management as the Fund's investment
adviser.
Holdings is a wholly owned subsidiary of Primerica. The new investment
advisory
agreement with Smith Barney Shearson Asset Management contains terms and
conditions substantially similar to the advisory agreement with the
predecessor
investment adviser and provides for payment of fees at the same rate as was
paid
to such predecessor investment adviser.
The Fund also has entered into an administration agreement (the
"Administration Agreement") dated May 21, 1993 with The Boston Company
Advisors,
Inc. ("Boston Advisors"), an indirect wholly owned subsidiary of Mellon Bank
Corporation ("Mellon"). Under the Administration Agreement, the Fund pays a
fee
at the annual rate of 0.20% of the value of the its average daily net assets.
19
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- ------------------------------------------------------------------------------
- --
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Prior to on May 21, 1993, Boston Advisors served as sub-investment advisor and
administrator to the Fund.
For the year ended September 30, 1993, the Fund incurred total brokerage
commissions of $531,478 of which $21,074 was paid to Shearson Lehman Brothers
and Smith Barney Shearson.
For the year ended September 30, 1993, Smith Barney Shearson received
from
investors $568,544 representing commissions (sales charges) on sales of Class
A
shares.
A contingent deferred sales charge ("CDSC") is generally payable by a
shareholder in connection with the redemption of Class B shares within five
years (eight years in the case of certain 401(k) plans) after the date of
purchase. In circumstances in which the CDSC is imposed, the amount of the
charge ranges between 5% and 1% of net asset value depending on the number of
years since the date of purchase (except in the case of purchases by certain
401(k) plans in which case a 3% CDSC is imposed for the eight year period
after
the date of the purchase). During the period from November 6, 1992 through
September 30, 1993, Smith Barney Shearson received from investors $36,283
representing CDSCs on the redemption of Class B shares.
No officer, director or employee of Smith Barney Shearson, Boston
Advisors
or of any parent or subsidiary of those corporations receives any compensation
from the Fund for serving as a Director or officer of the Fund. The Fund pays
each Director who is not an officer, director or employee of Smith Barney
Shearson, Boston Advisors or any of their affiliates $2,000 per annum plus
$500
per meeting attended and reimburses each such Director for travel and out-of-
pocket expenses.
Boston Safe Deposit and Trust Company, an indirect wholly owned
subsidiary
of Mellon, serves as the Fund's custodian. The Shareholder Services Group,
Inc.,
a subsidiary of First Data Corporation, serves as the Fund's transfer agent.
3. DISTRIBUTION AGREEMENT
Smith Barney Shearson acts as distributor of the Fund's shares pursuant
to
a distribution agreement with the Fund and sells shares of the Fund through
Smith Barney Shearson or its affiliates.
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted a Service
and Distribution Plan (the "Plan"). Effective November 6, 1992, under this
Plan,
the Fund compensates the distributor for servicing shareholder accounts
20
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- ------------------------------------------------------------------------------
- --
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
for Class A, Class B and Class D shareholders, and covers expenses incurred in
distributing Class B and Class D shares. Smith Barney Shearson is paid an
annual
service fee with respect to Class A, Class B and Class D shares of the Fund at
the rate of 0.25% of the value of the average daily net assets of each
respective class of shares. Smith Barney Shearson is also paid an annual
distribution fee with respect to Class B and Class D shares at the rate of
0.75%
of the value of the average daily net assets attributable to each respective
class of shares. For the period from November 6, 1992 through September 30,
1993, the Fund incurred $221,295 and $103,220 in service fees for Class A and
Class B shares, respectively. For the period from August 10, 1993 through
September 30, 1993, the Fund incurred service fees of $96 for Class D shares.
For the period from November 6, 1992 through September 30, 1993, the Fund
incurred distribution fees of $309,660 for Class B shares. For the period from
August 10, 1993 through September 30, 1993, the Fund incurred distribution
fees
of $289 for Class D shares. Prior to July 30, 1993, Shearson Lehman Brothers
acted as the Fund's distributor.
4. EXPENSE ALLOCATION
Expenses of the Fund not directly attributable to the operations of any
class of shares are prorated among the classes based upon the relative net
assets of each class of shares. Operating expenses directly attributable to a
class of shares are charged to that class' operations. In addition to the
above
service and distribution fees, class specific operating expenses for the year
ended September 30, 1993 included transfer agent fees of $138,435, $74,034 and
$65 for Class A, Class B and Class D shares, respectively.
21
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- ------------------------------------------------------------------------------
- --
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities, excluding short-
term investments, for the year ended September 30, 1993 were $200,349,120 and
$114,997,891, respectively.
<TABLE>
Written option activity for the year ended September 30, 1993 was as
follows:
<CAPTION>
Number of
Premiums
Contracts
<S> <C>
<C>
- ------------------------------------------------------------------------------
- -------
Options outstanding at September 30, 1992 $ 0
0
Options written 138,620
500
- ------------------------------------------------------------------------------
- -------
Options outstanding at September 31, 1993 $138,620
500
- ------------------------------------------------------------------------------
- -------
</TABLE>
At September 30, 1993, aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost amounted to
$25,522,561, and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over value amounted to $3,347,593.
<TABLE>
6. COMMON STOCK
At September 30, 1993, the Fund had authorized 100,000,000 shares of
common
stock with no par value. Changes in the capital shares outstanding of the Fund
which are divided into three classes (Class A, Class B and Class D) were as
follows:
<CAPTION>
YEAR ENDED YEAR
ENDED
SEPTEMBER 30, 1993* SEPTEMBER
30, 1992
Class A shares: Shares Amount Shares
Amount
<S> <C> <C> <C>
<C>
- ------------------------------------------------------------------------------
- -------------
Sold 5,299,593 $40,869,624 4,292,901
$30,129,278
Issued as reinvestment of
dividends and distributions 801,516 5,602,599 192,033
1,242,457
Redeemed (2,243,603) (17,221,054) (2,874,634)
(20,117,145)
- ------------------------------------------------------------------------------
- -------------
Net increase 3,857,506 $29,251,169 1,610,300
$11,254,590
- ------------------------------------------------------------------------------
- -------------
</TABLE>
22
<PAGE>
<TABLE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- ------------------------------------------------------------------------------
- --
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<CAPTION>
PERIOD ENDED
SEPTEMBER 30, 1993*
Class B shares: Shares Amount
<S> <C> <C>
- --------------------------------------------------------------
Sold 14,353,665 $111,303,597
Issued as reinvestment of
dividends and distributions 62,099 434,077
Redeemed (775,349) (6,015,550)
- --------------------------------------------------------------
Net increase 13,640,415 $105,722,124
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30, 1993*
Class D shares: Shares Amount
<S> <C> <C>
- ------------------------------------------------------------
Sold 37,204 $304,147
Redeemed (361) (3,000)
- ------------------------------------------------------------
Net increase 36,843 $301,147
- ------------------------------------------------------------
<FN>
* The Fund commenced selling Class B shares on November 6, 1992. Any shares
outstanding prior to November 6, 1992 were designated as Class A shares.
The
Fund commenced selling Class D shares on August 10, 1993.
</TABLE>
7. LENDING OF PORTFOLIO SECURITIES
The Fund has the ability to lend its securities to brokers, dealers and
other financial organizations. Loans of portfolio securities by the Fund are
collateralized by cash, letters of credit or U.S. government securities that
are
maintained at all times in an amount at least equal to the current market
value
of the loaned securities.
At September 30, 1993, the Fund loaned a security with a market value of
$526,125, which represents 0.2% of total net assets of the Fund to certain
brokers, for which it received $582,900 as collateral.
23
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- ------------------------------------------------------------------------------
- --
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of Smith Barney Shearson
Fundamental
Value Fund Inc.:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Smith Barney Shearson Fundamental
Value Fund Inc. (formerly Shearson Lehman Brothers Fundamental Value Fund
Inc.)
as of September 30, 1993, the related statement of operations for the year
then
ended, the statement of changes in net assets for the years ended September
30,
1993 and 1992, and the financial highlights for each of the years in the ten
year period ended September 30, 1993. These financial statements and the
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on
a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at
September 30, 1993 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing
procedures.
An audit also includes assessing the accounting principles used and
significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights
present
fairly, in all material respects, the financial position of Smith Barney
Shearson Fundamental Value Fund Inc. as of September 30, 1993, the results of
its operations, the changes in its net assets, and its financial highlights
for
the respective stated periods in conformity with generally accepted accounting
principles.
Deloitte & Touche
Boston, Massachusetts
November 2, 1993
24
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- ------------------------------------------------------------------------------
- --
TAX INFORMATION
FOR THE YEAR ENDED SEPTEMBER 30, 1993 (UNAUDITED)
For the fiscal year ended September 30, 1993 the Fund distributed long-
term
capital gains of $4,215,085.
Of the distributions made by the Fund, during the fiscal year ended
September 30, 1993, 15.13% qualify for the dividends received deduction
available to corporate shareholders.
25
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- ------------------------------------------------------------------------------
- --
GLOSSARY OF COMMONLY USED MUTUAL FUND TERMS
CAPITAL GAIN (OR LOSS): This is the increase (or decrease) in the market value
(price) of a security in your portfolio. If a stock or bond appreciates in
price, there is a capital gain; if it depreciates, there is a capital loss. A
capital gain or loss is "realized" upon the sale of a security; if net capital
gains exceed net capital losses, there may be a capital gain distribution to
shareholders.
CONTINGENT DEFERRED SALES CHARGE (CDSC): One kind of back-end load, a CDSC is
imposed if shares are redeemed during the first few years of ownership. The
CDSC
may be expressed as a percentage of either the original purchase price or the
redemption proceeds. Most CDSCs decline over time, and some will not be
charged
if shares are redeemed under certain conditions.
DIVIDEND: This is income generated by
securities in a portfolio and distributed after expenses to shareholders.
FRONT-END SALES CHARGE: This is the sales charge applied to an investment at
the
time of initial purchase.
NET ASSET VALUE (NAV): Net asset value is the total market value of all
securities held by a fund, minus any liabilities, divided by the number of
shares outstanding. It is the value of a single share of a mutual fund on a
given day. The total value of your investment would be the NAV multiplied by
the
number of shares you own.
TOTAL RETURN: Total return measures a fund's performance, taking into account
the combination of dividends paid and the gain or loss in the value of the
securities held in the portfolio. It may be expressed on an average annual
basis
or cumulative basis (total change over a given period). In addition, total
return may be expressed with or without the effects of sales charges or the
reinvestment of dividends and capital gains.
Whenever a fund reports any type of performance, it must also report the
average
annual total return according to the standardized calculation developed by the
SEC. This standardized calculation was introduced to insure that investors can
compare different funds on an equal basis. The SEC average annual total return
calculation includes the effects of all fees and sales charges and assumes the
reinvestment of all dividends and capital gains.
26
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
DIRECTORS
Lloyd J. Andrews
Robert M. Frayn, Jr.
Leon P. Gardner
Howard J. Johnson
David E. Maryatt
Heath B. McLendon
William J. Rex
Jerry A. Viscione
Julie W. Weston
OFFICERS
Heath B. McLendon
Chairman of the Board
Richard P. Roelofs
President
William J. Rex
Vice President
John G. Goode
Vice President and
Investment Officer
Peter Hable
Investment Officer
Vincent Nave
Treasurer
Francis J. McNamara, III
Secretary
DISTRIBUTOR
Smith Barney Shearson Inc.
388 Greenwich Street
New York, New York 10013
INVESTMENT ADVISER
Smith Barney Shearson Asset Management
Division of Smith, Barney Advisers, Inc.
Two World Trade Center
New York, New York 10048
ADMINISTRATOR
The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
AUDITORS AND COUNSEL
Deloitte & Touche
125 Summer Street
Boston, Massachusetts 02110
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
TRANSFER AGENT
The Shareholder Services Group, Inc.
Exchange Place
Boston, Massachusetts 02109
CUSTODIAN
Boston Safe Deposit and
Trust Company
One Boston Place
Boston, Massachusetts 02108
27
<PAGE>
THE SMITH BARNEY 1. PERSONAL SERVICE The Smith Barney
SHEARSON Shearson Financial Consultant (FC) is
APPROACH TO highly trained and deeply committed to
MUTUAL FUND client service. Your FC works with you to
INVESTING establish a relationship based on
one-to-one communication and the highest
standards of quality.
2. ANALYZING YOUR NEEDS Defining your
needs
and establishing specific goals is the
first step toward any successful
investment
program. The Smith Barney Shearson
Strategic Asset Allocator -- a
sophisticated financial planning tool --
can help you and your FC evaluate your
resources and objectives. This groundwork
then becomes the basis for a strategy
designed specifically for you. Your FC
can
use the Strategic Asset Allocator on a
periodic basis to ensure that your
investment strategy is keeping pace with
your changing needs and goals.
3. A UNIQUE MUTUAL FUND INVESTMENT
PROGRAM
Your FC offers a number of mutual fund
assessment tools that are unmatched in
the
financial services industry. FCs have
access to a proprietary mutual fund
research database that provides
information
at their fingertips on more than 2,100
funds. In addition, working with a
proprietary system known as the Mutual
Fund
Evaluation Service, your FC can help
guide
you through the complex mutual fund maze.
4. LOOKING AHEAD Selecting a mutual fund
should not be a one-event process that
ends
with the purchase of shares. You can
count
on the expertise of your FC as he or she
continues to monitor and evaluate your
funds, to suggest new strategies and to
listen. That, in our opinion, is how to
use
mutual funds to help achieve your
financial
goals.
28
<PAGE>
- ------------------------------------------------------------------------------
- --
INVESTOR BENEFITS
AUTOMATIC REINVESTMENT You may
reinvest
your dividends and/or capital gains
automatically in additional shares of
your fund at the current net asset
value.
UNLIMITED EXCHANGES If your investment
goals change, you may exchange into
another Smith Barney Shearson mutual
fund with the same sales charge
structure without incurring a sales
charge.*
SYSTEMATIC INVESTMENT PLAN This
program
allows you to invest equal dollar
amounts automatically on a regular
basis, monthly or quarterly.
AUTOMATIC CASH WITHDRAWAL PLAN With
this
plan, you may withdraw money on a
regular basis while maintaining your
investment.
MUTUAL FUND EVALUATION SERVICE
Through your Financial Consultant, you
may obtain a free personalized
analysis
of how your fund has performed for
you,
taking into account the effect of
every
transaction. The analysis is based
upon
month-end data from CDA Investment
Technologies, Inc., a widely
recognized
mutual fund information service. An
evaluation also gives you other
important facts and figures about your
investment.
For more information about these
benefits, or if you have any other
questions, please call your Financial
Consultant or write:
MUTUAL FUND POLICY GROUP
SMITH BARNEY SHEARSON
388 GREENWICH STREET 37TH FLOOR
NEW YORK, NY 10013
* After written notification, exchange
privilege may be modified or
terminated
at any time.
<PAGE>
- ------------------------------------------------------------------------------
- --
THIS REPORT IS SUBMITTED FOR
THE GENERAL INFORMATION OF THE
SHAREHOLDERS OF SMITH BARNEY
SHEARSON FUNDAMENTAL VALUE FUND INC.
IT IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE
INVESTORS UNLESS ACCOMPANIED OR
PRECEDED BY AN EFFECTIVE PROSPECTUS
FOR THE FUND, WHICH CONTAINS
INFORMATION CONCERNING THE FUND'S
INVESTMENT POLICIES AND APPLICABLE
SALES CHARGES, AND EXPENSES AS WELL
AS OTHER PERTINENT INFORMATION.
PERFORMANCE CITED IS THROUGH
SEPTEMBER 30, 1993. PLEASE CONSULT
SMITH BARNEY SHEARSON MUTUAL FUNDS
QUARTERLY PERFORMANCE UPDATE FOR
FIGURES THROUGH THE MOST RECENT
CALENDAR QUARTER.
SMITH BARNEY SHEARSON
Fundamental
Value Fund Inc.
Two World Trade Center
New York, New York 10048
Fund 10, 199, 215
FD0283 K3
<PAGE>
[GRAPHIC]
Small box above fund name showing the White House and a clock with Roman
numerals.
SEMI- Smith Barney Shearson ANNUAL Fundamental REPORT Value
Fund Inc.
....................................... MARCH 31, 1994
[LOGO]
<PAGE>
Fundamental Value Fund Inc.
DEAR SHAREHOLDER:
We are pleased to present you with the semi-annual report for the six-month
period ended March 31, 1994, for Smith Barney Shearson Fundamental Value Fund
Inc. (the "Fund").
Recent shareholder letters have focused on the risks, as well as rewards, in
investing in the stock market. Over the course of market cycles going back 25
years, this portfolio manager has become very sensitive to substantial
corrections in the Dow Jones Utility Average. Often times, this average leads
increases in interest rates and more general stock market corrections. The Dow
Jones Utility Average peaked at about 256 in September of last year and has
fallen to about 187 currently. This is one of the sharpest corrections in the
history of this average. Utilities, which have declined more than 25%, have
been much weaker than almost all market indexes.
In late 1993, we believed the market was beginning to look like a similar
period 10 years earlier, when the stock market rallied sharply beginning in
August 1982 and in late 1983-early 1984 the real economy began to rally
strongly. We have found that periods such as this, when the real economy
starts to compete for funds (receivables, inventories etc.) with the stock
market, usually cause market turbulence. A decade ago, long term interest
rates rose 3% and the stock market suffered a 12-15% decline. The parallels
between the current market and that of 1983-1984 are easily seen and, with the
economy looking much stronger in early 1994, it was not surprising that
another period of turbulence in the debt and equity markets has been
occurring.
Our approach is to manage assets over the course of the complete market cycle
and occasionally we must take a more defensive posture in order to preserve
gains made in more favorable times. Over the last 6 months, the Class A shares
and Class B shares of the Fund declined -0.33% and -0.65%, respectively,
versus a decline of -1.59% for the Standard & Poor's 500 Composite Stock Price
Index ("S&P 500"), with dividends reinvested. Since the end of 1993, Class A
shares and Class B shares of the Fund were down -0.74% and -0.87%,
respectively, versus a return of -3.83% for the S&P 500.
1 <PAGE>
The following are the principal strategies and approaches we are using for
investing your assets at this time.
- - At the end of the first calendar quarter, the Fund maintained cash balances
of about 31%.
- - As of March 31, 1994, a significant percentage of Fund assets was invested
in areas which we believe have less downside potential than the overall
market. Energy and related industries account for about 16% of assets and real
estate investment trusts comprise about 6% of assets. Both of these sectors of
the market have done well, in a relative sense, in recent months.
- - For a period during the year another 10% of the portfolio was hedged using
S&P 500 put options.
- - We believe the California market is depressed and many financial
institutions in that state are poised to do much better as the California
market recovers. The Fund's holdings include large capitalization issues as
well as selected smaller savings and loans which we believe may be attractive
to an acquirer.
- - Higher interest rate environments suggest that price/earnings ("P/E") ratios
will be under pressure. We continue to look for companies whose earnings, we
believe, may increase at a high rate, thereby offsetting the effects of higher
interest rates and P/E contraction.
- - It is our belief that producer prices and commodities prices will rise
faster than consumer prices for the remainder of this decade. If this happens,
it would reverse the pattern of the 1980s when consumer prices moved up
faster. We believe raw materials suppliers and commodity producers will
benefit from some shortages and the moderately higher inflation rates we
expect through the year 2000. We are seeking to invest Fund assets in shares
of companies which we believe will benefit from these trends.
- - The U.S. economy is relatively mature and other parts of the world will grow
at substantially faster rates. Recently this portfolio manager visited Hong
Kong and Shanghai, China and witnessed, firsthand, the rapid growth occurring
in some parts of the world. However, the risks or volatility associated with
this growth often is substantial as well. In an attempt to benefit from such
rapid growth taking place beyond our borders, while at the same time
potentially limiting the risks inherent in such investments, it will be our
policy to identify and invest in U.S. based companies, which derive a
significant percentage of their earnings from foreign sources, including high
growth emerging markets.
2
<PAGE>
We are well aware, to use baseball terminology, that we are being paid to
swing our investment bats on your behalf. However, there are times when one
has to lay off of a few pitches and wait for a better offering. We anticipate
adding new investments to the Fund as company shares become available at
attractive prices.
As always, we appreciate the opportunity to help you meet your investment
goals and thank you for your continued patronage.
Sincerely,
John G. Goode MAY 9, 1994
3 <PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS (UNAUDITED) MARCH
31, 1994
INDUSTRY BREAKDOWN
INDUSTRY PERCENTAGE
Consumer Services 2.3%
Real Estate 6.2%
Capital Goods 8.4%
Computer Related 8.5%
Banking and Finance 12.0%
Energy and Energy Services 15.7%
Commercial Paper, Repurchase
Agreements and Net Other
Assets and Liabilities 31.2%
Convertible Preferred Stocks
and Warrants 5.7%
Other Common Stocks 5.8%
Communications 2.1%
Natural Resources 2.1%
TOP TEN HOLDINGS
<TABLE>
<CAPTION>
Percentage of Company
Net Assets
<S> <C> --
- ---------------------------------------------------------------BANKAMERICA
CORPORATION 2.8%
TEXAS INSTRUMENTS INC.
2.7
GENERAL MOTORS CORPORATION
2.7
DUPONT (EI) DENEMOURS & COMPANY
2.7
DELTA AIRLINES INC.
2.6
GREAT WESTERN FINANCIAL CORPORATION
2.6
SPIEKER PORPERTIES INC.
2.5
TRINET CORPORATE, REALTY TRUST
2.5
AMERICAN EXPRESS COMPANY
2.5
SEARS, ROEBUCK & COMPANY
2.4
</TABLE>
4
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- ------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) MARCH
31, 1994
<TABLE>
<CAPTION>
MARKET
VALUE SHARES
(NOTE 1)
<C> <S> <C>
- ------------------------------------------------------------------------------
- -COMMON STOCKS -- 63.1%
ENERGY AND ENERGY SERVICES -- 15.7%
1,500,000 American Exploration Company+ $ 2,250,000
200,000 Amoco Corporation 10,625,000
200,000 Coastal Corporation
6,100,000
500,000 Dresser Industries Inc. 10,625,000
250,000 duPont (EI) deNemours & Company 13,250,000
1,000,000 Forest Oil Corporation+ 3,437,500
500,000 Global Marine Inc.+
1,937,500 200,000 Imperial Oil Ltd.
6,475,000 650,000 Oryx Energy Company
10,481,250 400,000 Parker Drilling Company+
2,150,000 110,000 Royal Dutch Petroleum Company
10,931,250
- ------------------------------------------------------------------------------
- -78,262,500
- ------------------------------------------------------------------------------
- -BANKING AND FINANCE -- 12.0%
450,000 American Express Company 12,431,250
350,000 BankAmerica Corporation 13,781,250
100,000 Citicorp+
3,750,000
100,000 Coast Savings Financial Inc.+ 1,387,500
150,000 First Interstate Bancorp 10,987,500
800,000 Great Western Financial Corporation 12,800,000
140,000 SFFed Corporation 2,415,000
1,142,857 UnionFed Financial Corporation+
2,142,857
- ------------------------------------------------------------------------------
- --
59,695,357 -------------------------------------------------------------
- -------------------
COMPUTER-RELATED -- 8.5%
125,000 Apple Computer Inc. 4,156,250
1,300,000 IMP, Inc.+ 2,275,000
200,000 International Business Machines 10,900,000 381,500
National Semiconductor Corporation+ 8,011,500 250,000
Tandem Computers Inc.+ 3,531,250 175,000
Texas Instruments Inc. 13,518,750
- ------------------------------------------------------------------------------
- -42,392,750
-----------------------------------------------------------------------------
- --</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) MARCH 31, 1994
<TABLE>
<CAPTION>
MARKET
VALUE SHARES
(NOTE 1)
- ------------------------------------------------------------------------------
- --
<C> <S> <C>
COMMON STOCKS -- (CONTINUED)
CAPITAL GOODS -- 8.4%
300,000 Alcan Aluminium Ltd. $ 6,600,000
250,000 General Motors Corporation 13,500,000
1,400,000 Interlake Corporation+ 4,550,000
350,000 Philips NV + 9,450,000
590,000 Stone Container Corporation 7,817,500
- ------------------------------------------------------------------------------
- -41,917,500
- ------------------------------------------------------------------------------
- -REAL ESTATE -- 6.2%
296,600 Irvine Apartment Communities Inc. 5,894,925
600,000 Spieker Properties Inc. 12,525,000
415,000 TriNet Corporate, Realty Trust 12,501,875
- ------------------------------------------------------------------------------
- --
30,921,800
- ------------------------------------------------------------------------------
- -CONSUMER SERVICES -- 2.3%
275,000 Sears, Roebuck & Company
11,825,000
- ------------------------------------------------------------------------------
- --
NATURAL RESOURCES -- 2.1%
725,000 Amax Gold Inc. 5,800,000
50,000 Cyprus Amax Minerals Company 1,443,750
569,600 Nord Resources Corporation+ 3,275,200
- ------------------------------------------------------------------------------
- --
10,518,950
- ------------------------------------------------------------------------------
- -COMMUNICATIONS -- 2.1%
500,000 Tele-Communications Inc., Class A+
10,375,000
- ------------------------------------------------------------------------------
- --
HEALTH CARE -- 1.5%
100,000 American Home Products Corporation 5,800,000
85,000 Aphton Corporation+
1,530,000
- ------------------------------------------------------------------------------
- --
7,330,000 --------------------------------------------------------------
- ------------------
INSURANCE -- 1.5%
100,000 Chubb Corporation 7,312,500
-----------------------------------------------------------------------------
- ---
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS. 6
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) MARCH 31, 1994
<TABLE>
<CAPTION>
MARKET
VALUE SHARES
(NOTE 1)
- ------------------------------------------------------------------------------
- --
<C> <S> <C>
COMMON STOCKS -- (CONTINUED)
TRANSPORTATION -- 1.4%
600,000 Northwest Airlines Corporation, Class A $ 7,125,000
- ------------------------------------------------------------------------------
- --
CHEMICALS -- 1.2%
220,000 Advanced Polymer Systems Inc.+ 1,347,500
100,000 Merck & Company Inc. 2,975,000
300,000 NL Industries, Inc. 1,950,000
- ------------------------------------------------------------------------------
- --
6,272,500
- ------------------------------------------------------------------------------
- -CONSUMER GOODS -- 0.2%
68,400 Tejon Ranch Company
957,600
- ------------------------------------------------------------------------------
- --
TOTAL COMMON STOCKS
(Cost $303,467,289) 314,906,457
- ------------------------------------------------------------------------------
- --
CONVERTIBLE PREFERRED STOCKS -- 5.7%
128,000 American Exploration Company Depository
Shares, Represents 1/200 Pfd., Series C++ 3,200,000
320,000 Boise Cascade Corporation, Depository
Shares, Represents 1/10 Conv. Pfd.,
Series G 7,280,000
40,000 Cyprus Amax Minerals Company, Conv. Pfd.,
Series A 2,730,000
275,000 Delta Airlines Inc., Depository Shares,
Represents 1/1000 Conv. Pfd., Series C 13,028,125
40,000 Rouse Company Conv. Pfd., Series A,
6.500% 2,130,000
- ------------------------------------------------------------------------------
- -TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost $28,845,011) 28,368,125
- ------------------------------------------------------------------------------
- -WARRANT -- 0.0% (Cost $125,000)
571,429 UnionFed Financial Corporation, Warrants,
expires 1998+ 142,857
-----------------------------------------------------------------------------
- --</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) MARCH 31, 1994
<TABLE>
<CAPTION>
MARKET VALUE FACE VALUE
(NOTE 1)
- ------------------------------------------------------------------------------
- --
<C> <S> <C>
COMMERCIAL PAPER -- 10.1%
$ 24,992,000 Ford Motor Credit Corporation, 3.550%,
due 4/4/94 $
24,992,000
24,992,000 General Electric Capital Corporation,
3.550% due 4/4/94
24,992,000
- ------------------------------------------------------------------------------
- --
TOTAL COMMERCIAL PAPER
(Cost $49,984,000) 49,984,000
- ------------------------------------------------------------------------------
- --
REPURCHASE AGREEMENTS -- 19.0%
24,992,000 Agreement with Goldman Sachs, dated
3/31/94 bearing 3.300% to be
repurchased at $25,001,164 on 4/4/94,
collateralized by $21,400,000 U.S.
