As filed with the Securities and Exchange Commission on March 1, 1994
Registration No. 33-18584
811-5391
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 11 X
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 15 X
THE ADVISORS FUND L.P.
(Exact name of Registrant as Specified in Charter)
Two World Trade Center, 100th Floor, New York, New York 10048
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
(212) 720-9218
Francis J. McNamara, III
The Advisors Fund L.P.
Exchange Place
P.O. Box 2145
Boston, Massachusetts 02109
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering:
As soon as possible after this Post-Effective Amendment
becomes effective.
It is proposed that this filing will become effective:
X immediately upon filing pursuant to Rule 485(b)
on_____________ pursuant to Rule 485(b)
60 days after filing pursuant to Rule 485(a)
on pursuant to Rule 485(a)
The Registrant has previously filed a declaration of indefinite
registration of its shares pursuant to Rule 24f-2 under the Investment Company
Act of 1940. Registrant's Rule 24f-2 Notice for the fiscal year ending
December 31, 1993 was filed on February 28, 1994.
Total number of pages . Exhibit Index appears on page ____.
CALCULATION OF REGISTRATION FEE
UNDER THE SECURITIES ACT OF 1933 (1)
______________________________________________________________________________
Title of Securities
Being Registered
Amount Being
Registered
Proposed
Maximum
Offering
Price Per
Unit (2)
Proposed
Maximum
Aggregate
Offering Price
(3)
Amount of
Registrati
on Fee
Class A Shares of
Partnership Interest, no
par value per share, of
The Advisors Fund L.P.
32,113.45
$27.65
$320,000
$100
(1) The shares being registered as set forth in this table are in addition
to the indefinite number of shares of partnership interest which Registrant
has registered under the Securities Act of 1933, as amended ("1933 Act"),
pursuant to Rule 24f-2 under the Investment Company Actof 1940, as amended
("1940 Act"). Registrant's Rule 24f-2 Notice for its fiscal year ended
December 31, 1993 was filed on February 28, 1994.
(2) Based on the Registrant's closing price of $27.65 on February 18, 1994
pursuant to Rule 457 (d) under the 1933 Act and Rule 24e-2(a) under the 1940
Act.
(3) In response to Rule 24e-2(b) under the 1940 Act: (1) the calculation of
the maximum aggregate offering price is made pursuant to Rule 24e-2; (2)
1,154,680 shares of common stock were redeemed by the Registrant during the
fiscal year ended December 31, 1992; (3) 266,743 shares have been used for
reductions pursuant to Rule 24f-2 during the current fiscal year and (4)
887,937 shares are being used for reduction in this amendment pursuant to Rule
24e-2(a).
________________________________
THE ADVISORS FUND L.P.
FORM N-1A
Cross-Reference Sheet
Pursuant to Rule 485(a)
Part A.
Item No. Prospectus Caption
1. Cover Page Cover Page
2. Synopsis Prospectus Summary; The Fund's Expenses
3. Condensed Financial Financial Highlights
Information
4. General Description of Cover Page; Prospectus
Registrant Summary; Investment
Objective and
Policies;Additional Information
5. Management of the Fund Cover Page; Prospectus Summary;
Management of the Fund;
Allocation of the Fund's Assets;
Additional Information
6. Management Discussion of Fund's Not Applicable
Performance
7. Capital Stock and Other Securities Prospectus Summary;
Redemption of Shares; Exchange Privilege; Allocations and
Distributions; Taxation; Additional Information
8. Purchase of Securities Purchase of Shares;
Being Offered Net Asset Value
9. Redemption or Repurchase Redemption of Shares; Net Asset
Value
10. Pending Legal Proceedings Not Applicable
Part B Caption in Statement of Additional Information
Item No.
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information Management of the Fund
and History
13. Investment Objectives and Policies Policies
14. Management of the Registrant Management of the Fund
15. Control Persons and Management of the Fund
Principal Holders
of Securities
16. Investment Advisory Management of the Fund;
and Other Services;Custodian and
Transfer Agent
17. Brokerage Allocation The Fund's Portfolio Transactions and
Brokerage
18. Capital Stock and Taxation; Appendix B -
Other Securities Text of Amended and
Restated Agreement of Limited
Partnership
19. Purchase, Redemption and Purchase of Shares;
Pricing of Securities Being Redemption of Shares;
Offered Net Asset Value
20. Tax Status Taxation
21. Underwriters Purchase of Shares
22. Calculation of Determination of Performance Data
Performance
23. Financial Statements Financial Statements
<PAGE>
MARCH 1, 1994
THE
ADVISORS
FUND L.P.
PROSPECTUS BEGINS
ON PAGE ONE.
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.
- ---------------------------------------------------------------------------
PROSPECTUS March 1, 1994
Two World Trade Center
New York, New York 10048
(212) 720-9218
The Advisors Fund L.P. (the "Fund") is a limited partnership that is an
open-end, non-diversified management investment company (mutual fund). The
investment objective of the Fund is to maximize total return. Under normal
circumstances, the Fund seeks to achieve its objective by investing 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. Equity securities for purposes of this
requirement are defined as common stocks and warrants of domestic issuers. In
addition, the Fund may invest on an aggregate basis no more than 10% of its
total assets in debt securities (other than money market instruments), preferred
stocks, convertible securities, interest rate futures and options on interest
rate futures. The Fund also may invest in equity securities of foreign issuers
and money market instruments. The Fund may hedge its securities investments by
entering into transactions involving financial futures and options on financial
futures. The Fund may also enter into transactions involving certain financial
futures and options thereon for purposes other than hedging.
In seeking to maximize total return, the Fund employs an investment management
approach whereby the Fund's assets are allocated among several portfolio
managers. Each of the portfolio managers manages a portion of the Fund's assets
which are allocated to it in accordance with the Fund's investment objective and
policies. The Fund's objective and policies allow the portfolio managers to
engage in a greater number of transactions and strategies than those in which a
typical mutual fund may engage. Accordingly, investment in the Fund may expose
an investor to a higher rate of risk (and a potentially higher rate of return)
than most other mutual funds. See "Risk Considerations." Smith Barney Shearson
Strategy Advisers Inc. ("Strategy Advisers"), a wholly owned subsidiary of
Smith, Barney Advisers, Inc. ("SBA") allocates the Fund's assets among the
portfolio managers listed below (some of whom also act as commodity trading
advisors for the Fund). Strategy Advisers, with the assistance of Tremont
Partners, Inc. ("Tremont"), monitors and evaluates the performance of the
portfolio managers and on the basis of such evaluations allocates the Fund's
assets. The Boston Company Advisors, Inc. ("Boston Advisors") serves as the
Fund's administrator.
1
<PAGE>
THE ADVISORS FUND L.P.
This Prospectus, which also serves as a disclosure document under the
Commodity Exchange Act (the "CEA"), describes concisely certain information
about the Fund, including sales charges, distribution fee and expenses, that
prospective investors should know before investing. Investors are encouraged to
read this Prospectus carefully and to retain it for future reference.
Additional information about the Fund is contained in a Statement of
Additional Information dated March 1, 1994, as amended or supplemented from time
to time, which is available upon request without charge by calling or writing
the Fund at the telephone number or address set forth above or by contacting any
Smith Barney Shearson Financial Consultant. The Statement of Additional
Information has been filed with the Securities and Exchange Commission (the
"SEC") and is incorporated by reference into this Prospectus in its entirety.
The minimum initial investment is $25,000 and subsequent investments must be
at least $1,000. Investors in the Fund are required to have a minimum net worth,
exclusive of home, home furnishings and automobiles, of $250,000.
The Fund is designed for investors who do not require regular current income
and who can accept a high degree of risk in their investments and, therefore,
the Fund can be regarded as speculative. Shares of the Fund are not offered to
certain foreign persons and tax-exempt organizations. See "Purchase of Shares."
SMITH BARNEY SHEARSON STRATEGY ADVISERS INC.
Investment Adviser
ARDSLEY ADVISORY PARTNERS
HELLMAN, JORDAN MANAGEMENT CO., INC.
MARK ASSET MANAGEMENT CORPORATION
WOODWARD & ASSOCIATES INC.
Portfolio Managers
SMITH BARNEY SHEARSON INC.
Distributor
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A
CRIMINAL OFFENSE.
2
<PAGE>
THE ADVISORS FUND L.P.
THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON
THE MERITS OF
PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED UPON THE
ADEQUACY OR
ACCURACY OF THIS DISCLOSURE DOCUMENT.
THE FUND IS A COMMODITY POOL AS DEFINED BY COMMODITY FUTURES
TRADING COMMISSION
REGULATIONS. CONSEQUENTLY, THE FOLLOWING RISK DISCLOSURE
STATEMENTS MUST BE
INCLUDED IN THIS PROSPECTUS AND DISCLOSURE DOCUMENT.
RISK DISCLOSURE STATEMENT
YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION
PERMITS YOU TO
PARTICIPATE IN A COMMODITY POOL. YOU MAY LOSE A SUBSTANTIAL
PORTION OR EVEN ALL
OF THE MONEY YOU PLACE IN THE POOL.
IN CONSIDERING WHETHER TO PARTICIPATE IN A COMMODITY POOL, YOU
SHOULD BE AWARE
THAT TRADING COMMODITIES CAN QUICKLY LEAD TO LARGE LOSSES AS
WELL AS GAINS. SUCH
TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL
AND
CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. ALSO, MARKET
CONDITIONS MAY
MAKE IT DIFFICULT OR IMPOSSIBLE FOR THE POOL TO LIQUIDATE A POSITION.
IN SOME CASES, COMMODITY POOLS ARE SUBJECT TO SUBSTANTIAL CHARGES
FOR
MANAGEMENT, ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR
THOSE POOLS
THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING
PROFITS TO AVOID
DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT
CONTAINS A
COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED TO THIS POOL.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER
SIGNIFICANT ASPECTS
OF PARTICIPATING IN A COMMODITY POOL. YOU SHOULD THEREFORE
CAREFULLY STUDY THIS
DISCLOSURE DOCUMENT AND COMMODITY TRADING BEFORE YOU DECIDE TO
PARTICIPATE IN A
COMMODITY POOL.
3
<PAGE>
THE ADVISORS FUND L.P.
FOREIGN FUTURES AND FOREIGN OPTIONS
RISK DISCLOSURE STATEMENT
THE RISK OF LOSS IN TRADING FOREIGN FUTURES AND FOREIGN OPTIONS CAN
BE
SUBSTANTIAL. THEREFORE, YOU SHOULD CAREFULLY CONSIDER WHETHER
SUCH TRADING IS
SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. IN
CONSIDERING WHETHER TO
TRADE FOREIGN FUTURES OR FOREIGN OPTIONS, YOU SHOULD BE AWARE OF
THE FOLLOWING:
(1) PARTICIPATION IN FOREIGN FUTURES AND FOREIGN OPTIONS
TRANSACTIONS
INVOLVES THE EXECUTION AND CLEARING OF TRADES ON OR SUBJECT TO
THE RULES OF A
FOREIGN BOARD OF TRADE.
(2) NEITHER THE COMMODITY FUTURES TRADING COMMISSION, THE
NATIONAL FUTURES
ASSOCIATION NOR ANY DOMESTIC EXCHANGE REGULATES ACTIVITIES OF
ANY FOREIGN
BOARDS OF TRADE, INCLUDING THE EXECUTION, DELIVERY AND CLEARING
OF
TRANSACTIONS, OR HAS THE POWER TO COMPEL ENFORCEMENT OF THE
RULES OF A
FOREIGN BOARD OF TRADE OR ANY APPLICABLE FOREIGN LAWS.
GENERALLY, THE FOREIGN
TRANSACTION WILL BE GOVERNED BY APPLICABLE FOREIGN LAW. THIS IS
TRUE EVEN IF
THE EXCHANGE IS FORMALLY LINKED TO A DOMESTIC MARKET SO THAT A
POSITION TAKEN
ON THE MARKET MAY BE LIQUIDATED BY A TRANSACTION ON ANOTHER
MARKET. MOREOVER,
SUCH LAWS OR REGULATIONS WILL VARY DEPENDING ON THE FOREIGN
COUNTRY IN WHICH
THE FOREIGN FUTURES OR FOREIGN OPTIONS TRANSACTION OCCURS.
(3) FOR THESE REASONS, CUSTOMERS WHO TRADE FOREIGN FUTURES OR
FOREIGN
OPTIONS CONTRACTS MAY NOT BE AFFORDED CERTAIN OF THE PROTECTIVE
MEASURES
PROVIDED BY THE COMMODITY EXCHANGE ACT, THE COMMISSION'S
REGULATIONS AND THE
RULES OF THE NATIONAL FUTURES ASSOCIATION AND ANY DOMESTIC
EXCHANGE,
INCLUDING THE RIGHT TO USE REPARATIONS PROCEEDINGS BEFORE THE
COMMISSION AND
ARBITRATION PROCEEDINGS PROVIDED BY THE NATIONAL FUTURES
ASSOCIATION OR ANY
DOMESTIC FUTURES EXCHANGE. IN PARTICULAR, FUNDS RECEIVED FROM
CUSTOMERS FOR
FOREIGN FUTURES OR FOREIGN OPTIONS TRANSACTIONS MAY NOT BE
PROVIDED THE SAME
PROTECTIONS AS FUNDS RECEIVED IN RESPECT OF TRANSACTIONS ON
UNITED STATES
FUTURES EXCHANGES. THEREFORE, YOU SHOULD OBTAIN AS MUCH
INFORMATION AS
POSSIBLE FROM YOUR FINANCIAL CONSULTANT CONCERNING THE FOREIGN
RULES WHICH
WILL APPLY TO YOUR PARTICULAR TRANSACTIONS.
(4) YOU SHOULD ALSO BE AWARE THAT THE PRICE OF ANY FOREIGN
FUTURES OR
FOREIGN OPTIONS CONTRACT AND, THEREFORE, THE POTENTIAL PROFIT
AND LOSS
THEREON, MAY BE AFFECTED BY ANY VARIANCE IN THE FOREIGN
EXCHANGE RATE BETWEEN
THE TIME YOUR ORDER IS PLACED AND THE TIME IT IS LIQUIDATED, OFFSET
OR
EXERCISED.
4
<PAGE>
THE ADVISORS FUND L.P.
- ---------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 7
--------------------------------------------------------------------
THE FUND'S EXPENSES 11
--------------------------------------------------------------------
FINANCIAL HIGHLIGHTS 14
--------------------------------------------------------------------
ALLOCATION OF THE FUND'S ASSETS 16
--------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 17
--------------------------------------------------------------------
THE FUND'S PORTFOLIO TRANSACTIONS AND BROKERAGE 31
--------------------------------------------------------------------
RISK FACTORS AND SPECIAL CONSIDERATIONS 32
--------------------------------------------------------------------
MANAGEMENT OF THE FUND 38
--------------------------------------------------------------------
PURCHASE OF SHARES 52
--------------------------------------------------------------------
REDEMPTION OF SHARES 56
--------------------------------------------------------------------
EXCHANGE PRIVILEGE 64
--------------------------------------------------------------------
NET ASSET VALUE 70
--------------------------------------------------------------------
ALLOCATIONS AND DISTRIBUTIONS 72
--------------------------------------------------------------------
TAXATION 73
--------------------------------------------------------------------
THE FUND'S PERFORMANCE 76
--------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT 78
--------------------------------------------------------------------
ADDITIONAL INFORMATION 78
--------------------------------------------------------------------
</TABLE>
5
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<S> <C>
APPENDIX I: INFORMATION REGARDING SMITH BARNEY
SHEARSON STRATEGY ADVISERS INC. I-1
--------------------------------------------------------------------
APPENDIX II: INFORMATION REGARDING ARDSLEY
ADVISORY PARTNERS II-1
--------------------------------------------------------------------
APPENDIX III: INFORMATION REGARDING HELLMAN, JORDAN
MANAGEMENT, CO., INC. III-1
--------------------------------------------------------------------
APPENDIX IV: SUMMARY OF THE PARTNERSHIP AGREEMENT IV-1
--------------------------------------------------------------------
EXHIBIT A: SUBSCRIPTION AGREEMENT AND
SIGNATURE PAGE A-1
--------------------------------------------------------------------
</TABLE>
6
<PAGE>
THE ADVISORS FUND L.P.
- ---------------------------------------------------------------------------
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE
DETAILED
INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS AND IN THE
STATEMENT OF
ADDITIONAL INFORMATION.
THE FUND The Fund is an open-end, non-diversified management investment company
formed as a limited partnership under Delaware law. The investment objective of
the Fund is to maximize total return. The Fund seeks to achieve its objective by
utilizing several portfolio managers to manage the Fund's assets. Under normal
circumstances 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 and options thereon. Equity
securities for purposes of this requirement are defined as common stocks and
warrants of domestic issuers. In addition, the Fund may invest on an aggregate
basis no more than 10% of its total assets in debt securities (other than money
market instruments), preferred stocks, convertible securities, interest rate
futures and options on interest rate futures. The Fund also may invest in equity
securities of foreign issuers, various types of options and money market
instruments. 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. See "Investment
Objective and Policies."
PURCHASE OF SHARES The Fund offers the general public one class of shares
representing limited partnership interests of the Fund (Class A Shares). Class A
shares are sold at a price equal to the next determined net asset value per
share subject to payment of a maximum initial sales charge of 5.0% imposed at
the time of purchase. The Fund pays its distributor an annual service fee of
0.25% of the value of the average daily net assets of this Class. See "Purchase
of Shares."
During the period from June 1, 1993 through September 16, 1993, the Fund
offered a second class of shares subject to a contingent deferred sales charge
("CDSC"). Shares of this second class (Class B shares) remain outstanding and
the Fund pays its distributor an annual service fee of 0.25% and an annual
distribution fee of 0.75% of the value of average daily net assets of Class B
shares. Class B shares are eligible for conversion to Class A shares following
the eighth anniversary of their purchase.
7
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
Upon conversion, these shares will no longer be subject to an annual
distribution fee, but will be subject to a service fee applicable to Class A
shares. See "Redemption of Shares."
The minimum initial investment in the Fund is $25,000, and subsequent
investments must be at least $1,000, although the minimum initial investment is
$10,000 for officers and directors of Smith Barney Shearson Inc. ("Smith Barney
Shearson"), Tremont and each of the portfolio managers and for Smith Barney
Shearson Financial Consultants. Each investor in the Fund is required to have a
minimum net worth, exclusive of home, home furnishings, and automobiles, of at
least $250,000, although officers and directors of Smith Barney Shearson,
Tremont and each of the portfolio managers and Smith Barney Shearson Financial
Consultants may invest in the Fund without meeting this requirement. Purchases
of shares must be made through a brokerage account maintained with Smith Barney
Shearson, or a broker that clears securities transactions through Smith Barney
Shearson on a fully disclosed basis (an "Introducing Broker"), and payment must
be made directly to Smith Barney Shearson or an Introducing Broker. See
"Purchase of Shares."
ALLOCATIONS AND DISTRIBUTIONS It is anticipated that the Fund will be treated as
a partnership for Federal income tax purposes through 1997. During the period in
which the Fund qualifies for tax treatment as a partnership, holders of shares
("Shareholders") in the Fund will be required to take into account on their
Federal income tax returns (and possibly on other tax returns) their share of
the Fund's income, gains, losses, deductions and credits, regardless of whether
distributions are made by the Fund.
REDEMPTIONS Shares may be redeemed on any day on which the Fund calculates its
net asset value. Class A shares are redeemable at net asset value and Class B
shares are redeemable at net asset value less any applicable CDSC. Shares may be
redeemed automatically by the Fund in certain instances. See "Redemption of
Shares."
MANAGEMENT SERVICES Strategy Advisers serves as the Fund's investment adviser
and in that capacity allocates the Fund's assets among various portfolio
managers and monitors and evaluates the performance of the
8
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
portfolio managers. The Fund's portfolio managers (collectively, the "Portfolio
Managers") are: Ardsley Advisory Partners; Hellman, Jordan Management Co., Inc.;
Mark Asset Management Corporation; and Woodward & Associates Inc. The Portfolio
Managers invest the assets allocated to them in accordance with the Fund's
investment objective and policies.
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), the monthly advisory fee would be 0%
per annum of the value of the Fund's average daily net assets. 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.
Tremont assists Strategy Advisers in monitoring and evaluating the performance
of the Portfolio Managers and provides Strategy Advisers with research services
and reports relating to the allocation of assets among the
9
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
Portfolio Managers. Strategy Advisers pays Tremont a fee for its services, which
equals 20% of the value of any advisory fees retained by Strategy Advisers.
Boston Advisors serves as administrator to the Fund. In this capacity, Boston
Advisors calculates the net asset value of the Fund's shares, and generally
assists in all aspects of the Fund's administration and operations. The Fund
pays Boston Advisors a fee at an annual rate of 0.25% of the value of the Fund's
average daily net assets.
The aggregate amount of fees paid by the Fund for advisory and administrative
services, depending on the performance of the Class B shares of the Fund (net of
expenses allocable to such Class B shares) relative to the S&P 500, are higher
than fees paid by most other investment companies for such services; however, if
the Class B shares of the Fund underperform the S&P 500 on a rolling twelve
calendar month basis, the advisory and administrative fees paid by the Fund may
be less than those paid by other investment companies.
ALLOCATION OF THE FUND'S ASSETS The Fund's assets are allocated among the
Portfolio Managers at the discretion of Strategy Advisers. Strategy Advisers
bases its allocation of the Fund's assets on various factors including the size
of the Fund, the performance of the Portfolio Managers, the investment
philosophy of the Portfolio Managers, economic and market conditions, the
Portfolio Managers' ability to take on additional assets for management, and
purchases and redemptions of the Fund's shares. Additionally, Strategy Advisers
is free to allocate the Fund's assets to the Portfolio Managers such that, at
any point in time, one or more of the Portfolio Managers may not be managing any
of the Fund's assets. While the asset allocation is reviewed periodically,
reallocations may be made at any time by Strategy Advisers. Subject to each
Portfolio Manager's ability to take on additional assets for management, new
monies generally are allocated according to the proportion of the Fund's assets
under management by that Portfolio Manager. Similarly, assets withdrawn from the
Fund through redemptions generally are withdrawn from the Portfolio Managers
according to this proportion. In certain instances, Strategy Advisers may
maintain some amount of the Fund's assets in cash or money market instruments in
order to minimize the disruption caused by daily inflows to and outflows from
the Fund. Tremont assists Strategy Advisers in monitoring and evaluating the
10
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
Portfolio Managers and provides Strategy Advisers with research services and
reports relating to the allocation of assets among the Fund's Portfolio
Managers.
RISK FACTORS AND SPECIAL CONSIDERATIONS Investment in the Fund involves a
high
degree of risk and can be regarded as speculative. The Fund is designed for
investors who do not require regular current income and who can accept a high
degree of risk in their investments. A predominant component of the Fund's total
return is appreciation (or depreciation) in the value of the Fund's assets. In
seeking to achieve its investment objective, the Fund may experience portfolio
turnover and transaction costs significantly exceeding those of other equity or
fixed-income mutual funds.
Foreign securities in which the Fund may invest involve certain considerations
not typically associated with securities of domestic issuers. The Fund may
invest in options, which involve certain risks. The Fund has the authority to
trade and to speculate in financial futures (rather than a limited ability to
use financial futures for hedging purposes), which will subject the Fund to
substantial risks. The Fund may also use investment techniques, including entry
into short sales and repurchase agreements, that involve certain risks. The Fund
also may borrow money for investment purposes, which will have the effect of
leveraging the Fund's portfolio.
Investment in the Fund, which is classified as a non-diversified investment
company, may present a greater risk than an investment in a diversified company.
In any given year, the taxes payable by a Shareholder on his portion of the
Fund's income may exceed the cash distributions received by the Shareholder from
the Fund. See "Risk Factors and Special Considerations."
- --------------------------------------------------------------------
THE FUND'S EXPENSES
The following table lists the costs and expenses that an investor will incur
directly or indirectly as a Shareholder in the Fund, based upon the
11
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
THE FUND'S EXPENSES (CONTINUED)
maximum sales charge and maximum CDSC that may be incurred at the time of
purchase or redemption, respectively, and an estimate of the Fund's operating
expenses:
<TABLE>
<CAPTION>
CLASS A CLASS B
<S> <C> <C>
-----------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of original purchase price) 5.00% --
Maximum CDSC (as a percentage of redemption
proceeds) -- 5.00%
-----------------------------------------------------------------------------
ANNUAL FUND EXPENSES
(as a percentage of average net assets)
Management fees 2.38% 2.38%
Service fee 0.25% 0.25%
Distribution fees** -- 0.75%
Other expenses+ 1.91% 1.91%
-----------------------------------------------------------------------------
TOTAL FUND EXPENSES 4.54% 5.29%
-----------------------------------------------------------------------------
<FN>
*The fee payable by the Fund to Strategy Advisers is adjusted with reference
to the performance of the Class B shares (less expenses allocable to the
Class B shares) as compared to that of the S&P 500. This incentive fee may
increase or decrease the fee payable to Strategy Advisers by up to 2.0% per
annum of the value of the Fund's average daily net assets, resulting in a
fee from 0.0% to 4.0% per annum. See "Management of the Fund -- Investment
Adviser and Advisory Fees."
**Upon conversion, Class B shares will no longer be subject to a distribution
fee.
+All expenses are based on data for the Fund's fiscal year ended December
31, 1993. For Class B shares, "Other Expenses" have been annualized.
</TABLE>
The sales charge and CDSC set forth in the above table are the maximum charges
imposed on purchases and redemptions of Fund shares, and Shareholders may pay
actual charges less than 5.0% depending on the amount purchased, and in the case
of Class B shares, the length of time the shares are held. See "Purchase of
Shares" and "Redemption of Shares." Management fees paid by the Fund include
investment advisory fees paid to Strategy Advisers in an amount up to 4.0% per
annum of the value of the Fund's average daily net assets (fees paid to the
Portfolio Managers are paid by Strategy Advisers) and an administration fee paid
to Boston Advisors in an amount equal to 0.25% of the value of the Fund's
average daily net assets on an annual basis. Each Class of shares pays Smith
Barney Shearson an annual service fee of 0.25% of the value of the average daily
net assets of the respective Class. Class B also pays Smith Barney Shearson an
annual
12
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
THE FUND'S EXPENSES (CONTINUED)
distribution fee of 0.75% of the average daily net assets of the Class. The
nature of the services for which the Fund pays management fees is described
under "Management of the Fund." "Other expenses" in the above table include fees
for shareholder services, custodial fees, legal and accounting fees,
organization expenses, printing costs and registration fees. Because of the
Fund's unique structure and operating policies, the Fund incurred organization
expenses that a typical mutual fund would not incur. See "Additional
Information."
EXAMPLE*
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical $1000 investment in the Fund. These amounts are based upon (a)
assumption of a 5% total return and (b) payment by the Fund of operating
expenses at the levels set forth in the table above:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS+
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------
Class A shares** $ 93 $ 180 $ 268 $ 491
Class B shares:
Assumes complete redemption at end
of each time period*** 103 188 273 521
Assumes no redemption 53 158 263 521
--------------------------------------------------------------------------------
<FN>
*This example assumes payment by the Fund of operating expenses at the levels
set forth in the above table. This example should not be considered a
representation of past or future expenses and actual expenses may be greater
or less than those shown. Moreover, while this example assumes a 5% annual
return, the Fund's actual performance will vary and may result in an actual
return greater or less than 5%.
**Assumes deduction at the time of purchase of the maximum 5% sales charge.
***Assumes deduction at the time of redemption of the maximum CDSC applicable
for that time period.
+Ten-year figures assume conversion of Class B shares to Class A shares at the
end of the eighth year following the date of purchase.
</TABLE>
13
<PAGE>
THE ADVISORS FUND L.P.
- --------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
THE FOLLOWING TABLE OF INFORMATION FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1993,
HAS BEEN EXAMINED BY COOPERS & LYBRAND, INDEPENDENT
ACCOUNTANTS, WHOSE REPORT
THEREON APPEARS IN THE FUND'S ANNUAL REPORT DATED DECEMBER 31,
1993. THIS
INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND
RELATED NOTES THERETO ALSO INCLUDED IN THE FUND'S ANNUAL REPORT,
WHICH IS
INCORPORATED BY REFERENCE INTO THE STATEMENT OF ADDITIONAL
INFORMATION.
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+++(a) 4.81% 10.77% 37.29% (7.35)%
- -------------------------------------------------------------------------------------
Ratio 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 expense ratio includes interest expense. The annualized ratio excluding
interest
expense was 3.54%, 2.28%, 3.60% and 2.99% for the fiscal 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 charge.
</TABLE>
14
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
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
- ---------------------------------------------------
Income from investment operations:
Net investment loss (0.53)
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 expense ratio includes interest
expense. The annualized ratio excluding interest
expense was 4.29% for the fiscal year ended
December 31, 1993.
+Annualized.
++Per share amounts have been calculated using the
monthly average share method which more
approriately 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 sales charge.
</TABLE>
15
<PAGE>
THE ADVISORS FUND L.P.
- --------------------------------------------------------------------
ALLOCATION OF THE FUND'S ASSETS
In seeking to achieve the Fund's investment objective, the Fund employs an
investment management approach whereby the Fund's assets are allocated among the
Portfolio Managers at the discretion of Strategy Advisers. Strategy Advisers
bases its allocation of the Fund's assets on various factors, including the size
of the Fund, performance of the Portfolio Managers, investment philosophy of the
Portfolio Managers, economic and market conditions, the Portfolio Managers'
ability to take on additional assets for management, and purchases and
redemptions of Fund shares. Strategy Advisers is free to allocate the Fund's
assets among the Portfolio Managers in any amount such that, at any point in
time, one or more of the Portfolio Managers may not be managing any of the
Fund's assets. On a formal basis, Strategy Advisers reviews the allocation of
the Fund's assets at least quarterly, although reallocations may be made at any
time by Strategy Advisers. Although the Portfolio Managers are subject to
general oversight by Strategy Advisers, Strategy Advisers does not evaluate the
investment merits of the Portfolio Managers' individual investment decisions.
Subject to each Portfolio Manager's ability to take on additional assets, new
money invested in the Fund generally is allocated according to the proportion of
the Fund's assets under management by that Portfolio Manager. Similarly, assets
withdrawn from the Fund through redemptions generally are withdrawn from the
Portfolio Managers according to this proportion.
The Portfolio Managers may be required to invest some part of the Fund's
assets in cash or money market instruments so as to meet the Fund's obligations
with respect to daily redemptions of Fund shares and to cover expenses for
day-to-day operating purposes.
Each of the Portfolio Managers has its own investment philosophy and
investment style. The Portfolio Managers may employ various analytical tools,
including, among others, relative valuation techniques, evaluation of
fundamental company and industry attributes and of technical security and market
characteristics, macroeconomic estimates and risk analysis. The segment of the
Fund managed by a Portfolio Manager may differ from the segments managed by the
Fund's other Portfolio Managers with respect to portfolio concentrations,
turnover, company capitalization, company financial condition and allocations of
assets among types of securities or other investments. Strategy Advisers
believes that using several portfolio managers
16
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
ALLOCATION OF THE FUND'S ASSETS (CONTINUED)
to manage segments of the Fund's portfolio, thereby blending the investment
styles of various portfolio managers, has the potential for obtaining
consistently higher returns over longer time periods than employing a single
portfolio manager.