Treasury Bond, 8.750% due 5/15/17 24,992,000
24,992,000 Agreement with Morgan Stanley, dated
3/31/94 bearing 3.450% to be
repurchased at $25,001,580 on 4/4/94,
collateralized by $25,620,000 U.S.
Treasury Bond, 4.625% due 2/15/96 24,992,000
22,479,000 Agreement with Salomon Brothers, dated
3/31/94 bearing 3.500% to be
repurchased at $22,487,742 on 4/4/94,
collateralized by $20,855,000 U.S.
Treasury Bond, 8.125% due 8/15/19 22,479,000
22,479,000 Agreement with Union Bank of Switzerland
Securities Inc., dated 3/31/94 bearing
3.500% to be repurchased at $22,487,742
on 4/4/94, collateralized by
$22,875,000 U.S. Treasury Bond, 4.625%
due 8/15/95 22,479,000
- ------------------------------------------------------------------------------
- -TOTAL REPURCHASE AGREEMENTS (Cost $94,942,000) 94,942,000
- ------------------------------------------------------------------------------
- -TOTAL INVESTMENTS (Cost $477,363,300*) 97.9%
488,343,439
OTHER ASSETS AND LIABILITIES (NET) 2.1
10,576,968
- ------------------------------------------------------------------------------
- -NET ASSETS 100.0%
$498,920,407
- ------------------------------------------------------------------------------
- --
<FN>
*Aggregate cost for Federal tax purposes.
+Non-income producing security.
++Security exempt from registration under Rule 144A of the Securities Act of
1993. These securities may be resold in transactions exempt from registration
to qualified institutional buyers.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS. 8
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) MARCH 31,
1994
<TABLE>
<S> <C>
<C>
ASSETS:
Investments, at value (Cost
$477,363,300) (Note 1)
See accompanying portfolio:
Securities $393,401,439
Repurchase agreements 94,942,000 $488,343,439
----------Receivable for
investment securities
sold
29,586,197
Receivable for Fund shares sold
3,852,574
Dividends and interest receivable
1,210,483
- ----------------------------------------------------------------------------
TOTAL ASSETS
522,992,693
- ----------------------------------------------------------------------------
LIABILITIES:
Payable for investment securities
purchased 21,768,913
Payable for Fund shares redeemed 1,480,508
Investment advisory fee payable (Note
2) 236,473
Distribution fee payable (Note 3) 228,185
Service fee payable (Note 3) 108,009
Administration fee payable (Note 2) 85,990
Transfer agent fees payable (Note 2) 78,060
Due to custodian 17,439
Custodian fees payable (Note 2) 16,000
Accrued expenses and other payables 52,709
- ----------------------------------------------------------------------------
TOTAL LIABILITIES 24,072,286
- ---------------------------------------------------------------------------NET
ASSETS
$498,920,407
- ---------------------------------------------------------------------------NET
ASSETS consist of:
Undistributed net investment income $ 1,708,739
Accumulated net realized gain on
investments
50,725,224
Unrealized appreciation of investments
10,980,139
Paid-in capital 435,506,305
- ----------------------------------------------------------------------------
TOTAL NET ASSETS
$498,920,407
- ----------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- ------------------------------------------------------------STATEMENT OF
ASSETS AND LIABILITIES (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------- MARCH 31,
1994
<TABLE>
<S> <C>
<C>
NET ASSET VALUE:
CLASS A SHARES:
NET ASSET VALUE and redemption price per share
($145,667,485 DIVIDED BY 18,699,292 shares of common
stock outstanding) $7.79
- ------------------------------------------------------------------------------
- -
MAXIMUM OFFERING PRICE PER SHARE ($7.79 DIVIDED BY .95)
(based on sales charge of 5% of the offering price on
March 31, 1994) $8.20
- ------------------------------------------------------------------------------
- -
CLASS B SHARES:
NET ASSET VALUE and offering price per share+
($352,479,987 DIVIDED BY 45,310,969 shares of common
stock outstanding) $7.78
- ------------------------------------------------------------------------------
- -
CLASS D SHARES:
NET ASSET VALUE, offering and redemption price per share
($772,935 DIVIDED BY 99,349 shares of common stock
outstanding) $7.78
- ------------------------------------------------------------------------------
- -
+Redemption price per share is equal to Net Asset Value less any applicable
contingent deferred sales charge. </TABLE>
SEE NOTES TO FINANCIAL STATEMENTS. 10
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
STATEMENT OF OPERATIONS (UNAUDITED)
- -------------------------------------------------------------
FOR THE SIX MONTHS ENDED MARCH 31, 1994
<TABLE>
<S> <C>
<C>
INVESTMENT INCOME:
Dividends (net of withholding tax of
$11,981) $ 3,783,628
Interest
1,701,042
- ----------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 5,484,670
- ----------------------------------------------------------------------------
EXPENSES:
Investment advisory fee (Note 2) $988,608
Distribution fee (Note 3) 835,890
Service fee (Note 3) 449,367
Administration fee (Note 2) 359,494
Transfer agent fees (Notes 2 and 4) 317,784
Legal and audit fees 62,701
Custodian fees (Note 2) 41,191
Directors' fees and expenses (Note 2) 13,460
Other 95,909
- ----------------------------------------------------------------------------
TOTAL EXPENSES 3,164,404
- ---------------------------------------------------------------------------NET
INVESTMENT INCOME 2,320,266
- ----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS (NOTES 1 AND 5):
Net realized gain/(loss) on:
Securities transactions 55,367,231
Written options
(563,880)
- ----------------------------------------------------------------------------
Net realized gain on investments sold during the
period
54,803,351
- ---------------------------------------------------------------------------Net
change in unrealized
appreciation/(depreciation) of:
Securities (11,194,829)
Written options
(4,245)
- ----------------------------------------------------------------------------
Net unrealized depreciation of
investments during the period
(11,199,074)
- ---------------------------------------------------------------------------NET
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
43,604,277
- ---------------------------------------------------------------------------NET
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 45,924,543
- ----------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
3/31/94 ENDED
(UNAUDITED) 9/30/93
<S> <C>
<C>
Net investment income $ 2,320,266
$ 1,044,125
Net realized gain on investments sold during
the period 54,803,351
16,338,329
Net unrealized appreciation/(depreciation) of
investments and written options during the
period (11,199,074)
13,273,569
- ------------------------------------------------------------------------------
- ----
Net increase in net assets resulting from
operations 45,924,543
30,656,023
Distributions to shareholders (Note 1):
Distributions from net investment income:
Class A (1,282,266)
(654,186)
Class B (302,080)
(45,593)
Class D (862)
--
Distributions from net realized gain on
investments:
Class A (8,766,822)
(5,026,441)
Class B (11,560,162)
(403,270)
Class D
(26,708) --
Net increase in net assets from share
transactions (Note 6):
Class A 31,985,151
29,251,169
Class B 204,933,747
105,722,124
Class D
373,347 301,147
- ------------------------------------------------------------------------------
- ----
Net increase in net assets 261,277,888
159,800,973
NET ASSETS:
Beginning of period 237,642,519
77,841,546
- ------------------------------------------------------------------------------
- ---End of period (including undistributed net
investment income of $1,708,739 and
$973,681, respectively) $498,920,407
$237,642,519
- ------------------------------------------------------------------------------
- ----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS. 12
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- -----------------------------------------FINANCIAL HIGHLIGHTS
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.*
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR
3/31/94 ENDED ENDED ENDED ENDED
(UNAUDITED) 9/30/93 9/30/92 9/30/91 9/30/90
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period $ 8.42 $ 7.22 $ 6.47 $ 5.34
$ 7.15
- -------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.06 0.07 0.11 0.15 0.16
Net realized and unrealized gain/(loss) on
investments and written options (0.08) 1.65 0.78 1.50 (1.22)
- -------------------------------------------------------------------------------------
Total from investment operations (0.02) 1.72 0.89 1.65 (1.06)
Less distributions:
Distributions from net investment income (0.08) (0.06) (0.14) (0.23)
(0.18)
Distributions from net realized capital
gains (0.53) (0.46)
-- (0.29) (0.57)
- -------------------------------------------------------------------------------------
Total distributions (0.61) (0.52)
(0.14) (0.52) (0.75)
- -------------------------------------------------------------------------------------
Net Asset Value, end of period $ 7.79 $ 8.42 $ 7.22 $ 6.47
$ 5.34
- -------------------------------------------------------------------------------------
Total return++ (0.33)% 25.23%
14.01% 33.47% (16.25)%
- -------------------------------------------------------------------------------------
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $145,667 $123,188 $77,842 $59,358
$63,159
Ratio of expenses to average net assets 1.29%+ 1.45% 1.28%
1.30% 1.20%
Ratio of net investment income to average
net assets 1.76%+ 1.00% 1.57% 2.24%
2.40%
Portfolio turnover rate 100% 111% 142% 116% 94%
- -------------------------------------------------------------------------------------
<FN>
*On November 6, 1992, the Fund commenced selling Class B shares. Those shares in existence prior to
November 6, 1992 were designated Class A shares. On August 10, 1993, the Fund commenced selling Class D
shares.
+Annualized.
++Total return represents aggregate total return for the periods indicated
including reinvestment of any dividends and distributions and does not reflect any applicable sales
charges.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- ------------------------------------------FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.*
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
9/30/89 9/30/88 9/30/87 9/30/86
9/30/85 9/30/84**
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period $ 6.23 $ 8.36 $ 7.24 $ 6.91 $ 6.65 $
6.78
- -------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.17 0.15 0.18 0.31 0.19 0.20
Net realized and unrealized gain/(loss) on
investments and written options 1.18 (0.99) 2.00 0.55 0.59 0.32
- -------------------------------------------------------------------------------------
Total from investment operations 1.35 (0.84) 2.18 0.86 0.78 0.52
Less distributions:
Distributions from net investment income (0.10) (0.26) (0.32) (0.19) (0.22)
(0.11)
Distributions from net realized capital
gains (0.33) (1.03) (0.74)
(0.34) (0.30) (0.54)
- -------------------------------------------------------------------------------------
Total distributions (0.43) (1.29) (1.06)
(0.53) (0.52) (0.65)
- -------------------------------------------------------------------------------------
Net Asset Value, end of period $ 7.15 $ 6.23 $ 8.36 $ 7.24 $ 6.91 $
6.65
- -------------------------------------------------------------------------------------
Total return++ 23.26% (6.92)% 34.39%
12.94% 12.67% 8.42%
- -------------------------------------------------------------------------------------
Ratios to average net assets/ supplemental
data:
Net assets, end of period (in 000's) $ 89,048 $ 84,670 $111,693 $101,563 $114,529
$42,386
Ratio of expenses to average net assets 1.10% 1.20% 1.00% 1.10% 1.20%
1.50%
Ratio of net investment income to average
net assets 2.50% 2.10% 2.10% 3.70% 4.00% 4.60%
Portfolio turnover rate 62% 120% 66% 91% 64%
45%
- -------------------------------------------------------------------------------------
<FN>
*On November 6, 1992, the Fund commenced selling Class B shares. Those shares in existence prior to November 6, 1992
were designated Class A shares. On August 10, 1993, the Fund commenced selling Class D shares.
**As of May 1, 1984, the Fund changed its investment adviser from Foster & Marshall Management Inc. to Shearson Asset
Management. Subsequent to July 30, 1993, Shearson Asset Management changed its name to Smith Barney Shearson Asset
Management.
++Total return represents aggregate total return for the periods indicated including reinvestment of any dividends
and distributions and does not reflect any applicable sales charges.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS. 14
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- -------------------------------------------FINANCIAL HIGHLIGHTS
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD
3/31/94 ENDED
(UNAUDITED) 9/30/93*
<S> <C> <C>
Net Asset Value, beginning of period $ 8.37 $
7.31
- ---------------------------------------------------------------------------------
- --Income from investment operations:
Net investment income 0.03
0.05
Net realized and unrealized gain/(loss) on
investments and
written options (0.07)
1.52
- ---------------------------------------------------------------------------------
- ---
Total from investment operations (0.04)
1.57
Less distributions:
Distributions from net investment income (0.02)
(0.05)
Distributions from net realized capital gains (0.53)
(0.46)
- ---------------------------------------------------------------------------------
- --Total distributions
(0.55) (0.51)
- ---------------------------------------------------------------------------------
- --Net Asset Value, end of period $ 7.78 $
8.37
- ---------------------------------------------------------------------------------
- --Total return++
(0.65)% 22.82%
- ---------------------------------------------------------------------------------
- --Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $352,480
$114,146
Ratio of expenses to average net assets 2.05%+
2.26%+
Ratio of net investment income to average net assets 1.00%+
0.19%+
Portfolio turnover rate
100% 111%
- ---------------------------------------------------------------------------------
- --<FN>
*The Fund commenced selling Class B shares on November 6, 1992. +Annualized.
++Total return represents aggregate total return for the periods indicated
including reinvestment of any dividends and distributions and does not reflect
any applicable sales charges.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CLASS D SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
3/31/94 ENDED
(UNAUDITED) 9/30/93*
<S> <C> <C>
Net Asset Value, beginning of period $8.37 $8.15
- ------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.03 0.00#
Net realized and unrealized gain/(loss) on
investments
and written options (0.07)
0.22
- ------------------------------------------------------------------------------
Total from investment operations (0.04)
0.22
Less distributions:
Distributions from net investment income (0.02) --
Distributions from net realized capital gains (0.53) --
- ------------------------------------------------------------------------------
Total distributions (0.55) --
- -----------------------------------------------------------------------------Net
Asset Value, end of period $7.78 $8.37
- ------------------------------------------------------------------------------
Total return++ (0.62)%
2.70%
- ------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 773 $ 308
Ratio of expenses to average net assets 1.92%+ 2.25%+
Ratio of net investment income to average net assets 1.13%+ 0.20%+
Portfolio turnover rate 100% 111%
- -----------------------------------------------------------------------------<FN>
*The Fund commenced selling Class D shares on August 10, 1993. +Annualized.
++Total return represents aggregate total return for the periods indicated
including reinvestment of any dividends and distributions and does not reflect
any applicable sales charges.
#Amount represents less than $0.01 per Fund share. </TABLE>
SEE NOTES TO FINANCIAL STATEMENTS. 16
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------NOTES
TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Shearson Fundamental Value Fund Inc. (the "Fund") is
registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), as a diversified, open-end management investment company.
The Fund was incorporated on March 17, 1981 and commenced operations
on November 12, 1981. As of November 6, 1992 the Fund offered two
classes of shares to the general public: Class A and Class B shares.
Class A shares are sold with a front-end sales charge. Class B shares
may be subject to a contingent deferred sales charge ("CDSC") upon
redemption. Class B shares will convert automatically to Class A
shares approximately eight years after the date of purchase. As of
January 29, 1993, the Fund offered a third class of shares, Class D
shares, to investors eligible to participate in the Smith Barney
Shearson Inc. ("Smith Barney Shearson") 401(k) program. Class D shares
are offered without a front-end sales load or CDSC. All classes of
shares have identical rights and privileges except with respect to the
effect of the respective sales charges to each class, if any, the
distribution and/or service fees borne by each class, expenses
allocable exclusively to each class, voting rights on matters
affecting a single class, the exchange privilege of each class and the
conversion feature of Class B shares. The following is a summary of
significant accounting policies consistently followed by the Fund in
the preparation of its financial statements.
PORTFOLIO VALUATION: Securities for which the principal market is a
national securities exchange are valued at the last reported sales
price; securities traded in the over-the-counter market and for which
the principal market is a national securities exchange, but for which
no sale was reported, are valued at the last reported bid price.
Short-term securities with maturities of 60 days or less are valued at
amortized cost, which constitutes fair value as determined by the
Fund's Board of Directors.
OPTION ACCOUNTING PRINCIPLES: Upon the purchase of a put option or a
call option by the Fund, the premium paid is recorded as an
investment, the value of which is marked-to-market daily. When a
purchased option expires, the Fund will realize a loss in the amount
of the cost of the option. When the Fund enters into a closing sale
transaction, the Fund will realize a gain or loss depending on whether
the sales proceeds from the closing sale transaction are greater or
less than the cost of the option. When the Fund exercises a put
option, it will realize a gain or loss from the sale of the underlying
security and the proceeds from such sale will be decreased by the
17 <PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- ------------------------------------------------------------NOTES TO
FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
premium originally paid. When the Fund exercises a call option, the
cost of the security which the Fund purchases upon exercise will be
increased by the premium originally paid.
When the Fund writes a call option or a put option, an amount equal to
the premium received by the Fund is recorded as a liability, the value
of which is marked-to-market daily. When a written option expires, the
Fund realizes a gain equal to the amount of the premium received. When
the Fund enters into a closing purchase transaction, the Fund realizes
a gain (or loss if the cost of the closing purchase transaction
exceeds the premium received when the option was sold) without regard
to any unrealized gain or loss on the underlying security, and the
liability related to such option is eliminated. When a call option is
exercised, the Fund realizes a gain or loss from the sale of the
underlying security and the proceeds from such sale are increased by
the premium originally received. When a put option is exercised, the
amount of the premium originally received will reduce the cost of the
security that the Fund purchased upon exercise.
The risk associated with purchasing options is limited to the premium
originally paid. The risk in writing a call option is that the Fund
may forego the opportunity of profit if the market price of the
underlying security or index increases and the option is exercised.
The risk in writing a put option is that the Fund may incur a loss if
the market price of the underlying security or index decreases and the
option is exercised. In addition, there is the risk that the Fund may
not be able to enter into a closing transaction because of an illiquid
secondary market.
REPURCHASE AGREEMENTS: The Fund may engage in repurchase agreement
transactions. Under the terms of a typical repurchase agreement, the
Fund takes possession of an underlying debt obligation subject to an
obligation of the seller to repurchase, and the Fund to resell, the
obligation at an agreed-upon price and time, thereby determining the
yield during the Fund's holding period. This arrangement results in a
fixed rate of return that is not subject to market fluctuations during
the Fund's holding period. The value of the collateral is at least
equal at all times to the total amount of the repurchase obligations,
including interest. In the event of counterparty default, the Fund has
the right to use the collateral to offset losses incurred. There is
potential loss to the Fund in the event the Fund is delayed or
prevented from exercising its rights to dispose of the collateral
securities, including the risk of a possible decline in the value of
the underlying securities during the period while the Fund seeks to
assert its rights. The Fund's investment adviser or administrator,
acting under the supervision of the Board of
18
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- ------------------------------------------------------------NOTES TO
FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Directors, reviews the value of the collateral and the
creditworthiness of those banks and dealers with which the Fund enters
into repurchase agreements to evaluate potential risks.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions
are recorded as of the trade date. Securities purchased or sold on a
when-issued or delayed-delivery basis may be settled a month or more
after the trade date. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. Interest income is
recorded on the accrual basis. Realized gains and losses from
investments sold are recorded on the identified cost basis. Investment
income and realized and unrealized gains and losses are allocated
based upon the relative net assets of each class of shares.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net
investment income are determined on a class level. Distributions from
net realized capital gains are determined on a fund level. The Fund
intends to declare and distribute annually dividends equal to its net
dividend and interest income and its net short-term capital gains, if
any, in excess of its net long-term capital losses. Additional
distributions of net investment income and capital gains may be made
at the discretion of the Fund's Board of Directors in order to avoid
the 4% nondeductible excise tax to which the Fund is subject with
respect to certain undistributed amounts of net investment income and
capital gains. The Fund expects to make such additional distributions
as may be necessary to avoid the application of this tax.
FEDERAL INCOME TAXES: It is the policy of the Fund to qualify as a
regulated investment company, if such qualification is in the best
interest of its shareholders, by complying with the requirements of
the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and by distributing substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
2. INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND OTHER RELATED PARTY
TRANSACTIONS
The Fund has entered into an investment advisory agreement (the
"Advisory Agreement") with Smith Barney Shearson Asset Management, a
division of Smith, Barney Advisers, Inc., which is controlled by Smith
Barney Shearson Holdings Inc. ("Holdings"). Holdings is a wholly owned
subsidiary of The Travelers Inc. Under the Advisory Agreement, the
Fund pays a monthly fee at the annual rate of 0.55% of the value of
its average daily net assets.
19 <PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- ------------------------------------------------------------NOTES TO
FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
The Fund also has entered into an administration agreement (the
"Administration Agreement") with The Boston Company Advisors, Inc.
("Boston Advisors"), an indirect wholly owned subsidiary of Mellon
Bank Corporation ("Mellon"). Under the Administration Agreement, the
Fund pays a monthly fee at the annual rate of 0.20% of the value of
its average daily net assets.
For the six months ended March 31, 1994, the Fund incurred total
brokerage commissions of $895,313 of which $3,000 was paid to Smith
Barney Shearson.
For the six months ended March 31, 1994, Smith Barney Shearson
received from shareholders $353,263 representing commissions (sales
charges) on sales of Class A shares.
A CDSC is generally payable by a shareholder in connection with the
redemption of Class B shares within five years (eight years in the
case of purchases by certain 401(k) plans) after the date of purchase.
In circumstances in which the CDSC is imposed, the amount of the
charge ranges between 5% and 1% of net asset value, depending on the
number of years since the date of purchase (except in the case of
purchases by certain 401(k) plans, in which case a 3% CDSC is imposed
for the eight year period after the date of the purchase). For the six
months ended March 31, 1994, Smith Barney Shearson received from
shareholders $297,774 representing CDSCs on the redemption of Class B
shares.
No officer, director or employee of Smith Barney Shearson, Boston
Advisors or of any parent, subsidiary or affiliate of those
corporations receives any compensation from the Fund for serving as a
Director or officer of the Fund. The Fund pays each Director who is
not an officer, director or employee of Smith Barney Shearson, Boston
Advisors or any of their affiliates $3,000 per annum plus $500 per
meeting attended and reimburses each such Director for travel and out-
of-pocket expenses.
Boston Safe Deposit and Trust Company, an indirect wholly owned
subsidiary of Mellon, serves as the Fund's custodian. The Shareholder
Services Group, Inc., a subsidiary of First Data Corporation, serves
as the Fund's transfer agent.
3. DISTRIBUTION AGREEMENT
Smith Barney Shearson acts as distributor of the Fund's shares
pursuant to a distribution agreement with the Fund and sells shares of
the Fund through Smith Barney Shearson or its affiliates.
20
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- ------------------------------------------------------------NOTES TO
FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted a
Services and Distribution Plan (the "Plan"). Under this Plan, the Fund
compensates Smith Barney Shearson for servicing shareholder accounts
for Class A, Class B and Class D shareholders, and covers expenses
incurred in distributing Class B and Class D shares. Smith Barney
Shearson is paid an annual service fee with respect to Class A, Class
B and Class D shares of the Fund at the rate of 0.25% of the value of
the average daily net assets of each respective class of shares. Smith
Barney Shearson is also paid an annual distribution fee with respect
to Class B and Class D shares at the rate of 0.75% of the value of the
average daily net assets attributable to each respective class of
shares. For the six months ended March 31, 1994, the Fund incurred
$170,737, $278,080 and $550 in service fees for Class A, Class B and
Class D shares, respectively. For the six months ended March 31, 1994,
the Fund incurred $834,240 and $1,650 in distribution fees for Class B
and Class D shares, respectively.
4. EXPENSE ALLOCATION
Expenses of the Fund not directly attributable to the operations of
any class of shares are prorated among the classes based upon the
relative net assets of each class of shares. Operating expenses
directly attributable to a class of shares are charged to that class'
operations. In addition to the above service and distribution fees,
class specific operating expenses include transfer agent fees. For the
six months ended March 31, 1994, transfer agent fees for Class A,
Class B and Class D shares were $119,494, $198,177 and $113,
respectively.
5. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities, excluding
short-term investments and U.S. government securities, for the six
months ended March 31, 1994 were $299,568,086 and $246,192,894,
respectively.
Written option activity for the six months ended March 31, 1994 was as
follows:
<TABLE>
<CAPTION>
Number of Premiums Contracts
<S>
<C> <C>
- ----------------------------------------------------------------------
- ---------Options outstanding at September 30, 1993
$ 138,620 500
Options closed during period
(138,620) (500 )
- ----------------------------------------------------------------------
- ---------Options outstanding at March 31, 1994
$ 0 0
- ----------------------------------------------------------------------
- ---------</TABLE>
21 <PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- ------------------------------------------------------------NOTES TO
FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
At March 31, 1994, aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost
amounted to $27,260,568, and aggregate gross unrealized depreciation
for all securities in which there was an excess of tax cost over value
amounted to $16,280,429.
6. COMMON STOCK
At March 31, 1994, the Fund had authorized 150,000,000 shares of
common stock with no stated par value, which are divided into four
classes of shares, Class A, Class B, Class C and Class D. The Fund has
not yet commenced offering Class C shares. Changes in the common stock
outstanding were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED 3/31/94 9/30/93*
CLASS A SHARES: Shares
Amount Shares Amount
<S> <C> <C>
<C> <C>
- ----------------------------------------------------------------------------------
- --Sold 3,693,165 $
29,136,106 5,299,593 $ 40,869,624
Issued in exchange for shares of Smith
Barney Shearson Growth and Opportunity
Fund (Note 7) 388,502 3,131,328
-- --
Issued as reinvestment of dividends and
distributions 1,213,194 9,825,937
801,516 5,602,599
Redeemed (1,234,667)
(10,108,220) (2,243,603) (17,221,054)
- ----------------------------------------------------------------------------------
- --Net increase 4,060,194 $
31,985,151 3,857,506 $ 29,251,169
- ----------------------------------------------------------------------------------
- ---
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
3/31/94 9/30/93*
CLASS B SHARES: Shares
Amount Shares Amount
<S> <C>
<C> <C> <C>
- ----------------------------------------------------------------------------------
- --Sold 18,643,874
$100,327,882 14,353,665 $111,303,597
Issued in exchange for shares of Smith
Barney Shearson Growth and Opportunity
Fund (Note 7) 15,677,772 126,362,840
-- --
Issued as reinvestment of dividends and
distributions 1,433,071 11,598,008
62,099 434,077
Redeemed (4,084,163)
(33,354,983) (775,349) (6,015,550)
- ----------------------------------------------------------------------------------
- --Net increase 31,670,554
$204,933,747 13,640,415 $105,722,124
- ----------------------------------------------------------------------------------
- --<FN>
*The Fund commenced selling Class B shares on November 6, 1992.
Any shares
outstanding prior to November 6, 1992 were designated as Class A
shares. The Fund commenced selling Class D shares on August 10, 1993.
</TABLE>
22
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- ------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED 3/31/94 9/30/93*
CLASS D SHARES: Shares
Amount Shares Amount
<S> <C>
<C> <C> <C>
- ------------------------------------------------------------------
- ------------------Sold
66,276 $ 402,700
37,204 $ 304,147
Issued in exchange for shares of Smith
Barney Shearson Growth and
Opportunity Fund (Note 7) 3
22 -- --
Issued as reinvestment of dividends and
distributions 3,406
27,569 -- --
Redeemed
(7,179) (56,944) (361) (3,000)
- ------------------------------------------------------------------
- ------------------Net increase
62,506 $ 373,347 36,843 $ 301,147
- ------------------------------------------------------------------
- ------------------<FN>
*The Fund commenced selling Class B shares on November
6, 1992. Any shares
outstanding prior to November 6, 1992 were designated as
Class A shares. The Fund commenced selling Class D
shares on August 10, 1993.
</TABLE>
7. REORGANIZATION
On January 21, 1994, the Fund acquired the assets and
certain liabilities of Smith Barney Shearson Growth and
Opportunity Fund (the "Acquired Fund"), in exchange for
shares of the Fund, pursuant to a plan of reorganization
approved by the Acquired Fund's shareholders on January
20, 1994. Total shares issued by the Fund, the value of
the shares issued by the Fund, the total net assets of
the Acquired Fund and the Fund and any unrealized
appreciation included in the Acquired Fund's total
assets are as follows:
<TABLE>
<CAPTION>
TOTAL NET TOTAL NET
SHARES ASSETS OF ASSETS OF
ACQUIRED ISSUED BY
ACQUIRED THE
FUND FUND FUND
FUND FUND
<S> <C> <C>
<C> <C>
- ------------------------------------------------------------------
- --------------
Smith Barney Shearson Growth
The Fund and Opportunity Fund 16,066,277
$129,494,190 $323,293,621
- ------------------------------------------------------------------
- -------------</TABLE>
The total net assets of the Acquired Fund before
acquisition included unrealized appreciation of
$54,843,440. The total net assets of the Fund
immediately after the acquisition were $452,787,811.
23 <PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- --------------------------------------
- ----NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
8. SUBSEQUENT EVENT
On April 20, 1994, the Fund's Board of Directors
approved a new Administration Agreement with Smith,
Barney Advisers, Inc. ("Smith Barney Advisers")
containing substantially the same terms and conditions,
including the level of fees, as the current agreement.
The Board also approved a sub-administration agreement
with Boston Advisors. Under the proposed arrangements,
Boston Advisors would be paid a portion of the amount
paid by the Fund to Smith Barney Advisers at a rate
agreed upon from time to time between Smith Barney
Advisers and Boston Advisors.
24
<PAGE>
Fundamental
Value
Fund Inc.
DIRECTORS
Lloyd J. Andrews
Robert M. Frayn, Jr.
Leon P. Gardner
Howard J. Johnson
David E. Maryatt
Heath B. McLendon
Jerry A. Viscione
Julie W. Weston
OFFICERS
Heath B. McLendon
CHAIRMAN OF THE BOARD
Stephen J. Treadway PRESIDENT
Richard P. Roelofs EXECUTIVE VICE PRESIDENT
John G. Goode VICE PRESIDENT AND INVESTMENT OFFICER
Peter Hable INVESTMENT OFFICER
Vincent Nave TREASURER
Francis J. McNamara, III SECRETARY
THIS REPORT IS SUBMITTED FOR THE GENERAL INFORMATION OF
THE SHAREHOLDERS OF SMITH BARNEY SHEARSON FUNDAMENTAL
VALUE FUND INC. IT IS NOT AUTHORIZED FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS UNLESS ACCOMPANIED OR PRECEDED BY
AN EFFECTIVE PROSPECTUS FOR THE FUND, WHICH CONTAINS
INFORMATION CONCERNING THE FUND'S INVESTMENT POLICIES
AND EXPENSES AS WELL AS OTHER PERTINENT INFORMATION.
[LOGO]
SMITH BARNEY SHEARSON MUTUAL FUNDS Two World Trade
Center New York, New York 10048
Fund 10,199,215 FD0367 E4
<PAGE>
[GRAPHIC]
Box above fund name showing
newspapers such as The Wall
Street Journal, Investor's Daily,
Barron's and Crain's New York Business.
Also shown are share certificates
and a pocket watch.
1993 Smith Barney Shearson
ANNUAL The
REPORT Advisors
Fund L.P.
........................................
DECEMBER 31, 1993
NOTE: THE ADVISORS FUND L.P. HAS CLAIMED THE
EXEMPTION PROVIDED BY COMMODITY EXCHANGE
ACT REGULATION SECTION4.12(B)(2)(I).
[LOGO]
<PAGE>
The Advisors Fund L.P.
DEAR FELLOW SHAREHOLDER:
The Advisors Fund, L.P. (the "Fund") finished the fiscal
year
ended December 31, 1993 up 4.81% versus the Standard &
Poor's
500 Composite Stock Price Index ("S&P 500") return of
10.12%.
During the past year, the portfolio managers overall took too
cautious
an approach to the market, and the resulting short positions
effected
positive returns gained from invested (long) positions.
<TABLE>
<CAPTION>
4TH QTR 1 YEAR 2
YEARS 3 YEARS INCEPTION
9/30/93 12/31/92
12/31/91 12/31/90 6/28/90
TO TO TO
TO TO
12/31/93 12/31/93
12/31/93* 12/31/93* 12/31/93*
---------- ---------- ------
- ----- ----------- -----------
<S> <C> <C> <C>
<C> <C>
-----------------------------------------------------------------------------
- --------
The Advisors Fund L.P.+ (2.07)% 4.81%
7.75% 16.81% 11.76%
S&P 500** 2.38% 10.12%
8.86% 15.61% 11.25%
Ardsley Advisory Partners (3.28) 9.97
7.84 22.95 18.65
Hellman, Jordan Management, Co., Inc. (1.99) (11.02)
(2.86) 15.16 9.29
Mark Asset Management Corporation 4.06 22.67
16.68 26.71 15.97
Woodward & Associates Inc. (10.12) (5.39)
9.24 N/A N/A
--------------------------------------------------------------------
<FN>
*Returns for the periods greater than one year are annualized.
+Class A Shares. See page 3 for additional information.
**Results include reinvestment of all distributions.
</TABLE>
In the beginning months of 1993, the portfolio managers of the Fund believed
that the new U.S. administration's plans for economic stimulation and
universal
health care reform would force interest rates higher and positioned the assets
of the Fund accordingly. In fact, interest rates moved lower and the Fund's
performance was effected accordingly. Although there were wide swings in
individual stocks and sectors of the market, both domestically and
internationally, the declines were not in a straight trading pattern. The
momentum of the market pushed all indices higher. During the first six months
of
1993, the Fund had a short position in bonds, which negated most of the long
equity profits. Then, in the remaining half of the
1
<PAGE>
year, the Fund in total had sizable bets in individual stocks, both long and
short, that failed to materialize. Throughout the year, the Fund was adversely
affected by the lack of volatility in the broad market as many of the trading
hedges failed to capture any real gains.
In the fourth quarter the Fund posted a loss of 2.07%1 versus a gain of 2.38%
for the S&P 500. Mark Asset Management Corporation ("MAMC") was the only
manager
to post a positive return for the fourth quarter. MAMC was the leading manager
for the quarter and the year returning 4.06% and 22.67% for the respective
time
periods. MAMC's diversified portfolio benefited from the strong international
move in 1993 with global franchise growth stocks performing well.
Ardsley Advisory Partners, on the other hand, found it difficult to maintain
momentum as selective growth stock investments, especially in the emerging
markets, did not materialize. Both the eclectic mix of stocks chosen by
Woodward
& Associates Inc. and the market timing of Hellman, Jordan Management Co.,
Inc.
resulted in significant losses for the Fund.
The Fund historically has had strong fourth quarter results, but this year
the
overly conservative posture of the Fund coupled with defensive hedges
negated
any positive gains. We are not pleased with these performance results nor
are
the portfolio managers of the Fund. As you know, the portfolio managers
receive
reduced fees if the Fund underperforms the S&P 500 by a meaningful amount.
This
was the case in 1993 and strong outperformance in 1994 is necessary for
the
portfolio managers to receive an increase in fees. We view 1994 as a
potentially
positive investment environment with continued strong cash flows into
equities
and fixed income, a pick up in the economy with solid growth prospects
and
modest inflationary pressures. The Advisors Fund has outperformed the S&P 500
in
the past and our goal is to get back to these favorable comparisons in 1994.
2
<PAGE>
We thank you for your support throughout 1993 as we look forward to
continuing
to assist you in meeting your investment goals in 1994.
Sincerely,
Heath B. McLendon
Individual General Partner
February 4, 1994
1As of June 1, 1993, existing shares of the Fund were designated as Class
A
shares subject to a maximum 5% front-end sales charge. Prior to June 1,
1993,
shares of the Fund now designated as Class A were subject to a
maximum
front-end sales charge of 5.5%. The Fund's average annual total
returns,
without the deduction of the applicable front-end sales charge, for
the
one-year period ended December 31, 1993, as well as from commencement
of
operations (June 28, 1990) to December 31, 1993, were 4.81% and
11.76%,
respectively. All average annual total return figures shown
reflect
reinvestment of dividends and capital gains.
The Fund began offering Class B shares, subject to a maximum
contingent
deferred sales charge (CDSC) of 5% on June 1, 1993. The Fund ceased
offering
Class B shares to the public on September 16, 1993. The Fund's cumulative
total
return for Class B shares of the Fund without the deduction of the maximum
CDSC
of 5% for the period from June 1, 1993 ended December 31, 1993 was
2.92%.
Assuming the deduction of the maximum 5% CDSC, this figure would have
been
(2.08)%. Please consult the Notes to Financial Statements for
complete
information on fees and expenses.
NOTE: All figures cited here and on the following pages represent
past
performance and are not necessarily indicative of future results.
Investment
return and principal value of an investment will fluctuate so that
an
investor's shares upon redemption may be worth more or less than original
cost.
3
<PAGE>
The Advisors Fund L.P.
- ---------------------------------------------------------------------------
HISTORICAL PERFORMANCE -- CLASS A SHARES
<TABLE>
<CAPTION>
Year Ended Net Asset Value Total
December 31, Beginning Ending Return+
<S> <C> <C> <C>
------------------------------------------------------
6/28/90 - 12/31/90 $18.90 $17.51 (7.35)%
------------------------------------------------------
1991 17.51 24.04 37.29
------------------------------------------------------
1992 24.04 26.63 10.77
------------------------------------------------------
1993 26.63 27.91 4.81
------------------------------------------------------
Cumulative Total Return from 6/28/90
through 12/31/93 47.67%
------------------------------------------------------
<FN>
+As of June 1, 1993, existing shares of the Fund were designated as Class A
shares subject to a maximum 5.0% front-end sales charge. Prior to June 1,
1993,
shares of the Fund now designated as Class A were subject to a maximum
front-end sales charge of 5.5%. All average annual total return figures shown
reflect reinvestment of dividends and capital gains. All figures cited here
and
on the following pages represent past performance and are not necessarily
indicative of future results. Investment return and principal value of an
investment will fluctuate so that an investor's shares upon redemption may be
worth more or less than original cost.
</TABLE>
- --------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN -- CLASS A SHARES**
<TABLE>
<CAPTION>
Without Sales Charge
With Sales Charge
<S> <C> <C>
- ---------------------------------------------------------------------------
Year Ended 12/31/93 4.81%
(0.43 )%
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Inception 6/28/90 through 12/31/93 11.76%
10.14 %
- ---------------------------------------------------------------------------
<FN>
**All average annual total return figures shown assume the deduction of the
maximum 5.0% sales charge at the time of purchase. The Fund commenced
operations on June 28, 1990.
NOTE: As of June 1, 1993, existing shares of the Fund were designated as
Class
A -- subject to a maximum 5.0% front-end sales charge and an annual service
fee of 0.25% of average daily net assets attributable to that class. The
Fund's average annual rates of return would have been lower had the service
fee been in effect prior to June 1, 1993.
</TABLE>
4
<PAGE>
A line graph depicting the total growth (including reinvestment of dividends
and
capital gains) of a hypothetical investment of $25,000 in The Advisor's
Fund
Class B shares on June 1, 1993 through December 31, 1993 as compared with
the
growth of a $25,000 investment in the Standard Poor's 500 Composite Stock
Index.
The plot points used to draw the line graph were as follows:
<TABLE>
<CAPTION>
GROWTH OF $25,000 GROWTH OF $25,000
INVESTED IN CLASS B SHARES INVESTMENT IN THE STANDARD &
POOR'S
MONTH ENDED OF THE FUND 500 COMPOSITE STOCK INDEX
<S> <C> <C>
06/28/90 $23,750 --
06/90 23,813 $25,000
07/90 23,247 24,920
09/90 19,942 21,569
12/90 22,003 23,499
03/91 26,904 26,907
06/91 25,748 26,843
09/91 28,211 28,275
12/91 30,209 30,643
03/92 29,380 29,870
06/92 27,872 39,437
09/92 28,877 31,397
12/92 33,464 32,974
03/93 33,187 34,412
06/93 33,665 34,577
09/93 35,813 35,467
12/93 35,072 36,311
</TABLE>
+ Hypothetical illustration of $25,000 invested in Class A shares on June 28,
1990 assuming deduction of the maximum 5.0% sales charge at the time of
investment and reinvestment of dividends and capital gains at net asset
value
through December 31, 1993.
The Standard & Poor's 500 Composite Stock Price Index ("S&P 500") is an
index
composed of 500 widely held common stocks listed on the New York Stock
Exchange, American Stock Exchange and over-the-counter market. It is useful
in
depicting the general movement of the stock market, but because it is
unmanaged, the S&P 500 is not subject to the same management and trading
expenses of a mutual fund. Index information is available at month-end only;
therefore, the closest month-end to inception date of the Fund has been
used.
NOTE: All figures cited here and on the following pages represent past
performance of the Fund and are not indicative of future results of Class A
shares.
5
<PAGE>
The Advisors Fund L.P.
- ---------------------------------------------------------------------------
HISTORICAL PERFORMANCE -- CLASS B SHARES
<TABLE>
<CAPTION>
Year Ended Net Asset Value Total
December 31, Beginning Ending Return*
<S> <C> <C> <C>
-----------------------------------------------------
6/1/93 - 12/31/93 $27.01 $27.80 2.92%
-----------------------------------------------------
Cumulative Total Return from 6/1/93
through 12/31/93 2.92%
-----------------------------------------------------
<FN>
*Figures do not assume deduction of the contingent deferred sales charge
("CDSC").
</TABLE>
- --------------------------------------------------------------------
CUMULATIVE TOTAL RETURN -- CLASS B SHARES**
<TABLE>
<CAPTION>
Without CDSC With CDSC
<S> <C> <C>
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Inception 6/1/93 through 12/31/93 2.92% (2.08)%
- ---------------------------------------------------------------------------
<FN>
**All cumulative total return figures shown assume the deduction of the
maximum
5.0% CDSC.
NOTE: The Fund began offering Class B shares on June 1, 1993 subject to a
maximum 5.0% CDSC and annual service and distribution fees of 0.25% and
0.75%,
respectively, of the value of average daily net assets attributable to that
class. As of September 16, 1993 the Fund ceased all sales of Class B shares.
</TABLE>
6
<PAGE>
A line graph depicting the total growth (including reinvestment of dividends
and
capital gains) of a hypothetical investment of $10,000 in Investment
Funds
Government Securities Fund's Class B shares on March 20, 1984 and the growth
of
the original shares, through June 30, 1993. The line graph demonstrates
that
since inception, the hypothetical investment of $10,000 would have grown
to
$13,262 including the value of reinvested dividends and capital gains
of
approximately $23,372. The plot points used to draw the line graph were
as
follows:
<TABLE>
<CAPTION>
GROWTH OF $25,000 GROWTH OF $25,000
INVESTED IN CLASS B SHARES INVESTMENT IN THE STANDARD &
POOR'S
MONTH ENDED OF THE FUND 500 COMPOSITE STOCK INDEX
<S> <C> <C>
05/31/93 -- $25,000
06/01/93 $25,000 --
06/93 24,787 25,073
09/93 26,324 25,719
</TABLE>
+ Hypothetical illustration of $25,000 invested in Class B shares on June 1,
1993 assuming deduction of the maximum 5.0% CDSC at the time of redemption
and
reinvestment of dividends and capital gains at net asset value through
December 31, 1993.
The Standard & Poor's 500 Composite Stock Price Index ("S&P 500") Stock
Index
is an index composed of 500 widely held common stocks listed on the New York
Stock Exchange, American Stock Exchange and over-the-counter market. It is
useful in depicting the general movement of the stock market, but because it
is unmanaged, the S&P 500 is not subject to the same management and trading
expenses of a mutual fund.
NOTE: All figures cited here and on the following pages represent past
performance of the Fund and are not indicative of future results of Class B
shares.
* Value does not assume deduction of applicable CDSC.
** Value assumes deduction of applicable CDSC (assuming redemption on December
31, 1993).
7
<PAGE>
The Advisors Fund L.P.
- ---------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS DECEMBER 31,
1993
SUMMARY OF PORTFOLIO OF INVESTMENTS
<TABLE>
<S> <C> <C> <C> <C>
COMMON STOCKS
Domestic 67.4% $ 88,042,758
Foreign 13.4 17,458,324
- ------------------------------------------------------------------------------
- --
</TABLE>
<TABLE>
<S> <C> <C>
Total Common Stocks 80.8% $105,501,082
Warrants 0.0 26,209
Options Purchased 2.2 2,927,102
U.S. Treasury Obligations 18.4 24,046,021
Units 0.0 14,463
Certificates of Deposit 2.7 3,474,300
- ----------------------------------------------------------------------
Total Investments 104.1 135,989,177
- ----------------------------------------------------------------------
Other Assets and Liabilities (Net) 8.2 10,684,633
Futures Contracts (9.5) (12,374,175)
Put Options Written (0.0) (2,500)
Investments Sold Short (2.8) (3,722,312)
- ----------------------------------------------------------------------
Net Assets 100.0% $130,574,823
- ----------------------------------------------------------------------
</TABLE>
TOP TEN HOLDINGS
<TABLE>
<CAPTION>
Percentage
of
Issuer Net Assets
<S> <C>
- --------------------------------------------------------------------
U.S. TREASURY BILLS, 3.20% DUE 04/07/94 12.9%
U.S. TREASURY BILLS, 3.25% DUE 01/27/94 4.9
MICROSOFT CORPORATION 3.1
GRUPO TELEVISA ADR 2.4
ORACLE SYSTEMS CORPORATION 2.0
FLEET FINANCIAL CORPORATION, INC. NEW 1.8
COCA-COLA COMPANY 1.6
LENNAR CORPORATION 1.6
VODAPHONE GROUP PLC, ADR 1.5
MCDONALD'S CORPORATION 1.5
</TABLE>
8
<PAGE>
The Advisors Fund L.P.
- ------------------------------------------
PORTFOLIO OF INVESTMENTS DECEMBER 31,
1993
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (NOTE 1)
<C> <S> <C>
-----------------------------------------------------------------------------
- ---
COMMON STOCKS -- DOMESTIC -- 67.4%
COMPUTER SOFTWARE -- 9.0%
15,000 BMC Software Inc.+ $
720,000
12,600 Broadway & Seymour Inc.+
126,000
15,971 Electronic Arts+
479,130
25,000 Gupta Corporation+
490,625
2,875 Informix Corporation+
61,094
3,826 Lotus Development Corporation+
210,430
50,000 Microprose+
450,000
50,657 Microsoft Corporation+
4,084,221
90,116 Oracle Systems Corporation+
2,590,835
40,000 Ross Systems, Inc.+
260,000
35,818 Santa Cruz Operation Inc.+
241,771
20,000 Sierra On-Line Inc.+
367,500
19,691 Sybase Inc.+
827,022
50,000 Symantec Corporation+
912,500
-----------------------------------------------------------------------------
- ---
11,821,128
-----------------------------------------------------------------------------
- ---
COMMUNICATIONS -- 8.8%
62,133 Associated Communications Corporation,
Class B+
1,770,791
1,464 Cellular Communications, Inc.+
32,940
12,001 Cellular Communications, International+
258,021
30,000 Cellular, Inc.+
525,000
47,706 Comcast Corporation, Class A, Special
1,717,416
6,491 Comcast Corporation, Class A
236,110
30,000 Compression Labs, Inc.+
367,500
15,000 DSC Communications Corporation+
922,500
15,891 General Instrument Corporation+
891,882
55,000 Intelcom Group Inc.+
962,500
20,000 MFS Communication Company, Inc.+
650,000
135,000 Mitel Corporation+
793,125
21,883 Pactel Corporation+
544,340
7,101 Starsight Telecast Inc.+
131,369
58,419 Tele-Communications Inc., Class A+
1,767,175
-----------------------------------------------------------------------------
- ---
11,570,669
-----------------------------------------------------------------------------
- ---
FINANCIAL SERVICES -- 8.0%
35,000 Albank Financial Corporation+
686,875
18,216 Citicorp+
669,438
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31,
1993
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (NOTE 1)
-----------------------------------------------------------------------------
- ---
<C> <S> <C>
COMMON STOCKS -- DOMESTIC -- (CONTINUED)
FINANCIAL SERVICES -- (CONTINUED)
25,000 First Interstate Bancorp $
1,603,125
70,000 Fleet Financial Group, Inc. New
2,336,250
55,600 Life Partners Group, Inc.
1,118,950
45,032 Merrill Lynch & Company, Inc.
1,891,344
35,000 ONBANCorp, Inc.
1,229,375
6,950 Wells Fargo & Company
899,156
-----------------------------------------------------------------------------
- ---
10,434,513
-----------------------------------------------------------------------------
- ---
HEALTH CARE -- 6.8%
30,000 Alpha Beta Technology Inc.+
967,500
15,000 ALZA, Corporation+
420,000
5,300 Amrion, Inc.+
40,413
40,000 CellPro Inc.+
1,390,000
65,000 Centocor Inc.+
771,875
15,000 Collagen Corporation+
416,250
40,000 Cortech, Inc.+
550,000
5,333 Cytel Corporation+
25,332
30,000 Cytotherapeutics, Inc.+
367,500
80,000 Liposome Company+
530,000
28,500 Medical Care America, Inc.+
651,938
30,000 Merck and Company, Inc.