- --------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks to maximize total return. Total return consists of interest and
dividends from underlying securities, capital appreciation realized from the
purchase and sale of securities and income from futures and options. This
investment objective may be changed only with the approval of the holders of a
majority of the Fund's outstanding shares. No assurance can be given that the
Fund will be able to achieve its objective.
In seeking to maximize total return, the Portfolio Managers will, under normal
conditions, invest at least 70% of the Fund's total assets in long and short
positions in domestic equity securities and options on such securities, options
on certain stock indexes and in stock index futures contracts and options
thereon. Equity securities for purposes of this requirement are defined as
common stocks and warrants of domestic issuers. The Portfolio Managers also have
the ability to invest the Fund's assets in the following other types of
investments: preferred stocks, convertible securities, bonds, debentures and
notes of domestic and foreign issuers; other financial futures and options on
such financial futures; forward foreign currency contracts; and repurchase
agreements and domestic money market instruments. Certain Portfolio Managers
noted below currently do not anticipate engaging in transactions involving
futures contracts or options thereon. The Fund may invest on an aggregate basis
no more than 10% of its total assets in debt securities (other than money market
instruments), preferred stocks, convertible securities, interest rate futures
and options on interest rate futures. The Fund also limits, to 10% of total
assets on an aggregate basis, its investments in equity securities of foreign
issuers; debt securities of foreign issuers; options on foreign stocks and
foreign securities indexes; financial futures on and options on financial
futures on foreign securities indexes, foreign government securities and foreign
currencies; forward contracts for the purchase or sale of foreign currencies;
and foreign money market instruments. To the extent that fixed income securities
produce a higher total
17
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES (CONTINUED)
return than equity securities during certain periods, the Fund's policy of
investing at least 70% of its total assets in equity securities and equity-
related options and futures could limit the Fund's ability to maximize total
return.
EQUITY SECURITIES
The Portfolio Managers will invest the Fund's assets in common stocks,
preferred stocks or securities convertible into or exchangeable for common
stocks, I.E., convertible preferred stock, convertible debentures or warrants
which are believed to have above-average potential for total return. A Portfolio
Manager's investment decision may be based on the fundamental value of a
particular security, technical considerations or market momentum. Along with
investments in large, well-capitalized companies, the Fund may invest in
secondary companies that have yet to reach a fully mature state of earnings
growth, I.E., emerging growth companies. Such secondary companies consist of
small to medium-sized companies that generally have market capitalizations under
$500 million.
The Fund generally invests in U.S. equity securities that are listed on
securities exchanges or in unlisted securities that are quoted on the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ"). Foreign securities in which the Fund may invest may
be listed on foreign securities exchanges or traded in the over-the-counter
markets. Additionally, the Fund may purchase American Depositary Receipts
("ADRs"), which are dollar-denominated receipts issued generally by domestic
banks and 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.
DEBT SECURITIES
The Fund typically will purchase a debt security if a Portfolio Manager
believes that the yield and potential for capital appreciation of the security
are sufficiently attractive in light of the risks of ownership of the security.
In determining whether the Fund should invest in particular debt securities, a
Portfolio Manager considers factors such as the price, coupon and yield to
maturity; credit quality of the issuer; the issuer's available cash flow and the
related coverage ratios; the property, if any, securing the obligation; and the
18
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES (CONTINUED)
terms of the debt securities, including the subordination, default, sinking fund
and early redemption provisions. The Portfolio Manager also reviews the ratings,
if any, assigned to the securities by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Corporation ("S&P"), or other recognized rating
agencies. The Portfolio Manager's judgment as to credit quality of a debt
security may differ, however, from that suggested by the ratings published by a
rating service. A complete description of Moody's and S&P's ratings is set out
as Appendix A to the Statement of Additional Information.
The Fund will invest no more than 5% of its assets in debt securities rated
less than Baa by Moody's or BBB by S&P or, if unrated, of equivalent quality in
the view of the Portfolio Manager. This percentage limitation applies only at
the time of purchase and the Fund is not required to dispose of a debt security
if down-graded by a rating service. Debt securities which are rated Baa by
Moody's are considered medium grade obligations, I.E., they are neither highly
protected nor poorly secured. Such bonds lack outstanding investment
characteristics and have speculative characteristics as well, according to
Moody's. Debt securities rated BBB by S&P are regarded as having adequate
capacity to pay interest and repay principal. According to S&P, while these debt
securities normally exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal. The Fund does not invest in debt
securities rated less than Caa by Moody's or CCC by S&P, or if unrated, of
equivalent quality in the view of the Portfolio Manager.
SHORT SALES. The Fund from time to time may sell securities short. 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. Risks associated with short sales of securities are described below
under "Risk Factors and Special Considerations."
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.
19
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES (CONTINUED)
The Fund may have to pay a premium to borrow the securities and must pay any
dividends or interest payable on the securities until they are replaced.
The Fund's obligation to replace the securities borrowed in connection with a
short sale will be secured by collateral deposited with the broker that consists
of cash or obligations of the U.S. government, its agencies and
instrumentalities ("U.S. Government Securities"). In addition, the Fund will
place in a segregated account with its custodian an amount of cash or U.S.
Government Securities equal to the difference, if any, between (a) the market
value of the securities sold at the time they were sold short, and (b) any cash
or U.S. Government Securities deposited as collateral with the broker in
connection with the short sale (not including the proceeds of the short sale).
Until it replaces the borrowed securities, the Fund will maintain the segregated
account daily at a level so that (a) the amount deposited in the account plus
the amount deposited with the broker (not including the proceeds from the short
sale) will equal the current market value of the securities sold short, and (b)
the amount deposited in the account plus the amount deposited with the broker
(not including the proceeds from the short sale) will not be less than the
market value of the securities at the time they were sold short. The Fund may
enter into short sales without limit to the extent that it is able to cover its
short positions as described above.
U.S. Government Securities include U.S. Treasury bills, notes and bonds, which
are supported by the full faith and credit of the United States; other
obligations, such as those of the Federal Home Loan Banks, which are supported
by the right of the issuer to borrow from the Treasury; others, such as those of
the Federal National Mortgage Association, which are supported by the
discretionary authority of the U.S. government to purchase the agency's
obligations; and still others, such as those of the Student Loan Marketing
Association, which are supported only by the credit of the instrumentality.
SHORT SALES AGAINST THE BOX. The Fund may, in addition to engaging in short
sales as described above, enter into 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.
This kind of short sale, which is described as one
20
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES (CONTINUED)
"against the box," will be entered into by the Fund for the purpose of receiving
a portion of the interest earned by the executing broker from the proceeds of
the sale. The proceeds of the sale will be held by the broker until the
settlement date, when the Fund delivers the convertible securities to close out
its short position. Although, prior to delivery, the Fund will have to pay an
amount equal to any dividends paid on the common stock sold short, the Fund will
receive the dividends from the preferred stock or interest from the debt
securities convertible into the stock sold short, plus a portion of the interest
earned from the proceeds of the short sale. The Fund will deposit, in a
segregated account with its custodian, convertible preferred stocks or
convertible debt securities in connection with short sales against the box.
SHORT-TERM TRADING. Because 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 (the "Code"), it
is not subject to the 30% limit on gains from the sale or other disposition of
securities, options, futures contracts, and certain other assets held for less
than three months, which limitation applies to regulated investment companies.
Thus, a Portfolio Manager 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.
Short-term trading may result in increased portfolio turnover, higher than
normal brokerage commissions and other expenses. Portfolio turnover is not a
limiting factor in managing the Fund's portfolio and, depending on market
conditions, the Fund is likely to experience a greater portfolio turnover (and,
consequently, higher brokerage and portfolio transaction costs) than most other
mutual funds with a similar investment objective. For additional information
about portfolio turnover and brokerage, see "The Fund's Portfolio Transactions
and Brokerage."
OPTIONS ON SECURITIES AND INDEXES. The Fund may purchase and write put and
call options on stocks that are traded on domestic or foreign securities
exchanges. A call option is a short-term contract pursuant to which the
purchaser, in return for the premium paid, has the right to buy the security
underlying the option at the specified exercise price at any time during the
term of the option. The writer of the call option, who receives the premium,
21
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES (CONTINUED)
has the obligation, upon exercise of the option, to deliver the underlying
security against payment of the exercise price. A put option is a similar
contract which gives the purchaser, in return for a premium paid, the right to
sell the underlying security at the specified exercise price during the term of
the option. The writer of the put, who receives the premium, has the obligation
to buy the underlying security, upon exercise, at the exercise price. The
premium paid by the purchaser of an option will reflect, among other things, the
relationship of the exercise price to the market price and volatility of the
underlying security, the time remaining to expiration of the option, supply and
demand, and interest rates.
The Fund may write put and call options on stocks only if they are covered,
and such options must remain covered so long as the Fund is obligated as a
writer. A call option written by the Fund is "covered" if the Fund owns the
underlying security or holds on a share-for-share basis a call on the same
security as the call written, where the exercise price of the call held is equal
to or less than the exercise price of the call written, or greater than the
exercise price of the call written if the difference is maintained by the Fund
in cash or U.S. Treasury bills in a segregated account with its custodian. A put
option written by the Fund is "covered" if the Fund maintains cash or U.S.
Treasury bills with a value equal to the exercise price in a segregated account
with its custodian. A put option is also "covered" if the Fund holds on a
share-for-share basis a put on the same security as the put written where the
exercise price of the put held is equal to or greater than the exercise price of
the put written, or less than the exercise price of the put written if the
difference is maintained by the Fund in cash or U.S. Treasury bills in a
segregated account with its custodian.
If the writer of an option wishes to terminate the obligation, he or she may
effect a "closing purchase transaction." This is accomplished by buying an
option of the same series as the option previously written. The effect of the
purchase is that the writer's position will be cancelled by the Options Clearing
Corporation. However, a writer may not effect a closing purchase transaction
after it has been notified of the exercise of an option. Likewise, an investor
who is the holder of an option may liquidate his or her position by effecting a
"closing sale transaction." This is accomplished by selling an option of the
same series as the option previously purchased. There is no
22
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES (CONTINUED)
guarantee that either a closing purchase or a closing sale transaction can be
effected. If any call or put is not exercised or sold, it will become worthless
on its expiration date.
The Fund will realize a gain (or a loss) on a closing purchase transaction
with respect to a call or a put previously written by the Fund if the premium,
plus commission costs, paid by the Fund to purchase the call or put is less (or
greater) than the premium, less commission costs, received by the Fund on the
sale of the call or the put. A gain also will be realized if a call or put which
the Fund has written lapses unexercised, because the Fund would retain the
premium.
A gain (or a loss) will be realized by the Fund on a closing sale transaction
with respect to a call or a put previously purchased by the Fund if the premium,
less commission costs, received by the Fund on the sale of the call or the put
is greater (or less) than the premium, plus commission costs, paid by the Fund
to purchase the call or the put. If a put or a call expires unexercised, it will
become worthless on the expiration date, and the Fund will realize a loss in the
amount of the premium paid, plus commission costs.
Although certain securities exchanges attempt to provide continuously liquid
markets in which holders and writers of options can close out their positions at
any time prior to the expiration of the option, no assurance can be given that a
market will exist at all times for all outstanding options purchased or sold by
the Fund. If an options market were to become unavailable, the Fund would be
unable to realize its profits or limit its losses until it could exercise
options it holds, and the Fund would remain obligated until options it wrote
were exercised or expired.
Because option premiums paid or received by the Fund are small in relation to
the market value of the investments underlying the options, buying and selling
put and call options can be more speculative than investing directly in common
stocks.
The Fund may purchase and sell put and call options on certain stock indexes
that are traded on domestic or foreign securities exchanges. Options on stock
indexes are similar to options on stock except that, rather than the right to
take or make delivery of stock at the specified exercise price, an option on a
stock index gives the holder the right to receive, upon exercise
23
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES (CONTINUED)
of the option, an amount of cash if the closing level of the stock index upon
which the option is based is "in the money." This amount of cash is equal to the
difference between the closing level of the index and the exercise price of the
option, expressed in dollars times a specified multiple (the "multiplier"). The
writer of the option is obligated, in return for the premium received, to make
delivery of this amount. Unlike stock options, all settlements are in cash, and
gain or loss depends on price movements in the stock market generally rather
than price movements in individual stocks.
The multiplier for an index option performs a function similar to the unit of
trading for a stock option. It determines the total dollar value per contract of
each point in the difference between the exercise price of an option and the
current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indexes may have
different multipliers.
Currently, index options are traded in the United States on: the Standard &
Poor's Index of 100 Stocks and the S&P 500 on the Chicago Board Options
Exchange; the Major Market Index and the AMEX Institutional Index on the
American Stock Exchange; the NYSE Composite Index and the NYSE Beta Index on the
New York Stock Exchange; the Value Line Index and the National OTC Index on the
Philadelphia Stock Exchange; and the Financial News Composite Index on the
Pacific Coast Stock Exchange. The Fund may invest in options on each of these,
and in options on any similar index on which options are traded in the future
which include stocks that are not limited to any particular industry or segment
of the market (a "broadly based stock index").
As in the case of options on stocks, the Fund may only write put and call
options on stock indices if they are covered. A written call option on a stock
index is "covered" if the Fund holds a call on the same index as the call
written where the exercise price of the call held is equal to or less than the
exercise price of the call written, or greater than the exercise price of the
call written if the difference is maintained by the Fund in cash or U.S.
Treasury bills in a segregated account with its custodian. A written put option
on an index is "covered" if the Fund holds a put on the same index as the put
written, provided that the exercise price of the put held is equal to or
24
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES (CONTINUED)
greater than the exercise price of the put written, or less than the exercise
price of the put written if the difference is maintained by the Fund in cash or
U.S. Treasury bills in a segregated account with its custodian.
The effectiveness of purchasing and writing puts and calls on stock index
options depends to a large extent on the ability of the Portfolio Managers to
predict the price movement of the stock index selected. Therefore, whether the
Fund realizes a gain or loss from the purchase of options on an index depends
upon movements in the level of stock prices in the stock market generally.
The Fund's purchase and sale of options on indexes are subject to the risks
described above regarding options on securities. In addition, the distinctive
characteristics of options on indexes create certain risks that are not present
with stock options. Because exercises of index options are settled in cash, a
call writer such as the Fund cannot determine the amount of its settlement
obligations in advance and it cannot provide in advance for, or cover, its
potential settlement obligations by acquiring and holding the underlying
securities.
When the Fund has written a call, there is also a risk that the market may
decline between the time the Fund has a call exercised against it, at a price
which is fixed as of the closing level of the index on the date of exercise, and
the time the Fund is able to exercise or effect a closing transaction with
respect to the long call position it holds.
The Fund will not (a) sell listed put or call options to the extent that
immediately after a sale, the aggregate value of the securities underlying the
calls or obligations securing the puts would exceed 25% of the Fund's net assets
or (b) purchase listed put or call options if immediately after a purchase, the
premiums for all of the options owned at that time would exceed 10% of the
Fund's net assets.
FOREIGN STOCK OPTIONS. The Fund may purchase or sell options on stocks that
are traded on foreign securities exchanges. Some options traded on foreign
exchanges may be exercisable only during specified periods, rather than at any
time during the life of the option, as is the case with options traded on U.S.
securities exchanges, and such features may be regarded as involving greater
risk to the Fund. However, the Fund intends to enter into options traded on
foreign securities exchanges only where a liquid market
25
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES (CONTINUED)
for such options exists such as would normally permit the Fund to close out its
options positions when it desires to do so. The Fund may write foreign put and
call options only if they are covered as described above for domestic options.
As with all investments in foreign securities, the use of foreign options traded
by the Fund involves special risks. See "Risk Factors and Special
Considerations."
LOANS OF FUND SECURITIES. The Fund may lend its portfolio securities provided:
(a) the loan is secured continuously by collateral consisting of U.S. Government
Securities or cash or cash equivalents maintained on a daily marked-to-market
basis in an amount at least equal to the current market value of the securities
loaned; (b) the Fund may at any time call the loan and obtain the return of the
securities loaned; (c) the Fund will receive any interest or dividends paid on
the loaned securities; and (d) the aggregate market value of the securities
loaned will not at any time exceed one-third of the total assets of the Fund. By
lending its securities, the Fund seeks to generate income by continuing to
receive interest and dividends on the loaned securities, by investing the cash
collateral in short-term instruments or by obtaining the interest paid to the
borrower when U.S. Government Securities are used as collateral.
FOREIGN CURRENCY OPTIONS. The Fund may buy or sell put and call options on
foreign currencies. A put option on a foreign currency gives the purchaser of
the option the right to sell a foreign currency at the exercise price until the
option expires. A call option on a foreign currency gives the purchaser of the
option the right to purchase the currency at the exercise price until the option
expires. Currency options traded on U.S. or other exchanges may be subject to
position limits which may limit the ability of the Fund to reduce foreign
currency risk using such options. Over-the-counter options differ from
exchange-traded options in that they are two-party contracts with price and
other terms negotiated between buyer and seller and generally do not have as
much market liquidity as exchange-traded options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Fund also
has the
authority to engage in a number of transactions and strategies involving
financial futures contracts and options thereon ("related options"). Among the
financial futures contracts in which the Fund may trade are futures contracts on
domestic and foreign stock indexes, domestic and foreign
26
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THE ADVISORS FUND L.P.
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES (CONTINUED)
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's use of
these financial futures contracts and related options will result in its being
deemed a "commodity pool," the operators of which are subject to regulation by
the Commodity Futures Trading Commission ("CFTC") under the CEA. (See "Financial
Futures and Related Options" in the Statement of Additional Information.) 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.
The Fund intends to qualify as a partnership for Federal income tax purposes
until its first taxable year beginning after December 31, 1997; thereafter,
under current law, the Fund expects to be treated as a corporation for such
purposes. Although the Fund has the authority to invest in financial futures
contracts and related options, it does not intend to do so for purposes other
than hedging except to the extent permitted pursuant to a ruling received from
the Internal Revenue Service ("IRS") or based upon such other assurances as
deemed appropriate by the individual general partners of the Fund (the
"Individual General Partners") to the effect that investing in a particular type
of financial futures contract or related option will not adversely affect the
Federal income tax status of the Fund as a partnership during the period in
which it can otherwise qualify as such. The IRS ruling received by the Fund
permits it to invest in various types of financial futures contracts and related
options for purposes other than hedging, including certain futures contracts and
related options on stock indexes, bond indexes and debt instruments, but not
including futures contracts (and options on futures contracts) on foreign
currency.
Financial futures contracts in the United States, which are regulated by the
CFTC, are made on commodity exchanges (called contract markets) and provide for
the future delivery of various financial instruments at a specified date, time
and place. The contractual obligations may be satisfied either by taking or
making physical delivery of an approved grade of the underlying commodity (or
cash settlement, in the case of most financial futures contracts) or by making
an offsetting sale or purchase of an equivalent
27
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES (CONTINUED)
futures contract on the same exchange (or through a linked exchange) prior to
the designated date of delivery. No secondary market exists for futures
contracts. Among the financial instruments for which futures contracts are
currently available are: U.S. Treasury bills, Treasury bonds and other U.S.
Governmental Securities; mortgage-backed securities; foreign currencies;
securities indexes; Japanese yen-denominated government bonds; and German
mark-denominated government bonds. The Fund intends to use cash and U.S.
Government Securities or other assets accepted by its commodity brokers as
margin for its financial futures contracts. Any interest earned on assets used
as margin will accrue to the Fund.
The CFTC has designated certain contract markets for trading commodity
options, including options on U.S. Treasury bond futures and stock index
futures. The Fund may trade in any commodity options that are established on
domestic exchanges, and in certain options traded on foreign exchanges to the
extent permitted by the CFTC. Trading of commodity futures and option contracts
involves substantial risks, which are described below under "Risk Factors and
Special Considerations."
Smith Barney Shearson, which may serve as one of the Fund's commodity brokers,
is subject to regulation by and registration with the CFTC as a futures
commission merchant ("FCM"). The CEA requires all futures commission merchants,
in connection with domestic futures and options, to meet and maintain specified
fitness and financial requirements, to account separately for all customers'
funds, property and positions, and to maintain specified books and records on
customer transactions open to inspection by the staff of the CFTC. The CEA
authorizes the CFTC to regulate trading by commodity brokerage firms and their
employees, permits the CFTC to require exchange action in the event of market
emergencies, and establishes an administrative procedure under which commodity
traders may institute complaints for damages arising from alleged violations of
the CEA. Under this procedure, a limited partner of the Fund (a "Shareholder")
may be afforded certain rights under the CEA by filing a complaint for a
reparations award with the CFTC against a commodity trading advisor, commodity
pool operator or FCM.
During the fiscal year ended December 31, 1993, Ardsley Advisory Partners
("Ardsley") used Goldman Sachs & Co. as an FCM. Hellman,
28
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES (CONTINUED)
Jordan Management Co., Inc. ("Hellman, Jordan") during the same time period used
Revco, Inc., Salomon Brothers Inc., Goldman Sachs & Co. and Prudential
Securities.
In connection with its futures and forward positions, and commodity options
that it writes, the Fund will segregate assets or "cover" its positions in
accordance with the Investment Company Act of 1940, as amended (the "1940 Act").
See "Investment Objective and Policies -- Financial Futures -- Segregation of
Assets or Covering Positions" in the Statement of Additional Information.
MONEY MARKET INSTRUMENTS. The Fund may invest in any of the following money
market instruments: certificates of deposit, time deposits, commercial paper,
bankers' acceptances, U.S. Government Securities, corporate bonds having less
than one year remaining to maturity and repurchase agreements. For temporary
defensive purposes, the Fund may invest up to 100% of its total assets in money
market instruments, but at no time will the Fund's investments in bank
obligations, including time deposits, exceed 25% of its total assets. The Fund
will limit to 10% of total assets its investment in time deposits with more than
seven days to maturity.
When the Fund acquires a security from a domestic bank or a registered
broker-dealer, it may simultaneously enter into a repurchase agreement, wherein
the seller agrees to repurchase the security at a specified time (generally
within seven days) and price. The Fund may enter into repurchase agreements with
certain member banks of the Federal Reserve System with total assets in excess
of $1 billion, or if the bank is examined by the Comptroller of the Currency, or
if its deposits are insured by the Federal Deposit Insurance Corporation. A
repurchase agreement may be considered to be a loan collateralized by the
security that is subject to the agreement to repurchase. The value of the
underlying securities will be at least equal at all times to the total amount of
the repurchase obligation, including interest. Repurchase agreements will be
fully collaterized and the collateral segregated.
The repurchase price is in excess of the purchase price by an amount which
reflects an agreed-upon rate of return, which is not tied to the coupon rate on
the underlying security. However, if the seller should default on its obligation
to repurchase the underlying security, the Fund may experience delay or
difficulty in exercising its rights to realize upon the security and
29
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES (CONTINUED)
might incur a loss if the value of the security should decline, as well as
perhaps incurring disposition costs in liquidating the security. The Portfolio
Managers monitor the value of the underlying securities at the time the
repurchase agreement is entered into and on a daily basis during the term of the
agreement to ensure that its value equals or exceeds the agreed-upon repurchase
price to be repaid to the Fund. The Individual General Partners have adopted
procedures to evaluate the creditworthiness of the parties with whom the Fund
will enter into repurchase agreements.
LEVERAGE. 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. Maintenance of this percentage limitation
may result in the sale of the Fund's portfolio securities at a time when
investment considerations otherwise indicate that it would be disadvantageous to
do so. The Portfolio Managers 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.
STATUS AS "NON-DIVERSIFIED". 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. In light of the Fund's ability to invest large portions of
its assets in the securities of a small number of issuers (I.E., as few as
four), investment in the Fund may present a greater risk than an investment in a
diversified company. In no event, however, will the Fund invest more than 25% of
its assets at any one time in any industry. In addition, the Fund will not be
subject to the diversification requirements imposed by the Code since the Fund
currently does not intend to qualify as a regulated investment company under the
Code. Accordingly, investment in the Fund may present substantially greater risk
than investment in a non-diversified company that is subject to the
diversification requirements of the Code.
30
<PAGE>
THE ADVISORS FUND L.P.
- ---------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES (CONTINUED)
INVESTMENT RESTRICTIONS
The Fund has adopted certain fundamental investment restrictions which are
discussed in the Statement of Additional Information that may not be changed
without approval of a majority of the outstanding shares representing
partnership interests in the Fund. Included among those fundamental restrictions
are the following:
1. The Fund will not invest more than 25% of its assets in the securities
of issuers in any single industry group, except that this restriction does not
apply to investments in U.S. Government Securities and repurchase agreements
backed by U.S. Government Securities.
2. The Fund will not make investments to exercise control or management of
any company.
3. The Fund will not invest more than 10% of its assets in companies that
have been in existence less than three years (including predecessors).
- --------------------------------------------------------------------
THE FUND'S PORTFOLIO TRANSACTIONS AND BROKERAGE
Securities and financial futures transactions on behalf of the Fund are
executed by a number of brokers and dealers selected by the Portfolio Managers
(or from time to time by Strategy Advisers). The Fund may use Smith Barney
Shearson or a Smith Barney Shearson-affiliated broker in connection with a
purchase or sale of securities when a Portfolio Manager (or Strategy Advisers)
believes that the charge for the transaction does not exceed usual and customary
levels.
The Fund may also use Smith Barney Shearson or a Smith Barney
Shearson-affiliated broker as a commodities broker in connection with entering
into futures contracts and related options, provided that the charge for the
transaction does not exceed usual and customary levels. Smith Barney Shearson
has agreed to charge the Fund futures commissions at rates comparable to those
charged by Smith Barney Shearson to its most favored clients for comparable
trades in comparable accounts.
Smith Barney Shearson, Strategy Advisers, the Portfolio Managers and their
principals may trade securities or commodity interests for their own
31
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
THE FUND'S PORTFOLIO TRANSACTIONS AND BROKERAGE (CONTINUED)
account or the account of others, including Smith Barney Shearson. Consequently,
they may have duties to those other accounts or interests that may not always be
consistent with their responsibilities to the Fund.
Since the Portfolio Managers may make frequent shifts in the Fund's
investments, the Fund may experience portfolio turnover and transaction costs
significantly exceeding those of more conventional equity or fixed-income mutual
funds. The Fund's annual portfolio turnover rate is not expected to exceed 300%,
although there is no limit on this rate. The Fund is not subject to limitations
contained in Subchapter M of the Code that are applicable to most registered
investment companies organized as corporations or business trusts, regarding the
amount of income that may be derived from gains realized on the sale of
securities and certain other assets held for less than three months. Because the
Fund seeks to maximize total return, Strategy Advisers cannot predict the
portion of the Fund's return that will be attributable to capital appreciation
or to current income.
- --------------------------------------------------------------------
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investment in the Fund involves special considerations described below:
GENERAL. The Fund is designed for investors who do not require regular current
income and who can accept a high degree of risk in their investments. A
predominant component of the Fund's total return is appreciation in the value of
the Fund's assets.
Each Portfolio Manager normally makes investment decisions independent of the
Fund's other Portfolio Managers. Consequently, the possibility exists that a
particular Portfolio Manager may purchase a given investment on or about the
same time another Portfolio Manager decides to sell it. This may result in the
Fund paying more in brokerage commissions than other investment companies. In
addition, the possibility exists that the Fund may have, at one time, long and
short positions in the same investment. These situations may result in the
deferral or disallowance of losses realized by the Fund on the disposition of an
investment and may result in treating certain gains realized by the Fund as
short-term capital gain rather than long-term capital gain. See "Taxation" in
the Statement of Additional Information.
32
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
RISK FACTORS AND SPECIAL CONSIDERATIONS (CONTINUED)
FOREIGN SECURITIES. The Fund's investing in foreign securities involves
considerations not typically associated with investing in securities of domestic
companies. Investing in securities of foreign issuers, for example, could cause
the Fund to be affected favorably or unfavorably by changes in currency exchange
rates and revaluations of currencies. In addition, less information may be
available about foreign companies than about domestic companies, and foreign
companies generally are not subject to uniform accounting, auditing and
financial reporting standards or to other regulatory practices and requirements
comparable to those applicable to domestic companies. Foreign securities and
their markets may not be as liquid as U.S. securities and their markets.
Securities of some foreign companies may involve greater market risk than
securities of U.S. companies and it may be more difficult to obtain and enforce
a judgment against a foreign issuer. Investment in foreign securities may result
in higher expenses than investing in domestic securities because of the cost of
converting foreign currencies to U.S. dollars, expenses relating to foreign
custody, payment of fixed brokerage commissions on foreign exchanges, which
generally are higher than commissions on U.S. exchanges, and the imposition of
transfer taxes or transaction charges associated with foreign exchanges.
Investment in foreign securities may also be subject to local economic or
political risks, including instability of some foreign governments, the
possibility of currency blockage or the imposition of withholding taxes on
dividend or interest payments and imposition of other foreign taxes, and the
potential for expropriation, nationalization or confiscatory taxation and
limitations on the use or removal of funds or other assets.
Among the foreign securities in which the Fund may invest are those issued by
companies located in developing countries, which are countries in the initial
stages of their industrialization cycles. Investing in the equity and debt
markets of developing countries involves exposure to economic structures that
are generally less diverse and less mature, and to political systems that can be
expected to have less stability, than those of developed countries. The markets
of developing countries historically have been more volatile than the markets of
the more mature economies of developed countries, but often have provided higher
rates of return to investors.
SHORT SALES. The Fund will incur a loss as a result of a short sale if the
price of the security increases between the date of the short sale and the date
on which the Fund replaces the borrowed security. Possible losses from short
33
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
RISK FACTORS AND SPECIAL CONSIDERATIONS (CONTINUED)
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
of a security can equal only the total amount invested.
OPTIONS. Because option premiums paid or received by the Fund are small in
relation to the market value of the investments underlying the options, buying
and selling put and call options can result in large amounts of leverage. Thus,
the leverage offered by trading in options could cause the Fund's net asset
value to be subject to more frequent and wider fluctuations than would be the
case if the Fund did not invest in options.
Upon the exercise of a put option written by the Fund, the Fund may suffer a
loss equal to the difference between the price at which the Fund is required to
purchase the underlying security and its market value at the time of the option
exercise, less the premium received for writing the option. Upon the exercise of
a call option written by the Fund, the Fund may suffer a loss equal to the
excess of the security's market value at the time of the option exercise over
the Fund's acquisition cost of the security, less the premium received for
writing the option.
No assurance can be given that the Fund will be able to effect closing
transactions at a time when it wishes to do so. If the Fund cannot enter into a
closing transaction, the Fund may be required to hold a security that it might
otherwise have sold, in which case it would continue to be at market risk on the
security and could face higher transaction costs, including brokerage
commissions.
FUTURES CONTRACTS (DOMESTIC). The financial futures contracts markets are
highly volatile and are influenced by factors such as changing supply and demand
relationships, governmental programs and policies, national and international
political and economic events, and changes in interest rates. In addition,
because of the low margin deposits normally required in futures trading, a high
degree of leverage is typical of a futures trading account. As a result, a
relatively small price movement in a futures contract may result in substantial
losses to the trader. Moreover, futures positions are marked-to-market each day
and variation margin payments must be paid to or by a trader. Futures trading
may also be illiquid. Certain futures exchanges do not permit trading in
particular futures contracts at prices that represent a fluctuation in price
during a single day's trading beyond certain set limits. If prices fluctuate
during a single day's trading beyond those limits -- which
34
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
RISK FACTORS AND SPECIAL CONSIDERATIONS (CONTINUED)
conditions have in the past sometimes lasted for several days in certain
contracts -- the Fund could be prevented from promptly liquidating unfavorable
positions and thus be subjected to substantial losses. In addition, the CFTC and
various exchanges impose speculative position limits on the number of positions
a person or group may hold or control in particular commodities. For purposes of
complying with speculative position limits, the Fund's outright positions (I.E.,
those that are not bona fide hedge positions or spread positions specifically
exempted from speculative limits) may be required to be aggregated with any
positions owned or controlled by Strategy Advisers, the Portfolio Managers, any
principal of Strategy Advisers or the Portfolio Managers, and any other
individual making trading decisions for the Fund and may be combined with Smith
Barney Shearson's proprietary positions. As a result, the Fund may be unable to
take positions in particular futures contracts or may be forced to liquidate
positions in particular futures contracts.