1,031,250
40,000 Perseptive Biosystems Inc.+
1,150,000
40,000 Recognition International Inc.+
600,000
-----------------------------------------------------------------------------
- ---
8,912,058
-----------------------------------------------------------------------------
- ---
COMPUTERS -- 4.5%
30,000 Auspex Systems, Inc.+
285,000
25,000 Chipcom Corporation+
1,262,500
20,000 Cisco Systems, Inc.+
1,292,500
8,544 Intel Corporation
529,728
8,950 International Business Machines
505,675
4,136 Motorola Inc.
382,063
40,000 Seagate Technology+
950,000
20,174 Sequent Computer Systems Inc.+
307,653
10,336 Wang Labs, Inc., New+**
175,712
15,213 Western Digital Corporation+
138,819
-----------------------------------------------------------------------------
- ---
5,829,650
-----------------------------------------------------------------------------
- ---
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31,
1993
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (NOTE 1)
-----------------------------------------------------------------------------
- ---
<C> <S> <C>
COMMON STOCKS -- DOMESTIC -- (CONTINUED)
RESTAURANTS AND HOTELS -- 3.9%
1,460 Hilton Hotels Corporation $
88,695
10,582 Hospitality Franchise Systems+
562,169
87,964 Host Marriott Corporation
802,671
5,864 La Quinta Inns Inc.
206,706
44,408 Marriott Corporation
1,287,832
34,300 McDonald's Corporation
1,955,100
7,007 Mirage Resorts, Inc.+
167,292
-----------------------------------------------------------------------------
- ---
5,070,465
-----------------------------------------------------------------------------
- ---
LEISURE AND ENTERTAINMENT -- 3.4%
1,500 Boyd Gaming Corporation+
20,062
35,000 Delta Queen Steamboat Company
608,125
30,889 Disney (Walt) Company
1,316,644
40,000 Funco Inc.+
600,000
15,923 Paramount Communications Inc.
1,232,042
14,982 Time Warner, Inc.
662,954
-----------------------------------------------------------------------------
- ---
4,439,827
-----------------------------------------------------------------------------
- ---
CONSUMER PRODUCTS -- 3.3%
55,000 Carter-Wallace Inc.
1,175,625
15,000 Eastman Kodak Company
840,000
19,609 Gillette Company, Inc.
1,169,187
25,041 Nike, Inc., Class B
1,161,276
-----------------------------------------------------------------------------
- ---
4,346,088
-----------------------------------------------------------------------------
- ---
BROADCASTING AND CABLE TELEVISION -- 3.3%
53,257 Liberty Media Corporation, Class A+
1,551,110
10,000 Preferred Entertainment, Inc.+
205,000
44,066 QVC Network Inc.+
1,729,590
2,250 Viacom, Inc., Class A+
109,969
14,735 Viacom, Inc., Class B, Non-Voting+
661,233
-----------------------------------------------------------------------------
- ---
4,256,902
-----------------------------------------------------------------------------
- ---
HOME AND BUILDING SUPPLIES -- 2.8%
20,000 Home Depot Inc.
790,000
17,831 Kaufman & Broad Home Corporation
423,486
59,370 Lennar Corporation
2,026,001
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31,
1993
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (NOTE 1)
-----------------------------------------------------------------------------
- ---
<C> <S> <C>
COMMON STOCKS -- DOMESTIC -- (CONTINUED)
HOME AND BUILDING SUPPLIES -- (CONTINUED)
8,553 Pulte Corporation $
310,046
5,600 Southern Energy Homes Inc.+
105,700
-----------------------------------------------------------------------------
- ---
3,655,233
-----------------------------------------------------------------------------
- ---
OIL AND GAS -- 2.3%
80,000 American Oil & Gas Corporation+
810,000
20,000 Associated Natural Gas Corporation
632,500
120,000 Forest Oil Corporation+
525,000
25,000 Hornbeck Offshore Services, Inc.+
362,500
4,000 Mercer International Inc.+
56,500
75,000 Noble Drilling Corporation+
656,250
-----------------------------------------------------------------------------
- ---
3,042,750
-----------------------------------------------------------------------------
- ---
AUTOMOTIVE -- 2.3%
25,700 Chrysler Corporation
1,368,525
25,000 Ford Motor Company
1,612,500
-----------------------------------------------------------------------------
- ---
2,981,025
-----------------------------------------------------------------------------
- ---
FOOD AND BEVERAGE -- 2.0%
65,000 Chock Full O Nuts, Corporation+
520,000
46,566 Coca-Cola Company
2,078,007
250 Snapple Beverage Corporation+
6,563
-----------------------------------------------------------------------------
- ---
2,604,570
-----------------------------------------------------------------------------
- ---
ELECTRONICS -- 1.6%
15,000 Arrow Electronics+
626,250
24,946 Best Buy Company+
1,159,989
30,000 Brooktree Corporation+
315,000
3,300 TSS Ltd.+
1,547
-----------------------------------------------------------------------------
- ---
2,102,786
-----------------------------------------------------------------------------
- ---
TECHNOLOGY -- 1.3%
15,000 Newbridge Networks Corporation+
821,250
13,300 Valence Technology+
202,825
100,000 Vtel Corporation+
650,000
-----------------------------------------------------------------------------
- ---
1,674,075
-----------------------------------------------------------------------------
- ---
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31,
1993
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (NOTE 1)
-----------------------------------------------------------------------------
- ---
<C> <S> <C>
COMMON STOCKS -- DOMESTIC -- (CONTINUED)
MANUFACTURING -- 1.3%
7,764 Caterpillar Inc. $
690,996
25,000 Ventritex Inc.+
981,250
-----------------------------------------------------------------------------
- ---
1,672,246
-----------------------------------------------------------------------------
- ---
RETAIL -- 1.1%
1,093 Barnes and Noble+
27,188
22,500 CompUSA Inc.+
450,000
1,125 Sportmart Inc.+
19,969
21,957 Toys "R" Us Inc.+
897,492
-----------------------------------------------------------------------------
- ---
1,394,649
-----------------------------------------------------------------------------
- ---
CONSUMER DURABLES -- 0.9%
11,600 Code Alarm Inc.+
139,200
9,865 Duracell International, Inc.
353,907
20,965 United International Holdings Inc., Class
A+
718,051
-----------------------------------------------------------------------------
- ---
1,211,158
-----------------------------------------------------------------------------
- ---
PHARMACEUTICALS -- 0.4%
28,500 Chronimed Inc.+
477,375
-----------------------------------------------------------------------------
- ---
REAL ESTATE -- 0.2%
13,359 Spieker Properties, Inc.
250,481
-----------------------------------------------------------------------------
- ---
TRANSPORTATION -- 0.1%
1,268 UAL Corporation+
185,128
-----------------------------------------------------------------------------
- ---
ENERGY -- 0.1%
4,126 Consolidated Electric Power Asia@
70,658
-----------------------------------------------------------------------------
- ---
MINING -- 0.0%
3,550 TVX Gold Inc.+
23,519
-----------------------------------------------------------------------------
- ---
CONSTRUCTION -- 0.0%
1,090 Engle Homes Inc.
15,805
-----------------------------------------------------------------------------
- ---
TOTAL COMMON STOCKS -- DOMESTIC
(Cost $70,221,091)
88,042,758
-----------------------------------------------------------------------------
- ---
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31,
1993
<TABLE>
<C> <S> <C>
COMMON STOCKS -- FOREIGN -- 13.4%
MEXICO -- 6.7%
7,854 Coca-Cola Femsa ADR+ $
257,218
30,000 Empresas ICA Sociedad Controlee SA ADR
847,500
50,000 Grupo Carso SA de CV ADR+
1,070,313
55,700 Grupo Fin Serfin SA de CV SP ADR+
1,643,150
44,603 Grupo Televisa ADR+
3,122,210
18,133 Panamerican Beverage Inc. ADR+
693,587
15,000 Telefonos de Mexico SA, ADR+
1,012,500
-----------------------------------------------------------------------------
- ---
8,646,478
-----------------------------------------------------------------------------
- ---
HONG KONG -- 3.2%
200,000 Cheung Kong Holdings+
1,222,906
200,000 Dah SIng Financial Holdings+
957,618
1,000,000 Fairwood Holdings+
417,340
800,000 Giordano Holdings+
414,104
410,000 Hanny Magnetics Holdings, Ltd.+
183,049
200,000 Hutchison Whampoa
996,442
-----------------------------------------------------------------------------
- ---
4,191,459
-----------------------------------------------------------------------------
- ---
GREAT BRITAIN -- 1.5%
22,333 Vodafone Group Plc ADR
1,993,220
-----------------------------------------------------------------------------
- ---
ARGENTINA -- 0.7%
20,000 Buenos Aires Embotella SA, Class B ADR
900,000
-----------------------------------------------------------------------------
- ---
OTHER -- 1.3%
273,894 Cifra ADR
876,460
100,000 Flextech Ord., 10P+
556,734
40,731 Hopewell Holdings Ltd. ADR
264,751
1,500 Videotron Com NPV
29,222
-----------------------------------------------------------------------------
- ---
1,727,167
-----------------------------------------------------------------------------
- ---
TOTAL COMMON STOCKS -- FOREIGN
(Cost $12,501,849)
17,458,324
-----------------------------------------------------------------------------
- ---
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31,
1993
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (NOTE 1)
-----------------------------------------------------------------------------
- ---
<C> <S> <C>
WARRANTS -- 0.0%
4,558 International Finance Corporation expires
09/25/95+ $
26,209
7,962 Xoma Corporation, expire 6/12/95+
0
-----------------------------------------------------------------------------
- ---
TOTAL WARRANTS
(Cost $19,554)
26,209
-----------------------------------------------------------------------------
- ---
UNITS -- 0.0% (COST $26,413)
8,900 TSS Ltd., 0% 1998 unit 3&2+
14,463
-----------------------------------------------------------------------------
- ---
<CAPTION>
CONTRACTS
<C> <S> <C>
-----------------------------------------------------------------------------
- ---
CALL OPTIONS PURCHASED -- 2.0%
24 Advanced Micro Devices, Inc., January,
$15.00
7,200
150 Alza Corporation, January, $25.00
52,500
92 Apple Computer, Inc., January, $25.00
42,550
13 Compaq Computer Corporation, January,
$65.00
11,700
26 Compaq Computer Corporation, January,
$70.00
11,375
42 Disney Walt Company, January, $35.00
34,125
72 Echo Bay Mines, Ltd., January, $10.00
20,700
13 Hilton Hotels Corporation, January,
$40.00
27,788
26 Hilton Hotels Corporation, January,
$45.00
39,000
13 Hilton Hotels Corporation, April, $40.00
26,650
62 Intel Corporation, January, $45.00
106,950
32 Intel Corporation, January, $50.00
42,800
33 International Business Machines
Corporation, January, $45.00
383,050
34 Lotus Development Corporation, January,
$35.00
68,000
21 Lotus Development Corporation, January,
$50.00
11,025
400 Merck & Company Inc., January, $30.00
175,000
30 Microsoft Corporation, January, $70.00
31,875
19 Mirage Resorts, Inc., January, $20.00
7,600
47 Motorola Inc., January, $75.00
81,663
50 Motorola Inc., January, $80.00
67,500
350 National Medical Enterprises Inc.,
January $10.00
131,250
250 Oryx Energy Company, July, $15.00
81,250
231 Paramount Communications Inc., January,
$70.00
190,575
53 Paramount Communications Inc., January,
$75.00
22,525
86 Standard & Poor's 100, January, $425.00++
83,850
26 Snapple Beverage Corporation, January,
$20.00
15,925
78 Snapple Beverage Corporation, January,
$17.50
67,275
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31,
1993
<TABLE>
<CAPTION>
MARKET
VALUE
CONTRACTS (NOTE 1)
-----------------------------------------------------------------------------
- ---
<C> <S> <C>
CALL OPTIONS PURCHASED -- (CONTINUED)
300 Telefonos de Mexico SA, January, $50.00 $
525,000
25 Times Mirror Co., Series A, March, $25.00
20,938
32 UAL Corporation, January, $130.00
51,600
16 UAL Corporation, January, $135.00
18,600
8 UAL Corporation, January, $140.00
5,900
8 UAL Corporation, February, $130.00
13,900
56 Wells Fargo & Company, January, $85.00
248,500
-----------------------------------------------------------------------------
- ---
TOTAL CALL OPTIONS PURCHASED
(Cost $2,310,371)
2,726,139
-----------------------------------------------------------------------------
- ---
PUT OPTIONS PURCHASED -- 0.2%
111 Glaxo, January, $25.00
43,013
56 International Game Technology, January,
$40.00
60,200
26 Limited, Inc., January, $20.00
8,125
344 Standard & Poor's 100 Index, January,
$425.00++
79,550
26 Storage Technology Corporation, January,
$35.00
10,075
-----------------------------------------------------------------------------
- ---
TOTAL PUT OPTIONS PURCHASED
(Cost $219,804)
200,963
-----------------------------------------------------------------------------
- ---
<CAPTION>
FACE VALUE
<C> <S> <C>
-----------------------------------------------------------------------------
- ---
U.S. TREASURY OBLIGATIONS -- 18.4%
$ 6,500,000 U.S. Treasury Bills, 3.25%# due
1/27/94+++
6,408,295
800,000 U.S. Treasury Bills, 3.23%# due 2/3/94+++
796,536
17,000,000 U.S. Treasury Bills, 3.20%# due 4/7/94+++
16,841,190
-----------------------------------------------------------------------------
- ---
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $24,045,163)
24,046,021
-----------------------------------------------------------------------------
- ---
CERTIFICATES OF DEPOSIT -- FOREIGN -- 2.7%
1,500,000 Bayerische Landesbank, 4.00% due
3/11/94***
1,737,150
1,500,000 Deutsche Bank, 4.00% due 3/11/94***
1,737,150
-----------------------------------------------------------------------------
- ---
TOTAL CERTIFICATES OF DEPOSIT
(Cost $3,000,000)
3,474,300
-----------------------------------------------------------------------------
- ---
TOTAL INVESTMENTS (Cost $112,344,245*) 104.1%
135,989,177
-----------------------------------------------------------------------------
- ---
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31,
1993
<TABLE>
<CAPTION>
MARKET
VALUE
CONTRACTS (NOTE 1)
-----------------------------------------------------------------------------
- ---
<C> <S> <C>
FUTURES CONTRACTS -- SHORT POSITIONS -- (9.5)% (COST $12,373,223)
(53) Standard & Poor's 500 Index Futures,
March 1994++ $
(12,374,175)
-----------------------------------------------------------------------------
- ---
PUT OPTIONS WRITTEN -- (0.0)% (PREMIUM RECEIVED $83,173)
400 Merck & Company Inc., January, $30.00
(2,500)
-----------------------------------------------------------------------------
- ---
<CAPTION>
SHARES
<C> <S> <C>
-----------------------------------------------------------------------------
- ---
INVESTMENTS SOLD SHORT -- (2.8)%
(10,000) Apple Computer
(292,500)
(56,100) Glaxo Holdings Plc, ARD
(1,171,088)
(50,000) Greenwich Pharmaceuticals
(137,500)
(100) International Game Technology
(2,950)
(20,000) Merrill Corporation
(540,000)
(7,800) Price/Costso Inc.
(150,150)
(15,000) Ultratech Stepper
(275,625)
(20,000) U.S. Healthcare
(1,152,500)
-----------------------------------------------------------------------------
- ---
TOTAL INVESTMENTS SOLD SHORT
(Contract amount $3,704,899)
(3,722,312)
-----------------------------------------------------------------------------
- ---
OTHER ASSETS & LIABILITIES (NET) 8.2%
10,684,633
-----------------------------------------------------------------------------
- ---
NET ASSETS 100.0% $
130,574,823
-----------------------------------------------------------------------------
- ---
<FN>
*Aggregate cost for Federal tax purposes.
**When issued security (see Note 1).
***The principal amount to be received upon maturity is indexed to the average
of the offer yields quoted on two, five, and seven year French Franc swaps.
The redemption amount received may be more or less than the security's
original face amount.
+Non-income producing securities.
++In the case of exercise, settlement is made in cash.
+++U.S. Treasury Bills aggregating $24,046,021 have been pledged to
collateralize futures contracts, written options and short investment
positions in accordance with the Fund's Prospectus.
#Annualized yield to maturity (unaudited).
@Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
The Advisors Fund L.P.
- ---------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31,
1993
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Cost
$112,344,245) (Note 1)
See accompanying schedule $
135,989,177
Cash
332,411
Aggregate exercise cost of futures --
short position
12,373,223
Receivable for short sales
3,704,899
Receivable for investment securities
sold
1,051,638
Unamortized organization costs (Note 6)
232,018
Interest and dividends receivable
206,401
Receivable for short sales closed
35,000
Other assets
15,687
- ------------------------------------------------------------------------------
- -
TOTAL ASSETS
153,940,454
- ------------------------------------------------------------------------------
- -
LIABILITIES:
Financial futures contracts -- short
position, at value
(Contract amount $12,373,223 ) (Note
1)
See accompanying schedule $ 12,374,175
Notes payable (Note 7) 4,601,806
Investments sold short, at value
(Contract amount $3,704,899) (Note 1)
See accompanying schedule 3,722,312
Payable for investment securities
purchased 2,250,436
Investment advisory fee payable (Note
2) 107,490
Custodian fees payable (Note 2) 65,713
Payable for shares redeemed 34,888
Administration fee payable (Note 2) 27,670
Service fees payable (Note 3) 27,670
Transfer agent fees payable (Note 2) 7,700
Distribution fee payable (Note 3) 2,611
Put Options written, at value (Premium
received $83,173)
(Note 1) See accompanying schedule 2,500
Accrued expenses and other payables 140,660
- ------------------------------------------------------------------------------
- -
TOTAL LIABILITIES
23,365,631
- ------------------------------------------------------------------------------
- -
NET ASSETS $
130,574,823
- ------------------------------------------------------------------------------
- -
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
The Advisors Fund L.P.
- ------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1993
<TABLE>
<S> <C>
SHARES represented by:
Individual General Partners 79,370
Shareholders 4,599,131
- -------------------------------------------------------------
Total Shares 4,678,501
- -------------------------------------------------------------
NET ASSETS consist of:
Accumulated net investment loss $ (7,483,748)
Accumulated net realized gain on
securities transactions, foreign
currency transactions, futures
contracts, written options and
investments sold short 38,681,696
Unrealized appreciation of
securities, futures contracts,
written options and short
positions 23,707,240
Paid-in capital 75,669,635
- -------------------------------------------------------------
TOTAL NET ASSETS $ 130,574,823
- -------------------------------------------------------------
NET ASSET VALUE
CLASS A SHARES:
NET ASSET VALUE and redemption price
per share
($126,428,124 DIVIDED BY 4,529,314
shares outstanding) $27.91
- -------------------------------------------------------------
MAXIMUM OFFERING PRICE PER SHARE
($27.91 DIVIDED BY 0.95)
(based on sales charge of 5% of the
offering price at December 31, 1993) $29.38
- -------------------------------------------------------------
CLASS B SHARES:
NET ASSET VALUE and offering price per
share+
($4,146,699 DIVIDED BY 149,187 shares
outstanding) $27.80
- -------------------------------------------------------------
<FN>
+Redemption price per share is equal to Net Asset Value less any applicable
contingent deferred sales charge. The Fund ceased selling Class B shares on
September 16, 1993.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
The Advisors Fund L.P.
- ---------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<S>
<C> <C>
INVESTMENT INCOME:
Interest
$ 2,142,868
Dividends (net of foreign withholding taxes of $5,595)
720,495
- ------------------------------------------------------------------------------
- -------
TOTAL INVESTMENT INCOME
2,863,363
- ------------------------------------------------------------------------------
- -------
EXPENSES:
Investment advisory fee (Note 2)
$3,258,285
Administration fee (Note 2)
342,499
Legal and audit fees
234,211
Service fees (Note 3)
198,561
Custodian fees (Note 2)
186,715
Distribution fee (Note 3)
158,824
Amortization of organization costs (Note 6)
153,728
Transfer agent fees (Note 2)
82,047
Individual General Partners' fees and expenses (Note 2)
77,681
Other
166,772
- ------------------------------------------------------------------------------
- -------
Total Operating Expenses Before Interest Expense
4,859,323
Interest expense (Note 7)
1,380,453
- ------------------------------------------------------------------------------
- -------
TOTAL EXPENSES
6,239,776
- ------------------------------------------------------------------------------
- -------
NET INVESTMENT LOSS
(3,376,413)
- ------------------------------------------------------------------------------
- -------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS (NOTES 1 AND 4):
Net realized gain/(loss) on:
Securities transactions
15,610,723
Written options
(228,902)
Futures contracts
(51,791)
Investments sold short
(3,294,420)
Foreign currency transactions
(5,166)
- ------------------------------------------------------------------------------
- -------
Net realized gain on investments during the year
12,030,444
- ------------------------------------------------------------------------------
- -------
Net change in unrealized appreciation/(depreciation) of:
Securities
(2,690,537)
Written options
77,224
Futures contracts
92,449
Investments sold short
236,303
- ------------------------------------------------------------------------------
- -------
Net unrealized depreciation of investments during the year
(2,284,561)
- ------------------------------------------------------------------------------
- -------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
9,745,883
- ------------------------------------------------------------------------------
- -------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$ 6,369,470
- ------------------------------------------------------------------------------
- -------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
The Advisors Fund L.P.
- ---------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
12/31/93 12/31/92
<S>
<C> <C>
Net investment loss
$ (3,376,413) $ (1,469,246)
Net realized gain on securities, written options, futures contracts,
investments sold short and foreign currency transactions during the year
12,030,444 9,795,481
Net unrealized appreciation/(depreciation) of securities, written options,
futures contracts, and investments sold short during the year
(2,284,561) 5,009,126
- ------------------------------------------------------------------------------
- -------
Net increase in net assets resulting from operations
6,369,470 13,335,361
Net increase/(decrease) in net assets from:
Class A share transactions (Note 5)
(24,034,146) (27,621,974)
Class B share transactions (Note 5)
4,004,568 --
- ------------------------------------------------------------------------------
- -------
Net decrease in net assets
(13,660,108) (14,286,613)
NET ASSETS:
Beginning of year
144,234,931 158,521,544
- ------------------------------------------------------------------------------
- -------
End of year (including accumulated net investment loss of $7,483,748 and
$4,107,335, respectively)
$130,574,823 $144,234,931
- ------------------------------------------------------------------------------
- -------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
The Advisors Fund L.P.
- ---------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<S> <C> <C>
NET INCREASE IN CASH:
Cash flows from operating activities:
Interest received $ 2,222,089
Dividends received 710,524
Operating expenses paid (4,858,225)
Interest expense (1,380,453)
- ------------------------------------------------------------------------------
- -
Net cash used in operating activities $
(3,306,065)
- ------------------------------------------------------------------------------
- -
Cash flows from investing activities:
Increase in short-term portfolio
securities, net (3,443,337)
Purchase of investment securities and
purchased options (343,143,466)
Proceeds from disposition of investment
securities and purchased options 406,737,743
Net proceeds used to close short sales
and written option transactions (3,502,348)
Net proceeds from futures transactions (51,791)
- ------------------------------------------------------------------------------
- -
Net cash provided by investing
activities
56,596,801
- ------------------------------------------------------------------------------
- -
NET CASH PROVIDED BY OPERATING AND
INVESTING ACTIVITIES
53,290,736
- ------------------------------------------------------------------------------
- -
Cash flows from financing activities:
Proceeds from shares sold
Class A 7,453,087
Class B 4,058,038
Payments on shares redeemed
Class A (31,198,817)
Class B (53,470)
Decrease in loans outstanding (33,304,669)
- ------------------------------------------------------------------------------
- -
NET CASH USED IN FINANCING ACTIVITIES
(53,045,831)
- ------------------------------------------------------------------------------
- -
NET INCREASE IN CASH
244,905
CASH -- BEGINNING OF PERIOD
87,506
- ------------------------------------------------------------------------------
- -
CASH -- END OF PERIOD $
332,411
- ------------------------------------------------------------------------------
- -
RECONCILIATION OF NET INCREASE IN NET ASSETS FROM OPERATIONS
TO CASH PROVIDED BY OPERATING AND INVESTING ACTIVITIES:
Net increase in net assets resulting from
operations $
6,369,470
Decrease in investments $ 41,378,221
Increase in futures contracts (92,449)
Decrease in payable for securities sold
short and written options (6,724,088)
Increase in receivable for investment
securities sold and short sales 14,636,089
Decrease in payable for investment
securities purchased (2,346,855)
Decrease in dividends and interest
receivable 69,250
Decrease in other assets 188,999
Decrease in accrued expenses (187,901)
- ------------------------------------------------------------------------------
- -
TOTAL ADJUSTMENTS
46,921,266
- ------------------------------------------------------------------------------
- -
NET CASH PROVIDED BY OPERATING AND
INVESTING ACTIVITIES $
53,290,736
- ------------------------------------------------------------------------------
- -
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
The Advisors Fund L.P.