FUTURES OPTIONS (DOMESTIC). Futures options, like futures contracts, are
speculative, and their use involves risk. In addition, specific market movements
of the cash commodity or futures contract underlying an option cannot be
predicted. No assurance can be given that a liquid offset market will exist for
any particular futures option or at any particular time. If no liquid offset
market exists, the Fund might not be able to effect an offsetting transaction in
a particular option. To realize any profit in the case of an option on a future,
therefore, the option holder would need to exercise the option and comply with
margin requirements for the underlying futures contract. A writer could not
terminate the obligation until the option expired or the writer was assigned an
exercise notice. The purchaser of an option is subject to the risk of losing the
entire purchase price of the option. The writer of an option is subject to the
risk of loss resulting from the difference between the premium received for the
option and the price of the futures contract underlying the option that the
writer must purchase or deliver upon exercise of the option.
FOREIGN FUTURES EXCHANGES. Unlike trading on domestic futures exchanges,
trading on foreign futures exchanges is not regulated by the CFTC and may be
subject to greater risks than trading on domestic exchanges. For example, some
foreign exchanges are principal markets so that no common clearing facility
exists and a trader may look only to the broker for performance of the contract.
In addition, unless the Fund hedges
35
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
RISK FACTORS AND SPECIAL CONSIDERATIONS (CONTINUED)
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that the
Fund might realize in trading could be eliminated by adverse changes in the
exchange rate, or the Fund could incur losses as a result of those changes.
FOREIGN CURRENCY. Although the foreign currency market may not necessarily be
more volatile than the market in other commodities, the foreign currency market
offers less protection against defaults in the forward trading of currencies
than is available when trading in currencies on an exchange. Because a forward
currency contract is not guaranteed by an exchange or clearinghouse, a default
on the contract would deprive the Fund of unrealized profits or force the Fund
to cover its commitments for purchase or resale, if any, at the current market
price.
REPURCHASE AGREEMENTS. The Fund bears a risk of loss in the event that the
other party to a repurchase agreement defaults on its obligations and the Fund
is delayed or prevented from exercising its rights to dispose of the underlying
securities, including the risk of a possible decline in the value of the
underlying securities during the period in which the Fund seeks to assert its
rights to them, the risk of incurring expenses associated with asserting those
rights and the risk of losing all or part of the income from the agreement. The
Portfolio Managers (or, from time to time, Strategy Advisers) acting under the
supervision of the Individual General Partners, review on an ongoing basis the
creditworthiness and collateral of those banks and dealers with which the Fund
enters into repurchase agreements to evaluate these risks.
NON-DIVERSIFIED CLASSIFICATION. Investment in the Fund, which, as noted above,
is classified as a non-diversified investment company, may present a greater
risk than an investment in a diversified company. The Fund's ability to invest a
greater percentage of its assets in the securities of a single issuer (or to
purchase a greater percentage of an issuer's outstanding voting securities) may
make it more vulnerable to changes associated with a single economic, political
or regulatory occurrence than a diversified fund might be.
LEVERAGE. Borrowing money to purchase securities will provide the Fund with
the opportunity for greater income and capital appreciation but, at the same
time, will increase the Fund's exposure to capital risk and higher
36
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
RISK FACTORS AND SPECIAL CONSIDERATIONS (CONTINUED)
current expenses. Any gain in the value of securities purchased with borrowed
money or income earned from these securities that exceeds the interest paid on
the amount borrowed would cause the Fund's net asset value per share to increase
faster than would otherwise be the case. Conversely, any decline in the value of
the securities purchased would cause the Fund's net asset value per share to
decrease faster than would otherwise be the case. The Fund may also be required
to pay a commitment or other fee to maintain a line of credit, which would
increase the cost of borrowing over the stated interest rate. Moreover, if loans
to the Fund are collateralized with portfolio securities which decrease in value
relative to the Fund's outstanding loan balance owed to a particular lender or
lenders, the Fund may have to pledge additional collateral in the form of cash
or securities to avoid liquidation of the portfolio securities.
CONFLICTS OF INTEREST. Conflicts of interest may exist in the structure and
operation of the Fund's business. Smith Barney Shearson, as the Fund's
distributor, Strategy Advisers, and certain of the Portfolio Managers have
sponsored other commodity pools, all of which may compete with the Fund. Smith
Barney Shearson acts as investment adviser and distributor, and Strategy
Advisers and the Portfolio Managers serve as investment advisers for other
investment vehicles and advisory accounts that also may compete with the Fund
for certain investments. In addition, Smith Barney Shearson, Strategy Advisers
and its principals, the Portfolio Managers and their principals and those
individuals who are the Fund's commodity pool operators may trade securities or
commodity interests for their own accounts or the accounts of others, including
Smith Barney Shearson. Consequently, they may have duties to those other
accounts or personal interests that may not always be consistent with their
responsibilities to the Fund. The records of trading by Smith Barney Shearson,
Strategy Advisers and its principals, certain of the Portfolio Managers and
their principals, and the Fund's individual commodity pool operator will not be
available for inspection by Shareholders. See Appendices I-III for specific
information concerning the foregoing.
Strategy Advisers is a subsidiary of SBA, and all of the principals of
Strategy Advisers are employees of Smith Barney Shearson, or its affiliates.
Smith Barney Shearson, or a broker-dealer affiliate of Smith Barney Shearson,
may be selected as one of the brokers for the Fund by one or more of the
Portfolio Managers. Strategy Advisers will allocate assets of the
37
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
RISK FACTORS AND SPECIAL CONSIDERATIONS (CONTINUED)
Fund among the Portfolio Managers and review on an ongoing basis the operation
of the Fund, including the performance of the Portfolio Managers. Strategy
Advisers and its principals may experience a conflict of interest between the
duties owed to the Fund and any interests they may have in generating brokerage
commissions for Smith Barney Shearson. One of the individuals who serves as an
Individual General Partner is an employee of Smith Barney Shearson.
Consequently, he may have conflicts of interest between his obligations to act
in the best interest of the Fund and any interest he may have in generating
commissions for Smith Barney Shearson.
PARTNERSHIP TAX CONSEQUENCES. A Shareholder, like an investor in any
partnership, is required to report on a tax return the Shareholder's portion of
the Fund's income regardless of the extent to which the Shareholder receives
actual distributions from the Fund. Thus, in any given year, a Shareholder's tax
liability with respect to his or her share of the Fund's income could exceed the
amount of cash distributed to the Shareholder by the Fund in that year.
The Fund's classification as a partnership for Federal income tax purposes
will, under current law, terminate no later than the Fund's first taxable year
beginning after December 31, 1997, after which it is expected that the Fund will
be classified as a corporation for such purposes. As a result, the Individual
General Partners may, in their discretion, take such actions as they deem
appropriate in response to the reclassification of the Fund from partnership to
corporate status for Federal income tax purposes. See "Taxation" in this
Prospectus and in the Statement of Additional Information for further
information.
- --------------------------------------------------------------------
MANAGEMENT OF THE FUND
INDIVIDUAL GENERAL PARTNERS
Under the Fund's Amended and Restated Agreement of Limited Partnership (the
"Partnership Agreement"), the overall responsibility for management and
supervision of the Fund rests with the Individual General Partners. The
Individual General Partners approve all significant agreements between the Fund
and the persons and companies that furnish services to the Fund,
38
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
MANAGEMENT OF THE FUND (CONTINUED)
including the Fund's agreements with Strategy Advisers, the Portfolio Managers,
Boston Advisors, Smith Barney Shearson, the Fund's custodian and the Fund's
transfer agent.
Set forth below are the names of the Individual General Partners together with
information as to their business backgrounds. An asterisk precedes the name of
each Individual General Partner who is an "interested person" of the Fund as
defined in the 1940 Act. Each Individual General Partner serves as a director,
trustee or general partner of investment companies, other than the Fund, for
which Smith Barney Shearson acts as distributor.
Walter E. Auch, Sr., Individual General Partner. Consultant to companies in
the financial services industry. His address is 6001 N. 62nd Place, Paradise
Valley, Arizona 85253.
Martin Brody, Individual General Partner. Former Vice Chairman of the Board of
Restaurant Associates Industries, Inc.; a Director of Jaclyn, Inc. His address
is c/o HMK Associates, Three ADP Boulevard, Roseland, New Jersey 07068.
Stephen E. Kaufman, Individual General Partner. Attorney. His address is 277
Park Avenue, New York, New York 10017.
*Heath B. McLendon, Individual General Partner, Executive Vice President of
Smith Barney Shearson; Chairman of Strategy Advisers; Prior to July 1993, Senior
Executive Vice President of Shearson Lehman Brothers Inc. ("Shearson Lehman
Brothers"); Vice Chairman of Shearson Asset Management. His address is Two World
Trade Center, New York, New York 10048.
Madelon DeVoe Talley, Individual General Partner. Author. Since February 19,
1993, Governor-at-Large of National Association of Securities Dealers, Inc. Her
address is 876 Park Avenue, New York, New York 10021.
Mr. McLendon and Strategy Advisers serve as commodity pool operators with
respect to the Fund. Mr. McLendon and Strategy Advisers are each registered as
commodity pool operators with the CFTC and are members of the National Futures
Association ("NFA"). During the last five years, no material administrative,
civil or criminal actions have been brought against Mr. McLendon, Strategy
Advisers or any of its principals that the Fund's commodity pool operators deem
to be material to an investor's decision to purchase Fund shares. Mr. Auch, Mr.
Brody, Mr. Kaufman, and Ms. Talley,
39
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
MANAGEMENT OF THE FUND (CONTINUED)
the other Individual General Partners of the Fund, have been exempted from
registration as commodity pool operators for the Fund pursuant to a no-action
position granted by the CFTC in a letter dated March 29, 1990.
CORPORATE GENERAL PARTNER
Strategy Advisers acts as the Fund's corporate general partner (the "Corporate
General Partner"), but in that capacity generally takes no part in the
supervision of the Fund's business. See "Additional Information" and Appendix
IV, "Summary of the Partnership Agreement." Pursuant to the Partnership
Agreement, the Individual General Partners together with the Corporate General
Partner (collectively, the "General Partners") are required to own, as a group,
a certain minimum number of the outstanding shares of the Fund in order to
comply with certain guidelines established by the IRS relating to the Fund's
classification as a partnership for Federal income tax purposes. The Corporate
General Partner, in turn, has undertaken to maintain an investment in the Fund
which will enable the General Partners, as a group, to maintain the required
interest in the Fund. However, complying with such IRS guidelines does not in
itself ensure that the Fund will be classified as a partnership for Federal
income tax purposes. As of January 31, 1994, the Individual General Partners and
the Corporate General Partner together owned 1.69% of the Fund's outstanding
shares. See "Taxation" in this Prospectus and in the Statement of Additional
Information for further information.
Smith Barney Shearson Holdings Inc. ("Holdings"), the parent company of SBA
and Strategy Advisers, has agreed to indemnify each Individual General Partner
against certain liabilities and expenses. Under this agreement, which is in
addition to the indemnification provisions of the Partnership Agreement, the
Individual General Partners are indemnified against liabilities and expenses to
which they may be subject in their capacity as Individual General Partners only
so long as they have not engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of their duties. For a discussion of the
provisions of the Partnership Agreement relating to indemnification and
liability of Individual General Partners, see Appendix IV, "Summary of the
Partnership Agreement."
40
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
MANAGEMENT OF THE FUND (CONTINUED)
INVESTMENT ADVISER AND ADVISORY FEES
Strategy Advisers, located at Two World Trade Center, New York, New York
10048, serves as the Fund's investment adviser. Strategy Advisers is a wholly
owned subsidiary of SBA. SBA is a wholly owned subsidiary of Holdings, which is
in turn a wholly owned subsidiary of The Travelers Inc. ("Travelers") formerly
known as Primerica Corporation. Strategy Advisers renders investment advice to
investment companies (including the Fund) with total assets under management, as
of December 31, 1993, in excess of $692 million. Strategy Advisers is registered
with the SEC under the Investment Advisers Act of 1940, as amended (the
"Advisers Act") as an investment adviser, is registered with the CFTC as a
commodity pool operator, and is a member of the NFA. Certain information
required by CFTC rules to be included in this Prospectus regarding the Fund,
Strategy Advisers as a commodity pool operator of the Fund and each principal of
Strategy Advisers appears in Appendix I to this Prospectus.
Subject to the supervision and direction of the Individual General Partners,
Strategy Advisers determines the allocation of assets among the Portfolio
Managers and evaluates and monitors the performance of the Portfolio Managers.
Strategy Advisers is also authorized to select and place portfolio investments
on behalf of the Fund. Tremont assists Strategy Advisers in monitoring and
evaluating the Portfolio Managers and will provide Strategy Advisers with
research services and reports relating to the allocation of assets among the
Fund's Portfolio Managers.
The Fund pays Strategy Advisers a monthly advisory fee for its services based
upon the performance of the Class B shares of the Fund (after expenses allocable
to such Class B shares) compared to the percentage change in the investment
record of the S&P 500 for the immediately preceding twelve calendar months on a
rolling basis. Strategy Advisers retains 10% of the monthly investment advisory
fee and the remaining 90% (the "Portfolio Managers' Amount") is available for
payment to the Portfolio Managers. Strategy Advisers also has responsibility for
paying the fee of Tremont, which equals 20% of any investment advisory fee
retained by Strategy Advisers. In determining the amount retained by Strategy
Advisers for purposes of calculating Tremont's fee, the balance, if any,
maintained by Strategy Advisers in a reserve fund ("Portfolio Managers Reserve")
is excluded. For the fiscal year ended December 31, 1993, the Fund paid
41
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
MANAGEMENT OF THE FUND (CONTINUED)
2.38% of the value of its average daily net assets of its Class A shares in
investment advisory fees. For the period from June 1, 1993 (Class B Commencement
of Operations) to December 31, 1993, the Fund paid 2.42% of the value of the
average daily net assets of its Class B shares in advisory fees.
The Fund pays Strategy Advisers an investment advisory fee ("Basic Fee")
adjusted monthly (the "Monthly Performance Adjustment") depending on the extent
to which the investment performance of the Class B shares, after expenses,
exceeded or was exceeded by the percentage change in the investment record of
the S&P 500 for the immediately preceding twelve months on a rolling basis. The
Monthly Performance Adjustment is calculated based on the extent to which the
investment performance of the Class B shares (net of expenses allocable to such
Class B shares) exceeds or is exceeded by the percentage change in the
investment record of the S&P 500 for the immediately preceding twelve calendar
months on a rolling basis. The rate of the Monthly Performance Adjustment may
increase or decrease the fee payable to Strategy Advisers by up to 2.0% per
annum of the value of the Fund's average daily net assets.
The performance of the Class B shares during a performance period is
calculated by first determining the change in the net asset value per share of
the Class B shares during the period, assuming the reinvestment of distributions
during that period, and then expressing this amount as a percentage of the net
asset value per share of the Class B shares at the beginning of the period. The
performance of the S&P 500 during a performance period is calculated as the sum
of the change in the level of the index during the period, plus the value of any
dividends or distributions made by the companies whose securities comprise the
index accumulated to the end of the period.
The total investment advisory fee payable by the Fund to Strategy Advisers at
the end of each calendar month is equal to the Basic Fee for the month adjusted
upward or downward by the Monthly Performance Adjustment. The monthly investment
advisory fee is calculated as follows: (a) one-twelfth of the 2.0% annual Basic
Fee rate (0.167%) is applied to the Fund's average daily net assets over the
most recent calendar month, giving a dollar amount which is the Basic Fee for
that month; (b) one-twelfth of the applicable adjustment rate from the table
below is applied to the Fund's
42
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
MANAGEMENT OF THE FUND (CONTINUED)
average daily net assets over the most recent calendar month, giving a dollar
amount which is the Monthly Performance Adjustment; and (c) the Monthly
Performance Adjustment is then added to or subtracted from the Basic Fee and the
result is the amount payable by the Fund to Strategy Advisers as the total
investment advisory fee for that month.
The full range of permitted investment advisory fees on an annualized basis is
as follows:
<TABLE>
<CAPTION>
PERCENTAGE POINT DIFFERENCE BETWEEN PERFORMANCE OF THE CLASS B
PERFORMANCE
SHARES (NET OF THE EXPENSE RATIO ALLOCABLE TO THE CLASS B SHARES)
BASIC FEE ADJUSTMENT TOTAL FEE
AND PERCENTAGE CHANGE IN S&P 500 (%) RATE
(%) (%)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
+ 5.25 percentage points or more 2.0% 2.0%
4.0%
+ 3.75 percentage points or more but less than + 5.25 percentage
points 2.0 1.5 3.5
+ 2.25 percentage points or more but less than + 3.75 percentage
points 2.0 1.0 3.0
+ 0.75 percentage points or more but less than + 2.25 percentage
points 2.0 0.5 2.5
Less than + 0.75 percentage points but more than - 1.75 percentage
points 2.0 0.0 2.0
- - 1.75 percentage points or less but more than
- 2.75 percentage points 2.0 -0.5 1.5
- - 2.75 percentage points or less but more than
- 3.75 percentage points 2.0 -1.0 1.0
- - 3.75 percentage points or less but more than
- 4.75 percentage points 2.0 -1.5 0.5
- - 4.75 percentage points or less 2.0 -2.0 0.0
- ----------------------------------------------------------------------------------
</TABLE>
The period over which performance is measured is a rolling twelve-month
period.
Notwithstanding the above schedule, if the absolute performance of the Class B
shares of the Fund (after payment of all expenses allocable to such Class B
shares) is negative for any previous rolling twelve-month period, the monthly
investment advisory fee for the current month will be the lesser of the fee
calculated pursuant to the above schedule or the alternative monthly investment
advisory fee described below, which under certain circumstances results in the
Fund paying a lower monthly investment advisory fee than under the performance
fee schedule above. If the performance of the Class B shares (after payment of
all expenses allocable to such Class B shares) does not exceed the S&P 500 by
twelve percentage points for the previous rolling
43
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
MANAGEMENT OF THE FUND (CONTINUED)
twelve-month period and the absolute performance of the Class B shares (after
payment of all expenses allocable to such Class B shares) is negative for that
same period, the alternative monthly investment advisory fee will be 1.0% of the
value of the Fund's average daily net assets on an annual basis. If, on the
other hand, the performance of the Class B shares (after payment of all expenses
allocable to such Class B shares) exceeds the S&P 500 by twelve percentage
points or more for the previous rolling twelve-month period and the absolute
performance of the Class B shares (after payment of all expenses allocable to
such Class B shares) is negative for that same period, the alternative monthly
investment advisory fee will be 2.0% of the value of the Fund's average daily
net assets on an annual basis.
Accordingly, the Basic Fee payable by the Fund will be at a rate higher than
the investment advisory fees paid by most other investment companies, if the
Class B shares (net of expenses allocable to such Class B shares) outperform the
S&P 500. On the other hand, if the Class B shares (net of expenses allocable to
such Class B shares) underperform the S&P 500, the investment advisory fee paid
by the Fund will be at a rate less than those paid by many other investment
companies. If, during the applicable performance period, the Fund underperforms
the S&P 500 by 4.75 or more percentage points, the Fund will not pay any
investment advisory fee, although Strategy Advisers and the Portfolio Managers
will remain obligated to provide the Fund with the services contemplated by the
Fund's investment management agreement and portfolio management agreements as
long as they are in effect. The Fund's Individual General Partners, including a
majority of the Independent General Partners, as well as the Fund's
shareholders, have approved the foregoing calculations of the Basic Fee and the
Alternative Fee. In April 1972, the SEC issued Release No. 7113 under the 1940
Act to focus attention of mutual fund directors and investment advisers on
certain factors which must be considered in connection with investment company
performance fee arrangements. One of these factors is to "avoid basing
significant fee adjustments upon random or insignificant differences" between
the investment performance of a fund and that of a particular index which is
being compared. The Release concludes that the directors of a fund "should
satisfy themselves that the maximum performance adjustment will be made only for
performance differences that can reasonably be considered significant." In
approving the advisory fee structure, the Individual General Partners considered
that the performance fee was structured so that only the Basic Fee would be paid
in the event of
44
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
MANAGEMENT OF THE FUND (CONTINUED)
small changes in performance and that any significant incentive payments or
penalties would be attributable to the Portfolio Manager's skill or lack of
skill rather than random fluctuations in performance. Additionally, the
Individual General Partners considered the Fund's past performance and the
nature of its investment objectives in determining to continue the performance
fee structure set forth above.
As discussed above, Strategy Advisers will retain 10% of the monthly
investment advisory fee paid by the Fund and allocate the remaining 90% of the
investment advisory fee received during the month to the Portfolio Managers.
Accordingly, the "Portfolio Managers' Amount" is 90% of the investment advisory
fee paid to Strategy Advisers during the month pursuant to the performance fee
table above or the alternative monthly investment advisory fee, whichever is
applicable for the month.
Strategy Advisers determines each Portfolio Manager's monthly "tentative"
portfolio management fee after the end of each month. Such fee equals the
average daily net assets allocated to the Portfolio Manager multiplied by
one-twelfth of the percentage determined with reference to the performance table
shown above (or the alternative monthly investment advisory fee described in the
third preceding paragraph) using the Portfolio Manager's performance for the
immediately preceding twelve calendar month period on a rolling basis. For the
year ended December 31, 1993, the Portfolio Managers received Portfolio
management fees of 2.14% for Class A shares and 2.18% for Class B shares of the
value of the Fund's average monthly net assets based on the performance table
contained in the Fund's previous investment advisory agreement.
If the Portfolio Managers' Amount plus any balance of the Portfolio Managers'
Reserve equals or exceeds the total Portfolio Managers' monthly tentative fees
payable to all the Portfolio Managers, each Portfolio Manager's monthly final
portfolio management fee will equal its monthly tentative portfolio management
fee. In any month in which the Portfolio Managers' Amount exceeds the total
Portfolio Managers' monthly tentative portfolio management fees, the excess will
be added to a Portfolio Managers' Reserve maintained by Strategy Advisers. If,
on the other hand, the total Portfolio Managers' monthly tentative portfolio
management fees exceed the sum of the Portfolio Managers' Amount and any balance
in the
45
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
MANAGEMENT OF THE FUND (CONTINUED)
Portfolio Managers' Reserve, each Portfolio Managers' monthly final management
fee will be adjusted downward proportionately from its monthly tentative
portfolio management fee.
CONSULTANT TO INVESTMENT ADVISER
Tremont, located at One Corporate Center at Rye, 555 Theodore Fremd Avenue,
Rye, New York 10580, has been engaged in the business of rendering portfolio
adviser evaluation selection and supervisory services to consulting clients
since 1984. Tremont is wholly owned by Tremont Advisors, Inc. (formerly Lynch
Asset Management Corporation). Tremont Advisors, Inc. is a public corporation.
On August 29, 1991, the Board of Directors of Lynch Asset Management Corporation
approved a restructuring of the outstanding debt and equity securities of Lynch
Asset Management Corporation which was subsequently approved by shareholders on
October 7, 1991. As of December 31, 1993, Mario J. Gabelli, Chairman of Lynch
Corporation and Chairman and Chief Executive Officer of Gabelli Funds, Inc., a
registered investment adviser under the Advisers Act and the ultimate parent
company of a variety of operating companies engaged in various aspects of the
securities business, together with certain affiliated entities, controls 40.9%
of the voting stock of Tremont Advisors, Inc. (as defined by Rule 13d-3 under
the Securities Exchange Act of 1934). The principals and staff of Tremont are
experienced in acting as investment consultants and in developing, implementing
and managing multiple portfolio adviser programs. Tremont provides asset
management consulting services to various institutional and individual clients
and provides Strategy Advisers with investment consulting services with respect
to the development, implementation and management of the Fund's multiple
portfolio managers program. Tremont is paid by Strategy Advisers (not the Fund).
As consultant, Tremont provides research concerning registered investment
advisers to be retained by the Fund as Portfolio Managers, monitors and assists
Strategy Advisers with the periodic reevaluation of existing Portfolio Managers
and makes periodic reports to Strategy Advisers and the Fund.
PORTFOLIO MANAGERS
Subject to the supervision of Strategy Advisers and the Individual General
Partners, the Portfolio Managers manage the Fund's assets in accordance with the
Fund's investment objective and stated investment policies, make
46
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
MANAGEMENT OF THE FUND (CONTINUED)
investment decisions for the Fund, place orders to purchase and sell securities
and futures interests for the Fund, and employ professional portfolio managers
and securities and futures analysts who provide research services to the Fund.
The Fund pays no direct fee to any of the Portfolio Managers. Certain of the
Portfolio Managers, noted below, do not currently intend to employ futures
contracts or options on futures contracts in managing the Fund's assets
allocated to them.
Selection and retention criteria for Portfolio Managers include: (a) their
historical performance records; (b) an investment approach that is distinct in
relation to the approaches of each of the Fund's other Portfolio Managers; (c)
consistent performance in the context of the markets and preservation of capital
in declining markets; (d) organizational stability and reputation; (e) the
quality and depth of investment personnel; and (f) the ability of the Portfolio
Managers to apply their approaches consistently. Each Portfolio Manager will not
necessarily exhibit all of the criteria to the same degree. It should be noted,
moreover, that there can be no certainty that any Portfolio Manager or the Fund
will obtain favorable results at any given time.
Portfolio Managers are employed by Strategy Advisers subject to prior approval
by the Individual General Partners of the Fund. Each Portfolio Manager's
Portfolio Management Agreement provides that the Portfolio Manager may be
terminated by Strategy Advisers at any time. Strategy Advisers recommends
Portfolio Managers to the Individual General Partners based upon its continuing
quantitative and qualitative evaluation of the Portfolio Manager's skills in
managing assets pursuant to specific investment approaches and strategies.
Short-term investment performance, by itself, is not a significant factor in
selecting or terminating a Portfolio Manager, and Strategy Advisers does not
expect to recommend frequent changes of Portfolio Managers.
Each Portfolio Manager has personnel who significantly contribute to the
investment advice relied on to manage the Fund's assets. The death, disability
or departure of such key personnel could adversely affect a Portfolio Manager's
ability to manage the Fund's assets and there can be no assurance that suitable
replacements may be retained. Strategy Advisers will evaluate any such death,
disability or departure of key personnel in making retention and asset
allocation decisions.
47
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
MANAGEMENT OF THE FUND (CONTINUED)
Below is a brief description of each of the Portfolio Managers. The management
discussion and analysis of the Fund's performance during the fiscal year ended
December 31, 1993 (including a line graph comparing the Fund's performance to
the S&P 500, an index composed of 500 widely held common stocks listed on the
New York Stock Exchange, American Stock Exchange and over-the-counter market) is
included in the Fund's Annual Report to Shareholders dated December 31, 1993.
The Fund's Annual Report may be obtained upon request and without charge from
any Smith Barney Shearson Financial Consultant or by writing or calling the Fund
at the address or phone number listed on page 1 of this Prospectus.
ARDSLEY ADVISORY PARTNERS
Ardsley, located at 646 Steamboat Road, Greenwich, Connecticut 06830, is a
general partnership which, since 1986, has provided investment management
services to pension and profit-sharing plans through a group trust, and to
individual accounts and corporate and other business entities. Ardsley is
registered with the SEC as an investment adviser and with the CFTC as a
commodity trading advisor and is a member of the NFA. Philip J. Hempleman and
Douglas C. Floren together own 74% of Ardsley. Ardsley has not managed the
assets of a registered investment company other than the Fund. As of December
31, 1993, Ardsley had in excess of $3.6 billion under management. Philip
Hempleman has been a Managing Partner of Ardsley since the firm's inception in
1986 and has been responsible for the day-to-day management of those assets of
the Fund allocated to Ardsley for management since the Fund's inception in June
1990.
Ardsley focuses primarily on growth stocks (shares of companies whose earnings
are expected to increase significantly in the near term). Ardsley prefers to
identify reported earnings growth and to determine its probable continuity,
instead of forecasting macro-economic variables, although it utilizes a variety
of investment strategies including the use of leverage and short sales.
HELLMAN, JORDAN MANAGEMENT CO., INC.
Hellman Jordan, located at 75 State Street, Boston, Massachusetts 02109, is a
wholly owned subsidiary of United Asset Management Holdings Inc., a wholly owned
subsidiary of United Asset Management Corporation, which
48
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
MANAGEMENT OF THE FUND (CONTINUED)
is in turn a publicly-held corporation owned 4.3% by Norton H. Reamer, a
principal of Hellman, Jordan. Hellman, Jordan is registered with the SEC as an
investment adviser and with the CFTC as a commodity trading advisor and a
commodity pool operator and is a member of the NFA. Hellman, Jordan has not
managed the assets of a registered investment company other than the Fund. As of
December 31, 1993, Hellman, Jordan had in excess of $2.3 billion under
management. Gerald Jordan has been President of Hellman, Jordan since the firm's
inception in 1978 and has been responsible for the day-to-day management of
those assets of the Fund allocated to Hellman, Jordan since the Fund's inception
in June 1990.
In managing assets allocated to it, Hellman, Jordan emphasizes investment in
equity securities exhibiting high rates of earnings growth. Hellman, Jordan
identifies the industry groups, or sectors, that will respond best to emerging
economic trends and invests in companies within those industries that exhibit
high rates of earnings growth, favorable relative value and a strong technical
pattern. Hellman, Jordan's determination of favored industry groups and
companies may shift rapidly in accordance with market or financial cycles.
During periods of uncertainty, defensive measures are employed to reduce
portfolio risk.
MARK ASSET MANAGEMENT CORPORATION
Mark Asset Management Corporation ("MAMC"), an investment adviser registered
under the Advisers Act and located at 767 Fifth Avenue, New York, New York
10153, follows an investment philosophy contemplating disciplined, fundamental,
research-oriented value investing in common stocks and other equity securities.
Typically, the firm focuses on companies that it believes have substantially
undervalued assets, or undervalued earnings growth potential, or, preferably,
both. In determining whether a company's assets are undervalued, MAMC calculates
the value at which it believes the company's individual businesses and other
assets could be sold in the private market place. In determining whether a
company has substantial unrealized growth potential, MAMC attempts to measure
the company's long-term cash flow and earnings outlook by analyzing the quality
of the company's management, business franchise and operating and financial
characteristics.
Although strongly committed to equity investing, MAMC, in seeking to maximize
investment opportunities and conserve capital for its clients, may
49
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
MANAGEMENT OF THE FUND (CONTINUED)
invest in fixed income securities and/or hold cash and cash equivalents. On
occasion, MAMC employs option strategies on behalf of clients, particularly to
hedge portfolio investments, and may use specialized investment techniques such
as leverage and short sales. In investing assets of the Fund, MAMC will not
engage in any commodity futures or options on futures transactions.