- ---------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
YEAR YEAR
YEAR PERIOD
ENDED
ENDED ENDED ENDED
12/31/93++
12/31/92++ 12/31/91 12/31/90*
<S> <C> <C>
<C> <C>
Net Asset Value, beginning of period $ 26.63 $
24.04 $ 17.51 $ 18.90
- ------------------------------------------------------------------------------
- -------
Investment income from operations:
Net investment loss $ (0.66) $
(0.24) $ (0.37) $ (0.03)
Net realized and unrealized gain/(loss)
on investments 1.94
2.83 6.90 (1.36)
- ------------------------------------------------------------------------------
- -------
Total from investment operations 1.28
2.59 6.53 (1.39)
- ------------------------------------------------------------------------------
- -------
Net Asset Value, end of period $ 27.91 $
26.63 $ 24.04 $ 17.51
- ------------------------------------------------------------------------------
- -------
Total return+++ 4.81%
10.77% 37.29% (7.35)%
- ------------------------------------------------------------------------------
- -------
Ratios to average net assets/
supplemental data
Net assets, end of period (000's) $ 126,428 $
144,235 $ 158,522 $ 140,447
Ratio of expenses to average net assets** 4.54%
3.12% 3.86% 3.27%+
Ratio of net investment loss to
average net assets (2.45)%
(1.00)% (1.60)% (0.31)%+
Portfolio turnover rate 247%
312% 304% 149%
- ------------------------------------------------------------------------------
- -------
<FN>
*The Fund commenced operations on June 28, 1990.
**The annualized operating expense ratio includes interest expense. The
annualized ratio excluding interest expense was 3.54%, 2.28%, 3.60% and
2.99%
for the years ended December 31, 1993, 1992, and 1991 and for the period
ended December 31, 1990, respectively.
+Annualized.
++Per share amounts have been calculated using the monthly average share
method
which more appropriately presents the per share data as the undistributed
income method does not accord with results of operations for these periods.
+++Total return represents aggregate total return for the periods indicated
and
does not reflect any applicable sales charges.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
The Advisors Fund L.P.
- --------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
PERIOD
ENDED
12/31/93*++
<S> <C>
Net Asset Value, beginning of period $ 27.01
- ------------------------------------------------------------------------------
- --
Investment income from operations:
Net investment loss $
(.53)
Net realized and unrealized gain on investments 1.32
- ------------------------------------------------------------------------------
- --
Total from investment operations 0.79
- ------------------------------------------------------------------------------
- --
Net Asset Value, end of period $ 27.80
- ------------------------------------------------------------------------------
- --
Total return+++
2.92%
- ------------------------------------------------------------------------------
- --
Ratios to average net assets/supplemental data
Net assets, end of period (000's) $ 4,147
Ratio of expenses to average net assets**
5.29%+
Ratio of net investment loss to average net assets
(3.20)%+
Portfolio turnover rate
247%
- ------------------------------------------------------------------------------
- --
<FN>
*The Fund commenced selling Class B shares on June 1, 1993. The Fund ceased
all
sales of Class B shares on September 16, 1993.
**The annualized operating expense ratio includes interest expense. The
annualized ratio excluding interest expense was 4.29% for the period ended
December 31, 1993.
+Annualized.
++Per share amounts have been calculated using the monthly average share
method
which more appropriately presents the per share data as the undistributed
income method does not accord with results of operations for this period.
+++Total return represents aggregate total return for the period indicated and
does not reflect any applicable CDSC.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
The Advisors Fund L.P.
- ---------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Advisors Fund L.P. (the "Fund") is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an open-end, non-diversified
management investment company established as a limited partnership under
Delaware law. The Fund issues shares of limited partnership interest and is
governed by a board of Individual General Partners in lieu of a corporate
board
of directors. The Fund commenced operations on June 28, 1990. As of June 1,
1993, the Fund offered two classes of shares to the general public: Class A
shares and Class B shares. As of September 16, 1993, the Fund ceased all sales
of Class B shares of the Fund. Class A shares are sold with a front-end sales
charge. Class B shares may be subject to a contingent deferred sales charge
("CDSC") at the time of redemption. Class B shares will automatically convert
to
Class A shares eight years after the original purchase date. Each class of
shares has identical rights and privileges except with respect to the effect
of
the respective sales charges, the distribution and/or service fees borne by
each
class, expenses allocable exclusively to each class, voting rights on matters
affecting a single class, the exchange privilege of each class and the
conversion feature of Class B shares. The policies described below are
followed
consistently by the Fund in the preparation of its financial statements in
conformity with generally accepted accounting principles.
PORTFOLIO VALUATION: The Fund's investments are valued at market value or, in
the absence of a market value with respect to any investment, at fair market
value as determined by or under the direction of the Individual General
Partners. A security that is primarily traded on a United States or foreign
exchange is valued by reference to the last sale price on the exchange or, if
no
sales occur during the day, at the current quoted bid price. Over-the-counter
securities are valued on the basis of the bid price at the close of business
each day. Debt securities (other than U.S. government securities and short-
term
obligations) are valued by The Boston Company Advisors, Inc. ("Boston
Advisors"), after consultation with independent valuation services approved by
the Individual General Partners. Investments in U.S. government securities
(other than short-term securities) are valued at the average of the quoted bid
and asked prices in the over-the-counter market. Options are generally valued
at
the last sale price or, in the absence of a last sale price, the last bid
price.
The value of a futures contract equals the unrealized gain or loss on the
contract that is determined by marking it to
25
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
the current settlement price for a like contract acquired on the day on which
the futures contract is being valued. A settlement price may not be used if
the
market makes a limit move with respect to a particular commodity. Forward
contracts and futures contracts, when no market quote is available, are valued
at their fair market value as determined by the Individual General Partners,
upon consultation with their agents. Short-term investments that mature in 60
days or less are valued at amortized cost.
OPTIONS: Upon the purchase of a put option or a call option by the Fund, the
premium paid is recorded as an investment, the value of which is
marked-to-market daily. When a purchased option expires, the Fund will realize
a
loss in the amount of the cost of the option. When the Fund enters into a
closing sale transaction, the Fund will realize a gain or loss depending on
whether the sales proceeds from the closing sale transaction are greater or
less
than the cost of the option. When the Fund exercises a put option, the
proceeds
from such sale will be decreased by the premium originally paid. When the Fund
exercises a call option, the cost of the security which the Fund purchases
upon
exercise will be increased by the premium originally paid. When purchased
index
options are exercised, settlement is made in cash.
When the Fund writes a call option or a put option, an amount equal to the
premium received by the Fund is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, the Fund realizes a
gain
equal to the amount of the premium received. When the Fund enters into a
closing
purchase transaction, the Fund realizes a gain (or loss if the cost of the
closing purchase transaction exceeds the premium received when the option was
sold) without regard to any unrealized gain or loss on the underlying security
or index, and the liability related to such option is eliminated. When a call
option is exercised, the Fund realizes a gain or loss from the sale of the
underlying security and the proceeds from such sale are increased by the
premium
originally received. When a put option is exercised, the amount of the premium
originally received will reduce the cost of the security which the Fund
purchased upon exercise. When written index options are exercised, settlement
is
made in cash.
The risk associated with purchasing options is limited to the premium
originally
paid. The risk in writing a call option is that the Fund may forego the
opportunity of profit if the market value of the underlying security or
26
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
index increases and the option is exercised. The risk in writing a put option
is
that the Fund may incur a loss if the market value of the underlying security
or
index decreases and the option is exercised. In addition, there is the risk
the
Fund may not be able to enter into a closing transaction because of an
illiquid
secondary market.
FUTURES CONTRACTS: Upon entering into a futures contract, the Fund is required
to deposit with the broker an amount of cash or cash equivalents equal to a
certain percentage of the contract amount. This is known as the "initial
margin." Subsequent payments ("variation margin") are made or received by the
Fund each day, depending on the daily fluctuation of the value of the
contract.
For financial statement purposes, an amount equal to the settlement amount of
the contract is included in the Fund's Statement of Assets and Liabilities as
an
asset and as an equivalent liability. For long futures positions, the asset is
marked-to-market daily. For short futures positions, the liability is marked-
to-market daily. The daily changes in the contract are recorded as unrealized
gains or losses. The Fund recognizes a realized gain or loss when the contract
is closed.
There are several risks in connection with the use of futures contracts as a
hedging device. The change in value of futures contracts primarily corresponds
with the value of their underlying instruments or index, which may not
correlate
with the change in value of the hedged investments. In addition, there is the
risk that the Fund may not be able to enter into a closing transaction because
of an illiquid secondary market.
FOREIGN CURRENCY: The books and records of the Fund are maintained in United
States dollars. Foreign currencies, investments and other assets and
liabilities
are translated into U.S. dollars at the exchange rates prevailing at the end
of
each business day, and purchases and sales of investment securities, income
and
expenses are translated on the respective dates of such transactions. Net
realized foreign currency gains and losses resulting from changes in exchange
rates include foreign currency gains and losses on foreign currency
transactions
and the difference between the amounts of interest and dividends recorded on
the
books of the Fund and the amount actually received. The portion of foreign
currency gains and losses related to
27
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
fluctuation in exchange rates between the initial purchase trade date and
subsequent sale trade date is included in realized gains and losses on
investment securities sold.
FORWARD FOREIGN CURRENCY CONTRACTS: Forward foreign currency contracts are
valued at the forward rate and are marked-to-market daily. The change in
market
value is recorded by the Fund as an unrealized gain or loss. When the contract
is closed, the Fund records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at
the
time it was closed.
The use of forward foreign currency contracts does not eliminate fluctuations
in
the underlying prices of the Fund's portfolio securities, but it does
establish
a rate of exchange that can be achieved in the future. Although forward
foreign
currency contracts limit the risk of loss due to a decline in the value of the
currency holdings, they also limit any potential gain that might result should
the value of the currency increase. In addition, the Fund could be exposed to
risks if the counterparties to the contracts are unable to meet the terms of
the
contracts.
SHORT SALES: A short sale is a transaction in which the Fund sells securities
it
does not own (but has borrowed) in anticipation of a decline in the market
price
of the securities. To complete a short sale, the Fund must arrange through a
broker to borrow the securities to be delivered to the buyer. The proceeds
received by the Fund from the short sale are retained by the broker until the
Fund replaces the borrowed securities. In borrowing the securities to be
delivered to the buyer, the Fund becomes obligated to replace the securities
borrowed at their market price at the time of replacement, whatever that price
may be.
Possible losses from short sales differ from losses that could be incurred
from
a purchase of a security, because losses from short sales may be unlimited,
whereas losses from purchases can equal only the total amount invested.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded as of the trade date. Securities purchased or sold on a when-issued
or
delayed-delivery basis may be settled a month or more after the trade
28
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
date. Interest income is not accrued until settlement date. The Fund instructs
the custodian to segregate assets in a separate account with a current value
at
least equal to the amount of its when-issued purchased commitments. Realized
gains and losses from securities sold are recorded on the identified cost
basis.
Dividend income is recorded on the ex-dividend date. Interest income is
recorded
on the accrual basis. Investment income and realized and unrealized gains and
losses are allocated based upon relative net assets of each class. The Fund
must
pay any dividends or interest payable on securities while those securities are
in short position. During the year ended December 31, 1993, the Fund paid, as
an
offset to dividend income, dividends totalling $154,787 on securities that
were
in short positions.
DISTRIBUTIONS TO SHAREHOLDERS: The Fund intends to make distributions to
shareholders in such amounts and at such times as the Individual General
Partners, in their sole discretion, shall determine.
FEDERAL INCOME TAXES: No Federal income tax provision has been made in the
financial statements because the Fund intends to qualify as a partnership for
Federal income tax purposes. The Fund will only be treated as a partnership
for
Federal income tax purposes through 1997.
DISSOLUTION OF FUND: The term of the Fund shall expire on December 31, 2037,
unless earlier dissolved.
CASH FLOW INFORMATION: The Fund issues and redeems its shares and invests in
securities as reported in the Statement of Changes in Net Assets. Infor-
mation on cash payments is presented in the Statement of Cash Flows.
Accounting
practices that do not affect reporting activity on a cash basis include
unrealized gain or loss on investment securities. In addition, cash flows on
future and option contracts are included in the same category as the cash
flows
for items being hedged.
REPURCHASE AGREEMENTS: The Fund may engage in repurchase agreement
transactions.
Under the terms of a typical repurchase agreement, the Fund takes possession
of
an underlying debt obligation subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed upon price and
time, thereby determining the yield during the Fund's holding
29
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
period. This arrangement results in a fixed rate of return that is not subject
to market fluctuations during the Fund's holding period. The value of the
collateral is at least equal at all times to the total amount of the
repurchase
obligations, including interest. In the event of counterparty default, the
Fund
has the right to use the collateral to offset losses incurred. There is
potential loss to the Fund in the event the Fund delayed or was prevented from
exercising its rights to dispose of the collateral securities including the
risk
of a possible decline in the value of the underlying securities during the
period while the Fund seeks to assert its rights. The Fund's investment
adviser
or sub-investment adviser, acting under the supervision of the Board of
Trustees, reviews the value of the collateral and the creditworthiness of
those
banks and dealers with which the Fund enters into repurchase agreements to
evaluate potential risks.
2. INVESTMENT ADVISORY FEE, PORTFOLIO MANAGEMENT FEES, ADMINISTRATION FEE AND
OTHER RELATED PARTY TRANSACTIONS
Prior to the close of business on July 30, 1993, the Fund was a party to an
investment advisory agreement with Shearson Lehman Investment Strategy
Advisors
Inc. ("Strategy Advisors"), a wholly owned subsidiary of Shearson Lehman
Brothers, Inc. ("Shearson Lehman Brothers").
As of the close of business on July 30, 1993, The Travelers Inc. (formerly
known
as Primerica Corporation) and Smith Barney, Harris Upham & Co. Incorporated
completed the acquisition of the domestic retail brokerage and asset
management
business of Shearson Lehman Brothers and Smith Barney, Harris Upham & Co.
Incorporated was renamed Smith Barney Shearson Inc. ("Smith Barney Shearson").
Subsequent to such acquisition, Smith Barney Shearson Strategy Advisors Inc.
("SBSSA"), a division of Mutual Management Corp., which is controlled by Smith
Barney Shearson Holdings Inc. ("Holdings"), succeeded Strategy Advisors as the
Fund's investment adviser. Holdings is a wholly owned subsidiary of Travelers.
The Fund pays SBSSA a fee adjusted to reflect performance of its Class B
shares.
This monthly performance adjustment is based upon the performance of the Class
B
shares, after deducting all expenses, including the investment advisory fee,
relative to the performance of the Standard & Poor's 500 Composite Stock Price
Index (the "S&P 500") on a rolling twelve month basis. The investment advisory
fee paid to SBSSA
30
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
can range on an annual basis from 0% to 4.00% of the value of the Fund's
average
daily net assets. For the year ended December 31, 1993, the effective rate was
2.38% for Class A shares and for the period from June 1, 1993 to December 31,
1993, the effective rate was 2.42% for Class B shares.
The Fund and SBSSA have entered into portfolio management agreements
("Portfolio
Management Agreements") with various portfolio managers (collectively, the
"Portfolio Managers"). The Fund's current Portfolio Managers are as follows:
Ardsley Advisory Partners; Hellman, Jordan Management Co., Inc.; Mark Asset
Management Corporation; and Woodward & Associates Inc. SBSSA pays each
Portfolio
Manager a monthly management fee based upon the Portfolio Manager's
performance
compared to the performance of the S&P 500 on a rolling twelve month basis.
The
Fund pays no direct investment advisory fee to any of the Portfolio Managers.
On
November 20, 1992, Strategy Advisors gave notice of its intention to terminate
the Portfolio Management Agreement by and between the Fund, Strategy Advisors
and McKenzie, Walker Investment Management, Inc. ("McKenzie, Walker").
Pursuant
to such Portfolio Management Agreement, termination was effective 60 days from
the date of notification, January 19, 1993. Strategy Advisors began
reallocation
of the Fund assets managed by McKenzie, Walker on December 1, 1992 in
accordance
with the terms of such Portfolio Management Agreement.
Tremont Partners, Inc. ("Tremont") assists SBSSA in monitoring and evaluating
the performance of the Portfolio Managers pursuant to a consulting agreement
among the Fund, SBSSA and Tremont. SBSSA pays Tremont a fee for its services
equal to 0.20% of any investment advisory fee retained by SBSSA. The Fund pays
no direct fees to Tremont.
The Fund has also entered into an administration agreement (the
"Administration
Agreement") with Boston Advisors, an indirect wholly owned subsidiary of
Mellon
Bank Corporation ("Mellon"). Under the Administration Agreement, Boston
Advisors
is paid a fee computed and paid monthly at the annual rate of 0.25% of the
value
of the Fund's average daily net assets. Prior to the close of business on May
21, 1993 Boston Advisors served as sub-investment advisor and administrator to
the Fund and received fees equal to the current rates for its services.
31
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the year ended December 31, 1993, the Fund incurred total brokerage
commissions on portfolio transactions of $1,172,270, of which $15,684 was paid
to Smith Barney Shearson, Inc. or its predecessor and $18,029 was paid to
Lehman
Brothers, Inc.
For the year ended December 31, 1993, Smith Barney Shearson or its predecessor
received from investors $231,564 representing commissions (sales charges) on
sales of Class A shares.
A CDSC is generally payable by a shareholder in connection with the redemption
of Class B shares within five years after the date of purchase. In
circumstances
in which the charge is imposed, the amount of the charge ranges between 5% and
1% of net asset value depending on the number of years since the date of
purchase. For the year ended December 31, 1993, Smith Barney Shearson or its
predecessor received $1,884 in compensation from investors in CDSCs on the
redemption of Class B shares.
No officer, director or employee of Smith Barney Shearson, SBSSA, the
Portfolio
Managers, Boston Advisors, Tremont or any of their affiliates received any
compensation from the Fund for serving as an Individual General Partner. The
Fund pays each Individual General Partner who is not an officer, director or
employee of Smith Barney Shearson, SBSSA, the Portfolio Managers, Boston
Advisors, Tremont or any of their affiliates, a fee of $15,000 per annum plus
$1,000 per meeting attended, and reimburses each such Individual General
Partner
for travel and out-of-pocket expenses.
Boston Safe Deposit and Trust Company, an indirect wholly owned subsidiary of
Mellon, serves as the Fund's custodian. The Shareholder Services Group, Inc.,
a
subsidiary of First Data Corporation, serves as the Fund's transfer agent.
3. DISTRIBUTION AGREEMENT
Smith Barney Shearson acts as distributor of the Fund's shares pursuant to a
distribution agreement with the Fund, and sells shares of the Fund through
Smith
Barney Shearson or its affiliates.
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted a Services and
Distribution Plan (the "Plan"). Under this Plan, the Fund compensates
32
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Smith Barney Shearson for servicing accounts for Class A and Class B
shareholders. Smith Barney Shearson is paid an annual service fee with respect
to Class A and Class B shares of the Fund at the rate of 0.25% of the value of
the average daily net assets of each respective class of shares. Smith Barney
Shearson is also paid an annual distribution fee with respect to Class B
shares
at the rate of 0.75% of the value of the average daily net assets attributable
to those shares. During the period from June 1, 1993 through December 31,
1993,
the Fund incurred $193,599 and $4,962 in service fees for Class A and Class B
shares, respectively. During the period from January 1, 1993 through May 28,
1993, the Fund incurred $143,939 in distribution fees for Class A shares. For
the period from June 1, 1993 through December 31, 1993, the Fund incurred
$14,885 in distribution fees for Class B shares. Prior to June 1, 1993, the
Fund
paid distribution fees at an annual rate of 0.25% of the value of the average
daily net assets for Class A shares.
4. PURCHASES AND SALES OF INVESTMENTS
Purchases and proceeds from sales of securities, excluding U.S. government
securities and short-term obligations, during the year ended December 31,
1993,
were $303,717,615 and $364,218,145, respectively. Purchases and proceeds from
sales of U.S. government securities during the year ended December 31, 1993
were
$3,877,545 and $3,862,857, respectively.
Written option activity for the year ended December 31, 1993 was as follows:
<TABLE>
<CAPTION>
Number
of
Premiums
Contracts
<S> <C> <C>
- ------------------------------------------------------------------------------
- --
Options outstanding at December 31, 1992 $ 27,199
100
Options written during the period 1,204,484
4,668
Options expired during the period (292,782)
(825 )
Options cancelled in closing purchase transactions (855,728)
(3,543 )
- ------------------------------------------------------------------------------
- --
Options outstanding at December 31, 1993 $ 83,173
400
- ------------------------------------------------------------------------------
- --
</TABLE>
At December 31, 1993, aggregate gross unrealized appreciation of all
securities
in which there was an excess of value over tax cost was $28,444,523 and
aggregate gross unrealized depreciation for all securities in which there was
an
excess of tax cost over value was $4,799,591.
33
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. SHARES OF PARTNERSHIP INTEREST
The Fund has authorized and may issue an unlimited number of shares, divided
into two classes, Class A and Class B. As of September 16, 1993, the Fund
ceased
all sales of Class B shares of the Fund. The Individual General Partners of
the
Fund reserve the right in their sole discretion to offer Class B shares of the
Fund for purchase in the future.
Changes in shares outstanding for the Fund were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
YEAR ENDED
12/31/93
12/31/92
CLASS A SHARES: Shares Amount
Shares Amount
<S> <C> <C> <C>
<C>
- ------------------------------------------------------------------------------
- -------
Sold 266,743 $ 7,199,559
568,336 $ 13,834,909
Redeemed (1,154,680) (31,233,705)
(1,744,759) (41,456,883)
- ------------------------------------------------------------------------------
- -------
Net decrease (887,937) $(24,034,146)
(1,176,423) $(27,621,974)
- ------------------------------------------------------------------------------
- -------
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
12/31/93*
CLASS B SHARES:** Shares Amount
<S> <C> <C> <C>
- -------------------------------------------------------------------------
Sold 151,161 $ 4,058,038
Redeemed (1,974) (53,470)
- -------------------------------------------------------------------------
Net increase 149,187 $ 4,004,568
- -------------------------------------------------------------------------
<FN>
*The Fund commenced selling Class B shares on June 1, 1993. Any
shares
outstanding prior to June 1, 1993 have been designated as Class A shares.
**The Fund ceased all sales of Class B shares on September 16, 1993.
</TABLE>
6. ORGANIZATION COSTS
All costs incurred in connection with the organization of the Fund, including
the fees and expenses of registering and qualifying its shares for
distribution
under Federal and state securities regulations, are being amortized on the
straight-line method over a period of sixty months from June 28, 1990, the
date
that the Fund commenced operations. In the event that any of the initial
shares
of the Fund are redeemed during such amortization period, the Fund will be
reimbursed for any unamortized organization costs in the same proportion as
the
number of shares redeemed bears to the number of initial shares outstanding at
the time of redemption.
34
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. NOTES PAYABLE
The Fund has a line of credit agreement (the "Agreement") provided by
Continental Bank N.A. primarily for the purpose of allowing the Fund to
leverage
investments. Under this Agreement, the Fund may borrow up to the lesser of $50
million or 25% of its adjusted net assets. Interest is payable either at the
bank's Money Market Rate or the London Interbank Offered Rate (LIBOR) plus a
percentage ranging from 0.375% to 1.250% based on the aggregate loan
outstanding
balance on an annualized basis. The Fund is charged a commitment fee equal to
0.25% per annum of the credit available under the Agreement. The Fund is
required to maintain a ratio of net assets to aggregate amount of indebtedness
of no less than 3 to 1. At December 31, 1993, the Fund had outstanding
borrowings of $4,601,806. During the year ended December 31, 1993, the Fund
had
an average outstanding daily balance of $30,104,558 with interest rates
ranging
from 3.370% to 5.125%. Interest expense totalled $1,380,453 for the year ended
December 31, 1993.
35
<PAGE>
The Advisors Fund L.P.
- ---------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE PARTNERS OF THE ADVISORS FUND L.P.:
We have audited the accompanying statement of assets and liabilities of The
Advisors Fund L.P., including the schedule of portfolio investments, as of
December 31, 1993, and the related statement of operations and cash flows for
the year then ended, the statement of changes in net assets for each of the
two
years then ended and the financial highlights for each of the three years in
the
period then ended and for the period June 28, 1990 (commencement of
operations)
to December 31, 1990. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express
an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on
a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1993 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Advisors Fund L.P. as of December 31, 1993, the results of its operations and
cash flows for the year then ended, the changes in its net assets for each of
the two years then ended and the financial highlights for each of the three
years in the period then ended and for the period June 28, 1990 (commencement
of
operations) to December 31, 1990, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND
Boston, Massachusetts
February 16, 1994
36
<PAGE>
The Advisors Fund L.P.
- ------------------------------------------
OATH OF THE COMMODITY POOL OPERATORS FEBRUARY 22,
1994
UNDER REGULATION 4.22(H)(I)
The undersigned hereby certify that, to the best of their knowledge and
belief,
the information contained in The Advisors Fund L.P. Annual Report dated
December
31, 1993 was accurate and complete as of the date thereof.
Richard P. Roelofs Heath B. McLendon
Chief Executive Officer The Advisors Fund L.P.
Smith Barney Shearson Strategy Advisers
Inc.
37
<PAGE>
The Advisors Fund L.P.
- ------------------------------------------
PARTICIPANTS
DISTRIBUTOR
Smith Barney Shearson Inc.
388 Greenwich Street
World Financial Center
New York, New York 10285
INVESTMENT ADVISER
Smith Barney Shearson Strategy
Advisers Inc.
Two World Trade Center
New York, New York 10048
CONSULTANT TO INVESTMENT
ADVISER
Tremont Partners, Inc.
555 Theodore Fremd Avenue
Rye, New York 10580
ADMINISTRATOR
The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
TRANSFER AGENT
TSSG
Exchange Place
Boston, Massachusetts 02109
PORTFOLIO MANAGERS
Ardsley Advisory Partners
646 Steamboat Road
Greenwich, CT 06830
Hellman, Jordan Management
Co., Inc.
75 State Street
Boston, Massachusetts 02109
Mark Asset Management
767 Fifth Avenue
New York, New York 10153
Woodward & Associates Inc.
17 State Street
New York, New York
AUDITORS AND COUNSEL
Coopers & Lybrand
One Post Office Square
Boston, Massachusetts 02109
Dechert Price & Rhoads
1500 K. Street N.W.
Washington, D.C. 20005
CUSTODIAN
Boston Safe Deposit and
Trust Company
One Boston Place
Boston, Massachusetts 02108
38
<PAGE>
THE
ADVISORS
FUND L.P.
INDIVIDUAL GENERAL PARTNERS
Walter E. Auch, Sr.
Martin Brody
Stephen E. Kaufman
Heath B. McLendon
Madelon DeVoe Talley
THIS REPORT IS SUBMITTED FOR
THE GENERAL INFORMATION OF THE
SHAREHOLDERS OF THE ADVISORS
FUND L.P. IT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS
UNLESS
ACCOMPANIED OR PRECEDED BY AN EFFECTIVE PROSPECTUS FOR THE FUND, WHICH
CONTAINS
INFORMATION CONCERNING THE FUND'S INVESTMENT POLICIES AND APPLICABLE CHARGES,
DISTRIBUTION FEES, RISK OF LOSS AND EXPENSES, AS WELL AS OTHER PERTINENT
INFORMATION.
PERFORMANCE CITED IS THROUGH DECEMBER 31, 1993. PLEASE CONSULT THE SMITH
BARNEY
SHEARSON MUTUAL FUNDS QUARTERLY PERFORMANCE UPDATE FOR FIGURES THROUGH THE
MOST
RECENT CALENDAR QUARTER.
[LOGO]
Smith Barney Shearson
Mutual Funds
Two World Trade Center
New York, New York 10048
Fund 134, 205
<PAGE>
FD0413 B4
<PAGE>
[GRAPHIC]
SMALL BOX ABOVE FUND NAME SHOWING
TRADE JOURNALS, POCKET WATCH AND PEN
AND APPOINTMENT BOOK.
SEMI- THE
ANNUAL ADVISORS
REPORT FUND L.P.
.......................................
JUNE 30, 1994
NOTE: THE ADVISORS FUND L.P. HAS CLAIMED
THE
EXEMPTION PROVIDED BY COMMODITY EXCHANGE
ACT REGULATION SECTION4.12(B)(2)(I).
[LOGO]
<PAGE>
The Advisors Fund L.P.
DEAR FELLOW SHAREHOLDER:
The Advisors Fund L.P. ended the first six months of 1994 down
12.6%+, while the Standard & Poor's 500 Composite Stock Price
Index (the "S&P 500"), an unmanaged index of common stock
prices
in the United States, including dividends, posted a loss of 3.5%.
For
the second quarter, the Fund lost 4.5% versus a 0.3% loss for the
S&P
500. During this quarter almost all types of equities came under
selling pressure, especially those in the small to mid-cap areas,
mainly due to another increase in short term interest rates by the
Federal Reserve Board and the weakness in the U.S. dollar. Growth
stocks in general, which account for a good portion of the Fund's
long
positions, continue to underperform. Additionally, leverage,
exposure
to European bonds and investments in emerging markets also created
greater losses for the Fund than those experienced by the broad U.S.
stock market.
During the first half of 1994, several of the Fund's advisers ended their
involvement with the Fund. In light of this development, the Individual
General
Partners thought it was an appropriate point at which to review the Fund's
structure, operations and investment performance since its inception. While
the
results have been satisfactory when compared to alternatives over its history,
the Fund has not achieved the performance levels which were hoped for at the
time of its launch in June of 1990, and as described above, recent relative
performance has been particularly disappointing. The Board also noted that,
largely as a result of its complex structure, the Fund bears a relatively high
expense ratio. After considering these factors, the Board unanimously endorsed
a
proposal to merge the Fund into Smith Barney Shearson Fundamental Value Fund.
The Fundamental Value Fund, managed by John Goode of the Davis Skaggs Division
of Smith Barney Shearson Asset Management, has enjoyed superior performance
over
the past several years. The Individual General Partners also anticipated that
there would be substantial savings in expenses borne by the Fund's
shareholders
as a result of the merger. Accordingly, the Individual General Partners
concluded that the merger would be in the best interest of the Fund's
shareholders.
During the month of October, you will be receiving in the mail proxy material
which will seek your approval of the merger. It will include further
information
on the transaction, including a description of the tax consequences of the
merger. Please review, complete and return your proxy promptly.
1
<PAGE>
We hope that you will remain a shareholder of our mutual funds. We look
forward
to continuing to help you meet your investment needs.
Sincerely,
Heath B. McLendon
INDIVIDUAL GENERAL PARTNER
AUGUST 15, 1994
+As of June 1, 1993, existing shares of the Fund were designated as Class A
shares subject to a maximum 5% front-end sales charge. Prior to June 1, 1993,
shares of the Fund now designated as Class A were subject to a maximum
front-end sales charge of 5.5%. The Fund's average annual total returns,
without the deduction of the applicable front-end sales charge, for the one-
and three-year periods ended June 30, 1994, as well as from commencement of
operations (June 28, 1990) to June 30, 1994, were (8.88)%, 6.01% and 6.59%,
respectively. All average annual total return figures shown reflect
reinvestment of dividends and capital gains.
The Fund began offering Class B shares, subject to a maximum contingent
deferred sales charge (CDSC) of 5% on June 1, 1993. The Fund ceased offering
Class B shares to the public on September 16, 1993. The Fund's cumulative
total
return for Class B shares of the Fund without the deduction of the maximum
CDSC
of 5% for the one-year period ended June 30, 1994, as well as from
commencement
of operations (June 1, 1993) to June 30, 1994, were (9.56)% and (9.51)%,
respectively. Assuming the deduction of the maximum 5% CDSC, these figures
would have been (14.56)% and (14.51)%, respectively. Please consult the Notes
to Financial Statements for complete information on fees and expenses.
NOTE: All figures cited here and on the following pages represent past
performance and are not necessarily indicative of future results. Investment
return and principal value of an investment will fluctuate so that an
investor's shares upon redemption may be worth more or less than original
cost.
2
<PAGE>
The Advisors Fund L.P.
----------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS (UNAUDITED) JUNE 30,
1994
SUMMARY OF PORTFOLIO OF INVESTMENTS
<TABLE>
<S> <C> <C> <C> <C>
COMMON STOCKS
Domestic 52.4% $43,435,302
Foreign 8.3 6,886,004
- ------------------------------------------------------------------------------
- --
</TABLE>
<TABLE>
<S> <C> <C>
Total Common Stocks 60.7% $50,321,306
Options Purchased 1.0 699,313
U.S. Treasury Obligation 6.9 5,769,579
Commercial Paper 2.8 2,390,000
Mexican Government Obligation 1.6 1,332,255
Corporate Bond 0.5 412,500
Repurchase Agreement 26.0 21,510,000
- ----------------------------------------------------------------------
Total Investments 99.5 82,434,953
- ----------------------------------------------------------------------
Other Assets and Liabilities (Net) 3.1 2,551,518
Call Options Written (0.0) (1,250)
Investments Sold Short (2.6) (2,136,250)
- ----------------------------------------------------------------------
Net Assets 100.0% $82,848,971
- ----------------------------------------------------------------------
</TABLE>
TOP TEN HOLDINGS
<TABLE>
<CAPTION>
Percentage
of
Issuer Net
Assets
<S> <C>
------------------------------------------------------------------
U.S. TREASURY BILLS, 4.10% DUE 9/29/94 7.0%
GRUPO TELEVISA ADR 2.3
ORACLE SYSTEMS CORPORATION 2.2
MICROSOFT CORPORATION 1.9
MCDONALD'S CORPORATION 1.7
LEGENT CORPORATION 1.6
MEXICAN GOVERNMENT CETES 1.6
CITICORP 1.6
LENNAR CORPORATION 1.5
COCA-COLA COMPANY 1.5
</TABLE>
3
<PAGE>
The Advisors Fund L.P.
- ------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) JUNE 30,
1994
<TABLE>
<CAPTION>
MARKET VALUE
SHARES (NOTE 1)
<C> <S> <C>
-----------------------------------------------------------------------------
- -
COMMON STOCKS -- DOMESTIC -- 52.4%
COMPUTER SOFTWARE -- 10.2%
10,000 BMC Software, Inc.+ $ 437,500
25,000 Computer Association International Inc. 1,000,000
25,940 Electronic Arts+ 363,160
50,000 Legent Corporation+ 1,350,000
16,187 Lotus Development Corporation+ 594,872
31,100 Microsoft Corporation+ 1,601,650
48,944 Oracle Systems Corporation+ 1,835,400
25,750 Santa Cruz Operation Inc.+ 141,625
2,539 Sierra On-Line Inc.+ 41,894
11,308 Sybase Inc.+ 554,092
50,000 Symantec Corporation+ 537,500
-----------------------------------------------------------------------------
- -
8,457,693
-----------------------------------------------------------------------------
- -
COMMUNICATIONS -- 7.7%
22,244 AirTouch Communications+ 525,514
500 Cellular Communications Inc. 12,250
32,060 Cellular Communications, International+ 873,635
59,382 Comcast Corporation, Class A, Special 1,068,876
6,764 Comcast Corporation, Class A 121,752
30,000 DSC Communications Corporation+ 586,875
17,659 General Instrument Corporation+ 1,006,563
50,000 IDB Communications Group Inc. 462,500
55,000 Intelcom Group Inc.+ 625,625
7,175 StarSight Telecast Inc.+ 86,100
49,224 Tele-Communications Inc., Class A+ 1,002,939
-----------------------------------------------------------------------------
- -
6,372,629
-----------------------------------------------------------------------------
- -
HEALTH CARE -- 4.4%
65,000 Centocor Inc.+ 731,250
40,000 Cortech, Inc.+ 330,000
40,000 Chronimed Inc. 465,000
30,000 Cytotherapeutics, Inc.+ 168,750
15,000 Healthtrust -- The Hospital Company+ 416,250
6,500 ICOS Corporation+ 28,438
30,000 National Medical Enterprises, Inc. 468,750
40,000 Perseptive Biosystems Inc.+ 650,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30,
1994
<TABLE>
<CAPTION>
MARKET VALUE
SHARES (NOTE 1)
-----------------------------------------------------------------------------
- -
<C> <S> <C>
COMMON STOCKS -- DOMESTIC -- (CONTINUED)
HEALTH CARE -- (CONTINUED)
55,000 Ribi ImmunoChemical Research, Inc.+ $ 412,500
-----------------------------------------------------------------------------
- -
3,670,938
-----------------------------------------------------------------------------
- -
FINANCIAL SERVICES -- 4.1%
8,791 American Express Company 226,368
20,000 BankAmerica Corporation 915,000
32,500 Citicorp 1,295,937
6,428 Lehman Brothers Holdings Inc. 97,227
5,875 Wells Fargo & Company 883,453
-----------------------------------------------------------------------------
- -
3,417,985
-----------------------------------------------------------------------------
- -
BROADCASTING AND CABLE TELEVISION -- 3.8%
6,316 International Cablecasting Inc.+ 132,636
34,500 Liberty Media Corporation, Class A+ 681,375
32,500 Preferred Entertainment, Inc.+ 536,250
32,153 QVC Network Inc.+ 1,221,814
2,321 Viacom, Inc., Class A+ 78,334
6,357 Viacom, Inc., Class B** 61,996
13,304 Viacom, Inc., Class B, Non-Voting+ 420,739
-----------------------------------------------------------------------------
- -
3,133,144
-----------------------------------------------------------------------------
- -
RESTAURANTS AND HOTELS -- 3.2%
61,500 Host Marriott Corporation 599,625
23,170 Marriott International, Inc. 616,901
49,500 McDonald's Corporation 1,429,312
2,000 Prime Hospitality Corporation+ 14,750
-----------------------------------------------------------------------------
- -
2,660,588
-----------------------------------------------------------------------------
- -
HOME AND BUILDING SUPPLIES -- 2.9%
20,000 Home Depot Inc. 842,500
21,964 Kaufman & Broad Home Corporation 293,768
67,250 Lennar Corporation 1,269,344
-----------------------------------------------------------------------------
- -
2,405,612
-----------------------------------------------------------------------------
- -
CONSUMER PRODUCTS -- 2.6%
17,500 Gillette Company, Inc. 1,139,687
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30,
1994
<TABLE>
<CAPTION>
MARKET VALUE
SHARES (NOTE 1)
-----------------------------------------------------------------------------
- -
<C> <S> <C>
COMMON STOCKS -- DOMESTIC -- (CONTINUED)
CONSUMER PRODUCTS -- (CONTINUED)
16,750 Nike, Inc., Class B $ 1,000,812
-----------------------------------------------------------------------------
- -
2,140,499
-----------------------------------------------------------------------------
- -
OIL AND GAS -- 2.5%
20,000 Associated Natural Gas Corporation 640,000
20,000 Phillips Petroleum Corporation 625,000
75,000 Tesoro Petroleum Corporation 815,625
-----------------------------------------------------------------------------
- -
2,080,625
-----------------------------------------------------------------------------
- -
LEISURE AND ENTERTAINMENT -- 1.9%
8,479 Acclaim Entertainment+ 137,519
21,785 Disney (Walt) Company 906,801
4,101 International Game Technology 77,406
12,250 Time Warner, Inc. 430,281
-----------------------------------------------------------------------------
- -
1,552,007
-----------------------------------------------------------------------------
- -
FOOD AND BEVERAGE -- 1.8%
30,500 Coca-Cola Company 1,239,063
12,480 Snapple Beverage Corporation+ 252,720
-----------------------------------------------------------------------------
- -
1,491,783
-----------------------------------------------------------------------------
- -
COMPUTERS -- 1.7%
6,587 Advanced Micro Devices, Inc.+ 163,852
3,873 Apple Computer, Inc. 102,634
16,352 Creative Technology+ 282,072
12,197 Motorola Inc. 542,767
7,184 Novell Inc.+ 120,332
15,750 Sequent Computer Systems Inc.+ 214,594
-----------------------------------------------------------------------------
- -
1,426,251
-----------------------------------------------------------------------------
- -
ELECTRONICS -- 1.7%
15,000 Arrow Electronics+ 558,750
29,731 Best Buy Company+ 858,483
-----------------------------------------------------------------------------
- -
1,417,233
-----------------------------------------------------------------------------
- -
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30,
1994
<TABLE>
<CAPTION>
MARKET VALUE
SHARES (NOTE 1)
-----------------------------------------------------------------------------
- -
<C> <S> <C>
COMMON STOCKS -- DOMESTIC -- (CONTINUED)
CONSUMER DURABLES -- 1.0%
11,200 Duracell International, Inc. $ 436,800
29,750 United International Holdings Inc., Class
A+ 397,906
-----------------------------------------------------------------------------
- -
834,706
-----------------------------------------------------------------------------
- -
REAL ESTATE -- 0.9%
10,000 Spieker Properties, Inc. 220,000
20,000 Staples Inc.+ 540,000
-----------------------------------------------------------------------------
- -
760,000
-----------------------------------------------------------------------------
- -
RETAIL -- 0.6%
15,405 Toys "R" Us Inc.+ 504,514
-----------------------------------------------------------------------------
- -
EDUCATION -- 0.5%
30,000 Education Alternatives+ 382,500
-----------------------------------------------------------------------------
- -
AUTOMOTIVE -- 0.4%
7,443 Chrysler Corporation 350,751
-----------------------------------------------------------------------------
- -
OTHER -- 0.5%
25,000 Relife Inc., Class A 362,500
875 3 Do Company+ 13,344
-----------------------------------------------------------------------------
- -
375,844
-----------------------------------------------------------------------------
- -
TOTAL COMMON STOCKS -- DOMESTIC
(Cost $38,073,431) 43,435,302
-----------------------------------------------------------------------------
- -
COMMON STOCKS -- FOREIGN -- 8.3%
MEXICO -- 5.2%
185,100 Cifra SA, ADR 438,687
10,395 Coca-Cola Femsa ADR+ 261,174
37,895 Grupo Televisa ADR+ 1,923,171
20,000 Nacional Financiera 1,220,000
20,500 Panamerican Beverage Inc. ADR+ 494,562
-----------------------------------------------------------------------------
- -
4,337,594
-----------------------------------------------------------------------------
- -
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30,
1994
<TABLE>
<CAPTION>
MARKET VALUE
SHARES (NOTE 1)
-----------------------------------------------------------------------------
- -
<C> <S> <C>
COMMON STOCKS -- FOREIGN -- (CONTINUED)
HONG KONG -- 2.0%
1,695 Champion Technology Holdings ADR $ 2,966
2,000 Consolidated Electric Power ADR@ 31,750
225,000 Dah SIng Financial Holdings+ 646,209
25,000 Hopewell Holdings Ltd., ADR 97,500
200,000 Hutchison Whampoa 821,506
-----------------------------------------------------------------------------
- -
1,599,931
-----------------------------------------------------------------------------
- -
GREAT BRITAIN -- 0.9%
9,846 Vodafone Group Plc ADR 745,835
-----------------------------------------------------------------------------
- -
LUXEMBOURG -- 0.2%
9,766 Millicom International Cellular SA 202,644
-----------------------------------------------------------------------------
- -
TOTAL COMMON STOCKS -- FOREIGN
(Cost $6,315,017) 6,886,004
-----------------------------------------------------------------------------
- -
<CAPTION>
CONTRACTS
<C> <S> <C>
-----------------------------------------------------------------------------
- -
CALL OPTIONS PURCHASED -- 0.6%
115 Advanced Micro Devices, Inc., July,
$20.00 63,250
94 American Express Company, July, $25.00 36,425
29 Apple Computer, Inc., July, $30.00 544
32 Chrysler Corporation, July, $45.00 8,400
88 Coca-Cola Corporation, August, $35.00 56,100
150 Compaq Computer Corporation, July, $33.00 15,000
34 Disney Walt Company, July, $35.00 25,075
16 Lotus Development Corporation, July,
$45.00 100
15 Lotus Development Corporation, July,
$50.00 0
9 Marriott International, Inc., July,
$25.00 1,631
9 Marriott International, Inc., October,
$25.00 2,475
14 Micron Technology, Inc., July, $30.00 6,475
20 Microsoft Corporation, July, $52.50 1,750
136 Motorola, Inc., July, $40.00 62,900
14 Oracle Systems Corporation, July, $30.00 10,500
28 Oracle Systems Corporation, July, $35.00 8,400
14 Oracle Systems Corporation, August,
$30.00 11,550
9 QVC Network Inc., July, $30.00 7,761
21 QVC Network Inc., July, $35.00 7,613
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30,
1994
<TABLE>
<CAPTION>
MARKET VALUE
CONTRACTS (NOTE 1)
-----------------------------------------------------------------------------
- -
<C> <S> <C>
CALL OPTIONS PURCHASED -- (CONTINUED)
49 Snapple Beverage Corporation, September,
$20.00 $ 11,638
24 Texas Instruments Inc., July, $65.00 34,500
6 Toys "R" Us Inc., July, $30.00 1,875
24 Vodafone Group Plc., July, $70.00 14,100
-----------------------------------------------------------------------------
- -
TOTAL CALL OPTIONS PURCHASED
(Cost $632,817) 388,062
-----------------------------------------------------------------------------
- -
PUT OPTIONS PURCHASED -- 0.4%
453 Standard & Poor's 100 Index, July,
$415.00 300,113
22 Sun Microsystems Inc., July, $20.00 1,238
22 Sun Microsystems Inc., July, $25.00 9,900
-----------------------------------------------------------------------------
- -
TOTAL PUT OPTIONS PURCHASED
(Cost $232,100) 311,251
-----------------------------------------------------------------------------
- -
<CAPTION>
FACE VALUE
<C> <S> <C>
-----------------------------------------------------------------------------
- -
U.S. TREASURY OBLIGATION -- 6.9% (COST $5,769,579)
$ 5,830,000 U.S. Treasury Bills, 4.10%# due 9/29/94++ 5,769,579
-----------------------------------------------------------------------------
- -
COMMERCIAL PAPER -- 2.8%
1,195,000 Ford Motor Company, 4.30% due 7/1/94 1,195,000
1,195,000 General Electric Corporation, 4.30% due
7/1/94 1,195,000
-----------------------------------------------------------------------------
- -
TOTAL COMMERCIAL PAPER
(Cost $2,390,000) 2,390,000
-----------------------------------------------------------------------------
- -
MEXICAN GOVERNMENT OBLIGATION -- 1.6% (COST $1,377,534)
472,485 Cetes, 4.52% due 8/4/94 1,332,255
-----------------------------------------------------------------------------
- -
CORPORATE BOND -- 0.5% (COST $502,736)
500,000 Sierra On-Line Inc., Sub. Note, 6.50% due
4/1/01 412,500
-----------------------------------------------------------------------------
- -
REPURCHASE AGREEMENT -- 26.0% (COST $21,510,000)
21,510,000 Agreement with Morgan Stanley, 4.05%
dated 6/30/94 to be repurchased at
$21,512,420 on 7/1/94, collateralized
by $21,375,000 U.S. Treasury Note,
7.125% due 10/15/98 21,510,000
-----------------------------------------------------------------------------
- -
TOTAL INVESTMENTS (Cost $76,803,214*) 99.5% 82,434,953
-----------------------------------------------------------------------------
- -
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30,
1994
<TABLE>
<CAPTION>
MARKET VALUE
CONTRACTS (NOTE 1)
-----------------------------------------------------------------------------
- -
<C> <S> <C>
CALL OPTIONS WRITTEN -- (0.0)%
(200) DSC Communications Corporation, July,
$27.50 $ 0
(200) Telefonos de Mexico SA, July, $65.00
(1,250)
-----------------------------------------------------------------------------
- -
TOTAL CALL OPTIONS WRITTEN
(Premiums received $45,981)
(1,250)
-----------------------------------------------------------------------------
- -
<CAPTION>
SHARES
<C> <S> <C>
-----------------------------------------------------------------------------
- -
INVESTMENTS SOLD SHORT -- (2.6)%
(5,000) Apple Computer
(132,500)
(20,000) Aspect Telecommunications
(557,500)
(12,500) Broadband Technology
(237,500)
(10,000) Fresh Choice
(212,500)
(25,000) Glaxo Holdings Plc., ADR
(415,625)
(60,000) Greenwhich Pharmaceuticals
(28,125)
(10,000) Protein Design
(182,500)
(10,000) Sports & Recreation Inc.
(370,000)
-----------------------------------------------------------------------------
- -
TOTAL INVESTMENTS SOLD SHORT
(Contract amount $2,841,063)
(2,136,250)
-----------------------------------------------------------------------------
- -
OTHER ASSETS & LIABILITIES (NET) 3.1% 2,551,518
-----------------------------------------------------------------------------
- -
NET ASSETS 100.0% $ 82,848,971
-----------------------------------------------------------------------------
- -
<FN>
* Aggregate cost for Federal tax purposes.
** When-issued security (see Note 1).
+ Non-income producing securities.
++ U.S. Treasury Bills aggregating $5,769,579 have been pledged to
collateralize
written options and short investment positions in accordance with the
Fund's
Prospectus.
# Annualized yield to maturity.
@ Security exempt from registration under Rule 144A of the Securities Act
of
1933. These securities may be resold in transactions exempt from
registration, to qualified institutional buyers.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
The Advisors Fund L.P.
- ---------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30,
1994
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Cost
$76,803,214) (Note 1)
See accompanying schedule
Securities $60,924,953
Repurchase agreement 21,510,000
- --------------------------------------------------------------------------
Total Investments 82,434,953
- --------------------------------------------------------------------------
Cash 161,816
Receivable for short sales 2,841,063
Receivable for investment securities
sold 2,412,178
Receivable for short sales closed 373,337
Unamortized organization costs (Note 6) 155,576
Interest and dividends receivable 75,567
Receivable for Fund shares sold 7,421
Other assets 960
- --------------------------------------------------------------------------
TOTAL ASSETS 88,462,871
- --------------------------------------------------------------------------
LIABILITIES:
Payable for investment securities
purchased $2,626,549
Investments sold short, at value
(Contract amount $2,841,063) (Note 1)
See accompanying schedule 2,136,250
Payable for shares redeemed 648,561
Transfer agent fees payable (Note 2) 20,500
Accrued Individual General Partners'
fees and expenses (Note 2) 20,000
Custodian fees payable (Note 2) 18,575
Administration fee payable (Note 2) 18,393
Service fees payable (Note 3) 18,393
Distribution fee payable (Note 3) 1,932
Call options written, at value
(Premiums received $45,981)
(Note 1) See accompanying schedule 1,250
Accrued expenses and other payables 103,497
- --------------------------------------------------------------------------
TOTAL LIABILITIES 5,613,900
- --------------------------------------------------------------------------
NET ASSETS $82,848,971
- --------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------- JUNE 30,
1994
<TABLE>
<S> <C> <C>
SHARES represented by:
Individual General Partners $ 79,370
Shareholders 3,315,851
- --------------------------------------------------------------------------
Total Shares 3,395,221
- --------------------------------------------------------------------------
NET ASSETS consist of:
Accumulated net investment loss (7,674,913)
Accumulated net realized gain on
securities transactions, foreign
currency transactions, futures
contracts, written options and
investments sold short 42,243,642
Net unrealized appreciation of
securities, written options and
short positions 6,381,283
Paid-in capital 41,898,959
- --------------------------------------------------------------------------
TOTAL NET ASSETS $82,848,971
- --------------------------------------------------------------------------
NET ASSETS VALUE:
CLASS A SHARES:
NET ASSET VALUE and redemption price
per share
($79,839,506 DIVIDED BY 3,270,940
shares outstanding) $24.41
- -------------------------------------------------------------
MAXIMUM OFFERING PRICE PER SHARE
($24.41 DIVIDED BY 0.95)
(based on sales charge of 5% of the
offering price at June 30, 1994) $25.69
- -------------------------------------------------------------
CLASS B SHARES:
NET ASSET VALUE and offering price per
share+
($3,009,465 DIVIDED BY 124,281 shares
outstanding) $24.22
- -------------------------------------------------------------
<FN>
+ Redemption price per share is equal to Net Asset Value less any
applicable
contingent deferred sales charge. The Fund ceased selling Class B shares
on
September 16, 1993.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
The Advisors Fund L.P.