MAMC, which was organized under the laws of the State of New York, has not
managed the assets of an investment company registered under the 1940 Act other
than the Fund. However, Morris Mark, MAMC's principal shareholder and President,
has over twenty-five years of experience in the securities and investment
businesses. MAMC manages, as of December 31, 1993 over $397 million in equity
accounts. Mr. Mark has primary investment responsibility for two investment
partnerships generally unavailable to the investing public in the United States
with aggregate assets as of December 31, 1993 in excess of $415 million. Morris
Mark has been President of MAMC since the firm's inception in 1987 and has been
responsible for the day-to-day management of those assets of the Fund allocated
to MAMC since the Fund's inception in June 1990.
WOODWARD & ASSOCIATES INC.
Woodward & Associates Inc. ("Woodward"), located at 17 State Street, New York,
New York 10153, is a New York corporation organized in 1986 to provide
investment management services to professional investors. Since 1987, John E.
Woodward III, who owns 100% of Woodward, has served as the general partner of
four private investment limited partnerships comprised of professional
investors, individuals, and pension and profit-sharing plans. Woodward has not
managed the assets of a registered investment company other than the Fund. As of
December 31, 1993, Woodward has in excess of $100 million under management. John
Woodward, III has been President of Woodward since the firm's inception in 1986
and has been responsible for the day-to-day management of those assets of the
Fund allocated to Woodward since the Fund retained Woodward's services in July
1991.
In managing assets allocated to it, Woodward seeks to minimize risk by
investing primarily in equity securities selling at prices which, in the opinion
of Woodward, are within 20% of their industrial and/or intrinsic value.
50
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
MANAGEMENT OF THE FUND (CONTINUED)
Woodward defines industrial and/or intrinsic value as that value which a buyer
would be willing to pay to acquire the underlying assets and/or earnings stream
of the security for long-term financial gains.
ADMINISTRATOR
Boston Advisors, located at One Boston Place, Boston, Massachusetts 02108,
subject to the review and supervision of Strategy Advisers, serves as the Fund's
administrator. Boston Advisors is a wholly owned subsidiary of The Boston
Company, Inc. ("TBC") a financial services holding company, which is in turn a
wholly owned subsidiary of Mellon Bank Corporation ("Mellon"). Boston Advisors
provides investment management, investment advisory and/or administrative
services to investment companies with total assets, as of December 31, 1993, in
excess of $86 billion. Boston Advisors calculates the net asset value of the
Fund's shares and generally manages all aspects of the Fund's administration and
operation. For these services, Boston Advisors receives from the Fund a fee
computed and paid monthly at an 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, TBC was an affiliate of
Shearson Lehman Brothers and, in connection with its sale to Mellon, Shearson
Lehman Brothers conditionally agreed (with certain exceptions) that neither it
nor its subsidiaries would provide custody services (other than to investment
companies) or master trust services for a period of three years, and that
neither it nor its subsidiaries would provide custody or administration services
to certain investment companies and/or clients of TBC and its subsidiaries for a
period of one to seven years. In addition, Shearson Lehman Brothers
conditionally agreed (with certain exceptions) that, for a period of seven years
(a) with respect to each investment company for which both (i) TBC or its
subsidiary provided custody services, administration services or investment
advisory services (not subadvisory services) on September 14, 1992 and (ii)
Shearson Lehman Brothers or its subsidiaries serve as investment adviser or
principal underwriter, Shearson Lehman Brothers would to the extent consistent
with its fiduciary duties and other applicable law recommend TBC or its
subsidiary as a provider of such services, and (b) it would recommend TBC or its
subsidiary as the provider of custody services and administration services for
any investment company for which Shearson Lehman Brothers or its subsidiaries
become an investment adviser or principal underwriter.
51
<PAGE>
THE ADVISORS FUND L.P.
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MANAGEMENT OF THE FUND (CONTINUED)
On July 30, 1993, Travelers and Smith Barney, Harris Upham & Co. Incorporated
("Smith Barney") purchased certain assets and assumed certain liabilities of
Shearson Lehman Brothers and Smith Barney was renamed "Smith Barney Shearson
Inc." Under the asset purchase agreement between Smith Barney and Shearson
Lehman Brothers, Smith Barney agreed with American Express Company that Smith
Barney and its pertinent affiliates would be bound by the provisions described
in the preceding paragraph to the extent that Shearson Lehman Brothers and its
pertinent affiliates would have been bound if the sale to Smith Barney had not
occurred.
EXPENSES OF THE FUND
Strategy Advisers and the Portfolio Managers bear all expenses in connection
with the performance of their services under the investment advisory agreement
and portfolio management agreements, respectively. The Fund bears certain other
expenses including: organizational costs, taxes, interest, brokerage fees and
commissions, if any, fees of Individual General Partners who are not officers,
directors, employees or shareholders holding 5% or more of the outstanding
shares of Smith Barney Shearson, Strategy Advisers, the Portfolio Managers,
Boston Advisors or any of their affiliates; SEC and state Blue Sky qualification
fees; charges of custodians and transfer and distribution disbursing agents'
fees; certain insurance premiums; outside auditing and legal expenses; costs of
any independent pricing services; costs of maintaining the Fund's existence;
costs attributable to investor services (including allocated telephone and
personnel expenses); costs of investors' reports and meetings; and any
extraordinary expenses.
- --------------------------------------------------------------------
PURCHASE OF SHARES
Purchases of Fund shares must be made through a brokerage account maintained
with Smith Barney Shearson or with an Introducing Broker. No maintenance fee
will be charged in connection with any Smith Barney Shearson brokerage account
through which an investor purchases or holds
52
<PAGE>
THE ADVISORS FUND L.P.
- ---------------------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
shares. Shares may be purchased only by investors who have a minimum net worth,
exclusive of home, home furnishings, and automobiles, of $250,000, although
officers and directors of Smith Barney Shearson, Tremont and each of the
Portfolio Managers, and Smith Barney Shearson Financial Consultants may invest
in the Fund without meeting this requirement.
Shares of the Fund are not offered to entities exempt from Federal income tax
including, but not limited to, qualified employee benefit plans, individual
retirement accounts, and tax-exempt organizations. In addition, shares of the
Fund are not offered to: (a) individuals who are classified as nonresident
aliens for U.S. Federal income tax purposes; (b) corporations and partnerships
organized under laws other than those of the United States, a state of the
United States, or the District of Columbia; and (c) entities that are classified
as foreign estates or foreign trusts for U.S. Federal income tax purposes.
The Fund does not issue certificates evidencing Fund shares unless
specifically requested by an investor who is a Shareholder of record. For those
Shareholders who hold certificates, additional steps must be taken by them,
which need not be taken by Shareholders who do not hold certificates, before
they can redeem their shares. See "Redemption of Shares."
A Shareholder may not transfer or assign shares to any other person, but may
pledge them as collateral. See Appendix IV, "Summary of the Partnership
Agreement."
The minimum initial investment in the Fund is $25,000, except that officers or
directors of Smith Barney Shearson, Tremont and each of the Portfolio Managers
and Smith Barney Shearson Financial Consultants are subject to a minimum
purchase requirement of $10,000. The minimum subsequent investment for all
Shareholders is $1,000. The Fund reserves the right to vary at any time the
initial and subsequent investment minimums. There is no maximum number or dollar
value of shares that may be outstanding at any time.
Purchase orders for shares received by Smith Barney Shearson (or an
Introducing Broker) prior to 4:00 p.m., New York time, on any day that the Fund
calculates its net asset value, are priced according to the net asset value
determined on that day. Purchase orders received after 4:00 p.m. are priced as
of the time the net asset value is next determined. See "Net Asset Value."
53
<PAGE>
THE ADVISORS FUND L.P.
- --------------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
Payment for shares is due to Smith Barney Shearson or an Introducing Broker no
later than the fifth business day after an order for shares is placed and
accepted (the "Settlement Date") at the appropriate net asset value plus the
applicable sales charge. The Fund and Smith Barney Shearson, the Fund's
distributor (the "Distributor"), reserve the right in their sole discretion to
(a) suspend the offering of the Fund's shares or (b) reject purchase orders
when, in the judgment of the Fund's management, such rejection is in the best
interest of the Fund.
For the period from June 1, 1993 through September 16, 1993, the Fund offered
individual investors two methods of purchasing shares: Class A shares, which are
offered subject to an initial sales charge; and Class B shares, which were
offered subject to a CDSC. As of September 16, 1993, the Fund ceased offering
Class B shares to the public, although Class B shares remain outstanding.
CLASS A SHARES. Class A shares are sold at their net asset value next
determined after a purchase order is received as discussed above, plus a sales
charge, which is imposed in accordance with the following schedule:
<TABLE>
<CAPTION>
SALES CHARGE AS % SALES CHARGE AS
%
AMOUNT OF INVESTMENT OF OFFERING PRICE OF
NET ASSET VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
Up to $49,999 5.00% 5.26%
$50,000 to $99,999 4.00% 4.17%
$100,000 to $249,000 3.25% 3.36%
$250,000 to $499,999 2.50% 2.56%
$500,000 to $999,999 2.00% 2.04%
$1,000,000 and over* 0.00% 0.00%
- -------------------------------------------------------------------------------------
<FN>
*The sales charge on all purchases of $1 million or more is waived; however a CDSC of
0.75% is imposed
for the first year after purchase. This fee is payable to Smith Barney Shearson which, with
Boston
Advisors, compensates Financial Consultants upon the sale of these shares.
</TABLE>
CLASS B SHARES. For the period from June 1, 1993 through September 16, 1993,
Class B shares were sold at their net asset value next determined after a
purchase order was received. No initial sales charge was imposed at the time of
purchase. A CDSC is imposed, however, on certain redemptions of outstanding
Class B shares. See "Redemption of Shares" which describes the CDSC in greater
detail. Class B shares are no longer available for purchase, although current
Class B shareholders will have the ability to invest distributions if any, in
additional Class B shares. See "Allocations and
54
<PAGE>
THE ADVISORS FUND L.P.
- --------------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
Distributions." 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.
REDUCED SALES CHARGES
Reduced sales charges are available to investors who are eligible to combine
their purchases of Fund shares to receive volume discounts. Investors eligible
to receive volume discounts are individuals and their immediate families, and a
trustee or other fiduciary purchasing shares for a single trust estate or single
fiduciary account even though more than one beneficiary is involved. Investors
interested in an explanation of volume discounts should contact their Smith
Barney Shearson Financial Consultant. Reduced sales charges on Class A shares
are also available under a combined right of accumulation, under which an
investor may combine the value of Class A shares already held in the Fund along
with the value of the Fund's Class A shares being purchased, to qualify for a
reduced sales charge. For example, if an investor owns Class A shares of the
Fund that have an aggregate value of $100,000 and makes an additional investment
in Class A shares of the Fund of $50,000, the sales charge applicable to the
additional investment would be 3.25%, rather than the 4.00% normally charged on
a $50,000 purchase.
Class A shares of the Fund may be offered without any applicable sales charge
to (a) employees of Travelers and its subsidiaries, including Smith Barney
Shearson and Strategy Advisers, and the spouses and minor children of such
employees when orders on their behalf are placed by such employees; (b) accounts
managed by registered investment advisory subsidiaries of Travelers; (c)
directors, trustees or general partners of any investment company for which
Smith Barney Shearson serves as Distributor; (d) any other investment company in
connection with the combination of such company with the Fund by merger,
acquisition of assets or otherwise; (e) Shareholders who have redeemed shares in
the Fund and who wish to reinvest their redemption proceeds in the Fund,
provided the reinvestment is made within 30 days of the redemption; (f) any
client of a newly employed Smith Barney Shearson Financial Consultant (up to a
period of 90 days from the commencement of the Financial Consultant's employment
with Smith Barney Shearson), on the condition that the purchase is made with the
proceeds of redemption of shares of a mutual fund that (i) was sponsored by
55
<PAGE>
THE ADVISORS FUND L.P.
- --------------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
the Financial Consultant's prior employer, (ii) was sold to the client by the
Financial Consultant, and (iii) when purchased, such shares were sold with a
sales charge or subject to a charge upon redemption; or (g) to the officers and
directors of Tremont and each of the Portfolio Managers.
OTHER INFORMATION
Purchasers of shares are required to execute a Subscription Agreement, in the
form of Exhibit A to this Prospectus, which includes a special power of
attorney, and deliver the Signature Page to the purchaser's Smith Barney
Shearson Financial Consultant who will forward it to the Fund. A Subscription
Agreement and Signature Page is enclosed with the Prospectus and should be used
for this purpose. An investor will become a Shareholder of the Fund upon the
Fund's acceptance of the investor's Subscription Agreement and the investor's
being listed as a limited partner on the books and records of the Fund.
The Fund issues certificates, without charge, for full shares only, upon
request made to the Fund's transfer agent, The Shareholder Services Group, Inc.
("TSSG"), a subsidiary of First Data Corporation.
When payment is made to the Distributor by an investor before the Settlement
Date, unless otherwise directed by an investor, the monies may be held as a free
credit balance in the investor's brokerage account and the Distributor may
benefit from the temporary use of these monies. The investor may designate
another use for the monies prior to the Settlement Date, such as investment in a
money market fund. The Individual General Partners of the Fund are advised of
the benefits to the Distributor resulting from five-day settlement procedures
and will take such benefits into consideration when reviewing the distribution
agreement (the "Distribution Agreement") for continuance.
- --------------------------------------------------------------------
REDEMPTION OF SHARES
GENERAL INFORMATION
Shares of either Class may be redeemed on any day on which the Fund's net
asset value is calculated. See "Net Asset Value" below. Redemption
56
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
requests received in proper form prior to 4:00 p.m., New York time, will be
effected at the net asset value per share determined on that day. Redemption
requests received after 4:00 p.m., New York time, will be effected at the net
asset value as next determined. If a shareholder holds shares in more than one
Class of the Fund, any request for redemption must specify the Class of shares
being redeemed. In the event of a failure to specify which Class or if the
investor owns fewer shares of the Class than specified, the redemption request
will be delayed until the Fund's transfer agent receives further instructions
from Smith Barney Shearson, or if the shareholder's account is not with Smith
Barney Shearson, from the shareholder directly. Payment for shares redeemed
(less any applicable CDSC) typically will be made the day after receipt of a
redemption request, but in no event will payment be made later than seven days
after receipt of a redemption request. Redemption proceeds will not be
available, however, until all checks used to purchase the shares being redeemed
have been collected, which may take up to 15 days or more. A Shareholder who
anticipates the need for more immediate access to his or her investment should
purchase shares by Federal funds, by bank wire or by a certified or cashier's
check.
Redemption requests may be given to Smith Barney Shearson or an Introducing
Broker. A Shareholder desiring to redeem shares represented by certificates must
present the certificates to Smith Barney Shearson or the Introducing Broker
endorsed for transfer or accompanied by an endorsed stock power, signed exactly
as the shares are registered. Smith Barney Shearson or the Introducing Broker
will transmit all properly received redemption requests to TSSG. A redemption
request will not be deemed to have been submitted until Smith Barney Shearson or
the Introducing Broker receives all required documents in proper form. A
redemption request received by Smith Barney Shearson will be deemed to have been
received by TSSG for purposes of determining the time as of which the redemption
becomes effective, except that a redemption request for shares represented by
certificates will not be deemed received until TSSG has received the
certificates in proper form. The proceeds of the redemption will be credited to
the Shareholder's account at Smith Barney Shearson or the Introducing Broker.
Generally, these funds will not be invested for the Shareholder's benefit
without specific instructions, and Smith Barney Shearson or the Introducing
Broker will benefit from the use of temporarily uninvested funds.
57
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
Under Delaware law, the Fund shall not make any distribution to a Shareholder
if it would result in a violation of Section 17-607(a) of the Delaware Revised
Uniform Limited Partnership Act. Section 17-607(a) limits the ability of the
Fund to make any distributions to the extent that at the time of the
distribution, after giving effect to the distribution, all liabilities of the
Fund, other than liabilities to partners on account of their interests in the
Fund and liabilities for which the recourse of creditors is limited to specified
property of the Fund, exceed the fair value of the assets of the Fund. For
purposes of this limitation, the fair value of property that is subject to a
liability for which the recourse of creditors is limited shall be included in
the assets of the Fund only to the extent that the fair value of the property
exceeds that liability.
Any Shareholder who receives a distribution from the Fund and who knows that
the receipt of the distribution is in violation of Section 17-607(a) will be
liable to the Fund for the amount of the distribution for a period of three
years. Any Shareholder who receives a distribution in violation of Section
17-607(a) and who did not know at the time of the distribution that the
distribution violated Section 17-607(a) will not be liable for the amount of the
distribution.
CONTINGENT DEFERRED SALES CHARGE -- CLASS B SHARES
A CDSC payable to Smith Barney Shearson is imposed on any redemption of
outstanding Class B shares, however effected, that causes the current value of a
shareholder's account to fall below the dollar amount of all payments by the
shareholder for the purchase of Class B shares ("purchase payments") during the
preceding five years. No charge is imposed to the extent the net asset value of
the Class B shares redeemed does not exceed (a) the current net asset value of
Class B shares purchased through reinvestment of dividends or capital gains
distributions, plus (b) the current net asset value of Class B shares purchased
more than five years prior to the redemption, plus (c) increases in the net
asset value of the shareholder's Class B shares above the purchase payments made
during the preceding five years.
In circumstances in which the CDSC is imposed, the amount of the charge will
depend on the number of years since the shareholder made the purchase payment
from which the amount is being redeemed. Solely for
58
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
purposes of determining the number of years since a purchase payment, all
purchase payments during a month will be aggregated and deemed to have been made
on the last day of the preceding Smith Barney Shearson statement month. The
following table sets forth the rates of the charge for redemptions of Class B
shares.
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC
<S> <C>
- ----------------------------------------------------------------------------------
First 5.00%
Second 4.00%
Third 3.00%
Fourth 2.00%
Fifth 1.00%
Sixth 0.00%
Seventh 0.00%
Eighth 0.00%
- ----------------------------------------------------------------------------------
</TABLE>
Following the eighth anniversary of their purchase date, outstanding Class B
shares generally will be eligible to convert automatically to Class A shares,
based on the relative net asset value for shares of each of the Classes, and
thereafter will no longer be subject to any distribution fee. Class B shares
that were acquired through reinvestment of distributions will be converted on a
pro-rata basis together with other Class B shares in the proportion that a
Shareholder's Class B shares converting to Class A shares bears to the total
Class B shares not acquired through the reinvestment of dividends.
Under present law, the Fund's status as partnership for Federal tax purposes
will terminate no later than December 31, 1997. As a result, the Fund may be
terminated by that time or may be converted into another type of entity, such as
a regulated investment company. Thus, by the time any Class B shares are
eligible for conversion into Class A shares, it is possible that the Fund will
have been terminated or converted to another form of organization. Such other
form of organization may or may not offer the conversion privilege. The
conversion of Class B shares into Class A shares is subject to the continuing
availability of an opinion of counsel to the effect that such conversions will
not constitute taxable events for Federal tax purposes.
59
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
With respect to Class B redemptions only, the purchase payment from which a
redemption is made is assumed to be the earliest purchase payment from which a
full redemption has not already been effected.
WAIVERS OF CDSC. The Class B CDSC will be waived on (a) involuntary
redemptions; (b) redemption proceeds from other funds in the Smith Barney
Shearson Group of Funds that are reinvested within 30 days of the redemption;
and (c) redemptions of shares in connection with a combination of any investment
company with the Fund by merger, acquisition of assets or otherwise.
Shares may be redeemed in one of the following ways:
REDEMPTION THROUGH SMITH BARNEY SHEARSON
Redemption requests may be made through Smith Barney Shearson or an
Introducing Broker. A Shareholder desiring to redeem shares of either Class
represented by certificates must also present such certificates to Smith Barney
Shearson or the Introducing Broker endorsed for transfer (or accompanied by an
endorsed stock power), signed exactly as the shares are registered. Redemption
requests involving shares represented by certificates will not be deemed
received until such certificates are received by the Fund's transfer agent in
proper form.
REDEMPTION BY MAIL
Shares held by Smith Barney Shearson as custodian must be redeemed by
submitting a written request to a Smith Barney Shearson Financial Consultant.
All other shares may be redeemed by submitting a written request for redemption
to:
The Advisors Fund L.P.
Class A or B (please specify)
c/o TSSG
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request to TSSG or a Smith Barney Shearson Financial
Consultant must (a) state the Class and number or dollar amount of shares to be
redeemed, (b) identify the Shareholder's account number and
60
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
(c) be signed by each registered owner exactly as the shares are registered. If
the shares to be redeemed were issued in certificate form, the certificates must
be endorsed for transfer (or be accompanied by an endorsed stock power) and must
be submitted to TSSG together with the redemption request. Any signature
appearing on a redemption request, share certificate or stock power must be
guaranteed by a domestic bank, savings and loan institution, domestic credit
union, member bank of the Federal Reserve System or member firm of a national
securities exchange. TSSG may require additional supporting documents for
redemptions made by corporations, executors, administrators, trustees or
guardians. A redemption request will not be deemed properly received until TSSG
receives all required documents in proper form.
INVOLUNTARY REDEMPTION
A Fund account that is reduced by a Shareholder to a value of $5,000 or less
may be redeemed by the Fund, but only after the Shareholder has been given at
least 30 days in which to increase the account balance to more than $5,000. In
addition, shares of a particular Shareholder may be redeemed by the Individual
General Partners in certain limited circumstances relating to (a) the failure of
such Shareholder to furnish tax-related information or certifications, and (b)
the payment of withholding taxes and certain related amounts. Any such
involuntary redemptions will be made at the net asset value per share at the
time of the redemption and will not be subject to any otherwise applicable CDSC.
The Fund will, however, retain the redemption proceeds to the extent it deems
necessary in order to satisfy withholding obligations and related costs which
the Fund estimates it will incur with respect to the shares being redeemed. To
prevent certain treatment of the Fund's account under the CEA, Shareholders who
are affiliated with Smith Barney Shearson, including employees of Smith Barney
Shearson, may be required to redeem their shares at any time. See "Appendix I:
Information Regarding Smith Barney Shearson Strategy Advisers Inc."
DISTRIBUTOR
Smith Barney Shearson, located at 388 Greenwich Street, New York, New York
10285, serves as Distributor for the Fund's shares pursuant to a distribution
agreement with the Fund. Smith Barney Shearson is paid an annual service fee by
Class A and outstanding Class B shares of the Fund at
61
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
the rate of 0.25% of the value of the average daily net assets of the respective
class. Smith Barney Shearson is also paid an annual distribution fee by Class B
at the rate of 0.75% of the value of the average daily net assets attributable
to that Class. The fees are authorized pursuant to a plan of distribution (the
"Plan") adopted by the Fund pursuant to Rule 12b-1 under the 1940 Act. Fees
assessed pursuant to the Plan are used by Smith Barney Shearson to pay its
Financial Consultants for servicing shareholder accounts. In the case of Class
B, such fees and any CDSC received by Smith Barney Shearson also cover expenses
that are primarily attributable to the sale of Fund shares. These expenses
include: costs of printing the Fund's Prospectus, Statement of Additional
Information and sales literature for distribution to Shareholders; an allocation
of overhead and other Smith Barney Shearson branch office distribution related
expenses; payments to and expenses of persons who provide support services in
connection with the distribution of shares; and accruals for interest on the
amount of the foregoing expenses which exceed distribution fees. These payments
are made by Smith Barney Shearson and not by the Fund, except to the extent that
Smith Barney Shearson utilizes the 0.75% annual distribution fee under the Plan
to cover these payments. The payments to Smith Barney Shearson Financial
Consultants for selling shares include a commission paid at the time of sale and
a continuing fee for servicing Shareholder accounts for as long as a Shareholder
remains a holder of that Class of shares. The service fee will be paid at the
rate of 0.25% of the value of the daily average net assets of the particular
Class of shares which remain invested in the Fund. Smith Barney Shearson
Financial Consultants and any other person entitled to receive compensation for
selling shares of the Fund may receive different levels of compensation for
selling different Classes of shares.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Smith Barney Shearson, and the
payments may exceed distribution expenses actually incurred. The Fund's
Individual General Partners evaluate the appropriateness of the Plan and its
payment terms on a continuing basis and, in doing so, consider all relevant
factors, including the expenses borne by Smith Barney Shearson, the amount
received under the Plan and the proceeds of the CDSC and sales charges received.
Smith Barney Shearson is one of the leading full-line investment firms serving
the U.S. and foreign securities and commodities markets. Travelers
62
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
and its subsidiaries other than Smith Barney Shearson are principally engaged in
the businesses of providing investment services, consumer finance and insurance
services.
Except as noted below, during the past five years, no administrative, civil or
criminal actions have been brought against Smith Barney Shearson or any of its
principals, as defined by the CFTC, that the Fund's commodity pool operators
deem to be material to an investor's decision to purchase shares.
On or about March 5, 1990, an amended complaint was filed in QUANTUM OVERSEAS,
N.V. V. SHEARSON LEHMAN HUTTON INC. in the United States District Court for the
Northern District of Illinois, Eastern Division, naming as defendants Shearson
Lehman Hutton Inc., a predecessor to Smith Barney Shearson, and certain named
and unnamed members of the Chicago Mercantile Exchange. The amended complaint
alleges violations of Section 4b of the CEA, fraud and breach of fiduciary duty
in connection with the handling of an order for S&P 500 futures contracts on the
Chicago Mercantile Exchange on October 22, 1987. The complaint claims
$70,000,000 in compensatory damages and $100,000,000 in punitive damages, plus
litigation costs. Smith Barney Shearson denies the allegations of the amended
complaint.
On September 25, 1990, the CFTC announced the filing and simultaneous
settlement of an administrative complaint against Shearson Lehman Brothers, a
predecessor to Smith Barney Shearson, the branch manager of Shearson Lehman
Brothers' Winter Park, Florida office and an account executive employed at that
office as well as others. The complaint, filed IN THE MATTER OF HORST J. HAPPEL,
ET. AL., charged that Shearson Lehman Brothers (a) aided and abetted a
customer's violation of the speculative position limits, (b) violated reporting
and recordkeeping requirements as well as the prohibition against reporting wash
sale transactions and (c) failed to supervise certain employees. Pursuant to
Shearson Lehman Brothers' settlement offer and without admitting or denying any
of the allegations of the complaint, Shearson Lehman Brothers consented to
findings that it violated sections of the CEA and regulations promulgated
thereunder, agreed to pay a civil penalty of $220,000 and agreed to institute
additional compliance procedures in the areas of recordkeeping and reporting.
63
<PAGE>
THE ADVISORS FUND L.P.
- --------------------------------------------------------------------
EXCHANGE PRIVILEGE
Shares of each Class of the Fund may be exchanged for shares of the same class
in the following funds in the Smith Barney Shearson Group of Funds, to the
extent shares are offered for sale in the Shareholder's state of residence.
<TABLE>
<CAPTION>
EXCHANGEABLE
FOR SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
<S> <C>
-------------------------------------------------------------------------------
MUNICIPAL BOND FUNDS
A SMITH BARNEY SHEARSON LIMITED MATURITY MUNICIPALS FUND,
an
intermediate-term municipal bond fund investing in investment
grade obligations.
A, B SMITH BARNEY SHEARSON MANAGED MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund.
A, B SMITH BARNEY SHEARSON TAX-EXEMPT INCOME FUND, an
intermediate-
and long-term municipal bond fund investing in medium- and
lower-rated securities.
A, B SMITH BARNEY SHEARSON ARIZONA MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund designed for
Arizona investors.
A SMITH BARNEY SHEARSON INTERMEDIATE MATURITY CALIFORNIA
MUNICIPALS FUND, an intermediate-term municipal bond fund
designed for California investors.
A, B SMITH BARNEY SHEARSON CALIFORNIA MUNICIPALS FUND INC.,
an
intermediate- and long-term municipal bond fund designed for
California investors.
A, B SMITH BARNEY SHEARSON FLORIDA MUNICIPALS FUND, an
intermediate
and long-term municipal bond fund designed for Florida
investors.
A, B SMITH BARNEY SHEARSON MASSACHUSETTS MUNICIPALS FUND,
an
intermediate- and long-term municipal bond fund designed for
Massachusetts investors.
</TABLE>
64
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
FOR SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
-------------------------------------------------------------------------------
<S> <C>
A, B SMITH BARNEY SHEARSON NEW JERSEY MUNICIPALS FUND INC.,
an
intermediate- and long-term municipal bond fund designed for
New Jersey investors.
A SMITH BARNEY SHEARSON INTERMEDIATE MATURITY NEW YORK
MUNICIPALS FUND, an intermediate-term bond fund designed for
New York investors.
A, B SMITH BARNEY SHEARSON NEW YORK MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund designed for
New York investors.
INCOME FUNDS
A, B SMITH BARNEY SHEARSON ADJUSTABLE RATE GOVERNMENT
INCOME FUND,
seeks high current income while limiting the degree of
fluctuation in net asset value resulting from movement in
interest rates.
A, B SMITH BARNEY SHEARSON WORLDWIDE PRIME ASSETS FUND,
invests in
a portfolio of high quality debt securities that may be
denominated in U.S. dollars or selected foreign currencies and
that have remaining maturities of not more than one year.
A, B SMITH BARNEY SHEARSON SHORT-TERM WORLD INCOME FUND,
invests in
high quality, short-term debt securities denominated in U.S.
dollars as well as a range of foreign currencies.
A SMITH BARNEY SHEARSON LIMITED MATURITY TREASURY FUND,
invests
exclusively in securities issued by the United States Treasury
and other U.S. government securities.
A, B SMITH BARNEY SHEARSON DIVERSIFIED STRATEGIC INCOME
FUND, seeks
high current income primarily by allocating its assets among
various types of fixed-income securities.
</TABLE>
65
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
FOR SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
-------------------------------------------------------------------------------
<S> <C>
A, B SMITH BARNEY SHEARSON MANAGED GOVERNMENTS FUND INC.,
invests
in obligations issued or guaranteed by the United States
government and its agencies and instrumentalities with
emphasis on mortgage-backed government securities.
A, B SMITH BARNEY SHEARSON GOVERNMENT SECURITIES FUND, seeks
a high
current return by investing in U.S. government securities.
A, B SMITH BARNEY SHEARSON INVESTMENT GRADE BOND FUND, seeks
maximum current income consistent with prudent investment
management and preservation of capital by investing in
corporate bonds.
A, B SMITH BARNEY SHEARSON HIGH INCOME FUND, seeks high current
income by investing in high-yielding corporate bonds,
debentures and notes.
A, B SMITH BARNEY SHEARSON GLOBAL BOND FUND, seeks current
income
and capital appreciation by investing in bonds, debentures and
notes of foreign and domestic issuers.
GROWTH AND INCOME FUNDS
A, B SMITH BARNEY SHEARSON CONVERTIBLE FUND, seeks current income
and capital appreciation by investing in convertible
securities.
A, B SMITH BARNEY SHEARSON UTILITIES FUND, seeks total return by
investing in equity and debt securities of utilities
companies.
A, B SMITH BARNEY SHEARSON STRATEGIC INVESTORS FUND, seeks high
total return consisting of current income and capital
appreciation by investing in a combination of equity, fixed-
income and money market securities.
</TABLE>
66
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
FOR SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
-------------------------------------------------------------------------------
<S> <C>
A, B SMITH BARNEY SHEARSON PREMIUM TOTAL RETURN FUND, seeks
total
return by investing in dividend-paying common stocks.
A, B SMITH BARNEY SHEARSON GROWTH AND INCOME FUND, seeks
income and
long-term capital growth by investing in income producing
equity securities.
GROWTH FUNDS
A, B SMITH BARNEY SHEARSON APPRECIATION FUND INC., seeks long-
term
appreciation of capital.
A, B SMITH BARNEY SHEARSON FUNDAMENTAL VALUE FUND INC.,
seeks
long-term capital growth with current income as a secondary
objective.
A, B SMITH BARNEY SHEARSON DIRECTIONS VALUE FUND, seeks long-
term
capital appreciation by investing in equity securities
believed to be undervalued.
A, B SMITH BARNEY SHEARSON SECTOR ANALYSIS FUND, seeks capital
appreciation by following a sector strategy.
A, B SMITH BARNEY SHEARSON TELECOMMUNICATIONS GROWTH
FUND, seeks
capital appreciation, with income as a secondary
consideration.
A, B SMITH BARNEY SHEARSON AGGRESSIVE GROWTH FUND INC., seeks
above-average capital growth.
A, B SMITH BARNEY SHEARSON SPECIAL EQUITIES FUND, seeks long-term
capital growth by investing principally in the common stocks
of foreign and domestic issuers.
A, B SMITH BARNEY SHEARSON GLOBAL OPPORTUNITIES FUND, seeks
long-term capital growth by investing principally in the
common stocks of foreign and domestic issuers.
</TABLE>
67
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
FOR SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
-------------------------------------------------------------------------------
A, B SMITH BARNEY SHEARSON EUROPEAN FUND, seeks long-term capital
appreciation by investing primarily in securities of issuers
based in European countries.
<S> <C>
A, B SMITH BARNEY SHEARSON PRECIOUS METALS AND MINERALS
FUND INC.,
seeks long-term capital appreciation by investing primarily in
precious metal- and mineral-related companies and gold
bullion.
MONEY MARKET FUNDS
* SMITH BARNEY SHEARSON MONEY MARKET FUND, invests in a
diversified portfolio of high quality money market
instruments.
** SMITH BARNEY SHEARSON DAILY DIVIDEND FUND, invests in a
variety of money market instruments.
** SMITH BARNEY SHEARSON GOVERNMENT AND AGENCIES FUND,
invests in
short-term United States government and agency securities.
** SMITH BARNEY SHEARSON MUNICIPAL MONEY MARKET FUND,
invests in
short-term high quality municipal obligations.
** SMITH BARNEY SHEARSON CALIFORNIA MUNICIPAL MONEY
MARKET FUND,
invests in short-term, high quality California municipal
obligations.
** SMITH BARNEY SHEARSON NEW YORK MUNICIPAL MONEY
MARKET FUND,
invests in short-term, high quality New York municipal
obligations.
--------------------------------------------------------------------
<FN>
*Class B shares of the Fund may be exchanged for shares of this money market
fund.
**Class A shares of the Fund may be exchanged for shares of this money market
fund.
</TABLE>
TAX EFFECT. The exchange of shares of the Fund for shares of another fund is
treated for Federal income tax purposes as a sale of the shares given in
exchange by the shareholder. Therefore, an exchanging Shareholder may realize a
taxable gain or loss in connection with an exchange.
68
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
CLASS B EXCHANGES. Smith Barney Shearson receives an annual service fee and an
annual distribution fee with respect to Class B shares of the Fund. Class B
shareholders of the Fund who wish to exchange all or a portion of their Class B
shares for Class B shares of any of the funds identified above may do so without
imposition of an exchange fee. Upon an exchange, the new Class B shares will be
deemed to have been purchased on the same date that the Class B shares of the
Fund were originally purchased. In the event Class B shareholders of the Fund
wish to exchange all or a portion of their shares for Class B shares in any of
the funds listed above imposing a CDSC higher than that imposed by the Fund, the
exchanged Class B shares will be subject to the higher applicable CDSC.
ADDITIONAL INFORMATION REGARDING THE EXCHANGE PRIVILEGE.
Shareholders
exercising the exchange privilege for any of the other funds in the Smith Barney
Shearson Group of Funds should review the prospectus of that fund carefully
prior to making an exchange. 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. For further information regarding the
exchange privilege or to obtain the current
69
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
prospectuses of any of the Smith Barney Shearson Group of Funds, investors
should contact their Smith Barney Shearson Financial Consultants. Shareholders
should note that shares of all other funds in the Smith Barney Shearson Group of
Funds may not be exchanged for shares of the Fund.
Although the exchange privilege is an important benefit, excessive exchange
transactions can be detrimental to the Fund's performance and its Shareholders.
The Fund's Portfolio Managers or Strategy Advisers may determine that a pattern
of frequent exchanges is excessive and contrary to the best interests of the
Fund's other Shareholders. In this event, the Fund's Portfolio Managers or
Strategy Advisers will notify Smith Barney Shearson, and Smith Barney Shearson
may, at its discretion, decide to limit additional purchases and/or exchanges by
the Shareholder. Upon such a determination, Smith Barney Shearson will provide
notice in writing or by telephone to the Shareholder at least 15 days prior to
suspending the exchange privilege and during the 15-day period the Shareholder
will be required to (a) redeem his or her shares in the Fund or (b) remain
invested in the Fund or exchange into any of the Smith Barney Shearson funds
ordinarily available, which position the Shareholder would expect to maintain
for a significant period of time. All relevant factors will be considered in
determining what constitutes an abusive pattern of exchanges.
- --------------------------------------------------------------------
NET ASSET VALUE
The net asset value per share of each Class of shares is calculated on each
day, Monday through Friday, except on days when the New York Stock Exchange,
Inc. ("NYSE") is closed. The NYSE is currently scheduled to be closed on New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas, and on the preceding Friday or subsequent
Monday when one of these holidays falls on a Saturday or Sunday, respectively.
Net asset value per share of a given Class is determined as of 4:00 p.m., New
York time, and is computed by dividing the value of the Fund's net assets by the
total number of shares outstanding. 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
70
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
NET ASSET VALUE (CONTINUED)
of the Individual General Partners. Fund securities that are primarily traded on
foreign exchanges are valued at the preceding closing values of the securities
on their respective exchanges, except that when an occurrence subsequent to the
time a value was so established is likely to have changed the value, the fair
market value of those securities will be determined by consideration of other
factors by or under the direction of the Individual General Partners or their
agents. A security that is primarily traded on a U.S. or foreign stock 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 on
each day. Debt securities (other than U.S. Government Securities and short-term
securities) are valued by 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.
Short-term investments that mature in 60 days or less are valued at amortized
cost. Amortized cost valuation involves valuing an instrument at its cost
initially, and, thereafter, assuming a constant amortization to maturity of any
discount or premium, regardless of the effect of fluctuating interest rates on
the market value of the instrument. 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 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, will be valued at their fair market value as
determined by the Individual General Partners, upon consultation with their
agents. Further information regarding the Fund's valuation policies is contained
in the Statement of Additional Information.
71
<PAGE>
THE ADVISORS FUND L.P.
- --------------------------------------------------------------------
ALLOCATIONS AND DISTRIBUTIONS
ALLOCATIONS
The Fund's income, gains, losses, deductions and credits are allocated among
the shares outstanding. Generally, these items are allocated to a particular
Shareholder in accordance with his or her interest in the Fund although certain
expenses such as distribution expenses, may be allocated specially in accordance
with the variable pricing system. Each Shareholder will be required to take into
account on a Federal income tax return (and possibly on other tax returns) his
or her allocated share of the Fund's tax items. Further discussion of
allocations and distributions by the Fund may be found under "Taxation" in this
Prospectus and in the Statement of Additional Information.
DISTRIBUTIONS
The Fund makes distributions to Shareholders in such amounts and at such times
as the Individual General Partners, in their sole discretion, determine.
Accordingly, there can be no assurance that Shareholders will receive
distributions at regular intervals. The per share distributions, if any, on
Class A shares will be higher than the per share distributions, if any, on Class
B shares as a result of lower distribution and transfer agency fees applicable
to the Class A shares. For the convenience of Shareholders, all distributions on
a particular Class of shares will be reinvested automatically in full and
fractional shares of that class. Each purchase of shares is made upon the
condition that TSSG is appointed by the Shareholder (by executing and delivering
a Signature Page in the form of Exhibit A to this Prospectus) as the
Shareholder's agent to receive all distributions on shares owned by the
Shareholder and to invest the amounts of the distributions in shares at the net
asset value per share at the close of business on the record date determined by
the Individual General Partners. A Shareholder may terminate this agency at any
time and may direct TSSG in writing to have subsequent distributions transmitted
to him or her in cash rather than invested in shares. Distributions apparently
are treated the same for tax purposes whether taken in cash or received in
additional shares. A change request received by the transfer agent will be
effective within one day of receipt. Any Shareholder who receives a cash payment
representing a distribution may invest the distribution at net asset value by
returning the check or the proceeds to the Fund's transfer agent, TSSG, P.O. Box
9134, Boston,
72
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
ALLOCATIONS AND DISTRIBUTIONS (CONTINUED)
Massachusetts 02205, within 30 days after the payment date. If the Shareholder
returns the proceeds of a distribution, the funds must be accompanied by a
signed statement indicating that the proceeds constitute a distribution to be
invested. An investment will be made at the net asset value per share next
determined after receipt of the check or proceeds by TSSG.
- --------------------------------------------------------------------
TAXATION
The following discussion summarizes certain Federal income tax considerations
incident to an investment in the Fund. A more complete discussion of tax matters
is included in the Statement of Additional Information.
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
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 IRS 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 IRS
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 until its first
taxable year beginning after 1997, if those conditions are met. The Fund intends
to fulfill the relevant conditions, but
73
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
TAXATION (CONTINUED)
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, see the Statement of Additional
Information.
The discussion below is based upon the assumption that the Fund will be
classified as a partnership for Federal income tax purposes and applies only to
that period before it is classified under Code Section 7704 as a corporation.
Information regarding the tax consequences of treating the Fund as a corporation
for tax purposes is set forth in the Statement of Additional Information.
During the period in which the Fund is classified as a partnership for 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 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. In this connection, Shareholders should
in particular be aware that their taxable income from the Fund (and the tax
thereon) could exceed distributions made to them in cases where the Fund
utilizes taxable income earned by it to reduce indebtedness of the Fund. Cash
distributions from the Fund generally will not be includable in a Shareholder's
taxable income to the extent that the distributions do not exceed a
Shareholder's tax basis in his shares. The Fund furnishes each Shareholder
annually with tax information regarding his or her distributive share of the
Fund's tax items.
The Fund is not designed to be a vehicle for producing net tax losses or
credits that will reduce a Shareholder's tax liability in a given taxable year
and, in fact, based upon the Fund's investment policies and its investment
74
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
TAXATION (CONTINUED)
objective to maximize total return, the Individual General Partners seek to
manage the Fund in a manner so that, if the Fund's investment objectives are
fulfilled, it can be expected that Shareholders will be required to report on
their income tax returns net taxable income from the Fund. However, no assurance
can be given that the Fund will, in fact, generate net taxable income or that it
will not generate net tax losses or excess credits.
With certain exceptions, gains or losses recognized by the Fund on the taxable
disposition of investments generally will be characterized as capital gains and
losses, which generally will be short-term or long-term, depending upon the
Fund's holding period for such investments. Interest and dividends earned by the
Fund are treated as ordinary income.
In the case of a taxpayer 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 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 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
allocations of tax items by entities such as the Fund, a possibility exists that
the IRS could seek to reallocate items among Shareholders, which could result in
additional tax liability (including interest and penalties).
The 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 losses. Portfolio income earned by the Fund generally may not be
offset by any passive losses a Shareholder may have.
Shareholders who are subject to withholding of tax by the Fund should be aware
that the Partnership Agreement permits the Fund to obtain amounts determined by
the Fund to be sufficient to satisfy withholding obligations in various ways,
including: (a) making deductions from income
75
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
TAXATION (CONTINUED)
or assets of the Fund which are allocable to a Shareholder or from redemption
proceeds of the Shareholder; (b) requiring a Shareholder or a former Shareholder
to remit amounts requested by the Fund in connection with withholding
obligations; and (c) redeeming shares of a Shareholder and retaining the
proceeds.
The Fund is required to report to the IRS each Shareholder's distributive
share of the Fund's tax items as well as the gross proceeds from the redemption
of Fund shares (except in the case of certain exempt Shareholders).
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. As one example, a Shareholder may be subject to tax in a
jurisdiction on income derived from the Fund if the Fund is regarded as doing
business in, or deriving income from, that jurisdiction.
SINCE THE FOREGOING IS A GENERAL SUMMARY OF THE TAX
CONSEQUENCES OF INVESTING
IN THE FUND, SHAREHOLDERS AND PROSPECTIVE SHAREHOLDERS ARE
ADVISED TO CONSULT
THEIR TAX ADVISORS ABOUT SPECIFIC TAX CONSEQUENCES TO THEM FROM
OWNERSHIP OF
FUND SHARES.
- --------------------------------------------------------------------
THE FUND'S PERFORMANCE
From time to time the Fund may advertise its "average annual total return"
over various periods of time for each Class of shares. Such total return figures
show the average percentage change in value of an investment in the Class from
the beginning date of the measuring period to the end of the measuring period.
These figures reflect changes in the price of the shares and assume that any
distributions of earnings made by the Fund during the period were reinvested in
shares of the same class. Class A total return figures include the maximum
initial 5% sales charge and Class B total return figures include any applicable
CDSC. The figures also take into account the service and distribution fees, if
any, payable by the respective Class.
76
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
THE FUND'S PERFORMANCE (CONTINUED)
Figures will be given for recent one-, five- and ten-year periods (if
applicable), and may be given for other periods as well (such as from
commencement of the Fund's operations or on a year-by-year basis). When
considering "average" annual total return figures for periods longer than one
year, it is important to note that the annual total return for any one year in
the period might have been greater or less than the average for the entire
period. The Fund may also use "aggregate" total return figures for various
periods, representing cumulative changes in value of an investment in the Fund
for the specific period (again reflecting changes in Fund share prices and
assuming reinvestment of distributions). Aggregate total return may be
calculated either with or without the effect of the maximum 5.0% sales charge
for the Class A shares or any applicable CDSC for Class B shares, and may be
shown by means of schedules, charts or graphs, and may indicate subtotals of the
various components of total return (I.E., changes in value of initial
investment, earnings, and distributions). Because of the differences in sales
charges and distribution fees, the total return for each of the Classes will
differ.
In reports or other communications to Shareholders and in advertising
material, performance of the respective Classes may be compared with that of
other mutual funds or Classes of shares of other Funds as listed in the rankings
prepared by Lipper Analytical Services, Inc. or with similar independent
services that monitor the performance of mutual funds, or with the S&P 500 or
other appropriate indexes of investment securities, or financial publications
such as BUSINESS WEEK, INSTITUTIONAL INVESTOR, MORNINGSTAR MUTUAL
FUND VALUES,
MONEY, FORBES, BARRON'S, KIPLINGER'S PERSONAL FINANCE MAGAZINE,
THE WALL STREET
JOURNAL, FORTUNE, USA TODAY, CDA, INVESTMENT TECHNOLOGIES INC., and
THE NEW YORK
TIMES. It is important to note that performance information is based on
historical earnings and is not intended to indicate future performance. For a
further description of the method used to determine the Fund's total return, see
the Statement of Additional Information -- "Determination of Performance."
- --------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT
Boston Safe Deposit and Trust Company ("Boston Safe") is located at One Boston
Place, Boston Massachusetts 02108, and serves as custodian of
77
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT (CONTINUED)
the Fund's investments. Boston Safe is a wholly owned subsidiary of TBC. Under
its custody agreement with the Fund, Boston Safe is authorized to appoint one or
more subcustodians that may hold assets owned by the Fund. All subcustodians of
the Fund's assets, whether located within or outside the United States, will be
selected and appointed in accordance with, and will fulfill their obligations
under, the 1940 Act and the rules and regulations promulgated under the 1940
Act.
TSSG is located at Exchange Place, Boston, Massachusetts 02109, and serves as
the Fund's transfer agent.
- --------------------------------------------------------------------
ADDITIONAL INFORMATION
The Fund is a limited partnership that was formed on November 16, 1987 under
the laws of the State of Delaware. Under the Partnership Agreement, which is
summarized in Appendix IV to this Prospectus and is set out in full in Appendix
B to the Statement of Additional Information, the Fund's partners (the
"Partners"), including General Partners and Shareholders, are entitled to vote
on certain matters. When matters are submitted to the Partners for a vote,
General Partners and Shareholders, will have one vote for each full share owned
and proportionate, fractional votes for fractional shares held. At an initial
meeting of the Partners, held in July 1991, the Partners voted upon the election
of five Individual General Partners, the approval of the Fund's various advisory
agreements, and the ratification of the selection of the Fund's auditors. At a
subsequent meeting of the Partners held in October 1992, the Partners elected
Martin Brody an Individual General Partner of the Fund, approved amendments to
the Fund's Partnership Agreement and advisory agreements and ratified the
selection of the Fund's auditors. No further meetings of Partners will be
required for the purpose of approving and electing Individual General Partners,
unless and until less than a majority of the Individual General Partners holding
office have been approved and elected by the Partners. Partners of record of no
less than two-thirds of the outstanding shares may remove an Individual General
Partner through an approval in writing or by an approving vote cast in person or
by proxy at a meeting called for the purpose of removing the
78
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
Individual General Partner. A meeting will be called for the purpose of voting
on the removal of an Individual General Partner at the written request of
holders of 10% of the Fund's outstanding shares.
The Fund sends its Shareholders Quarterly Reports and an audited Annual
Report, each of which includes a list of the investments held by the Fund at the
end of the period covered. In addition, after each taxable year, the Fund sends
each Shareholder a Federal K-1 tax form that summarizes the Shareholder's share
of the Fund's income, losses, deductions and other tax items for the period
during which he or she was a Shareholder.
Shareholders may make inquiries regarding the Fund, including its performance,
to their Smith Barney Shearson Financial Consultant. The Fund's books and
records regarding its transactions in futures will be kept at the Fund's offices
located at Two World Trade Center, New York, New York 10048.
DEFERRED ORGANIZATION EXPENSES
Because of the Fund's unique structure and operating policies, the Fund
incurred organization expenses that a typical mutual fund would not incur. These
organization expenses have been deferred and will be amortized over a five year
period using the straight-line method from June 28, 1990, (commencement of
operations). During such period, the Fund's expenses may be higher than a
typical mutual fund that incurred lower organization costs.
79
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
-------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE
STATEMENT OF
ADDITIONAL INFORMATION AND/OR IN THE FUND'S OFFICIAL SALES
LITERATURE IN
CONNECTION WITH THE OFFERING OF THE FUND'S SHARES AND, IF GIVEN OR
MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER IN ANY
STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT
LAWFULLY BE MADE.
-------------------
80
<PAGE>
THE ADVISORS FUND L.P.
- ---------------------------------------------
APPENDIX I
INFORMATION REGARDING SMITH BARNEY SHEARSON STRATEGY ADVISERS
INC.
This Appendix contains information required by the CFTC regarding Strategy
Advisers as a commodity pool operator of the Fund. The phone number of Strategy
Advisers is (212) 298-6266.
STRATEGY ADVISERS
Strategy Advisers, together with the Individual General Partners, will at all
times own as a group a certain minimum number of the outstanding shares of the
Fund in order to comply with certain guidelines established by the IRS relating
to the Fund's classification as a partnership for Federal income tax purposes.
During the past five years no administrative, civil or criminal actions have
been brought against Strategy Advisers or any of its principals, as defined by
the CFTC, that the Fund's commodity pool operators deem to be material to an
investor's decision to purchase shares.
The principals of Strategy Advisers are set forth below. Except as noted, all
of them have been employees of Smith Barney Shearson or Smith Barney for at
least the past five years.
Heath B. McLendon, 59, Chairman of Strategy Advisers. Mr. McLendon has been
employed by Smith Barney Shearson since 1960 and is currently an Executive Vice
President of Smith Barney Shearson.
Richard P. Roelofs, 40, President of Strategy Advisers. Mr. Roelofs has been
with Smith Barney Shearson since 1985. Before 1985, Mr. Roelofs was associated
with the New York law firm Simpson Thacher & Bartlett.
Stephen J. Treadway, 46, Director of Strategy Advisers. Mr. Treadway has been
with Smith Barney since 1987 and is currently Executive Vice President of Smith
Barney Shearson and Manager of its Unit Investment Trust and Smith Barney Mutual
Fund Departments.
None of these individuals has controlled any customer's commodity futures or
options accounts during the last three years, with the exception of the Fund and
Shearson Lehman Brothers Multiple Opportunities Portfolio L.P. ("MLTP"). MLTP
ceased operation on May 1, 1992. None of these individuals have operated any
other commodity pools with the exception of
I-1
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
APPENDIX I (CONTINUED)
Mr. McLendon who is a commodity pool operator of two investment companies
organized in The Netherlands Antilles. Neither such investment company is
offered to U.S. persons. In addition, Smith Barney Shearson serves as
Distributor and Mr. McLendon is the commodity pool operator of certain companies
organized outside the United States that may engage in the trading of commodity
interests incidental to their securities trading. As of December 31, 1993,
Strategy Advisers and its principals owned 0.59% of the Fund's outstanding Class
A shares and 12.41% of the Fund's outstanding Class B shares. Any of them may
acquire shares in the Fund, but in no event will affiliates of Smith Barney
Shearson ever own more than 10% of the Fund's combined outstanding shares.
I-2
<PAGE>
THE ADVISORS FUND L.P.
- ---------------------------------------------
APPENDIX II
INFORMATION REGARDING ARDSLEY ADVISORY PARTNERS
This Appendix contains certain information required by the CFTC regarding
Ardsley as commodity trading advisor to the Fund. Ardsley is a New York general
partnership, established December 1986, that provides investment management
services to pension and profit sharing plans through a group trust, and to
individual accounts and corporate and other business entities. Ardsley is
located at 646 Steamboat Road, Greenwich, Connecticut 06830 and its telephone
number is (203) 863-1430. Ardsley is registered with the SEC as an investment
adviser and with the CFTC as a commodity trading advisor. Ardsley is also a
member of the NFA. Neither Ardsley nor any of its principals currently have any
ownership or beneficial interest in the Fund. During the last five years, no
material administrative, civil or criminal actions have been brought against
Ardsley or any of its principals that the Fund's commodity pool operators deem
to be material to an investor's decision to purchase Fund shares. There has been
no payment of commissions or other fees by Ardsley or its principals to any
person for purposes of soliciting funds for the Fund. Neither Ardsley nor its
principals intend to trade in commodity interests for their own account.
Ardsley and its principals may advise other commodity clients concerning
contracts which are the subject of advice from Ardsley to the Fund. The advice
of Ardsley and its principals and positions taken by other clients may be
contrary to the advice given by Ardsley to, or positions taken by, the Fund.
The principals of Ardsley are set forth below.
Philip J. Hempleman, 52, Managing General Partner and Portfolio Manager of
Ardsley since December 1986. Mr. Hempleman was previously a Portfolio Manager
with the Trust Co. of the West, an institutional money manager, from November
1982 to December 1986.
Donald B. Strand, 36, General Partner and Equity Trader of Ardsley since
December 1986. Mr. Strand was previously a trader with Trust Co. of the West, an
institutional money manager, from January 1984 to November 1986.
II-1
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
APPENDIX II (CONTINUED)
Kevin M. McCormack, 45, General Partner and Financial Officer of Ardsley since
December 1986. Mr. McCormack was previously self-employed as a consultant from
October 1986 to November 1986 and was Treasurer of Dunlevy & Co., Inc. from
September 1980 to October 1986.
Glenn R. Doshay, 35, General Partner and Portfolio Manager of Ardsley since
December 1986. Mr. Doshay was an analyst/portfolio manager with Steinhardt
Partners from December 1985 to January 1987 and with the Trust Co. of the West,
an institutional money manager, from May 1982 to November 1985.
Douglas C. Floren, 52, General Partner and Portfolio Manager of Ardsley since
April of 1988. Mr. Floren has also been the Managing General Partner of Coastal
Capital Management, an investment advisory firm, since February 1986 and of
Coastal Associates, an investment advisory firm, since April 1986. Mr. Floren
was previously a registered representative for Smith Barney from October 1965 to
February 1986.
David M. Gong, 44, General Partner and Portfolio Manager of Ardsley since
February 1990. Mr. Gong was previously an Executive Vice President of Rowe
Price-Fleming International, an international money management firm.
II-2
<PAGE>
THE ADVISORS FUND L.P.
- ---------------------------------------------
APPENDIX III
INFORMATION REGARDING HELLMAN, JORDAN MANAGEMENT CO., INC.
This Appendix contains certain information required by the CFTC regarding
Hellman, Jordan as commodity trading advisor to the Fund. Hellman, Jordan's
telephone number is (617) 261-9800 and they are located at 75 State Street,
Boston, Massachusetts 02109. Hellman, Jordan was incorporated in 1978 and has
actively managed clients' funds since that time. Hellman, Jordan is a wholly
owned subsidiary of United Asset Management Corporation, a publicly-held
corporation. Norton Reamer, a principal of Hellman, Jordan, owns 4.3% of United
Asset Management. Hellman, Jordan is registered with the SEC as an investment
adviser and with the CFTC as a commodity trading advisor and commodity pool
operator. Hellman, Jordan is also a member of the NFA. Neither Hellman, Jordan
nor any of its principals currently have any ownership or beneficial interest in
the Fund. During the last five years, no material administrative, civil or
criminal actions have been brought against Hellman, Jordan or any of its
principals that the Fund's commodity pool operator deems to be material to an
investor's decision to purchase Fund shares. There has been no payment of
commissions or other fees by Hellman, Jordan or its principals to any person for
purposes of soliciting funds for the Fund.
Hellman, Jordan and its principals may take or hold positions in, or advise
other commodity clients concerning, contracts which are the subject of advice
from Hellman, Jordan to the Fund. The positions and advice of Hellman, Jordan
and its principals and positions taken by other clients may be contrary to
positions of, and the advice given by, Hellman, Jordan to the Fund.
In addition to the potential conflicts of interest with respect to contract
positions taken by Hellman, Jordan, and its principals which are referred to
above, the following may present potential conflicts of interest with the Fund:
Hellman, Jordan may render advice or have discretionary investment authority
with respect to other clients which is contrary to that rendered to the Fund.
Hellman, Jordan and its principals and clients will be subject in the aggregate
to various contract position limits which may from time to time place a limit on
the number of contract positions taken by the client pursuant to the
discretionary authority of Hellman, Jordan. For example, if Hellman, Jordan and
all of the customer accounts under its investment
III-1
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
APPENDIX III (CONTINUED)
discretion have reached a position limit with respect to a contract, a conflict
of interest may arise which may result in a client under Hellman, Jordan's
investment discretion receiving a smaller allocation of contracts than it would
otherwise be entitled to. Potential conflicts of interest may arise from the
fact that the FCMs selected by Hellman, Jordan or their affiliates have ongoing
brokerage relationships (which include the provision by such FCMs or their
affiliates of various services, including research) with Hellman, Jordan with
respect to other accounts, including that of the Fund. Furthermore, Hellman,
Jordan, its principals or other clients, may from time to time invest in the
equity securities of the aforesaid FCMs and/or their affiliates.
Clients of Hellman, Jordan will be permitted to inspect the books and records
maintained by Hellman, Jordan of commodity contract trades of Hellman, Jordan,
its pension trust, or any of its principals.
The officers and directors of Hellman, Jordan are set forth below.
Gerald Jordan, Jr., 55, President, Director, Chief Investment Officer and
Portfolio Manager for Hellman, Jordan since August 1978. Mr. Jordan was
previously a securities analyst and investment manager with Putnam Management
Company from May 1967 to August 1978.
Martin de M. Hale, 53, Executive Vice President, Director and Portfolio
Manager for Hellman, Jordan since April 1983. Mr. Hale was previously the
President of Marsh & McLennan Asset Management Co. from September 1981 to March
1983.
Norton H. Reamer, 58, President, Chairman and Chief Executive Officer and
Director of United Asset Management Corporation, the parent company of Hellman,
Jordan, since December 1980.
Nicholas Gleysteen, 41, Senior Vice President and Portfolio Manager for
Hellman, Jordan since February 1984. Mr. Gleysteen was previously a Tax
Accountant with Coopers & Lybrand from February 1980 to February 1984.
David M. Driscoll, 53, Senior Vice President of Hellman, Jordan since August
1989. Mr. Driscoll was previously Senior Vice President of The Boston Company
from January 1977 to March 1989.
III-2
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
APPENDIX III (CONTINUED)
Susan G. Lynch, 35, Vice President of Compliance. Ms. Lynch has been employed
by Hellman, Jordan since 1983. Before 1983, Ms. Lynch was a control supervisor
at Bradford Trust Company.
Mr. Charles H. Ritt, III, 39, Vice President of Hellman, Jordan since December
1991. Mr. Ritt was previously Operations Manager for Hellman, Jordan since 1983,
and a Master Trust Accountant with Boston Safe Deposit and Trust Company from
August 1981 to August 1983.
III-3
<PAGE>
THE ADVISORS FUND L.P.
- ---------------------------------------------
APPENDIX IV
SUMMARY OF THE PARTNERSHIP AGREEMENT
The full text of the Agreement appears as Appendix B to the Statement of
Additional Information. The following discussion briefly summarizes and explains
certain provisions of the Agreement and is qualified in its entirety by the
terms of the Agreement. AS THE FOLLOWING IS A GENERAL DISCUSSION OF SOME
OF THE
PROVISIONS OF THE AGREEMENT, SHAREHOLDERS AND PROSPECTIVE
SHAREHOLDERS ARE
ADVISED TO READ THE AGREEMENT WHICH IS SET FORTH IN ITS ENTIRETY AS
APPENDIX B
TO THE STATEMENT OF ADDITIONAL INFORMATION.
VOTING RIGHT OF PARTNERS
The Partners have the rights required under the 1940 Act for voting security
holders. Partners have one vote for each share of either Class held. Shares of
all Classes shall vote together as a single voting group except to the extent
voting by separate Class is required under the 1940 Act or the Delaware Revised
Uniform Limited Partnership Act (the "Partnership Act"), or as to any matter
which does not affect a particular Class, in which case only the Class affected
will be entitled to vote. At a meeting of Partners held after the Fund commenced
operations, the Partners voted to approve the election of General Partners, as
well as other matters determined by the Individual General Partners. Thereafter,
no other meetings of the Partners will normally be held for the purpose of
approving and electing General Partners, unless and until less than a majority
of the Individual General Partners holding office have been approved and elected
by the Partners. Partners of record of more than two-thirds of the outstanding
shares may remove a General Partner through an approval in writing or by an
approving vote cast in person or by proxy at a meeting called for the purpose of
removing the General Partner. Partners holding more than 10% of the outstanding
shares may require the calling of a meeting of the Partners for the purposes of
voting on the removal of a General Partner. The Partners may vote in person or
by proxy at any meeting of Partners. The presence in person or by proxy of more
than 50% of the outstanding shares constitutes a quorum at any meeting of
Partners. Actions of the Partners, other than the approval and election of
General Partners and certain other matters specified in the Agreement, will
require the vote of Partners holding the lesser of (1) a majority of the
outstanding shares entitled to vote at the meeting or (2) 67% or more of the
shares represented at a meeting at which
IV-1
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
APPENDIX IV (CONTINUED)
a quorum is present. In the approval and election of General Partners, those
candidates receiving the highest number of votes cast, at a meeting at which a
quorum is present, up to the number of General Partners to be approved and
elected, shall be approved and elected to serve until their successors are duly
approved, elected and qualified. Each Partner shall have the right to vote the
number of shares standing of record in such Partner's name as of the record date
set forth in the notice of meeting. Holders of shares who have not become
substituted Limited Partners are not entitled to vote the shares they hold.