- ---------------------------------------------------------------------------
STATEMENT OF OPERATIONS (UNAUDITED)
- -------------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30,
1994
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest $
575,684
Dividends (net of foreign withholding taxes of
$3,797)
366,492
- ------------------------------------------------------------------------------
- -------
TOTAL INVESTMENT INCOME
942,176
- ------------------------------------------------------------------------------
- -------
EXPENSES:
Investment advisory fee (Note 2) $ 153,577
Administration fee (Note 2) 135,309
Service fees (Note 3) 135,309
Custodian fees (Note 2) 83,891
Amortization of organization costs (Note 6) 76,442
Legal and audit fees 45,562
Transfer agent fees (Note 2) 38,843
Individual General Partners' fees and expenses
(Note 2) 38,410
Distribution fee (Note 3) 13,437
Other 82,163
- ------------------------------------------------------------------------------
- -------
Total Operating Expenses Before Interest Expense
802,943
Interest expense (Note 7)
330,398
- ------------------------------------------------------------------------------
- -------
TOTAL EXPENSES
1,133,341
- ------------------------------------------------------------------------------
- -------
NET INVESTMENT LOSS
(191,165)
- ------------------------------------------------------------------------------
- -------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS (NOTES 1 AND 4):
Net realized gain/(loss) on:
Securities transactions
3,578,708
Written options
37,329
Futures contracts
(729,565)
Investments sold short
980,059
Foreign currency transactions
(304,585)
- ------------------------------------------------------------------------------
- -------
Net realized gain on investments during the period
3,561,946
- ------------------------------------------------------------------------------
- -------
Net change in unrealized appreciation/(depreciation) of:
Securities
(18,013,193)
Written options
(35,942)
Futures contracts
952
Investments sold short
722,226
- ------------------------------------------------------------------------------
- -------
Net unrealized depreciation of investments during the period
(17,325,957)
- ------------------------------------------------------------------------------
- -------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
(13,764,011)
- ------------------------------------------------------------------------------
- -------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS
$(13,955,176)
- ------------------------------------------------------------------------------
- -------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
The Advisors Fund L.P.
- ---------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR
ENDED
SIX MONTHS
12/31/93
ENDED
6/30/94
(UNAUDITED)
<S> <C>
<C>
Net investment loss $ (191,165)
$ (3,376,413)
Net realized gain on securities, written options,
futures contracts,
investments sold short and foreign currency
transactions
during the period 3,561,946
12,030,444
Net unrealized depreciation of securities, written
options, futures contracts and investments sold
short during the period (17,325,957)
(2,284,561)
- ------------------------------------------------------------------------------
- -------
Net increase/(decrease) in net assets resulting from
operations (13,955,176)
6,369,470
Net increase/(decrease) in net assets from Fund share
transactions (Note 5):
Class A (33,111,724)
(24,034,146)
Class B (658,952)
4,004,568
- ------------------------------------------------------------------------------
- -------
Net decrease in net assets (47,725,852)
(13,660,108)
NET ASSETS:
Beginning of period 130,574,823
144,234,931
- ------------------------------------------------------------------------------
- -------
End of period (including accumulated net investment
loss of $7,674,913 and $7,483,748, respectively) $82,848,971
$130,574,823
- ------------------------------------------------------------------------------
- -------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
The Advisors Fund L.P.
- ---------------------------------------------------------------------------
STATEMENT OF CASH FLOWS (UNAUDITED)
- -------------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30,
1994
<TABLE>
<S> <C> <C>
NET DECREASE IN CASH:
Cash flows from operating activities:
Interest received $ 665,713
Dividends received 407,297
Operating expenses paid (889,998)
Interest expense (330,398)
- ------------------------------------------------------------------------------
- -----
Net cash used in operating activities $
(147,386)
- ------------------------------------------------------------------------------
- -----
Cash flows from investing activities:
Decrease in short-term portfolio
securities, net (4,221,912)
Purchase of investment securities and
purchased options (148,724,627)
Proceeds from disposition of investment
securities and
purchased options 190,873,176
Net proceeds used to close short sales
and written option transactions 641,860
Net proceeds from futures transactions
and forward foreign exchange contracts (825,476)
- ------------------------------------------------------------------------------
- -----
Net cash provided by investing
activities
37,743,021
- ------------------------------------------------------------------------------
- -----
NET CASH PROVIDED BY OPERATING AND
INVESTING ACTIVITIES
37,595,635
- ------------------------------------------------------------------------------
- -----
Cash flows from financing activities:
Proceeds from shares sold
Class A 357,684
Payments on shares redeemed
Class A (32,863,156)
Class B (658,952)
Decrease in loans outstanding (4,601,806)
- ------------------------------------------------------------------------------
- -----
NET CASH USED IN FINANCING ACTIVITIES
(37,766,230)
- ------------------------------------------------------------------------------
- -----
NET DECREASE IN CASH
(170,595)
CASH -- BEGINNING OF PERIOD
332,411
- ------------------------------------------------------------------------------
- -----
CASH -- END OF PERIOD $
161,816
- ---------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
STATEMENT OF CASH FLOWS (UNAUDITED) (CONTINUED)
- -------------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30,
1994
<TABLE>
<S> <C> <C>
RECONCILIATION OF NET DECREASE IN NET ASSETS FROM OPERATIONS
TO CASH USED IN OPERATING AND INVESTING ACTIVITIES:
Net decrease in net assets resulting from
operations $
(13,955,176)
Decrease in investments $ 53,554,224
Increase in futures contracts (952)
Decrease in payable securities sold short
and written options (1,587,312)
Increase in receivable for investment
securities sold and
short sales (835,041)
Increase in payable for investment
securities purchased 376,113
Decrease in dividends and interest
receivable 130,834
Decrease in other assets 91,169
Decrease in accrued expenses (178,224)
- ------------------------------------------------------------------------------
- -----
TOTAL ADJUSTMENTS
51,550,811
- ------------------------------------------------------------------------------
- -----
NET CASH PROVIDED BY OPERATING AND
INVESTING ACTIVITIES $
37,595,635
- ------------------------------------------------------------------------------
- -----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
The Advisors Fund L.P.
- ---------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
YEAR YEAR PERIOD
6/30/94++ ENDED
ENDED ENDED ENDED
(UNAUDITED) 12/31/93++
12/31/92++ 12/31/91 12/31/90*
<S> <C> <C> <C>
<C> <C>
Net Asset Value, beginning of period $ 27.91 $ 26.63 $
24.04 $ 17.51 $ 18.90
- ------------------------------------------------------------------------------
- -------
Investment income from operations:
Net investment loss $ (0.04) $ (0.66) $
(0.24) $ (0.37) $ (0.03)
Net realized and unrealized gain/(loss) on
investments (3.46) 1.94
2.83 6.90 (1.36)
- ------------------------------------------------------------------------------
- -------
Total from investment operations (3.50) 1.28
2.59 6.53 (1.39)
- ------------------------------------------------------------------------------
- -------
Net Asset Value, end of period $ 24.41 $ 27.91 $
26.63 $ 24.04 $ 17.51
- ------------------------------------------------------------------------------
- -------
Total return+++ (12.58)% 4.81%
10.77% 37.29% (7.35)%
- ------------------------------------------------------------------------------
- -------
Ratios to average net assets/ supplemental
data:
Net assets, end of period (000's) $ 79,840 $ 126,428 $
144,235 $ 158,522 $ 140,447
Ratio of expenses to average net assets** 2.07%+ 4.54%
3.12% 3.86% 3.27%+
Ratio of net investment loss to average net
assets (0.33)%+ (2.45)%
(1.00)% (1.60)% (0.31)%+
Portfolio turnover rate 151% 247%
312% 304% 149%
- ------------------------------------------------------------------------------
- -------
<FN>
* The Fund commenced operations on June 28, 1990.
** The annualized operating expense ratio includes interest expense. The
annualized ratio excluding interest expense was 1.46% for the six months
ended June 30, 1994, 3.54%, 2.28%, 3.60% and 2.99% for the years ended
December 31, 1993, 1992, 1991, and for the period ended December 31,
1990,
respectively.
+ Annualized.
++ Per share amounts have been calculated using the monthly average share
method
which more appropriately presents the per share data as the undistributed
income method does not accord with results of operations for these
periods.
+++ Total return represents aggregate total return for the periods indicated
and
does not reflect the deduction of any applicable sales charges.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
The Advisors Fund L.P.
- --------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
PERIOD
6/30/94++
ENDED
(UNAUDITED)
12/31/93*++
<S> <C> <C>
Net Asset Value, beginning of period $ 27.80 $
27.01
- ------------------------------------------------------------------------------
- ------
Investment income from operations:
Net investment loss $ (0.14) $
(0.53)
Net realized and unrealized gain/(loss) on
investments (3.44)
1.32
- ------------------------------------------------------------------------------
- ------
Total from investment operations (3.58)
0.79
- ------------------------------------------------------------------------------
- ------
Net Asset Value, end of period $ 24.22 $
27.80
- ------------------------------------------------------------------------------
- ------
Total return+++ (12.91)%
2.92%
- ------------------------------------------------------------------------------
- ------
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 3,009 $
4,147
Ratio of expenses to average net assets** 2.82%+
5.29%+
Ratio of net investment loss to average net assets (1.08)%+
(3.20)%+
Portfolio turnover rate 151%
247%
- ------------------------------------------------------------------------------
- ------
<FN>
* The Fund commenced selling Class B shares on June 1, 1993. The Fund
ceased
all sales of Class B shares on September 16, 1993.
** The annualized operating expense ratio includes interest expense. The
annualized ratio excluding interest expense was 2.21% and 4.29% for the
six
months ended June 30, 1994 and the period ended December 31, 1993,
respectively.
+ Annualized.
++ Per share amounts have been calculated using the monthly average share
method
which more appropriately presents the per share data as the undistributed
income method does not accord with results of operations for these
periods.
+++ Total return represents aggregate total return for the periods indicated
and
does not reflect the deduction of any applicable sales charge.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
The Advisors Fund L.P.
- ---------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The Advisors Fund L.P. (the "Fund") is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an open-end, non-diversified
management investment company established as a limited partnership under
Delaware law. The Fund issues shares of limited partnership interest and is
governed by a board of Individual General Partners in lieu of a corporate
board
of directors. The Fund commenced operations on June 28, 1990. As of June 1,
1993, the Fund offered two classes of shares to the general public: Class A
shares and Class B shares and those shares already outstanding were classified
as Class A. As of September 16, 1993, the Fund ceased all sales of Class B
shares of the Fund. Class A shares are sold with a front-end sales charge.
Class
B shares may be subject to a contingent deferred sales charge ("CDSC") at the
time of redemption. Class B shares will automatically convert to Class A
shares
eight years after the original purchase date. Each class of shares has
identical
rights and privileges except with respect to the effect of the respective
sales
charges, the distribution and/or service fees borne by each class, expenses
allocable exclusively to each class, voting rights on matters affecting a
single
class, the exchange privilege of each class and the conversion feature of
Class
B shares. The policies described below are followed consistently by the Fund
in
the preparation of its financial statements in conformity with generally
accepted accounting principles.
PORTFOLIO VALUATION: The Fund's investments are valued at market value or, in
the absence of a market value with respect to any investment, at fair market
value as determined by or under the direction of the Individual General
Partners. A security that is primarily traded on a United States or foreign
exchange is valued by reference to the last sale price on the exchange or, if
no
sales occur during the day, at the current quoted bid price. Over-the-counter
securities are valued on the basis of the bid price at the close of business
each day. Debt securities (other than U.S. government securities and short-
term
obligations) are valued by The Boston Company
Advisors, Inc. ("Boston Advisors"), after consultation with independent
valuation services approved by the Individual General Partners. Investments in
U.S. government securities (other than short-term securities) are valued at
the
average of the quoted bid and asked prices in the over-the-counter market.
Options are generally valued at the last sale price or, in the absence of a
last
sale price, the last bid price. The value of a futures contract equals
19
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
the unrealized gain or loss on the contract that is determined by marking it
to
the current settlement price for a like contract acquired on the day on which
the futures contract is being valued. A settlement price may not be used if
the
market makes a limit move with respect to a particular commodity. Forward
contracts and futures contracts, when no market quote is available, are valued
at their fair market value as determined by the Individual General Partners,
upon consultation with their agents. Short-term investments that mature in 60
days or less are valued at amortized cost.
OPTIONS: Upon the purchase of a put option or a call option by the Fund, the
premium paid is recorded as an investment, the value of which is
marked-to-market daily. When a purchased option expires, the Fund will realize
a
loss in the amount of the cost of the option. When the Fund enters into a
closing sale transaction, the Fund will realize a gain or loss depending on
whether the sales proceeds from the closing sale transaction are greater or
less
than the cost of the option. When the Fund exercises a put option, the
proceeds
from such sale will be decreased by the premium originally paid. When the Fund
exercises a call option, the cost of the security which the Fund purchases
upon
exercise will be increased by the premium originally paid. When purchased
index
options are exercised, settlement is made in cash.
When the Fund writes a call option or a put option, an amount equal to the
premium received by the Fund is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, the Fund realizes a
gain
equal to the amount of the premium received. When the Fund enters into a
closing
purchase transaction, the Fund realizes a gain (or loss if the cost of the
closing purchase transaction exceeds the premium received when the option was
sold) without regard to any unrealized gain or loss on the underlying security
or index, and the liability related to such option is eliminated. When a call
option is exercised, the Fund realizes a gain or loss from the sale of the
underlying security and the proceeds from such sale are increased by the
premium
originally received. When a put option is exercised, the amount of the premium
originally received will reduce the cost of the security which the Fund
purchased upon exercise. When written index options are exercised, settlement
is
made in cash.
20
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
The risk associated with purchasing options is limited to the premium
originally
paid. The risk in writing a call option is that the Fund may forego the
opportunity of profit if the market value of the underlying security or index
increases and the option is exercised. The risk in writing a put option is
that
the Fund may incur a loss if the market value of the underlying security or
index decreases and the option is exercised. In addition, there is the risk
the
Fund may not be able to enter into a closing transaction because of an
illiquid
secondary market.
FUTURES CONTRACTS: Upon entering into a futures contract, the Fund is required
to deposit with the broker an amount of cash or cash equivalents equal to a
certain percentage of the contract amount. This is known as the "initial
margin." Subsequent payments ("variation margin") are made or received by the
Fund each day, depending on the daily fluctuation of the value of the
contract.
For financial statement purposes, an amount equal to the settlement amount of
the contract is included in the Fund's Statement of Assets and Liabilities as
an
asset and as an equivalent liability. For long futures positions, the asset is
marked-to-market daily. For short futures positions, the liability is marked-
to-market daily. The daily changes in the contract are recorded as unrealized
gains or losses. The Fund recognizes a realized gain or loss when the contract
is closed.
There are several risks in connection with the use of futures contracts as a
hedging device. The change in value of futures contracts primarily corresponds
with the value of their underlying instruments or index, which may not
correlate
with the change in value of the hedged investments. In addition, there is the
risk that the Fund may not be able to enter into a closing transaction because
of an illiquid secondary market.
FOREIGN CURRENCY: The books and records of the Fund are maintained in United
States dollars. Foreign currencies, investments and other assets and
liabilities
are translated into U.S. dollars at the exchange rates prevailing at the end
of
each business day, and purchases and sales of investment securities, income
and
expenses are translated on the respective dates of such transactions. Net
realized foreign currency gains and losses resulting
21
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
from changes in exchange rates include foreign currency gains and losses on
foreign currency transactions and the difference between the amounts of
interest
and dividends recorded on the books of the Fund and the amount actually
received. The portion of foreign currency gains and losses related to
fluctuation in exchange rates between the initial purchase trade date and
subsequent sale trade date is included in realized gains and losses on
investment securities sold.
FORWARD FOREIGN CURRENCY CONTRACTS: Forward foreign currency contracts are
valued at the forward rate and are marked-to-market daily. The change in
market
value is recorded by the Fund as an unrealized gain or loss. When the contract
is closed, the Fund records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at
the
time it was closed.
The use of forward foreign currency contracts does not eliminate fluctuations
in
the underlying prices of the Fund's portfolio securities, but it does
establish
a rate of exchange that can be achieved in the future. Although forward
foreign
currency contracts limit the risk of loss due to a decline in the value of the
currency holdings, they also limit any potential gain that might result should
the value of the currency increase. In addition, the Fund could be exposed to
risks if the counterparties to the contracts are unable to meet the terms of
the
contracts.
SHORT SALES: A short sale is a transaction in which the Fund sells securities
it
does not own (but has borrowed) in anticipation of a decline in the market
price
of the securities. To complete a short sale, the Fund must arrange through a
broker to borrow the securities to be delivered to the buyer. The proceeds
received by the Fund from the short sale are retained by the broker until the
Fund replaces the borrowed securities. In borrowing the securities to be
delivered to the buyer, the Fund becomes obligated to replace the securities
borrowed at their market price at the time of replacement, whatever that price
may be.
22
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Possible losses from short sales differ from losses that could be incurred
from
a purchase of a security, because losses from short sales may be unlimited,
whereas losses from purchases can equal only the total amount invested.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded as of the trade date. Securities purchased or sold on a when-issued
or
delayed-delivery basis may be settled a month or more after the trade date.
Interest income is not accrued until settlement date. The Fund instructs the
custodian to segregate assets in a separate account with a current value at
least equal to the amount of its when-issued purchased commitments. Realized
gains and losses from securities sold are recorded on the identified cost
basis.
Dividend income is recorded on the ex-dividend date. Interest income is
recorded
on the accrual basis. Investment income and realized and unrealized gains and
losses are allocated based upon relative net assets of each class. The Fund
must
pay any dividends or interest payable on securities while those securities are
in short position. During the six months ended June 30, 1994, the Fund paid,
as
an offset to dividend income, dividends totalling $28,803 on securities that
were in short positions.
DISTRIBUTIONS TO SHAREHOLDERS: The Fund intends to make distributions to
shareholders in such amounts and at such times as the Individual General
Partners, in their sole discretion, shall determine.
FEDERAL INCOME TAXES: No Federal income tax provision has been made in the
financial statements because the Fund intends to qualify as a partnership for
Federal income tax purposes. The Fund will only be treated as a partnership
for
Federal income tax purposes through 1997.
DISSOLUTION OF FUND: The term of the Fund shall expire on December 31, 2037,
unless earlier dissolved.
CASH FLOW INFORMATION: The Fund issues and redeems its shares and invests in
securities as reported in the Statement of Changes in Net Assets. Information
on
cash payments is presented in the Statement of Cash Flows. Accounting
practices
that do not affect reporting activity on a cash basis
23
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
include unrealized gain or loss on investment securities. In addition, cash
flows on futures and option contracts are included in the same category as the
cash flows for items being hedged.
REPURCHASE AGREEMENTS: The Fund may engage in repurchase agreement
transactions.
Under the terms of a typical repurchase agreement, the Fund takes possession
of
an underlying debt obligation subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the collateral is
at
least equal at all times to the total amount of the repurchase obligations,
including interest. In the event of counterparty default, the Fund has the
right
to use the collateral to offset losses incurred. There is potential loss to
the
Fund in the event the Fund delayed or was prevented from exercising its rights
to dispose of the collateral securities including the risk of a possible
decline
in the value of the underlying securities during the period while the Fund
seeks
to assert its rights. The Fund's portfolio managers, acting under the
supervision of the Individual General Partners, review the value of the
collateral and the creditworthiness of those banks and dealers with which the
Fund enters into repurchase agreements to evaluate potential risks.
2. INVESTMENT ADVISORY FEE, PORTFOLIO MANAGEMENT FEES,
ADMINISTRATION FEE AND OTHER TRANSACTIONS
Smith Barney Strategy Advisors Inc. ("SBSA"), a division of Mutual Management
Corp., which is controlled by Smith Barney Holdings Inc. ("Holdings"), serves
as
the Fund's investment adviser. Holdings is a wholly owned subsidiary of The
Travelers Inc. The Fund pays SBSA a fee adjusted to reflect the performance of
the Fund's Class B shares relative to the Standard & Poor's 500 Composite
Stock
Price Index ("S&P 500"). This monthly performance adjustment is based upon the
performance of the Class B shares, after deducting all expenses, including the
investment advisory fee, relative to the performance of the S&P 500 on a
rolling
twelve month basis. The investment advisory fee paid to SBSA can range on an
24
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
annual basis from 0% to 4.00% of the value of the Fund's average daily net
assets. For the six months ended June 30, 1994, the effective rate was .28%
for
the Fund.
The Fund and SBSA have entered into portfolio management agreements
("Portfolio
Management Agreements") with various portfolio managers (collectively, the
"Portfolio Managers"). The Fund's current Portfolio Managers are as follows:
Ardsley Advisory Partners and Mark Asset Management Corporation. SBSA pays
each
Portfolio Manager a monthly management fee based upon the Portfolio Manager's
performance compared to the performance of the S&P 500 on a rolling twelve
month
basis. The Fund pays no direct investment advisory fee to any of the Portfolio
Managers.
Tremont Partners, Inc. ("Tremont") assists SBSA in monitoring and evaluating
the
performance of the Portfolio Managers pursuant to a consulting agreement among
the Fund, SBSA and Tremont. SBSA pays Tremont a fee for its services equal to
20% of any investment advisory fee retained by SBSA. The Fund pays no direct
fees to Tremont.
Prior to April 20, 1994, the Fund was party to an administration agreement
(the
"Administration Agreement") with Boston Advisors, an indirect wholly owned
subsidiary of Mellon Bank Corporation ("Mellon"). Under this agreement the
Fund
paid a monthly fee at annual rate of 0.25% of the value of the Fund's average
daily net assets.
As of the close of business on April 20, 1994, Smith, Barney Advisers, Inc.
("SBA") succeeded Boston Advisors as the Fund's administrator. The new
administration agreement contains substantially the same terms and conditions,
including the level of fees, as the predecessor agreement.
As of the close of business on June 2, 1994, the Fund also entered into a
sub-administration agreement (the "Sub-Administration Agreement") with Boston
Advisors. Under the Sub-Administration Agreement, Boston Advisors is paid a
portion of the fee paid by the Fund to SBA at a rate agreed upon from time to
time between SBA and Boston Advisors.
25
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
For the six months ended June 30, 1994, the Fund incurred total brokerage
commissions on portfolio transactions of $565,361, of which $5,959 was paid to
Smith Barney Inc. ("Smith Barney").
For the six months ended June 30, 1994, Smith Barney or its predecessor
received
from investors $15,326 representing commissions (sales charges) on sales of
Class A shares.
A CDSC is generally payable by a shareholder in connection with the redemption
of Class B shares within five years after the date of purchase. In
circumstances
in which the charge is imposed, the amount of the charge ranges between 5% and
1% of net asset value depending on the number of years since the date of
purchase. For the six months ended June 30, 1994, Smith Barney received
$29,370
from investors in CDSCs on the redemption of Class B shares.
No officer, director or employee of Smith Barney, SBSA, the Portfolio
Managers,
SBA, Tremont or any of their affiliates received any compensation from the
Fund
for serving as an Individual General Partner. The Fund pays each Individual
General Partner who is not an officer, director or employee of Smith Barney,
SBSA, the Portfolio Managers, SBA, Tremont or any of their affiliates, a fee
of
$15,000 per annum plus $1,000 per meeting attended, and reimburses each such
Individual General Partner for travel and out-of-pocket expenses.
Boston Safe Deposit and Trust Company, an indirect wholly owned subsidiary of
Mellon, serves as the Fund's custodian. The Shareholder Services Group, Inc.,
a
subsidiary of First Data Corporation, serves as the Fund's transfer agent.
3. DISTRIBUTION AGREEMENT
Smith Barney acts as distributor of the Fund's shares pursuant to a
distribution
agreement with the Fund, and sells shares of the Fund through Smith Barney or
its affiliates.
26
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted a services and
distribution plan (the "Plan"). Under this Plan, the Fund compensates Smith
Barney for servicing accounts for Class A and Class B shareholders. Smith
Barney
is paid an annual service fee with respect to Class A and Class B shares of
the
Fund at the rate of 0.25% of the value of the average daily net assets of each
respective class of shares. Smith Barney is also paid an annual distribution
fee
with respect to Class B shares at the rate of 0.75% of the value of the
average
daily net assets attributable to those shares. For the six months ended June
30,
1994, the Fund incurred $130,830 and $4,479 in service fees for Class A and
Class B shares, respectively. For the six months ended June 30, 1994, the Fund
incurred $13,437 in distribution fees for Class B shares.