GENERAL PARTNERS
The Fund has two classes of Partners, General Partners and Limited Partners.
The General Partners include a number of individuals, referred to in this
Prospectus as Individual General Partners, and one corporate General Partner,
Strategy Advisers, which is referred to in this Prospectus as the Corporate
General Partner. Limited Partners are referred to throughout this Prospectus as
Shareholders. The Individual General Partners have complete and exclusive
control over the management, conduct and operation of the Fund's business,
subject to the terms of the Agreement and the 1940 Act. Under the terms of the
Agreement, Strategy Advisers, as the Corporate General Partner, is permitted to
participate in the management of the Fund as a General Partner only in the event
that there are no Individual General Partners, and then only for a limited
period of time.
The Agreement provides that the General Partners are not personally liable to
any Limited Partner or holder of shares for the repayment of any amount standing
in the account of a Limited Partner or holder of shares. In addition, the
General Partners are not personally liable to any Limited Partner or holder of
shares (1) by reason of changes in income tax laws or interpretations thereof,
or (2) by reason of any other matters, unless the result of willful misfeasance,
bad faith, gross negligence or reckless disregard of their duties. Each General
Partner, and certain other persons and entities specified in the Agreement, is
entitled to indemnification from the Fund against certain liabilities and
expenses to which a General Partner, and certain persons or entities, may be
subject by reason of involvement with the Fund, except with respect to certain
matters involving willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties on the part of such General Partner, person or entity.
IV-2
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
APPENDIX IV (CONTINUED)
LIABILITY OF LIMITED PARTNERS
The Agreement provides that no Limited Partner shall be liable for any
obligations or debts of the Fund, except that the contribution of a Limited
Partner to the Fund is subject to the risks of the business of the Fund and the
claims of the Fund's creditors.
The Fund can not make any distribution to a Limited Partner if it would result
in a violation of Section 17-607(a) of the Partnership Act. Section 17-607(a)
limits the ability of the Fund to make any distributions to the extent that at
the time of the distribution, after giving effect to the distribution, all
liabilities of the Fund, other than liabilities to Partners on account of their
interests in the Fund and liabilities for which the recourse of creditors is
limited to specified property of the Fund, exceed the fair value of the assets
of the Fund. For purposes of this limitation, the fair value of property that is
subject to a liability for which the recourse of creditors is limited shall be
included in the assets of the Fund only to the extent that the fair value of the
property exceeds that liability.
Any Limited Partner who receives a distribution from the Fund and who knows
that the receipt of the distribution is in violation of Section 17-607(a) will
be liable to the Fund for the amount of the distribution for a period of three
years. Any Limited Partner who receives a distribution in violation of Section
17-607(a) and who did not know at the time of the distribution that the
distribution violated Section 17-607(a) will not be liable for the amount of the
distribution.
The Agreement and the 1940 Act provide certain voting rights to the Limited
Partners. In some jurisdictions other than Delaware, where the Fund is
organized, uncertainty may exist regarding whether the exercise of such voting
rights could cause the Limited Partners to be deemed to be General Partners,
with a resulting loss of limited liability for the debts and obligations of the
Fund.
ADMISSION OF LIMITED PARTNERS
The Individual General Partners may, in their sole discretion, admit a
purchaser or other acquirer of shares as a Limited Partner upon (a) the
execution and acknowledgement by the purchaser of any instrument or
IV-3
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
APPENDIX IV (CONTINUED)
instruments that the Individual General Partners may deem necessary or desirable
to effectuate the admission, and (b) the purchaser's written acceptance and
adoption of all the terms and provisions of the Agreement.
TRANSFER OR ASSIGNMENT OF SHARES
A Limited Partner does not have the right to transfer or assign his or her
shares voluntarily to any other person without the unanimous consent of the
Individual General Partners, but may pledge them as collateral. In the event
that any person who is holding shares as collateral becomes the owner of the
shares as a result of foreclosure or otherwise, the person shall not have the
right to be substituted as a Limited Partner, but shall only have the right
(upon presentation of satisfactory evidence of the right to succeed to the
interests of the Limited Partner): (a) to redeem the shares pursuant to the
redemption provisions of the Agreement and (b) to receive distributions with
respect to the shares. In the event of the death or legal disability of a
Limited Partner (or, in the case of a Limited Partner that is a corporation or
other organization, the merger, dissolution or other termination of the
existence of the Limited Partner), or under such other circumstances as the
Individual General Partners may, in their discretion, determine, the successor
in interest of the Limited Partner has the right (upon the presentation of
satisfactory evidence of the right to succeed to the interests of the Limited
Partner): (a) to redeem the shares of the Limited Partner pursuant to the
redemption provisions of the Agreement, (b) to receive distributions with
respect to the shares, and (c) to be substituted as a Limited Partner, upon,
among other things, the unanimous consent of the Individual General Partners.
TERM OF EXISTENCE -- DISSOLUTION
The Fund will continue until December 31, 2037, but may be dissolved before
that date if and when: (a) Partners holding a majority of the Fund's outstanding
voting securities vote to dissolve the Fund at a meeting called for that
purpose; (b) the Fund disposes of all of its assets other than in the ordinary
course of business; (c) a General Partner retires, dies, is adjudicated
incompetent, is removed or not re-elected, assigns his or her interest, becomes
bankrupt or otherwise ceases to be a Partner under the Partnership Act, unless
all of the remaining Individual General Partners elect to continue the business;
(d) all of the Limited Partners and the Corporate General
IV-4
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
APPENDIX IV (CONTINUED)
Partner, at a meeting called by the Corporate General Partner when no Individual
General Partner remains to elect to continue the business of the Fund, fail to
agree to continue the business or to appoint successor Individual General
Partners; or (e) any other event causing dissolution of the Fund pursuant to the
Partnership Act. In the event that a General Partner dies, retires, is
adjudicated incompetent, assigns his or her interest, is removed or not
re-elected, becomes bankrupt or otherwise ceases to be a Partner under the
Partnership Act, the remaining Individual General Partners will decide within 90
days whether they wish to continue the Fund's business. If the decision is in
the negative, the affairs of the Fund will be wound up and the Fund dissolved
effective not earlier than 150 days from the date of the decision.
In the event that there are no remaining Individual General Partners to elect
to continue the business or all of the General Partners die, retire, dissolve,
are removed, are adjudicated incompetent, assign their interests, become
bankrupt or otherwise cease to be Partners under the Partnership Act, the Fund
will not dissolve if, within 90 days, all the remaining Partners agree in
writing to continue the business of the Fund and to the appointment of one or
more successor General Partners. If the remaining Partners decide not to
continue the business of the Fund, they shall call a meeting to be held within
120 days after the expiration of the 90-day period to determine whether to form
a new partnership.
Notwithstanding any other provision in the Agreement, the Individual General
Partners are authorized, but not required, before or after Section 7704 of the
Internal Revenue Code becomes applicable to the Fund (which will result in the
Fund being classified as a corporation for Federal income tax purposes), to take
such actions as they deem necessary or advisable, in their sole discretion, in
connection with such reclassification. These actions may include, for example,
the transfer of the Fund's assets to another entity.
Limited Partners have no right to the return of any part of their
contributions from the Fund until dissolution of the Fund other than the right
to redeem their shares as described under "Redemption of Shares" in the
Prospectus.
IV-5
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
THE ADVISORS FUND L.P.
- ---------------------------------------------
EXHIBIT A
Mr. Todd Miller
Money Funds Department
c/o Smith Barney Shearson Inc.
388 Greenwich Street
22nd Floor
New York, New York 10013
THE ADVISORS FUND L.P.
SUBSCRIPTION AGREEMENT AND SIGNATURE PAGE
1. SUBSCRIPTION FOR SHARES. The investor or investors named below (the
"Investor") hereby subscribes for the dollar amount indicated on the Signature
Page of Class A shares representing partnership interests ("Shares") of The
Advisors Fund L.P. (the "Fund") and hereby seeks to be admitted as a limited
partner ("Limited Partner") of the Fund.
2. RECEIPT OF PROSPECTUS. The Investor represents that he or she has
received a Prospectus, any supplements thereto and the Fund's most recent
quarterly report and Annual Report.
3. COMPLIANCE WITH PARTNERSHIP AGREEMENT. The Investor hereby accepts,
adopts and agrees to be bound by and comply with all of the terms and conditions
of, and hereby executes, the Fund's Amended and Restated Agreement of Limited
Partnership, as further restated or amended from time to time (the "Partnership
Agreement").
4. TAX-EXEMPT AND SIMILAR ORGANIZATIONS. The Investor represents that it is
not an entity of the type to which the unrelated business income tax, imposed
under Section 511 of the U.S. Internal Revenue Code, could apply. Such entities,
for example, include but are not limited to qualified employee benefit plans,
individual retirement accounts, state colleges and universities (and certain of
their subsidiaries) and certain other tax-exempt organizations.
5. U.S. TAX STATUS OF INVESTORS. The Investor represents that he or she is
(a) a citizen of the United States; (b) an individual who is or is treated as a
resident alien of the United States for U.S. Federal income tax purposes; (c) a
corporation or partnership organized under the laws of the United
A-1
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
EXHIBIT A (CONTINUED)
States, a state of the United States, or the District of Columbia; or (d) an
estate or trust which is a "United States Person" under the U.S. Internal
Revenue Code.
6. POWER OF ATTORNEY. By executing the Signature Page in the space provided
under the registration information and tax certification, the Investor
irrevocably constitutes and appoints: (a) each Individual General Partner of the
Fund, (b) each person who shall after the date of this Subscription Agreement
become an Individual General Partner, and (c) any substitute that an Individual
General Partner may appoint to act in such Individual General Partner's place
(who need not be a Partner of the Fund), the true and lawful agent and
attorney-in-fact of, and in the name, place and stead of, the Limited Partner,
with the power from time to time to sign, execute, acknowledge, make, swear to,
verify, deliver, file, record and/or publish with respect to the Fund such
documents and instruments as may be necessary or appropriate to carry out the
provisions or purposes of this Subscription Agreement and the Partnership
Agreement, including, without limitation:
(i) any document required from time to time to admit the Limited
Partner, to effect such Limited Partner's substitution as Limited Partner or
to effect the substitution of the Limited Partner's assignee as a Limited
Partner as to any or all Shares of the Limited Partner;
(ii) the Partnership Agreement, any amendment to the Partnership
Agreement and any amendment to the Fund's Certificate of Limited Partnership
or any other document required to reflect any action of the Partners
provided for in this Subscription Agreement or in the Partnership Agreement
whether or not the Limited Partner voted in favor of or otherwise approved
of the action; and
(iii) any other instrument, certificate or document as may be required
by any regulatory agency, the laws of the United States, any state or any
other jurisdiction in which the Fund is doing or intends to do business or
that the Individual General Partners deem advisable to file or record, or
that the Individual General Partners deem advisable for the conduct of the
Fund's business, so long as the instrument, certificate or document is in
accordance with or not inconsistent with the terms of this Subscription
Agreement and the Partnership Agreement as then in effect.
A-2
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
EXHIBIT A (CONTINUED)
The foregoing grant of authority is a special power of attorney coupled with
an interest, shall be irrevocable and shall survive the subsequent death,
bankruptcy, insolvency, incapacity, disability or insanity (or, in the case of a
Limited Partner that is a corporation, association, partnership, joint venture
or trust, shall survive the subsequent merger, dissolution, bankruptcy,
insolvency, or other termination of the existence) of the Limited Partner. The
special power of attorney may be exercised on behalf of a Limited Partner by a
facsimile signature of any Individual General Partner (or substitute for an
Individual General Partner) or by a single signature of any Individual General
Partner (or substitute for an Individual General Partner) acting as
attorney-in-fact for all of the Limited Partners. The special power of attorney
shall survive the assignment by the Limited Partner of the whole or any portion
of such Limited Partner's interest in the Fund, except that in a case in which
the assignee of the whole interest of a Limited Partner has furnished a power of
attorney and has been approved by the Individual General Partners for admission
to the Fund as a substituted Limited Partner, this power of attorney shall
survive the assignment for the sole purpose of enabling an Individual General
Partner (or substitute for the Individual General Partner) to execute,
acknowledge and file any instrument necessary to effect the substitution and
shall thereafter terminate. In addition, the special power of attorney shall
survive the redemption by a Limited Partner of the whole or any portion of his
interest in the Fund so long as in a case in which all of the Limited Partner's
interest is so redeemed the power of attorney shall survive the redemption for
the sole purpose of enabling an Individual General Partner (or substitute for
the Individual General Partner) to execute, acknowledge and file any instrument
necessary to effect the deletion of the person as a Limited Partner.
7. TRANSFER AGENT. Unless otherwise directed in writing by the Investor, The
Shareholder Services Group, Inc., a subsidiary of First Data Corporation, the
Fund's transfer agent, is appointed as the Investor's agent to receive all
income and capital gains distributions on Shares owned by the Investor and to
invest the amounts of the distribution in Shares at the net asset value per
Share at the close of business on the record date that is fixed by the
Individual General Partner.
8. INVESTOR SUITABILITY. The Investor represents that he or she:
- has read the Prospectus and understands the nature of an investment
in the Fund, including the risk factors and special considerations
A-3
<PAGE>
THE ADVISORS FUND L.P.
- -------------------------------------------------------------
EXHIBIT A (CONTINUED)
described in the Prospectus, and understands the nature of the Fund's
expenses and that the Fund will pay a fee substantially based on
performance to its investment adviser;
- (1) has a minimum net worth, exclusive of home, home furnishings
and automobiles, of at least $250,000, and is investing at least $25,000
in the Fund, OR (2) is an officer, director, or Financial Consultant of
Smith Barney Shearson Inc. ("Smith Barney Shearson") or is an officer or
director of Tremont Partners, Inc. or of the Portfolio Managers and is
investing at least $10,000 in the Fund.
9. The Investor represents that the information provided by him or her on
the Signature Page of the Subscription Agreement is correct and complete as of
the date hereof; and that if there should be any changes in such information
prior to the purchase of his or her Shares in accordance with the Prospectus,
the Investor will immediately notify the Fund of the correct information.
10. GOVERNING LAW. This Subscription Agreement shall be governed by and
construed under the laws of the State of Delaware, and all rights and remedies
with respect to this Subscription Agreement shall be governed by those laws.
A-4
<PAGE>
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
SEND BY OVERNIGHT MAIL THE COMPLETED AND EXECUTED SUBSCRIPTION
AGREEMENT
SIGNATURE PAGE TO:
Mr. Todd Miller
Money Funds Department
c/o Smith Barney Shearson Inc.
388 Greenwich Street,
22nd Floor
New York, New York 10013
-------------------------------------------------
OFFICE ACCOUNT TYPE CK FC
SMITH BARNEY SHEARSON ACCOUNT NO.
--------------------------------------------------------
/ / CHECK IF SMITH BARNEY SHEARSON EMPLOYEE
PURCHASE AMOUNT $ ___________________________
(Minimum $25,000)
Class A
TYPE OF ACCOUNT
(PLEASE CHECK ONE)
<TABLE>
<S> <C> <C>
1 / / INDIVIDUAL OWNERSHIP (ONE
SIGNATURE REQUIRED)
2 / / JOINT TENANTS WITH RIGHT OF
SURVIVORSHIP
(BOTH SIGNATURES REQUIRED)
3 / / COMMUNITY PROPERTY (BOTH
SIGNATURES REQUIRED)
4 / / TENANTS IN COMMON (BOTH
SIGNATURES REQUIRED)
5 / / CORPORATION (PROVIDE
ORIGINAL EXECUTED
CORPORATE RESOLUTION
AUTHORIZING PURCHASE) OR
PARTNERSHIP (PROVIDE COPY
OF PARTNERSHIP AGREEMENT)
6 / / TRUST (PROVIDE COPY OF
TRUST AGREEMENT)
7 / / AS CUSTODIAN FOR -------
UNDER THE UNIFORM GIFT TO
MINORS ACT OF THE STATE OF
-------------
8 / / OTHER (BUT NOT TAX-EXEMPT
ENTITIES SUCH AS IRAs OR
QUALIFIED EMPLOYEE BENEFIT
PLANS AND NOT FOREIGN
PERSONS OR FOREIGN
ENTITIES)
-------------------------
</TABLE>
PLEASE TYPE OR PRINT
<TABLE>
<S> <C>
-------------------------------------------------------
PLEASE PRINT FIRST NAME INITIAL LAST NAME
NAME(S) AS -------------------------------------------------------
SHOWN IN SBS FIRST NAME INITIAL LAST NAME
ACCOUNT RECORD -------------------------------------------------------
FIRST NAME INITIAL LAST NAME
</TABLE>
I. ENTER YOUR TAXPAYER IDENTIFICATION NUMBER ON THE APPROPRIATE
LINE BELOW. FOR
INDIVIDUALS AND SOLE PROPRIETORS, THIS IS YOUR SOCIAL SECURITY
NUMBER. FOR
OTHER ENTITIES, IT IS YOUR EMPLOYER IDENTIFICATION NUMBER.
Employer identification number _________ or social security number _________
Under penalties of perjury, I certify that (1) the number shown on this form
is my correct taxpayer identification number (or I am waiting for a number
to be issued to me), and (2) I am not subject to backup withholding either
because I have not been notified that I am subject to backup withholding as
a result of failure to report all interest or dividends, or the Internal
Revenue Service has notified me that I am no longer subject to backup
withholding under section 3406(a)(1)(C) of the Internal Revenue Code.
A-5
<PAGE>
IF YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE CURRENTLY
SUBJECT TO
BACKUP
WITHHOLDING, STRIKE OUT THE LANGUAGE IN (2) ABOVE BEFORE SIGNING.
IF YOU DO NOT HAVE A TAXPAYER IDENTIFICATION NUMBER, WRITE
"APPLIED FOR" IN
THE SPACE ABOVE FOR YOUR TAXPAYER IDENTIFICATION NUMBER. IF YOU
WROTE
"APPLIED FOR" ABOVE, THEN YOU MUST MAKE THE FOLLOWING
CERTIFICATION:
Under penalties of perjury, I certify that a taxpayer identification number
has not been issued to me, and that I mailed or delivered an application to
receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office (or I intend to mail
or deliver an application in the near future). I understand that if I do not
provide a certified taxpayer identification number to the Fund, I may be
subject to backup withholding at the rate of 31% on the redemption proceeds
and other reportable payments with respect to my Shares. Furthermore, I
understand that if I do not so provide a certified taxpayer identification
number, the Individual General Partners may, in their sole discretion,
redeem my Shares as described in the Prospectus of the Fund.
II. YOU ARE REQUIRED TO MAKE THE FOLLOWING CERTIFICATION:
Under penalties of perjury, I certify that I am not a nonresident alien for
purposes of U.S. income taxation, or a foreign partnership, foreign trust
or estate, or foreign corporation (as those terms are defined in the U.S.
Internal Revenue Code and regulations thereunder) and that I will notify
the Fund in writing within 30 days of any change in such status.
III. / / CHECK HERE IF YOUR TAXABLE YEAR IS OTHER THAN THE CALENDAR
YEAR, AND,
IF SO, FILL IN BELOW THE MONTH IN WHICH YOUR FISCAL YEAR ENDS.
YOUR SIGNATURE BELOW WILL INDICATE YOUR ACKNOWLEDGEMENT THAT
YOU HAVE READ,
UNDERSTAND AND ACCEPT ALL OF THE TERMS AND CONDITIONS OF THE
SUBSCRIPTION
AGREEMENT SET FORTH IN APPENDIX A TO THE PROSPECTUS OF THE
ADVISORS FUND L.P.
AND INCORPORATED BY REFERENCE HEREIN, INCLUDING THOSE APPEARING
ON THE REVERSE
SIDE OF THIS FORM, AND WILL CERTIFY THAT ALL INFORMATION PROVIDED
HEREIN BY YOU
IS CORRECT AND COMPLETE.
______________________________________
______________________________________
Investor Signature Dated
______________________________________
______________________________________
Co-Investor Signature (if applicable) Dated
Title:
_________________________________________________________________________
(Title or capacity of signing party if the investor is a partnership,
corporation, trust or other entity)
Address:
_______________________________________________________________________
(For individuals, use home address; for others, use business address)
ACCEPTED:
THE ADVISORS FUND L.P.
By: ____________________________________
Individual General Partner
SEND BY OVERNIGHT MAIL THE COMPLETED AND EXECUTED SUBSCRIPTION
AGREEMENT
SIGNATURE PAGE TO:
Mr. Todd Miller
Money Funds Department
c/o Smith Barney Shearson Inc.
388 Greenwich Street
22nd Floor
New York, New York 10013
A-6
<PAGE>
THE ADVISORS FUND L.P.
- ---------------------------------------------
EXHIBIT A (CONTINUED)
THE ADVISORS FUND L.P.
SUBSCRIPTION AGREEMENT AND SIGNATURE PAGE
1. SUBSCRIPTION FOR SHARES. The investor or investors named below (the
"Investor") hereby subscribes for the dollar amount indicated on the Signature
Page of Class A shares representing partnership interests ("Shares") of The
Advisors Fund L.P. (the "Fund") and hereby seeks to be admitted as a limited
partner ("Limited Partner") of the Fund.
2. RECEIPT OF PROSPECTUS. The Investor represents that he or she has
received a Prospectus, any supplements thereto and the Fund's most recent
quarterly report and Annual Report, if any.
3. COMPLIANCE WITH PARTNERSHIP AGREEMENT. The Investor hereby accepts,
adopts and agrees to be bound by and comply with all of the terms and conditions
of, and hereby executes, the Fund's Amended and Restated Agreement of Limited
Partnership, as further restated or amended from time to time (the "Partnership
Agreement").
4. TAX-EXEMPT AND SIMILAR ORGANIZATIONS. The Investor represents that it is
not an entity of the type to which the unrelated business income tax, imposed
under Section 511 of the U.S. Internal Revenue Code, could apply. Such entities,
for example, include but are not limited to qualified employee benefit plans,
individual retirement accounts, state colleges and universities (and certain of
their subsidiaries) and certain other tax-exempt organizations.
5. U.S. TAX STATUS OF INVESTORS. The Investor represents that he or she is
(a) a citizen of the United States; (b) an individual who is or is treated as a
resident alien of the United States for U.S. Federal income tax purposes; (c) a
corporation or partnership organized under the laws of the United States, a
state of the United States, or the District of Columbia; or (d) an estate or
trust which is a "United States Person" under the U.S. Internal Revenue Code.
6. POWER OF ATTORNEY. By executing the Signature Page in the space provided
under the registration information and tax certification, the Investor
irrevocably constitutes and appoints: (a) each Individual General Partner of the
Fund, (b) each person who shall after the date of this Subscription Agreement
become an Individual General Partner, and (c) any substitute that an Individual
General Partner may appoint to act in such Individual General Partner's place
(who need not be a Partner of the Fund),
A-7
<PAGE>
THE ADVISORS FUND L.P.
- --------------------------------------------------------------------
EXHIBIT A (CONTINUED)
the true and lawful agent and attorney-in-fact of, and in the name, place and
stead of, the Limited Partner, with the power from time to time to sign,
execute, acknowledge, make, swear to, verify, deliver, file, record and/or
publish with respect to the Fund such documents and instruments as may be
necessary or appropriate to carry out the provisions or purposes of this
Subscription Agreement and the Partnership Agreement, including, without
limitation:
(i) any document required from time to time to admit the Limited
Partner, to effect such Limited Partner's substitution as Limited Partner or
to effect the substitution of the Limited Partner's assignee as a Limited
Partner as to any or all Shares of the Limited Partner;
(ii) the Partnership Agreement, any amendment to the Partnership
Agreement and any amendment to the Fund's Certificate of Limited Partnership
or any other document required to reflect any action of the Partners
provided for in this Subscription Agreement or in the Partnership Agreement
whether or not the Limited Partner voted in favor of or otherwise approved
of the action; and
(iii) any other instrument, certificate or document as may be required
by any regulatory agency, the laws of the United States, any state or any
other jurisdiction in which the Fund is doing or intends to do business or
that the Individual General Partners deem advisable to file or record, or
that the Individual General Partners deem advisable for the conduct of the
Fund's business, so long as the instrument, certificate or document is in
accordance with or not inconsistent with the terms of this Subscription
Agreement and the Partnership Agreement as then in effect.
The foregoing grant of authority is a special power of attorney coupled with
an interest, shall be irrevocable and shall survive the subsequent death,
bankruptcy, insolvency, incapacity, disability or insanity (or, in the case of a
Limited Partner that is a corporation, association, partnership, joint venture
or trust, shall survive the subsequent merger, dissolution, bankruptcy,
insolvency, or other termination of the existence) of the Limited Partner. The
special power of attorney may be exercised on behalf of a Limited Partner by a
facsimile signature of any Individual General Partner (or substitute for an
Individual General Partner) or by a single signature of any Individual General
Partner (or substitute for an Individual General Partner) acting as
attorney-in-fact for all of the Limited Partners. The special power of
A-8
<PAGE>
THE ADVISORS FUND L.P.
- --------------------------------------------------------------------
EXHIBIT A (CONTINUED)
attorney shall survive the assignment by the Limited Partner of the whole or any
portion of such Limited Partner's interest in the Fund, except that in a case in
which the assignee of the whole interest of a Limited Partner has furnished a
power of attorney and has been approved by the Individual General Partners for
admission to the Fund as a substituted Limited Partner, this power of attorney
shall survive the assignment for the sole purpose of enabling an Individual
General Partner (or substitute for the Individual General Partner) to execute,
acknowledge and file any instrument necessary to effect the substitution and
shall thereafter terminate. In addition, the special power of attorney shall
survive the redemption by a Limited Partner of the whole or any portion of his
interest in the Fund so long as in a case in which all of the Limited Partner's
interest is so redeemed the power of attorney shall survive the redemption for
the sole purpose of enabling an Individual General Partner (or substitute for
the Individual General Partner) to execute, acknowledge and file any instrument
necessary to effect the deletion of the person as a Limited Partner.
7. TRANSFER AGENT. Unless otherwise directed in writing by the Investor, The
Shareholder Services Group, Inc., subsidiary of First Data Corporation, the
Fund's transfer agent, is appointed as the Investor's agent to receive all
income and capital gains distributions on Shares owned by the Investor and to
invest the amounts of the distribution in Shares at the net asset value per
Share at the close of business on the record date that is fixed by the
Individual General Partners.
8. INVESTOR SUITABILITY. The Investor represents that he or she:
- has read the Prospectus and understands the nature of an investment
in the Fund, including the risk factors and special considerations
described in the Prospectus, and understands the nature of the Fund's
expenses and that the Fund will pay a performance fee to its investment
adviser;
- (1) has a minimum net worth, exclusive of home, home furnishings
and automobiles, of at least $250,000, and is investing at least $25,000
in the Fund, OR (2) is an officer, director, or Financial Consultant of
Smith Barney Shearson, Inc. ("Smith Barney Shearson") or is an officer or
director of Tremont Partners, Inc. or of the Portfolio Managers and is
investing at least $10,000 in the Fund.
9. The Investor represents that the information provided by him or her on
the Signature Page of the Subscription Agreement is correct and complete
A-9
<PAGE>
THE ADVISORS FUND L.P.
- --------------------------------------------------------------------
EXHIBIT A (CONTINUED)
as of the date hereof; and that if there should be any changes in such
information prior to the purchase of his or her Shares in accordance with the
Prospectus, the Investor will immediately notify the Fund of the correct
information.
10. GOVERNING LAW. This Subscription Agreement shall be governed by and
construed under the laws of the State of Delaware, and all rights and remedies
with respect to this Subscription Agreement shall be governed by those laws.
A-10
<PAGE>
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
SEND BY OVERNIGHT MAIL THE COMPLETED AND EXECUTED SUBSCRIPTION
AGREEMENT
SIGNATURE PAGE TO:
Mr. Todd Miller
Money Funds Department
c/o Smith Barney Shearson Inc.
388 Greenwich Street
22nd Floor
New York, New York 10013
-------------------------------------------------
OFFICE ACCOUNT TYPE CK FC
SMITH BARNEY SHEARSON ACCOUNT NO.
--------------------------------------------------------
/ / CHECK IF SMITH BARNEY SHEARSON EMPLOYEE
PURCHASE AMOUNT $ ___________________________
(Minimum $25,000)
Class A
TYPE OF ACCOUNT
(PLEASE CHECK ONE)
<TABLE>
<S> <C> <C>
1 / / INDIVIDUAL OWNERSHIP (ONE SIGNATURE
REQUIRED)
2 / / JOINT TENANTS WITH RIGHT OF
SURVIVORSHIP (BOTH SIGNATURES
REQUIRED)
3 / / COMMUNITY PROPERTY (BOTH SIGNATURES
REQUIRED)
4 / / TENANTS IN COMMON (BOTH SIGNATURES
REQUIRED)
5 / / CORPORATION (PROVIDE ORIGINAL EXECUTED
CORPORATE RESOLUTION AUTHORIZING
PURCHASE) OR PARTNERSHIP (PROVIDE
COPY OF PARTNERSHIP AGREEMENT)
6 / / TRUST (PROVIDE COPY OF TRUST
AGREEMENT)
7 / / AS CUSTODIAN FOR -------
UNDER THE UNIFORM GIFT TO MINORS ACT
OF THE STATE OF
-------------
8 / / OTHER (BUT NOT TAX-EXEMPT ENTITIES
SUCH AS IRAS OR QUALIFIED EMPLOYEE
BENEFIT PLANS AND NOT FOREIGN PERSONS
OR FOREIGN ENTITIES)
-------------------------
</TABLE>
PLEASE TYPE OR PRINT
<TABLE>
<S> <C>
-------------------------------------------------------
PLEASE PRINT FIRST NAME INITIAL LAST NAME
NAME(S) AS -------------------------------------------------------
SHOWN IN SBS FIRST NAME INITIAL LAST NAME
ACCOUNT RECORD -------------------------------------------------------
FIRST NAME INITIAL LAST NAME
</TABLE>
I. ENTER YOUR TAXPAYER IDENTIFICATION NUMBER ON THE APPROPRIATE
LINE BELOW. FOR
INDIVIDUALS AND SOLE PROPRIETORS, THIS IS YOUR SOCIAL SECURITY
NUMBER. FOR
OTHER ENTITIES, IT IS YOUR EMPLOYER IDENTIFICATION NUMBER.
Employer identification number _________ or social security number _________
Under penalties of perjury, I certify that (1) the number shown on this form
is my correct taxpayer identification number (or I am waiting for a number
to be issued to me), and (2) I am not subject to backup withholding either
because I have not been notified that I am subject to backup withholding as
a result of failure to report all interest or dividends, or the Internal
Revenue Service has notified me that I am no longer subject to backup
withholding under section 3406(a)(1)(C) of the Internal Revenue Code.
IF YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE CURRENTLY
SUBJECT TO
BACKUP WITHHOLDING, STRIKE OUT THE LANGUAGE IN (2) ABOVE BEFORE
SIGNING.
IF YOU DO NOT HAVE A TAXPAYER IDENTIFICATION NUMBER, WRITE
"APPLIED FOR" IN
THE SPACE ABOVE FOR YOUR TAXPAYER IDENTIFICATION NUMBER. IF YOU
WROTE
"APPLIED FOR" ABOVE, THEN YOU MUST MAKE THE FOLLOWING
CERTIFICATION:
Under penalties of perjury, I certify that a taxpayer identification number
has not been issued to me, and that I mailed or delivered an application to
receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office (or I intend to mail
or deliver an application in the near future). I understand that if I do not
provide a certified taxpayer identification number to the Fund, I may be
subject to backup withholding at the rate of 31% on the redemption proceeds
and other reportable payments with respect to my Shares. Furthermore, I
understand that if I do not so provide a certified taxpayer identification
number, the Individual General Partners may, in their sole discretion,
redeem my Shares as described in the Prospectus of the Fund.
II. YOU ARE REQUIRED TO MAKE THE FOLLOWING CERTIFICATION:
Under penalties of perjury, I certify that I am not a nonresident alien for
purposes of U.S. income taxation, or a foreign partnership, foreign trust
or estate, or foreign corporation (as those terms are defined in the U.S.
Internal Revenue Code and regulations thereunder) and that I will notify
the Fund in writing within 30 days of any change in such status.
III. / / CHECK HERE IF YOUR TAXABLE YEAR IS OTHER THAN THE CALENDAR
YEAR, AND,
IF SO, FILL IN BELOW THE MONTH IN WHICH YOUR FISCAL YEAR ENDS.
<PAGE>
YOUR SIGNATURE BELOW WILL INDICATE YOUR ACKNOWLEDGEMENT THAT
YOU HAVE READ,
UNDERSTAND AND ACCEPT ALL OF THE TERMS AND CONDITIONS OF THE
SUBSCRIPTION
AGREEMENT SET FORTH IN APPENDIX A TO THE PROSPECTUS OF THE
ADVISORS FUND L.P.
AND INCORPORATED BY REFERENCE HEREIN, INCLUDING THOSE APPEARING
ON THE REVERSE
SIDE OF THIS FORM, AND WILL CERTIFY THAT ALL INFORMATION PROVIDED
HEREIN BY YOU
IS CORRECT AND COMPLETE.
______________________________________
______________________________________
Investor Signature Dated
______________________________________
______________________________________
Co-Investor Signature (if applicable) Dated
Title:
_________________________________________________________________________
(Title or capacity of signing party if the investor is a partnership,
corporation, trust or other entity)
Address:
_______________________________________________________________________
(For individuals, use home address; for others, use business address)
ACCEPTED:
THE ADVISORS FUND L.P.
By: ____________________________________
Individual General Partner
SEND BY OVERNIGHT MAIL THE COMPLETED AND EXECUTED SUBSCRIPTION
AGREEMENT
SIGNATURE PAGE TO:
Mr. Todd Miller
Money Funds Department
c/o Smith Barney Shearson, Inc.
388 Greenwich Street
22nd Floor
New York, New York 10013
<PAGE>
THE ADVISORS
FUND L.P.
Two World Trade Center
New York, New York 10048
Fund 134, 205
FD2061 B4
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1994
THE ADVISORS FUND L.P.
TWO WORLD TRADE CENTER NEW YORK, NEW YORK 10048 (212) 720-9218
This Statement of Additional Information supplements the information contained
in the Prospectus of The Advisors Fund L.P. (the "Fund") dated March 1, 1994, as
amended or supplemented from time to time, and should be read together with the
Prospectus. The Prospectus may be obtained by contacting any Smith Barney
Shearson Financial Consultant, or by writing or calling the Fund at the address
or telephone number set forth above. This Statement of Additional Information,
although not in itself a prospectus, is incorporated by reference into the
Prospectus in its entirety.
TABLE OF CONTENTS
For ease of reference, the section headings used in this Statement of Additional
Information are identical to those used in the Prospectus, except where shown
below.
<TABLE>
<S> <C>
Investment Objective and Policies........................... 2
The Fund's Portfolio Transactions and Brokerage............. 13
Management of the Fund...................................... 15
Purchase of Shares.......................................... 18
Redemption of Shares........................................ 20
Net Asset Value............................................. 20
Determination of Performance (See in the Prospectus "The
Fund's Performance")........................................ 20
Taxation.................................................... 22
Custodian and Transfer Agent................................ 32
Other Information........................................... 32
Appendix A: Description of Securities Ratings............... A-1
Appendix B: Amended and Restated Agreement of Limited
Partnership................................................. B-1
</TABLE>
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Prospectus discusses the investment objective of the Fund and the policies
to be employed to achieve that objective. This section contains supplemental
information concerning certain of the securities and other instruments in which
the Fund may invest, the investment policies and portfolio strategies that the
Fund may utilize, and certain risks involved with those investments, policies
and strategies.
OPTIONS ON SECURITIES
Certain securities exchanges have established limitations governing the maximum
number of calls and puts of each class of securities that may be held, written
or exercised within certain time periods by an investor or group of investors
acting in concert, regardless of whether the options are written on the same or
different securities exchanges or are held, written or exercised in one or more
accounts or through one or more brokers. The Fund and other clients of the
Fund's portfolio managers and investment adviser, and certain of their
affiliates, may be considered to be such a group. A securities exchange may
order the liquidation of positions exceeding its specified limits and may impose
certain other sanctions. As of the date of this Statement of Additional
Information, the position and exercise limits for common stocks on U.S.
exchanges were generally 3,000, 5,500 or 8,000 options per stock (I.E., options
representing 300,000, 550,000 or 800,000 shares), depending on various factors
relating to the underlying security and the Fund's combined stock and option
position.
The principal reason for writing covered call options is to attempt to
realize, through the receipt of premiums, a greater return than would be
realized on the Fund's portfolio securities alone. In return for a premium, the
writer of a covered call option forgoes 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 that 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 ordinarily have expiration dates between one and
nine months from the date written. The exercise price of the options may be
below, equal to or above the 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. The Fund may write (a) in-the-money call options when one of the
Fund's portfolio managers (each, a "Portfolio Manager") or the Fund's investment
adviser, Smith Barney Shearson Strategy Advisers Inc. ("Strategy Advisers")
expects that the price of the underlying security will remain flat or decline
moderately during the option period, (b) at-the-money call options when a
Portfolio Manager or Strategy Advisers expects that the price of the underlying
security will remain flat or advance moderately during the option period, and
(c) out-of-the-money call options when a Portfolio Manager or Strategy Advisers
expects that the price of the underlying 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 that such call options
are used in equivalent transactions.
2
<PAGE>
So long as the Fund's obligation 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 the Fund 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 is required to deposit in escrow the underlying
security or other assets in accordance with the rules of the Options Clearing
Corporation (the "Clearing Corporation") or a similar foreign clearing
corporation and of the securities exchange through which the option is written.
An option position may be closed out only when a secondary market exists for
an option of the same series on a recognized national securities exchange or in
the over-the-counter market. The Fund also expects to write options traded on
foreign securities exchanges. However, the Fund intends to enter into options
traded on foreign securities exchanges only when a liquid market for such
options exists such as would normally permit the Fund to close out its options
positions when it desires to do so.
STOCK INDEX OPTIONS
In addition to writing and purchasing options on securities, the Fund may
purchase and write put and call options on stock indexes listed on domestic or
foreign securities exchanges, if the stock index reflects in a single number the
market value of many different stocks. Tentative values are assigned to the
stocks included in an index, and the index fluctuates with changes in the market
values of the stocks included in the index.
Options on stock indexes are similar to options on stock except that (a) the
expiration cycles of stock index options are monthly, while those of stock
options are currently quarterly, and (b) 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 times a specified
multiplier. The writer of the option is obligated, in return for the premium
received, to make 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.
RISKS OF TRANSACTIONS IN STOCK OPTIONS
An option position may be closed out only on a securities exchange which
provides a secondary market for an option of the same series. Although the Fund
generally purchases or writes only those options for which there appears to be
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 secondary market on a securities
exchange may exist. In such event it might not be possible to effect closing
transactions in particular options, with the result that the Fund would have to
exercise its options in order to realize any profit and would incur brokerage
commissions upon the exercise of call options and upon the subsequent
disposition of underlying securities acquired through the exercise of
3
<PAGE>
call options or upon the purchase of underlying securities for the exercise of
put options. If the Fund as a call option writer is unable to effect a closing
purchase transaction in a secondary market, it may have to acquire the
underlying security for delivery upon exercise.
Reasons for the absence of a liquid secondary market on an exchange include
the following: (a) there may be insufficient trading interest in certain
options; (b) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (c) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (d) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (e) the facilities of an exchange or
the Clearing Corporation may not at all times be adequate to handle current
trading volume; or (f) the exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in the class or series of options) would cease to
exist, although outstanding options on that exchange that had been issued by the
Clearing Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms. There is no assurance that higher
than anticipated trading activity or other unforeseen events might not, at
times, render certain of the facilities of the Clearing Corporation inadequate,
and thereby result in the institution by an exchange of special procedures (such
as trading rotations, restrictions on certain types of orders, or trading halts
or suspensions in one or more options) which may interfere with the timely
execution of customers' orders.
RISKS OF OPTIONS ON INDEXES
The Fund's purchase and sale of options on indexes will be subject to the risks
described above under "Risks of Transactions in Stock Options." In addition, the
distinctive characteristics of options on indexes create certain risks that are
not present with stock options.
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 realizes
a gain or loss on the purchase or sale of an option on an index depends upon
movements in the level of stock prices in the stock market generally, rather
than movements in the price of a particular stock. Accordingly, the successful
use by the Fund of options on indexes is subject to the Portfolio Managers'
ability to correctly predict movements in the direction of the stock market
generally.
Index prices may be distorted if trading of certain stocks included in the
index is interrupted. Trading in index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
stocks included in the index. If this occurs, the Fund may not be able to close
out options which it had purchased or written and, if restrictions on exercise
were imposed, may be unable to exercise an option it holds, which could result
in substantial losses to the Fund. It is the Fund's policy to purchase or write
options only on indexes which include a sufficient number of stocks so that the
likelihood of a trading halt in the index is minimized. Trading in the Standard
& Poor's Index of 100 Stocks ("S&P 100") option and the Standard & Poor's Index
of 500 Stocks ("S&P 500") option on the Chicago Board Options Exchange (the
"CBOE") was temporarily halted on October 20, 1987 when a large number of the
component stocks in those indexes stopped trading on the New York Stock Exchange
(the "NYSE"). However, the right to exercise an option on those indexes was not
suspended on that day or at any other time since trading in options on such
indexes first commenced.
Trading in index options commenced in April 1983 with the S&P 100 option
(formerly called the "CBOE 100"). Since that time a number of additional index
contracts have been introduced, including options on industry indexes. Although
the markets for certain index option contracts have developed rapidly, the
markets for other index options are still relatively illiquid. The ability to
establish and close out positions on such
4
<PAGE>
options will be subject to the development and maintenance of a liquid secondary
market. It is not certain that this market will develop in all index option
contracts. The Fund will purchase and sell stock index options, notwithstanding
that the risk in connection with such transactions may be greater than such risk
in connection with options on stocks.
SPECIAL RISKS OF WRITING CALLS ON INDEXES. Because exercises of index options
are settled in cash, a call writer such as the Fund cannot determine the amount
of its settlement obligations in advance and, even if the Fund maintains a
portfolio of equity stocks, it could not provide in advance for, or cover, its
potential settlement obligations by acquiring and holding the underlying
securities. However, the Fund may write call options on indexes only if such
options are covered as described in the Prospectus.
When the Fund writes a call, there is also a risk that the market may
decline between the time the Fund has a call exercised against it, at a price
which is fixed as of the closing level of the index on the date of exercise, and
the time the Fund is able to exercise or effect a closing transaction with
respect to the long call position it holds as part of the spread. As with stock
options, the Fund may not learn that an index option has been exercised until
the day following the exercise date but, unlike a call on stock where the Fund
would be able to deliver the underlying securities in settlement (in effect be
in a temporary "short" position until it either acquired the underlying
securities or exercised the call it holds on the same security), the Fund is
required to make settlement of a stock index option in cash, and the level of
the index might decline before the long call is exercised or sold pursuant to a
closing transaction. Should a Portfolio Manager elect not to exercise or effect
a closing transaction with respect to the long call held, the Fund would have to
use its other assets to pay the holder exercising the call. This timing factor
makes the Fund's in-the-money "spread" strategies substantially more risky with
index options than with stock options. For example, even if an index call which
the Fund has written is "covered" by an index call held by the Fund with the
same strike price, the Fund will bear the risk that the level of the index may
decline between the close of trading on the date the exercise notice is filed
with the Clearing Corporation and the close of trading on the date the Fund
exercises or the time at which it effects a closing transaction with respect to
the call it holds or the time the Fund sells the call, which in no event would
occur any earlier than the day following the day the exercise notice was filed.
The same risks apply to index put spreads written by the Fund, the difference
being that put options are the reverse of call options in the relation of
exercise price to market price.
SPECIAL RISKS OF PURCHASING PUTS AND CALLS ON INDEXES. If the Fund holds
an
index option and exercises it before final determination of the closing index
value for that day, it runs the risk that the level of the underlying index may
change before closing. If such a change causes the exercised option to fall
out-of-the-money, the Fund will be required to pay the difference between the
closing index value and the exercise price of the option (times the applicable
multiplier) to the assigned writer. The Fund is able to minimize this risk by
withholding exercise instructions until just before the daily cutoff time or by
selling rather than exercising an option when the index level is close to the
exercise price. It may not be possible to eliminate this risk entirely in the
event that the cutoff times for index options may be earlier than those fixed
for other types of options and may occur before definitive closing index values
are announced. However, currently the cutoff time for index options (4:15 P.M.
New York time) is later than the close of trading on the NYSE.
FINANCIAL FUTURES AND RELATED OPTIONS
REGULATION. Commodity exchanges provide centralized market facilities for
trading in futures and options contracts relating to specified commodities.
Among the principal exchanges in the United States are the Chicago Board of
Trade, the Chicago Mercantile Exchange (including the International Monetary
Market) and the
5
<PAGE>
Commodity Exchange, Inc. Commodity exchanges in the United States are subject to
regulation under the Commodity Exchange Act (the "CEA") by the Commodity Futures
Trading Commission (the "CFTC").
Under amendments to the CEA effected by the Commodity Futures Trading
Commission Act of 1974, the CFTC has become the governmental agency having
responsibility for regulation of U.S. commodity exchanges and commodity futures
trading. The function of the CFTC is to implement the objectives of the CEA of
preventing price manipulation and excessive speculation and promoting orderly
and efficient commodity futures markets. Regulation under the CEA provides,
among other things, that futures trading in commodities must be upon exchanges
designated as "contract markets," and that all trading on those exchanges must
be done by or through exchange members. Under the 1974 amendments to the CEA,
futures trading in all commodities traded on domestic exchanges is regulated. In
addition, in 1981, the CFTC adopted rules regulating trading of commodity
options, which had previously been banned by the CFTC. Trading in spot
commodities and forward contracts, however, may not be within the jurisdiction
of the CFTC and may therefore be effectively unregulated. In addition, trading
on foreign exchanges is not subject to regulation by the CFTC.
The CFTC has exclusive jurisdiction to regulate the activities of "commodity
trading advisors" and "commodity pool operators." Strategy Advisers, the Fund's
corporate general partner (the "Corporate General Partner"), and one of the
Fund's individual general partners (the "Individual General Partners"), who is
an interested person, as defined by the Investment Company Act of 1940, as
amended (the "1940 Act"), of the Fund and Smith Barney Shearson Inc. ("Smith
Barney Shearson"), the Fund's distributor, are registered as commodity pool
operators. In addition, certain of the Portfolio Managers of the Fund -- Ardsley
Advisory Partners ("Ardsley") and Hellman, Jordan Management Co., Inc.
("Hellman, Jordan") -- are registered as commodity trading advisors.
Registration as a commodity pool operator or as a commodity trading advisor
requires annual filings describing the organization and identity of the
management and controlling persons of the commodity pool operator or commodity
trading advisor. The CFTC also has authority under the CEA to require and review
books and records of, and review documents prepared by, a commodity pool
operator and a commodity trading advisor. The CFTC has adopted regulations that
impose certain disclosure, reporting and record-keeping requirements on
commodity pool operators and commodity trading advisors. The CFTC is authorized
to suspend a person's registration as a commodity pool operator or as a
commodity trading advisor under a number of circumstances, including upon a
finding by the CFTC, among other things, that the person's trading practices
tend to disrupt orderly market conditions or that any controlling person of the
person is subject to an order of the CFTC denying the person trading privileges
on any exchange.
Smith Barney Shearson, which may serve as one of the Fund's commodity
brokers, is subject to regulation by and registration with the CFTC as a futures
commission merchant ("FCM"). The CEA requires all FCMs, in connection with
domestic futures and options, to meet and maintain specified fitness and
financial requirements, to account separately for all customers' funds, property
and positions, and to maintain specified books and records on customer
transactions open to inspection by the staff of the CFTC. The CEA authorizes the
CFTC to regulate trading by commodity brokerage firms and their employees,
permits the CFTC to require exchange action in the event of market emergencies,
and establishes an administrative procedure under which commodity traders may
institute complaints for damages arising from alleged violations of the CEA.
Under this procedure, a limited partner of the Fund (a "Shareholder") may be
afforded certain rights under the CEA by filing a complaint for a reparations
award with the CFTC against a commodity trading advisor, commodity pool operator
or FCM.
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During the fiscal year ended December 31, 1993, Ardsley used Goldman Sachs &
Co. as an FCM. Hellman, Jordan, during the same time period used Revco, Inc.,
Salomon Brothers Inc.,Goldman Sachs & Co. and Prudential Securities.
Most commodity exchanges (but not the London exchanges or the foreign
currency forward markets) have regulations that limit the amount of fluctuation
in commodity futures contract prices during a single trading day. These
regulations specify "daily price fluctuation limits" (more commonly termed,
"daily limits") that establish the maximum amount that the price of a futures
contract may vary from the previous day's settlement price at the end of the
trading session. Once the daily limit has been reached in a particular commodity
on a given day, no trades may be made at a price beyond the limit. Positions in
the commodity could then be taken or liquidated only if traders are willing to
effect trades at or within the limit during the period for trading on that day.
The daily limit rule does not limit losses that might be suffered by a trader
because it may prevent the liquidation of unfavorable positions. In addition,
commodity futures prices have moved the daily limit for several consecutive
trading days in the past, thus preventing prompt liquidation of futures
positions and subjecting the commodity futures trader to substantial losses.
The CFTC and certain exchanges have established limits, referred to as
"speculative position limits," on the maximum net long or net short position
that any person, or group of persons acting together, may hold or control in
particular commodities. The position limits established by the CFTC apply to
grains, soybeans, cotton, eggs and potatoes. U.S. contract markets have
established speculative position limits for all commodity futures contracts and
options for which no CFTC position limits have been established. The CFTC has
adopted a statement of policy concerning the treatment of positions held by a
commodity pool, such as the Fund, under CFTC rules relating to the aggregation
of futures positions for purposes of determining compliance with speculative
position limits. Under those rules, the Fund's futures positions are allocated
only to the persons or entities controlling trading decisions for the Fund and
not to the Shareholders. The Fund's positions (I.E., those that are not bona
fide hedge positions or spread positions specifically exempted from speculative
limits) may be aggregated with any positions owned or controlled by the Fund's
investment adviser, Strategy Advisers, by the Portfolio Managers, by any
principal of Strategy Advisers or the Portfolio Managers, and by any other
individual making trading decisions for the Fund and may be combined with Smith
Barney Shearson's proprietary position. Depending upon the total amount of funds
being managed in both the Fund's account and the other accounts with which it is
aggregated, speculative position limits may affect the Portfolio Manager's
ability to establish particular positions in certain commodities for the Fund or
may require the liquidation of positions.
MARGIN. Upon entering into a commodity futures contract, the Fund would be
required to deposit with its custodian in a segregated account in the name of
the FCM effecting the transaction an amount of cash or U.S. Treasury bills. This
amount is known as "initial margin." Initial margin in futures transactions,
unlike margin in security transactions, involves no borrowing of money by the
Fund to finance the transactions. Rather, initial margin is in the nature of a
performance bond or good faith deposit on the contract that is returned to the
Fund upon termination of the futures contract so long as all contractual
obligations have been satisfied.
The minimum amount of margin required with respect to a particular futures
contract is set by the exchange upon which the contract is traded and may be
changed at any time by the exchange. Brokerage firms often impose higher margin
requirements than are set by an exchange, and retain the right to modify those
requirements at any time, to afford further protection for themselves.
Entering into a futures contract will require the Fund to participate in a
process known as "marking-to-
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market," which involves daily payments, called "variation margin," from or to
the Fund as the price of the underlying commodity fluctuates. When the Fund, for
example, has entered into a long futures contract, and the price of the
underlying stock index or securities has risen, the Fund's position will have
increased in value and the Fund will receive from its FCM a variation margin
payment equal to the increase in value. Conversely, when the Fund has entered
into a long futures contract and the price of the underlying stock index or
securities has declined, the position would be less valuable and the Fund would
be required to make a variation margin payment to the FCM. If a customer fails
to meet a call for variation margin within a reasonable time, the broker is
required to close out the trader's position.
SEGREGATION OF ASSETS OR COVERING POSITIONS. When purchasing a futures
contract,
the Fund will maintain with its custodian (and mark-to-market on a daily basis)
cash, U.S. government securities or other highly liquid debt securities that,
when added to the amounts deposited with an FCM as margin, are equal to the
market value of the futures contract. Alternatively, the Fund may "cover" its
position by purchasing a put option on the same futures contract with a strike
price as high or higher than the price of the contract held by the Fund.
When selling a futures contract, the Fund will maintain with its custodian
(and mark-to-market on a daily basis) liquid assets that, when added to the
amounts deposited with an FCM as margin, are equal to the market value of the
instruments underlying the contract. Alternatively, the Fund may "cover" its
position by owning the instruments underlying the contract (or, in the case of
an index futures contract, a portfolio with a volatility substantially similar
to that of the index on which the futures contract is based), or by holding a
call option permitting the Fund to purchase the same futures contract at a price
no higher than the price of the contract written by the Fund (or at a higher
price if the difference is maintained in liquid assets with the Fund's
custodian).
When selling a call option on a futures contract, the Fund will maintain
with its custodian (and mark-to-market on a daily basis) cash, U.S. government
securities, or other highly liquid debt securities that, when added to the
amounts deposited with an FCM as margin, equal the total market value of the
futures contract underlying the call option. Alternatively, the Fund may cover
its position by entering into a long position in the same futures contract at a
price no higher than the strike price of the call option, by owning the
instruments underlying the futures contract, or by holding a separate call
option permitting the Fund to purchase the same futures contract at a price not
higher than the strike price of the call option sold by the Fund.
When selling a put option on a futures contract, the Fund will maintain with
its custodian (and mark-to-market on a daily basis) cash, U.S. government
securities, or other highly liquid debt securities that equal the purchase price
of the futures contract, less any margin on deposit. Alternatively, the Fund may
cover the position either by entering into a short position in the same futures
contract, or by owning a separate put option permitting it to sell the same
futures contract so long as the strike price of the purchased put option is the
same or higher than the strike price of the put option sold by the Fund.
MONEY MARKET INSTRUMENTS
As noted in the Prospectus, the Fund may invest in certain money market
instruments, including: obligations of the United States government and its
agencies and instrumentalities ("U.S. Government Securities"); certain bank
obligations; commercial paper; and repurchase agreements.
U.S. GOVERNMENT SECURITIES. U.S. Government Securities include debt obligations
of varying maturities issued by the U.S. Treasury or issued or guaranteed by the
Federal Housing Administration, Farmers Home Administration, Export-Import Bank
of the United States, Small Business
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Administration, Government National Mortgage Association ("GNMA"), General
Services Administration, Central Bank for Cooperatives, Federal Home Loan
Mortgage Corporation, Federal Intermediate Credit Banks, Federal Land Banks,
Federal Maritime Administration, the Tennessee Valley Authority, District of
Columbia Armory Board, Student Loan Marketing Association, International Bank
for Reconstruction and Development, Resolution Trust Corporation and Federal
National Mortgage Association ("FNMA"). Direct obligations of the U.S. Treasury
include a variety of securities that differ in their interest rates, maturities
and dates of issuance. Because the United States government is not obligated by
law to provide support to an instrumentality that it sponsors, the Fund will
invest in obligations issued by such an instrumentality only if the Portfolio
Managers or Strategy Advisers determines that the instrumentality's credit risk
does not make its securities unsuitable for investment by the Fund.
BANK OBLIGATIONS. Bank obligations in which the Fund may invest include
certificates of deposit ("CDs"), time deposits ("TDs") and bankers' acceptance
of domestic or foreign banks, domestic savings and loan associations and other
banking institutions having total assets in excess of $500 million. CDs are
short-term negotiable obligations of commercial banks; TDs 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 commercial banks organized under Federal law are supervised and
examined by the United States 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 insurance applicable to a CD issued by a particular
Federal or state bank may not be of material benefit to the Fund, depending upon
the principal amount of CDs held by the Fund in the bank) and are subject to
Federal examination and to a substantial body of Federal law and regulations. As
a result of Federal and state laws and regulations, domestic branches of
domestic banks are, among other things, generally required to maintain specified
levels of reserves, and are subject to other supervision and regulation designed
to promote financial soundness.
Obligations of foreign branches of U.S. banks, including 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 governmental regulation.
Obligations of foreign branches of U.S. banks and foreign banks are subject to
different risks than are those of U.S. banks or U.S. 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 U.S. banks are not
necessarily subject to the same or similar regulatory requirements that apply to
U.S. 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 U.S. bank than
about a U.S. bank. CDs issued by wholly owned Canadian subsidiaries of U.S.
banks may be guaranteed as to repayment of principal and interest, but not as to
sovereign risk, by the U.S. parent bank.
Obligations of U.S. 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 Federal and state regulations as well as
governmental action in the country in which the foreign bank has its head
office. A U.S. branch of a foreign bank with assets in excess of $1 billion may
or may not be subject to reserve requirements imposed by
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<PAGE>
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 United
States 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, less information may be publicly available
about a U.S. branch of a foreign bank than about a U.S. bank. In view of the
factors associated with the purchase of CDs and TDs issued by foreign banks and
foreign branches of U.S. banks, the Portfolio Managers or Strategy Advisers will
carefully evaluate investments in those obligations on a case-by-case basis.
Savings and loan associations issuing CDs that may be purchased by the Fund
are members of the Federal Home Loan Bank System 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 (although insurance applicable
to a CD issued by a particular Federal or state bank may not be of material
benefit to the Fund, depending upon the principal amount of CDs held by the Fund
in the savings and loan association). As a result, those savings and loan
associations are subject to regulation and examination.
COMMERCIAL PAPER. Commercial paper is a short-term, unsecured, negotiable
promissory note of a domestic or foreign company.
LENDING FUND SECURITIES
Although the Fund is authorized to lend its portfolio securities to brokers,
dealers and other financial organizations, it will not lend portfolio securities
to Smith Barney Shearson unless it has applied for and received specific
authority to do so from the Securities and Exchange Commission (the "SEC"). The
Fund's loans of securities will be collateralized by cash, letters of credit or
U.S. Government Securities that will be maintained at all times in an amount at
least equal to the current market value of the loaned securities. From time to
time, the Fund may pay a part of the interest earned from the investment of
collateral received for securities loaned to the borrower and/or to a third
party that is unaffiliated with the Fund and that is acting as a "finder."
By lending its portfolio securities, the Fund can increase its income by
continuing to receive interest on the loaned securities, by investing the cash
collateral in short-term instruments or by obtaining yield in the form of
interest paid by the borrower when U.S. Government Securities are used as
collateral. The Fund adheres to the following conditions whenever its portfolio
securities are loaned: (a) the Fund must receive at least 100% cash collateral
or equivalent securities from the borrower; (b) the borrower must increase the
collateral whenever the market value of the securities rises above the level of
the 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, except that, if a material event
adversely affecting the investment in the loaned securities occurs, the Fund
must terminate the loan and regain the Fund's right to vote the securities.
FOREIGN SECURITIES
Investing in the securities of foreign issuers 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
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exchange control regulations (which may include suspension of the ability to
transfer currency from a country), political instability which can affect U.S.
investments in foreign countries, and potential restrictions on the flow of
international capital. In addition, gain on the disposition of foreign
securities and dividends and interest payable on those securities may be subject
to foreign taxes, including taxes withheld from payments on those securities.
Foreign securities often trade with less frequency and volume than domestic
securities and therefore may exhibit greater price volatility. Changes in
foreign exchange rates will affect the value of those securities which are
denominated or quoted in currencies other than the U.S. dollar. The Fund has no
current intention of investing in securities of issuers located in Eastern
Europe.
HIGH YIELD BONDS AND ASSOCIATED RISK FACTORS
The Fund may invest up to 5% of its assets in debt securities rated less than
Baa by Moody's Investors Services, Inc. ("Moody's") or BBB by Standard & Poor's
Corporation ("S&P") or, if unrated, of equivalent quality in the view of the
Portfolio Managers. In general, debt securities rated lower than Baa by Moody's
or BBB by S&P ("high-yield bonds") commonly known as "junk bonds" are not
considered to be investment grade, and investors should consider the risks
associated with high-yield bonds before investing in the Fund. Investment in
such securities generally provides greater income and increased opportunity for
capital appreciation than investments in high quality securities, but they also
typically entail greater price volatility and principal and income risk.
Investment in high-yield bonds involves special risks in addition to the
risks associated with investments in higher-rated debt securities. High-yield
bonds are regarded as predominantly speculative with respect to the issuer's
continuing ability to meet principal and interest payments. The high-yield bond
market is relatively new, and many of the outstanding high-yield bonds have not
endured a major business recession. A long-term track record on bond default
rates, such as that for investment grade corporate bonds, does not exist for the
high-yield market. Analysis of the creditworthiness of issuers of debt
securities that are high-yield bonds may be more complex than for issuers of
higher quality debt securities, and the ability of the Fund to achieve its
investment objective may, to the extent of investment in high-yield bonds, be
more dependent upon such creditworthiness analysis than would be the case if the
Fund were investing in higher quality bonds.
High-yield bonds may be more susceptible to real or perceived adverse
economic and competitive industry conditions than investment grade bonds. The
prices of high-yield bonds have been found to be less sensitive to interest-rate
changes than higher-rated investments, but more sensitive to adverse economic
downturns or individual corporate developments. A projection of an economic
downturn or of a period of rising interest rates, for example, could cause a
decline in high-yield bond prices because the advent of a recession could lessen
the ability of a highly leveraged company to make principal and interest
payments on its debt securities. If an issuer of high-yield bonds defaults, in
addition to risking payment of all or a portion of interest and principal, the
Fund may incur additional expenses to seek recovery. In the case of high-yield
bonds structured as zero-coupon pay-in-kind securities, their market prices are
affected to a greater extent by interest rate changes, and therefore tend to be
more volatile than securities which pay interest periodically and in cash.
The secondary market on which high-yield bonds are traded may be less liquid
than the market for higher grade bonds. Less liquidity in the secondary trading
market could adversely affect the price at which the Fund could sell a
high-yield bond, and could adversely affect the daily net asset value of the
Fund's shares. Adverse publicity and investor perceptions, whether or not based
on fundamental analysis, may decrease the values and liquidity of high-yield
bonds, especially in a thinly-traded market. When secondary markets for high-
yield bonds are less liquid than the market for higher grade bonds, it may be
more difficult to value the
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securities because such valuation may require more research, and elements of
judgment may play a greater role in the valuation because there is less
reliable, objective data available.
There are also certain risks involved in using credit ratings for evaluating
high-yield bonds. For example, credit ratings evaluate the safety of principal
and interest payments, not the market value risk of high-yield bonds. Also,
credit rating agencies may fail to timely reflect subsequent events.