4. PURCHASES AND SALES OF INVESTMENTS
Purchases and proceeds from sales of securities, excluding U.S. government
securities and short-term obligations, during the six months ended June 30,
1994, were $130,509,846 and $173,513,997, respectively. Written option
activity
for the six months ended June 30, 1994 was as follows:
<TABLE>
<CAPTION>
Number of
Contracts
Premiums
<S> <C> <C>
- ------------------------------------------------------------------------------
- -----
Options outstanding at December 31, 1993 400 $
83,173
Options written during the period 3,351
540,960
Options expired during the period (150)
(21,187)
Options cancelled in closing purchase transactions (3,201)
(556,965)
- ------------------------------------------------------------------------------
- -----
Options outstanding at June 30, 1994 400
45,981
- ------------------------------------------------------------------------------
- -----
</TABLE>
At June 30, 1994, aggregate gross unrealized appreciation of all securities in
which there was an excess of value over tax cost was $8,775,676 and aggregate
gross unrealized depreciation for all securities in which there was an excess
of
tax cost over value was $3,143,937.
5. SHARES OF PARTNERSHIP INTEREST
The Fund has authorized and may issue an unlimited number of shares, divided
into two classes, Class A and Class B. As of September 16, 1993, the
27
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Fund ceased all sales of Class B shares of the Fund. The Individual General
Partners of the Fund reserve the right in their sole discretion to offer Class
B
shares of the Fund for purchase in the future.
Changes in shares outstanding for the Fund were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED
CLASS A SHARES: Shares 6/30/94 Amount
Shares 12/31/93 Amount
<S> <C> <C>
<C> <C>
- ------------------------------------------------------------------------------
- -------
Sold 13,810 $ 365,105
266,743 $ 7,199,559
Redeemed (1,272,184) (33,476,829)
(1,154,680) (31,233,705)
- ------------------------------------------------------------------------------
- -------
Net decrease (1,258,374) (33,111,724)
(887,937) $ (24,034,146)
- ------------------------------------------------------------------------------
- -------
<CAPTION>
SIX MONTHS ENDED
PERIOD ENDED
6/30/94
12/31/93*
CLASS B SHARES:** Shares Amount
Shares Amount
<S> <C> <C>
<C> <C>
- ------------------------------------------------------------------------------
- -------
Sold -- --
151,161 $ 4,058,038
Redeemed (24,906) $ (658,952)
(1,974) (53,470)
- ------------------------------------------------------------------------------
- -------
Net increase/(decrease) (24,906) $ (658,952)
149,187 $ 4,004,568
- ------------------------------------------------------------------------------
- -------
<FN>
* The Fund commenced selling Class B shares on June 1, 1993. Any shares
outstanding prior to June 1, 1993 have been designated as Class A shares.
** The Fund ceased all sales of Class B shares on September 16, 1993.
</TABLE>
6. ORGANIZATION COSTS
All costs incurred in connection with the organization of the Fund, including
the fees and expenses of registering and qualifying its shares for
distribution
under Federal and state securities regulations, are being amortized on the
straight-line method over a period of sixty months from June 28, 1990, the
date
that the Fund commenced operations. In the event that any of the initial
shares
of the Fund are redeemed during such amortization period, the Fund will be
reimbursed for any unamortized organization costs in the same proportion as
the
number of shares redeemed bears to the number of initial shares outstanding at
the time of redemption.
28
<PAGE>
The Advisors Fund L.P.
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
7. LINE OF CREDIT
The Fund has a line of credit agreement (the "Agreement") provided by
Continental Bank N.A. primarily for the purpose of allowing the Fund to
leverage
investments. Under this Agreement, the Fund may borrow up to the lesser of $50
million or 25% of its adjusted net assets. Interest is payable either at the
bank's Money Market Rate or the London Interbank Offered Rate (LIBOR) plus a
percentage ranging from 0.375% to 1.250% based on the aggregate loan
outstanding
balance on an annualized basis. The Fund is charged a commitment fee equal to
0.25% per annum of the credit available under the Agreement. The Fund is
required to maintain a ratio of net assets to aggregate amount of indebtedness
of no less than 3 to 1. At June 30, 1994, the Fund had no outstanding
borrowings. During the six months ended June 30, 1994, the Fund had an average
outstanding daily balance of $11,690,000 with interest rates ranging from
3.313%
to 5.750%. Interest expense totalled $330,398 for the six months ended June
30,
1994.
8. SUBSEQUENT EVENT
On July 27, 1994 the Individual General Partners approved an Agreement and
Plan
of Sale and Liquidation (the "Agreement") pursuant to which Smith Barney
Shearson Fundamental Value Fund Inc. ("Fundamental Value") will purchase all
of
the assets and identified liabilities of the Fund. Pursuant to the Agreement,
shareholders of the Fund will receive shares of Fundamental Value equal in
value
to the net asset value of the shares each shareholder currently holds in the
Fund. The consummation of the transaction contemplated by the Agreement is
subject to receipt of approval of the Fund's shareholders and certain other
express conditions.
29
<PAGE>
The Advisors Fund L.P.
- ---------------------------------------------------------------------------
OATH OF THE COMMODITY POOL OPERATORS AUGUST 15,
1994
UNDER REGULATION 4.22(H)(I)
The undersigned hereby certify that, to the best of their knowledge and
belief,
the information contained in The Advisors Fund L.P. Semi-Annual Report dated
June 30, 1994 was accurate and complete as of the date thereof.
Richard P. Roelofs Heath B. McLendon
Chief Executive Officer INDIVIDUAL GENERAL PARTNER
SMITH BARNEY SHEARSON STRATEGY ADVISERS
INC.
30
<PAGE>
The Advisors Fund L.P.
- ---------------------------------------------------------------------------
PARTICIPANTS
DISTRIBUTOR
Smith Barney Inc.
388 Greenwich Street
World Financial Center
New York, New York 10285
INVESTMENT ADVISER
Smith Barney Strategy
Advisers Inc.
Two World Trade Center
New York, New York 10048
ADMINISTRATOR
Smith, Barney Advisers, Inc.
1345 Avenue of the Americas
New York, New York 10105
SUB-ADMINISTRATOR
The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
TRANSFER AGENT
The Shareholder Services
Group, Inc.
Exchange Place
Boston, Massachusetts 02109
AUDITORS AND COUNSEL
Coopers & Lybrand
One Post Office Square
Boston, Massachusetts 02109
Dechert Price & Rhoads
1500 K Street N.W.
Washington, D.C. 20005
CUSTODIAN
Boston Safe Deposit and
Trust Company
One Boston Place
Boston, Massachusetts 02108
31
<PAGE>
The Advisors Fund L.P.
- ---------------------------------------------------------------------------
INVESTOR BENEFITS
AUTOMATIC REINVESTMENT
You may reinvest your dividends and/or capital gains automatically in
additional
shares of your fund at the current net asset value.
UNLIMITED EXCHANGES
If your investment goals change, you may exchange into another Smith Barney
Shearson mutual fund with the same sales charge structure without incurring a
sales charge.*
SYSTEMATIC
INVESTMENT PLAN
This program allows you to invest equal dollar amounts automatically on a
regular basis, monthly or quarterly.
AUTOMATIC CASH
WITHDRAWAL PLAN
With this plan, you may withdraw money on a regular basis while maintaining
your
investment.
MUTUAL FUND
EVALUATION SERVICE
Through your Financial Consultant, you may obtain a free personalized analysis
of how your fund has performed for you, taking into account the effect of
every
transaction. The analysis is based upon month-end data from CDA Investment
Technologies, Inc., a widely recognized mutual fund information service. An
evaluation also gives you other important facts and figures about your
investment.
For more information about these benefits, or if you have any other questions,
please call your Financial Consultant or write:
MUTUAL FUND POLICY GROUP
SMITH BARNEY INC.
388 GREENWICH STREET 37TH FLOOR
NEW YORK, NY 10013
*AFTER WRITTEN NOTIFICATION,
EXCHANGE PRIVILEGE MAY BE
MODIFIED OR TERMINATED AT ANY TIME.
32
<PAGE>
THE
ADVISORS
FUND L.P.
INDIVIDUAL GENERAL PARTNERS
Walter E. Auch, Sr.
Martin Brody
Stephen E. Kaufman
Heath B. McLendon
Madelon DeVoe Talley
THIS REPORT IS SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF
THE
ADVISORS
FUND L.P. IT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS
UNLESS
ACCOMPANIED OR PRECEDED BY AN EFFECTIVE PROSPECTUS FOR THE FUND, WHICH
CONTAINS
INFORMATION CONCERNING THE FUND'S INVESTMENT POLICIES AND APPLICABLE CHARGES,
DISTRIBUTION FEES, RISK OF LOSS AND EXPENSES AS WELL AS OTHER
PERTINENT INFORMATION.
PERFORMANCE CITED IS THROUGH JUNE 30, 1994. PLEASE CONSULT THE SMITH BARNEY
SHEARSON MUTUAL FUNDS QUARTERLY PERFORMANCE UPDATE FOR FIGURES THROUGH THE
MOST
RECENT CALENDAR QUARTER.
[LOGO]
SMITH BARNEY SHEARSON
MUTUAL FUNDS
Two World Trade Center
New York, New York 10048
[LOGO]
Fund 134, 205
FD0610 H4
<PAGE>
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
The information required by this item is incorporated by reference to
"Liability of Directors" under the caption "Comparative Information on
Shareholders' Rights" in Part A of this Registration Statement.
ITEM 16. EXHIBITS
All references are to Registrant's Registration Statement on Form N-1A
(the
"Registration Statement") as filed with the Securities and Exchange Commission
(the "SEC") on March 27, 1981 (File Nos. 2-71469 and 811-3158).
(1) (a) Registrant's Corrected Restated Articles of Incorporation are
incorporated by reference to Post-Effective Amendment No. 18 to
the Registration Statement as filed with the SEC on September
22,
1993 ("Post-Effective Amendment No. 18").
(b) Certificate of Amendment dated August 17, 1993 to the
Registrant's Corrected Restated Articles of Incorporation is
incorporated by reference to Post-Effective Amendment No. 18.
(2) Registrant's Amended and Restated By-Laws are incorporated by
reference to Post-Effective Amendment No. 18.
(3) Inapplicable.
(4) Agreement and Plan of Sale and Liquidation is filed herein as
Exhibit
A to the Registrant's Prospectus/Proxy Statement contained in Part A
of this Registration Statement.
(5) Inapplicable.
(6) Investment Advisory Agreement dated July 30, 1993, between the
Registrant and Smith Barney Shearson Asset Management Division of
Smith, Barney Advisors Inc. is incorporated by reference to Post-
Effective Amendment No. 18.
(7) Distribution Agreement, dated July 30, 1993, between the Registrant
and Smith Barney Shearson Inc. is incorporated by reference to Post-
Effective Amendment No. 18.
<PAGE>
(8) Inapplicable.
(9) Form of Custodian Agreement with Boston Safe Deposit and Trust
Company
is incorporated by reference to Post-Effective Amendment No. 4 to
the
Registration Statement filed with the SEC.
(10) Service and Distribution Plan dated July 30, 1993 between the
Registrant and Smith Barney Shearson Inc. is incorporated by
reference
to Post-Effective Amendment No. 18 to the Registration Statement as
filed with the SEC on September 22, 1993.
(11) Opinion and Consent of Willkie Farr & Gallagher with respect to the
legality of the securities being offered including consent of such
firm (with opinion of Lane Powell Spears & Lubersky attached
thereto).
(12) Inapplicable.
(13) (a) Administration Agreement dated May 21, 1993, between the
Registrant and The Boston Company Advisors, Inc. is
incorporated
by reference to Post-Effective Amendment No. 18.
(b) Form of Transfer Agency Agreement with Boston Safe Deposit and
Trust Company is incorporated by reference to Post-Effective
Amendment No. 4 to the Registration Statement filed with the
SEC.
(c) Consent of Assignment dated March 28, 1989 between the
Registrant
and The Shareholder Services Group Inc. is incorporated by
reference to Post-Effective Amendment No. 18.
(14) (a) Consent of Coopers & Lybrand L.L.P.
(b) Consent of Deloitte & Touche.
(15) Inapplicable.
(16) Inapplicable
(17) Form of Proxy Card.
-2-
<PAGE>
ITEM 17. UNDERTAKINGS
(1) The undersigned registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is part of this registration statement by any
person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act of 1933, as
amended,
the reoffering prospectus will contain the information called
for
by the applicable registration form for reofferings by persons
who may be deemed underwriters, in addition to the information
called for by the other items of the applicable form.
(2) The undersigned registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as part of an
amendment to the registration statement and will not be used
until the amendment is effective, and that, in determining any
liability under the Securities Act of 1933, as amended, each
post-effective amendment shall be deemed to be a new
registration
statement for the securities offered therein, and the offering
of
the securities at that time shall be deemed to be the initial
bona fide offering of them.
-3-
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement
has
been signed on behalf of the Registrant, in the City of New York and State of
New York, on the 31st day of August, 1994.
SMITH BARNEY SHEARSON FUNDAMENTAL
VALUE FUND INC.
By: /s/Heath B. McLendon
---------------------------------
Heath B. McLendon, Chairman of the
Board
As required by the Securities Act of 1933, this Registration Statement
has
been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
/s/Stephen J. Treadway President (Chief August 31, 1994
- ----------------------- Executive Officer)
Stephen J. Treadway
/s/Lewis E. Daidone Treasurer (Chief August 31, 1994
- ----------------------- Financial and
Lewis E. Daidone Accounting Officer)
/s/Lloyd J. Andrews Director August 31, 1994
- -----------------------
Lloyd J. Andrews
/s/Robert M. Frayn, Jr. Director August 31, 1994
- -----------------------
Robert M. Frayn, Jr.
/s/Leon P. Gardner Director August 31, 1994
- ----------------------
Leon P. Gardner
/s/Howard J. Johnson Director August 31, 1994
- ----------------------
Howard J. Johnson
/s/David E. Maryatt Director August 31, 1994
- ----------------------
David E. Maryatt
/s/Heath B. McClendon Director August 31, 1994
- ----------------------
Heath B. McClendon
/s/Frederick O. Paulsell Director August 31, 1994
- ----------------------
Frederick O. Paulsell
/s/ Jerry A. Viscione Director August 31, 1994
- ----------------------
Jerry A. Viscione
/s/Julie W. Weston Director August 31, 1994
- ----------------------
Julie W. Weston
- 2
<PAGE>
As filed with the Securities and Exchange Commission on September 1, 1994
Securities and Exchange Commission
Washington, D.C. 20549
EXHIBITS
TO
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Smith Barney Shearson Fundamental Value Fund Inc.
- ------------------------------------------------------------------------------
- --
Registrant
(212) 464-8068
Two World Trade Center
New York, New York 10048
- ------------------------------------------------------------------------------
- --
Address and Telephone Number of Registrant
<PAGE>
INDEX TO EXHIBITS
Smith Barney Shearson Fundamental Value Fund Inc.
(11) Opinion of Willkie Farr & Gallagher with respect to the
legality
of the securities being offered including consent of such firm
(with opinion of Lane Powell Spears & Lubersky attached
therto).
(14) (a) Consent of Coopers & Lybrand L.L.P.
(b) Consent of Deloitte & Touche
(17) Form of Proxy Card
September 1, 1994
Smith Barney Shearson
Fundamental Value Fund Inc.
Two World Trade Center
New York, New York 10048
Ladies and Gentlemen:
We have acted as counsel for Smith Barney Shearson
Fundamental Value Fund Inc., a Washington corporation (the "Acquiring
Fund"), in connection with the proposed acquisition by the Acquiring
Fund of all or substantially all of the assets and certain identified
liabilities of The Advisors Fund L.P., a Delaware limited partnership
(the "Acquired Fund"), in exchange for shares of Class A and Class B
Common Stock of the Acquiring Fund (collectively, the "Acquiring Fund
Shares"), pursuant to an Agreement and Plan of Reorganization (the
"Agreement") to be executed by the Acquiring Fund and the Acquired Fund.
As counsel for the Acquiring Fund, we have examined the
Acquiring Fund's Registration Statement on Form N-14 substantially in
the form in which it is to become effective (the "Registration
Statement"), the Acquiring Fund's Corrected and Restated Articles of
Incorporation, as amended (the "Articles of Incorporation"), the
Acquiring Fund's Amended and Restated By-Laws and a draft of the
Agreement in the form attached to the Prospectus/Proxy Statement
included in the Registration Statement.
We have also examined and relied upon such corporate records
of the Acquiring Fund and other documents and certificates with respect
to factual matters as we have deemed necessary to render the opinions
expressed herein. We have assumed, with your approval and without
independent verification, the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the
conformity with originals of all documents submitted to us as copies.
We have further assumed with your approval that the Agreement will be
duly executed and delivered in substantially the same form as the draft
submitted to us for review, that upon such execution and delivery the
Agreement will constitute the legal, valid and binding obligation of the
Acquired Fund, that the Acquiring Fund will amend its Articles of
Incorporation to increase the number of authorized Class A Shares as
contemplated in the Acquiring Fund's draft Proxy Statement and that the
number of Acquiring Fund Shares to be issued by the Acquiring Fund and
distributed to shareholders of the Acquired Fund will not exceed the
respective number of Acquiring Fund Shares authorized in the Acquiring
Fund's Articles of Incorporation that are unissued. We further have
assumed with your approval that the consideration received by the
Acquiring Fund for each Acquiring Fund Share to be issued by the
Acquiring Fund pursuant to the Agreement will not be less than the net
asset value per share of the respective class then outstanding. As to
matters of Washington law, we have relied solely on the opinion of Lane
Powell Spears Lubersky with respect to the matters addressed therein,
which is satisfactory to us in form and scope, a copy of which is
annexed hereto.
Based upon the foregoing, we are of the opinion that:
1. The Acquiring Fund is a corporation validly existing and
in good standing under the laws of the State of Washington as of the
date of this opinion, and has the corporate power to own its properties
and assets and to carry on its business as presently conducted.
2. The Acquiring Fund Shares to be issued and delivered to
the Acquired Fund's shareholders as provided by the Agreement have been
duly authorized; upon such delivery the Acquiring Fund Shares will be
validly issued and outstanding and will be fully paid and non-assessable
with no personal liability attaching to ownership thereof under
Washington law; and no shareholder of the Acquiring Fund has any
preemptive rights to subscription or purchase in respect of such
Acquiring Fund Shares.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement, to the references to us in the
Prospectus/Proxy Statement included as part of the Registration
Statement and to the filing of this opinion as an exhibit to any
application made by or on behalf of the Acquiring Fund or any
distributor or dealer in connection with the registration or
qualification of the Acquiring Fund or the Acquiring Fund Shares under
the securities laws of any state or other jurisdiction.
This opinion is furnished by us as counsel to the Acquiring
Fund, is solely for the benefit of the Acquiring Fund and its governing
board in connection with the above described transfer of assets and may
not be relied upon for any other purpose or by any other person.
Very truly yours,
WILLKIE FARR & GALLAGHER
September 1, 1994
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, NY 10022-4677
Re: Smith Barney Shearson Fundamental Value Fund Inc.
Ladies and Gentlemen:
We have acted as special Washington counsel to Smith Barney Shearson
Fundamental Value Fund Inc., a
Washington corporation (the "Acquiring Fund"), in connection
with the acquisition by the Acquiring
Fund of all or substantially all of the assets of The Advisors
Fund L.P., a Delaware limited partnership
("Acquired Fund"), and the assumption by the Acquiring Fund of
certain liabilities of the Acquired
Fund, in exchange for shares of Class A and Class B Common
Stock of the Acquiring Fund (collectively
the "Shares"), pursuant to an Agreement and Plan of Sale and
Liquidation between the Acquiring Fund
and the Acquired Fund ("Agreement"). Capitalized terms that are
not defined in this letter have the
meanings given them in the Agreement.
As special Washington counsel for the Acquiring Fund, we have
examined the Registration Statement on
Form N-14 in the form to be filed with the Securities and
Exchange Commission on or about
September 1, 1994 ("Registration Statement"), the
Acquiring Fund's Corrected and Restated Articles of
Incorporation filed with the Washington Secretary of
State on September 21, 1992, as amended by the
Articles of Amendment filed with the Washington Secretary of
State on August 17, 1993, and the
Articles of Amendment filed with the Washington Secretary of
State on January 13, 1994 (collectively
"Articles of Incorporation"), the Acquiring Fund's Amended
and Restated Bylaws dated as of May 19,
1992 ("Bylaws"), a draft of the Agreement in the form
attached to the Registration Statement, and a draft
of the Acquiring Fund's Proxy Statement with respect to
meetings of shareholder and directors planned
for November 14, 1994 ("Proxy Statement"). We have not
participated in preparation of the Registration
Statement, Proxy Statement, or Agreement, or any other
matters related thereto, except to the extent of
providing this opinion letter and as otherwise set forth herein.
We also have examined and relied with your approval upon
a Certificate of Existence/Authorization of
the Washington Secretary of State dated August 30, 1994,
to the effect that: (i) the Acquiring Fund is
duly incorporated under the laws of the State of Washington;
(ii) all fees and penalties owed to the State
of Washington have been paid, if payment is reflected in the
records of the Secretary of State and
nonpayment affects the existence or authorization of the
Acquiring Fund; (iii) the Acquiring Fund's most
recent annual report (required under the laws of the State
of Washington) has been delivered to the
Secretary of State; (iv) articles of dissolution or an
application for withdrawal have not been filed by the
Secretary of State; and (v) the Acquiring Fund is duly
authorized to transact business in the corporate
form in the State of Washington.
We further have examined and relied with your approval upon
a Certificate of the Assistant Secretary of
the Acquiring Fund (i) certifying the resolutions of the
Board of Directors of the Acquiring Fund
approving the Agreement, authorizing the issuance of the
Shares of Class A and Class B Common Stock
of the Acquiring Fund in accordance with the Agreement,
and other matters regarding the Acquiring
Fund, and (ii) certifying certain actions taken by the
Acquiring Fund, including the execution and
delivery of the Agreement, and the types of properties
and assets presently owned by the Acquiring Fund
and the business presently conducted by the Acquiring Fund.
We have assumed, with your approval and without
independent verification, the genuineness of all
signatures, the authenticity of all documents submitted
to us as originals, and the conformity with
originals of all documents submitted to us as copies.
We also have assumed with your approval that the
Agreement will be duly executed and delivered in substantially
the same form as the draft included in the
Registration Statement and submitted to us for review,
that upon such execution and delivery the
Agreement will constitute the legal, valid and binding
obligation of the Acquired Fund, that the
Acquiring Fund will amend its Articles of Incorporation
to increase the number of authorized Shares of
Class A Common Stock as contemplated in the Acquiring Fund's
draft Proxy Statement, and that the
number of Shares of Class A and Class B Common Stock to be
issued by the Acquiring Fund and
distributed to shareholders of Growth and Opportunity
Fund will not exceed the respective number of
Shares of Class A and Class B Common Stock authorized
in the Acquiring Fund's draft Articles of
Incorporation that are unissued. We further have
assumed with your approval that the consideration
received by the Acquiring Fund for each Share of Class A
and Class B Common Stock to be issued by
the Acquiring Fund pursuant to the Agreement will not be
less than the net asset value per Share of the
Shares of each respective Class then outstanding.
Based on the foregoing, we are of the opinion that:
1. The Acquiring Fund is a corporation validly existing
and in good standing under the
laws of the State of Washington as of the date of this opinion,
and has the corporate power to own its
properties and assets and to carry on its business as presently conducted.
2. The Shares of Class A and Class B Common Stock of the
Acquiring Fund to be issued
and delivered to the Acquired Fund in exchange for all or
substantially all of the assets of the Acquired
Fund as provided in the Agreement have been duly authorized;
upon delivery such Shares will be validly
issued and outstanding and will be fully paid and nonassessable
with no personal liability attaching to
ownership thereof under Washington law; and no shareholder of
the Acquiring Fund has any preemptive
rights to subscription or purchase in respect of such Shares.
We are qualified to practice law in the State of Washington.
This letter expresses our opinion with
respect to the Washington Business Corporation Act
(Title 23B RCW) governing matters such as the
authorization and issuance of shares of stock.
We do not express any opinion with respect to the
securities or "Blue Sky" laws of the State of Washington or
of any other state, nor with respect to federal
securities laws or other laws.
This opinion is given by us as special Washington counsel to
the Acquiring Fund, in connection with the
Registration Statement only, and may not be relied upon
for any other purpose. We consent to the filing
of this opinion as an exhibit to the Registration Statement.
We disclaim any obligation to update this
opinion letter for events occurring after the date hereof.
Very truly yours,
LANE POWELL SPEARS
LUBERSKY
LPSEA1 K:\CG1\DEW\FUND-VAL\16024DEW.LTR
Willkie Farr & Gallagher
September 1, 1994
Page 1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration
Statement on Form N-14 of Smith Barney Shearson Fundamental Value Fund
Inc. of our report dated November 2, 1993, appearing in the annual
report to shareholders for the year ended September 30, 1993, and to
the references to us under the headings "Financial Statements and
Experts" in the Prospectus/Proxy Statement, which is included as part
of such registration statement, and "Financial Highlights" in the
Fund's Prospectus, which is incorporated by reference in such
registration statement.
Deloitte & Touche LLP
Boston, Massachusetts
August 29, 1994
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Smith Barney Shearson Fundamental Value Fund Inc.:
We hereby consent to the following with respect to the
Registration Statement on Form N-14 (the "Registration
Statement") under the Securities Act of 1933, as amended, of
Smith Barney Shearson Fundamental Value Fund Inc.:
1. The incorporation by reference of our report dated February
16, 1994 on our audit of the financial statements and financial
highlights of The Advisors Fund L.P., as of December 31, 1993,
which is included in the Annual Report dated December 31, 1993.
2. The reference to our firm under the heading "Financial
Statements and Experts" in the Registration Statement.
3. The reference to our firm under the heading "Financial
Highlights" in the Prospectus dated March 1, 1994 of The
Advisors Fund L.P., which is incorporated by reference in the
Registration Statement.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
September 1, 1994