INVESTMENT RESTRICTIONS
The following investment restrictions have been adopted by the Fund as
fundamental policies. Under the 1940 Act, a fundamental policy may not be
changed without the votes of a majority of the outstanding shares representing
partnership interests in the Fund. "Majority" for this purpose means the lesser
of (1) 67% or more of the shares present at a shareholder meeting if the holders
of more than 50% of the outstanding shares are present or represented by proxy,
or (2) more than 50% of the outstanding shares.
Under the investment restrictions adopted by the Fund:
1. The Fund will invest no more than 25% of the value of its total assets in
securities of issuers in any one industry, except that this restriction does
not apply to investments in U.S. Government Securities and repurchase
agreements backed by U.S. Government Securities.
2. The Fund will not lend money to other persons, except through purchasing
debt obligations, lending portfolio securities and entering into repurchase
agreements in the manner described in the Fund's then current Prospectus and
Statement of Additional Information.
3. The Fund will not employ the trading technique commonly known as
"pyramiding," in which a commodities trader uses unrealized profits on
existing positions as margin for the purchase or sale of additional
positions in the same or related commodities.
4. The Fund will not enter into commodity futures contracts and options on
commodities or futures contracts on any domestic contract market for which
the aggregate initial margin and premiums exceed 10% of the assets of the
Fund, after taking into account unrealized profits and losses on those
securities.
5. The Fund will not underwrite the securities of other issuers, except insofar
as the Fund may be deemed an underwriter under the Securities Act of 1933,
as amended, by virtue of disposing of portfolio securities.
6. The Fund will not purchase real estate except that the Fund may purchase and
sell securities that are secured by real estate and may purchase securities
issued by companies that invest in or deal in real estate.
7. The Fund will not purchase securities on margin, except that the Fund may
obtain any short-term credits necessary for the clearance of purchases and
sales of portfolio securities or except as necessary in connection with the
Fund's borrowing, futures and options trading strategies as described in the
Prospectus or this Statement of Additional Information.
8. The Fund will not pledge, hypothecate, mortgage or encumber in any other way
more than one-third of the Fund's assets.
9. The Fund will not invest in oil, gas or other mineral exploration or
development programs, except that the Fund may invest in securities of
companies that invest in or sponsor those programs.
10. The Fund will not invest in securities of other investment companies
registered or required to be registered under the 1940 Act, except as they
may
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be acquired as part of a merger, consolidation, reorganization, acquisition
of assets or an offer of exchange.
11. The Fund will not purchase any security if as a result the Fund will then
have more than 10% of its total assets invested in securities of companies
(including predecessor companies) that have been in continuous operation for
less than three years.
12. The Fund will not make investments for the purpose of exercising control or
management of any other issuer.
13. The Fund will only borrow from banks and then only in an amount not
exceeding one-third of the market value of its total assets (including
borrowings) less liabilities (other than borrowings) immediately after the
borrowing.
In addition, the Fund has adopted the following "non-fundamental" investment
restrictions, which can be changed by a vote of a majority of the Individual
General Partners without Shareholder approval:
1. The Fund will not purchase or retain securities of any issuer if, to the
knowledge of the Fund, any of the Fund's Individual General Partners, or any
officer or director of Smith Barney Shearson or the Portfolio Managers,
individually own more than 1/2 of 1% of the outstanding securities of the
issuer and together own beneficially more than 5% of such issuer's
securities.
2. The Fund will not invest in warrants (other than warrants acquired by the
Fund as part of a unit or attached to securities at the time of purchase)
if, as a result, the investments (valued at the lower of cost or market
price) would exceed 5% of the value of the Fund's net assets of which not
more than 2% of the Fund's net assets may be invested in warrants not listed
on a recognized U.S. or foreign stock exchange.
3. The Fund will invest only in limited partnership interests which are traded
on the New York and American Stock Exchanges or NASDAQ-NMS listed.
4. The Fund will not invest more than 15% of its net assets in securities that
are illiquid.
The Fund may make commitments more restrictive than the restrictions listed
above so as to permit the sale of shares in certain states. Should the Fund
determine that any commitment is no longer in the best interests of the Fund or
its Shareholders, the Fund will revoke the commitment by terminating the sale of
shares in the relevant state. The percentage limitations contained in the
restrictions listed above apply only at the time of the purchase of securities.
THE FUND'S PORTFOLIO TRANSACTIONS
AND BROKERAGE
While the Portfolio Managers may engage in short-term trading of the Fund's
portfolio securities, the Fund's portfolio turnover rate is not expected to
exceed 300%, although there is no limit on this rate. A portfolio turnover rate
of 100% would occur if all of the Fund's securities that are included in the
computation of turnover were replaced once during a period of one year. The
portfolio turnover rate is calculated by dividing the lesser of purchases or
sales of portfolio securities for the year by the monthly average value of
portfolio securities. Securities with remaining maturities of one year or less
on the date of acquisition are excluded from the calculation. For the fiscal
years ended December 31, 1991, 1992 and 1993, the portfolio turnover rates were
304%, 312% and 247%, respectively.
Securities and commodities transactions on behalf of the Fund are executed
by brokers and dealers selected by the Portfolio Managers (or from time to time
by Strategy Advisers), subject to review by the Individual General Partners.
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the Portfolio Managers, investments of the type
that the Fund may make may also be
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<PAGE>
made by those other accounts. When the Fund and one or more other accounts
managed by a Portfolio Manager are prepared to invest in, or desire to dispose
of, the same security, available investments or opportunities for sales will be
allocated in a manner believed by the Portfolio Manager 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 or disposed of by the Fund.
Transactions on U.S. stock and commodity exchanges and some foreign stock
and commodity exchanges involve the payment of negotiated brokerage commissions.
On exchanges on which commissions are negotiated, the cost of transactions may
vary among different brokers. Commissions are generally fixed on most foreign
stock exchanges. No stated commission is generally applicable to securities
traded in U.S. or foreign over-the-counter markets, but the prices of those
securities include undisclosed commissions or mark-ups. 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. U.S. Government Securities are
generally purchased from underwriters or dealers, although certain newly issued
U.S. Government Securities may be purchased directly from the U.S. Treasury or
from the issuing agency or instrumentality. Similarly, foreign exchange
transactions are made with banks or institutions in the interbank market at
prices reflecting a mark-up or mark-down and/or a commission.
In selecting brokers or dealers to execute portfolio transactions on behalf
of the Fund, the Portfolio Managers and Strategy Advisers seek the best overall
terms available. In assessing the best overall terms available for any
transaction, a Portfolio Manager or Strategy Advisers considers the factors it
deems relevant, including the breadth of the market in the security or
commodity, the price of the security or commodity, 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 Portfolio Managers and Strategy Advisers are authorized, 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 the
Portfolio Managers and Strategy Advisers or their affiliates exercise investment
discretion. The fees under the Fund's investment advisory agreement with
Strategy Advisers is not reduced by reason of Strategy Advisers' or the
Portfolio Managers' receiving brokerage and research services. The Individual
General Partners will periodically 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. For the fiscal years
ended December 31, 1991, 1992 and 1993, the Fund paid $960,331, $1,125,007 and
$1,172,270, respectively, in brokerage commissions.
In accordance with applicable provisions of the 1940 Act and rules and
exemptions adopted by the SEC under the 1940 Act, the Individual General
Partners have determined that an exchange transaction for the Fund may be
executed through Smith Barney Shearson and other Smith Barney
Shearson-affiliated broker-dealers if, in the judgment of the Portfolio Manager
responsible for the transaction (or in the judgment of Strategy Advisers if
Strategy Advisers is responsible for the transaction), the use of an affiliated
broker-dealer is likely to result in price and execution at least as favorable
as those of other qualified broker-dealers and if, in the transaction, the
affiliated broker-dealer charges the Fund a rate consistent with that charged to
comparable unaffiliated customers in similar transactions. The Fund may also use
Smith Barney Shearson as a commodities broker in connection with entering into
futures contracts and commodity options if, in the judgment of
14
<PAGE>
the Portfolio Manager responsible for the transaction (or in the judgment of
Strategy Advisers if Strategy Advisers is responsible for the transaction), the
use of Smith Barney Shearson is likely to result in price and execution at least
as favorable as those of other qualified commodity brokers and if Smith Barney
Shearson charges the Fund a rate consistent with that charged to comparable
unaffiliated customers in similar transactions. Smith Barney Shearson has agreed
to charge the Fund commodity commissions at rates comparable to those charged by
Smith Barney Shearson to its most favored clients for comparable trades in
comparable accounts.
Over-the-counter purchases and sales on behalf of the Fund 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
December 31, 1991, 1992 and 1993, the Fund paid $37,911, $77,105 and $15,684, to
Smith Barney Shearson in brokerage commissions. For the 1993 fiscal year Smith
Barney Shearson received 1.30% of the total brokerage commissions paid and
executed 1.60% of the aggregate dollar amount of transactions involving
commissions.
MANAGEMENT OF THE FUND
INDIVIDUAL GENERAL PARTNERS
The names of the Individual General Partners, together with their principal
business occupations, appear in the Prospectus. No director, officer or employee
of Smith Barney Shearson, Strategy Advisers, the Portfolio Managers, Boston
Company Advisors, Inc. ("Boston Advisors"), or any of their affiliates, will
receive any compensation from the Fund for serving as an Individual General
Partner. The Fund pays each Individual General Partner who is not a director,
officer or employee of Smith Barney Shearson, Strategy Advisers, the Portfolio
Managers, Boston Advisors, or any of their affiliates, a fee of $15,000 per
annum plus $1,000 per meeting attended, and reimburses them for travel and
out-of-pocket expenses. For the fiscal year ended December 31, 1993 such fees
and expenses totalled $77,681.
STRATEGY ADVISERS, THE PORTFOLIO MANAGERS,
THE CONSULTANT AND THE ADMINISTRATOR
Strategy Advisers serves as the Fund's investment adviser under the terms of a
written agreement with the Fund (the "Advisory Agreement") which was most
recently approved by the Individual General Partners of the Fund, including a
majority of the Individual General Partners who are not "interested persons" of
the Fund or Strategy Advisers on July 30, 1993. Strategy Advisers is a wholly
owned subsidiary of Smith Barney Advisers, Inc. ("SBA"). SBA is a wholly owned
subsidiary of Smith Barney Shearson Holdings Inc. ("Holdings"), which is in turn
a wholly owned subsidiary of The Travelers Inc. ("Travelers") formerly known as
Primerica Corporation, a diversified financial services holdings company
principally engaged in the business of providing investment, consumer finance
and insurance services. Each of the Portfolio Managers serves as a portfolio
manager of the Fund pursuant to a written agreement among the Fund, Strategy
Advisers and the Portfolio Manager (the "Portfolio Management Agreement") which
were most recently approved by the Individual General Partners of the Fund,
including a majority of the Individual General Partners who are not "interested
persons" of the Fund or the Portfolio Managers on April 1, 1993. Strategy
Advisers has established a committee to make asset allocation decisions and to
evaluate the performance of the Portfolio Managers. Tremont Partners, Inc.
("Tremont") serves as a consultant to Strategy Advisers pursuant to a written
agreement among the Fund, Strategy Advisers and Tremont (the "Consulting
Agreement") which was most recently approved by the Individual General Partners
of the Fund, including a majority of the Individual General Partners who are not
"interested persons" of the Fund or Tremont on July 30, 1993. Boston Advisors, a
wholly owned subsidiary of The Boston Company, Inc. ("TBC"), which is in turn a
wholly owned subsidiary of Mellon Bank Corporation ("Mellon"), serves as the
Fund's administrator under the terms of a written agreement with the Fund (the
"Administration Agreement") which was most recently
15
<PAGE>
approved by the Individual General Partners of the Fund, including a majority of
the Individual General Partners who are not "interested persons" of the Fund or
Boston Advisors on September 2, 1993. The fees paid to and the services provided
by Strategy Advisers, the Portfolio Managers, Tremont and Boston Advisors are
described in the Prospectus. As described in the Fund's Prospectus, Strategy
Advisers, and not the Fund, pays fees to the Portfolio Managers. The Portfolio
Managers and Tremont earned the following amounts in fees for the fiscal periods
indicated:
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
12/31/91* 12/31/92 12/31/93
<S> <C> <C> <C>
Ardsley Advisory Partners(a) $ 904,121 $ 558,575 $ 1,053,022
Hellman, Jordan Management Co. Inc.(a) $ 778,694 $ 363,644 $ 141,948
Mark Asset Management Corporation(a) $ 610,821 $ 709,500 $ 1,173,055
McKenzie, Walker Investment Management,
Inc.***(a) $ 637,551 $ -- $ --
Nicholas-Applegate Capital
Management**(a) $ 190,616 $ -- $ --
Woodward & Associates Inc.+(b) $ 115,402 $ 227,380 $ 627,549
Tremont Partners, Inc. $ 76,814 $ 37,376 $ 65,166
<FN>
* The Fund commenced operations on June 28, 1990.
** The Portfolio Management Agreement with Nicholas-Applegate Capital Manage-
ment was terminated effective July 19, 1991.
*** The Portfolio Management Agreement with McKenzie, Walker Investment
Management, Inc. was terminated effective December 1, 1992.
+ Woodward & Associates Inc. commenced managing assets of the Fund on July 22,
1991.
(a) Fees are calculated pursuant to a written agreement among the Fund,
Strategy Advisers and the Portfolio Manager dated May 9, 1990.
(b) Fees are calculated pursuant to a written agreement among the Fund,
Strategy Advisers and the Portfolio Manager dated May 31, 1991.
</TABLE>
Strategy Advisers, the Portfolio Managers, Tremont and Boston Advisors each
pay the salaries of all of their officers and employees who act on behalf of the
Fund. As administrator, Boston Advisors, subject to the review and supervision
of Strategy Advisers, 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 shareholders; and prepares tax returns, reports to, and filings with
the SEC and state Blue Sky authorities. Prior to May 21, 1993, Boston Advisors
served as the Fund's sub-investment adviser as well as administrator. For the
fiscal years ended December 31, 1991, 1992 and for the period from January 1,
1993 through May 21, 1993, Boston Advisors received $375,334, $364,960 and
$134,564, respectively, in administrative and sub-investment advisory fees. For
the period from May 22, 1993 through December 31, 1993, Boston Advisors was paid
$207,935 in administrative fees. Strategy Advisers, the Portfolio Managers,
Tremont and Boston Advisors bear all expenses in connection with the performance
of their respective services under the Advisory, Portfolio Management,
Consulting, and Administration Agreements.
Strategy Advisers and the Portfolio Managers are responsible for compliance
with the Fund's investment policies, restrictions and limitations.
Under the Advisory Agreement, the Administration Agreement, each Portfolio
Management Agreement and the Consulting Agreement (collectively, the
"Agreements"), Strategy Advisers, Boston Advisors, the Portfolio Managers and
Tremont have agreed that, if in any fiscal year the aggregate expenses of the
Fund (including fees payable pursuant to the Agreements, but excluding interest,
taxes, brokerage, distribution fees paid pursuant to the Fund's plan of
distribution and, if permitted by the relevant state securities commissions,
extraordinary expenses) exceed the expense limitation of any state having
jurisdiction over the Fund, Strategy Advisers, Boston Advisors, the Portfolio
Managers and Tremont will reduce their fees to the Fund to the extent required
by state law in the same proportion as their respective fees bear to the
combined fees paid by the Fund for the services provided pursuant to the
Agreements. The Fund has received variances from all applicable state expense
limitation provisions.
The Agreements each provide that Strategy Advisers, the Portfolio Manager,
the Consultant or Boston Advisors (as the case may be) shall exercise its best
judgment in rendering services under the respective agreement. Each of these
Agreements further provides that such party shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which the agreement relates, provided that nothing in the
agreement shall be deemed to protect or purport to protect that party against
any liability to the Fund or to holders of the Fund's shares representing
partnership interests to which that party would otherwise be subject by reason
16
<PAGE>
of willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or by reason of that party's reckless disregard of its
obligations and duties under the agreement.
The Agreements will remain in effect for an initial period of two years, and
will continue in effect thereafter for successive annual periods, so long as
such continuance is specifically approved at least annually by (a) the Fund's
Individual General Partners or (b) the vote of a majority of the Fund's
outstanding voting securities, as that term is defined in the 1940 Act, provided
that, in either event, the continuance is also approved by at least a majority
of the Fund's Individual General Partners who are not "interested persons" as
defined in the 1940 Act (the "Independent General Partners"), by vote cast in
person at a meeting called for the purpose of voting on such approval. Each
agreement is terminable without penalty on not less than 60 days' notice by the
Independent General Partners of the Fund or by vote of the holders of a majority
of the Fund's shares, or upon not less than 90 days' notice by any other party
to the agreement. Each agreement will terminate automatically in the event of
its assignment.
INFORMATION REGARDING THE PORTFOLIO MANAGERS
ARDSLEY ADVISORY PARTNERS. Ardsley typically accepts private advisory accounts
of $10 million or more. Advisory fees charged quarterly to such clients by
Ardsley range up to 0.125% of the value of the client's assets under management
plus 20% of the net capital appreciation in the value of the client's account
for the year.
HELLMAN, JORDAN MANAGEMENT CO., INC. Hellman, Jordan typically will not
accept a
new advisory client unless the client places with it at least $5 million for
management. Advisory fees charged by Hellman, Jordan range up to 2.0% of the
value of the assets in a client's account on an annual basis.
MARK ASSET MANAGEMENT CORPORATION. Morris Mark, Mark Asset Management
Corporation's ("MAMC") principal shareholder and president, has primary
investment responsibility for two investment partnerships generally unavailable
to the investing public in the United States with aggregate assets as of
December 31, 1993 in excess of $415 million. MAMC typically manages private
advisory accounts of $2 million or more. MAMC typically charges clients a
quarterly fee payable in advance based on the value of the assets under
management and a performance-based fee at a specified percentage of annual
profit of the client's advisory account less quarterly fees paid. The non-
performance based fee charged is generally calculated at an annual rate of 1% of
the value of the account's assets. The performance-based fee is structured to
comply with applicable rules under the Investment Advisers Act of 1940 and, in
most instances, is equal to 20% of the profits of the account less quarterly
fees paid.
WOODWARD & ASSOCIATES INC. Woodward & Associates Inc. ("Woodward") typically
will not accept a new private advisory client unless the client places with
Woodward at least $5 million in assets. Advisory fees charged by Woodward range
up to 2% of the market value of assets under management on an annual basis or
20% of net profits generated by the account.
ORGANIZATION EXPENSES
Because of the Fund's unique structure and operating expenses, the Fund incurred
organization expenses that a typical mutual fund would not incur. The costs
incurred by the Fund in connection with its organization and initial
registrations under Federal and state securities laws, including printing, legal
and auditing fees and registration charges, are being amortized in equal monthly
installments over a period of 60 months from June 28, 1990, the date that the
Fund commenced operations. During such period, the Fund's expenses may be higher
than a typical mutual fund that incurred lower organization expenses.
17
<PAGE>
PURCHASE OF SHARES
VOLUME DISCOUNTS
The schedule of sales charges on 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 spouse and their children under
the age of 21 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) any other organized group of persons, provided that 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; or (e) a trustee or other professional fiduciary (including a bank, or
an investment adviser registered with the SEC under the Investment Advisers Act
of 1940) 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.
DISTRIBUTION ARRANGEMENTS
Smith Barney Shearson distributes shares on a best efforts basis under the terms
of a written agreement with the Fund. Smith Barney Shearson receives a service
fee of 0.25% of the value of the average daily net assets of each Class of
Shares pursuant to a plan of distribution (the "Plan") adopted by the Fund
pursuant to Rule 12b-1 under the 1940 Act. In addition, Class B shares incur a
distribution fee of 0.75% of the value of the average daily net assets of the
Class. The service and distribution fees are accrued daily and paid monthly.
Under the Plan, Smith Barney Shearson may use the distribution fee for any
activities or expenses primarily intended to result in the sale of the Fund's
shares, including, but not limited to, compensation to and expenses of employees
of Smith Barney Shearson or its affiliates who engage in or support distribution
of shares, overhead (including overhead of branch offices), printing of
prospectuses and reports for other than existing Shareholders, advertising and
preparation and distribution of sales literature. The service fee is used as
on-going compensation for Smith Barney Shearson Financial Consultants.
The distribution fee is payable to Smith Barney Shearson regardless of the
amounts actually expended by it for distribution-related activities. The amount
of the distribution fee payable to Smith Barney Shearson pursuant to the Plan is
not related directly to the expenses incurred by Smith Barney Shearson in
providing distribution-related services to the Class B shares of the Fund, and
the Plan does not obligate the Fund to reimburse Smith Barney Shearson for such
expenses. To the extent that amounts paid to Smith Barney Shearson under the
Plan exceed amounts expended by it for distribution-related activities for the
Class B shares of the Fund, such excess will be profit to Smith Barney Shearson.
The Plan provides that, if it is terminated, any distribution expenses incurred
by Smith Barney Shearson on behalf of the Class B shares of the Fund in excess
of payments of the distribution fee received or accrued through the termination
date are the sole responsibility and liability of Smith Barney Shearson and are
not obligations of the Fund.
The Plan was most recently approved on September 2, 1993 by the Fund's
Individual General Partners, including a majority of the Individual General
Partners who are not "interested persons" of the Fund or Smith Barney Shearson.
On a quarterly basis, the Individual General Partners review a report on
expenditures under the Plan and the purposes for which expenditures were made.
They also conduct an additional, more extensive, review annually in determining
whether the Plan will be continued. By its terms, continuation of the Plan from
year to year is contingent on annual approval by a majority of the Fund's
Individual General Partners and by a majority of the Independent General
Partners. The Plan may be terminated at any time with respect to the Fund by
vote of a majority of the Individual General Partners or a majority of the
outstanding shares of the Fund.
SETTLEMENT OF PURCHASE
Smith Barney Shearson forwards investors' funds for the purchase of shares five
business days after placement and
18
<PAGE>
acceptance of purchase orders (the "Settlement Date"). When an investor makes
payment before the Settlement Date, the funds will be held as a free credit
balance in the investor's brokerage account and Smith Barney Shearson will
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. If the investor instructs Smith Barney Shearson to invest the funds
in a Smith Barney Shearson 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
Smith Barney Shearson money market fund. Affiliates of Smith Barney Shearson
that serve these funds in an investment advisory capacity will benefit by
receiving fees from both such funds, computed on the basis of their average net
assets. The Individual General Partners have been advised of the benefits to
Smith Barney Shearson resulting from the five-day settlement procedures
described above and will take those benefits into consideration when reviewing
the Agreements for continuance.
REDUCED SALES CHARGES
Reduced sales charges, in accordance with the schedule in the Prospectus, are
available to investors purchasing Class A shares if the aggregate investment in
Class A shares of the Fund is greater than $50,000. Investors eligible to
receive volume discounts are individuals and their immediate families, and a
trustee or other fiduciary purchasing shares for a single trust estate or single
fiduciary account even though more than one beneficiary is involved. In
determining the quantity of shares purchased or held for purposes of the various
plans for sales charge reductions on purchases of Class A shares of the Fund or
by other funds in the Smith Barney Shearson Group of Funds, the investor may not
aggregate Class A shares of the Fund with Class A shares of other Smith Barney
Shearson funds. Investors interested in an explanation of volume discounts
should contact their Smith Barney Shearson Financial Consultants. Reduced sales
charges are also available under a combined right of accumulation, under which
an investor may combine the value of Class A shares already held in the Fund
along with the value of the Class A shares being purchased, to qualify for a
reduced sales charge. For example, if an investor owns shares of the Fund that
have an aggregate value of $100,000 and makes an additional investment in the
Fund of $50,000, the sales charge applicable to the additional investment would
be 3.25%, rather than the 4.0% normally charged on $50,000 purchase.
Class A shares of the Fund may be offered without a sales charge to: (a)
employees of Travelers and its subsidiaries, including Smith Barney Shearson,
Strategy Advisors and the spouses and minor children of such employees when
orders on their behalf are placed by such employees; (b) accounts managed by
registered investment advisory subsidiaries of Travelers; (c) directors,
trustees or general partners of any investment company for which Smith Barney
Shearson serves as Distributor; (d) any other investment company in connection
with the combination of such company with the Fund by merger, acquisition of
assets or otherwise; (e) Shareholders who have redeemed shares in the Fund and
who wish to reinvest their redemption proceeds in the Fund, provided the
reinvestment is made within 30 days of the redemption; (f) any client of a newly
employed Smith Barney Shearson Financial Consultant (up to a period of 90 days
from the commencement of the Financial Consultant's employment with Smith Barney
Shearson), on the condition that the purchase is made with the proceeds of
redemption of shares of a mutual fund which (i) was sponsored by the Financial
Consultant's prior employer, (ii) was originally sold to the client by the
Financial Consultant, and (iii) when purchased, were sold with a sales charge or
subject to a charge upon redemption; or (g) to the officers and directors of
Tremont and each of the Portfolio Managers.
REINVESTMENT PRIVILEGE. A shareholder who has redeemed Class A shares may
reinvest all or part of the redemption proceeds in the Fund and receive a credit
for any applicable sales charge, so long as the reinvestment is made within 30
days after the redemption. This reinvestment privilege may be exercised only
once by a shareholder. Reinvestment will not alter any tax payable on the
redemption and a loss may not be allowed for tax purposes.
19
<PAGE>
DISTRIBUTIONS IN KIND. If the Individual General Partners determine 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 SEC rules, any portion of a redemption in excess of the lesser
of $250,000 or 1% of the Fund's net assets by distribution in kind of the Fund's
securities in lieu of cash. Securities issued as a distribution in kind will be
readily marketable, although shareholders receiving distributions in kind may
incur brokerage commissions when subsequently selling those securities.
REDEMPTION OF SHARES
Detailed information on how to redeem shares is included in the Prospectus. The
right of redemption of shares 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 closing), (b) when trading in the markets the Fund normally
utilizes is restricted or an emergency, as defined by the rules and regulations
of the SEC, exists making disposal of the Fund's investments or determination of
its net asset value not reasonably practicable, or (c) for any other periods as
the SEC by order may permit for protection of the Fund's shareholders. A
shareholder who pays for shares by check will be credited with the proceeds of a
redemption of those shares only after the check has been collected, which may
take up to 15 days. Redemption proceeds held by a shareholder either in the form
of uninvested cash balances in his or her Smith Barney Shearson brokerage
account or as an unnegotiated check from the Fund's transfer agent and dividend
disbursing agent. The Shareholder Services Group, Inc., ("TSSG"), a subsidiary
of First Data Corporation, will generally not earn any income for the
shareholder and the shareholder should discuss alternative investments with his
or her Smith Barney Shearson Financial Consultant or other advisor.
NET ASSET VALUE
As noted in the Prospectus, the net asset value of shares will not be calculated
on those days on which the NYSE is closed. Securities held by the Fund may
nevertheless be actively traded on those days, and the value of the Fund's
shares could be significantly affected.
As noted in the Prospectus, the Fund may invest in foreign securities, which
would necessitate the Fund's obtaining prices as of the close of trading on
various exchanges throughout the world. Thus, the calculation of the shares' net
asset value may in certain instances not take place contemporaneously with the
determination of the prices of some of the Fund's portfolio securities used in
the calculation. A security that is listed or traded on more than one exchange
is valued at the quotation on the exchange determined to be the primary market
for the security. All assets and liabilities initially expressed in foreign
currency values will be converted into U.S. dollar values at the mean between
the bid and offered quotations of the foreign currencies against U.S. dollars as
last quoted by any recognized dealer. If quotations are not available, the rate
of exchange will be determined in good faith by the Individual General Partners.
In carrying out the Individual General Partners' valuation policies, Boston
Advisors, as administrator, may consult with an independent portfolio valuation
service retained by the Fund.
Debt securities of U.S. issuers (other than U.S. Government Securities or
short-term investments) are also valued by Boston Advisors, as administrator,
after consultation with an independent portfolio valuation service approved by
the Individual General Partners. When, in the judgment of the valuation service,
quoted bid prices for investments are readily available and are representative
of the bid side of the market, these investments are valued at the mean between
the quoted bid prices and asked prices. Investments for which no readily
obtainable market quotations are available, in the judgment of the valuation
service, are carried at fair value as determined by the valuation service. The
procedures of the portfolio valuation service will be reviewed periodically by
the Individual General Partners.
DETERMINATION OF PERFORMANCE
From time to time, the Fund may quote its performance in terms of total return
in reports or other communications to Shareholders or in advertising material.
Total
20
<PAGE>
return figures for a Class combines principal changes and dividend and interest
income reinvested for the period shown. Principal changes are based on the
difference between the beginning and closing net asset values of Class shares
for the period. Actual distributions include short-term capital gains derived
from option writing or other sources.
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)n = ERV
<TABLE>
<S> <C> <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 ERV assumes complete redemption of the hypothetical investment at the
end of the measured period, and reflects deduction upon purchase of the Fund's
sales charge at the percentage level corresponding to the length of the
measuring period.
A Class' average annual total return figures calculated in accordance with
the above formula assume the effect of the maximum 5.0% 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 or redemption, as applicable.
Prior to June 1, 1993, the date on which the Fund commenced offering Class B
shares, a maximum sales charge of 5.50% was charged on sales of Class A shares.
The Fund's average annual return not including sales charge on Class A shares
was as follows for the periods indicated: 4.81% for the one-year period
beginning January 1, 1993 and ended on December 31, 1993; and 11.76% per annum
during the period from commencement of the Fund's operations on June 28, 1990
through December 31, 1993.
The Fund ceased offering Class B shares on September 16, 1993.
AGGREGATE TOTAL RETURN
A Class' aggregate total return figures, as described in the Prospectus and
shown below represent the cumulative change in the value of an investment in the
Class for the specified period and are computed by the following formula:
ERV - P
-------
P
<TABLE>
<S> <C> <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>
The aggregate total return without sales charge for Class A shares was as
follows for the periods indicated: 4.81% for the one-year period beginning
January 1, 1993 and ended on December 31, 1993; and 47.67% per annum during the
period from commencement of operations on June 28, 1990 through December 31,
1993. The aggregate total return for Class B shares for the period from June 1,
1993 through December 31, 1993 was 2.92%.
The aggregate total return figures assume that the then applicable maximum
sales charge or CDSC was not deducted from the investment at the time of
purchase or
21
<PAGE>
redemption, as applicable. If the then applicable maximum sales charge or CDSC
had been deducted, the Fund's aggregate total return figures would have been
(0.43)% and 40.29%, respectively, for Class A shares and (2.08)% for Class B
shares.
A Class' 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. In addition, because
performance will fluctuate, 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 or comparable classes of shares of
other mutual funds, as the case may be, should give consideration to the quality
and maturity of the respective investment companies' portfolio securities.
A Class' net investment income changes in response to fluctuations in
interest rates and the expenses of the Class. Consequently, the given
performance quotations should not be considered as representative of the Class'
performance for any given specified period.
TAXATION
FEDERAL INCOME TAX
INTRODUCTION. The discussion below summarizes certain Federal income tax
consequences of an investment in the Fund which should be considered by
prospective shareholders of the Fund. It is not intended to be an exhaustive
discussion of all possible tax consequences which may arise from an investment
in the Fund. Accordingly, each prospective shareholder should consult their own
tax advisor to determine more specifically the tax consequences of an investment
in the Fund. This discussion is based primarily upon current provisions of the
Code, U.S. Treasury Department regulations (the "Regulations"), judicial
decisions and administrative rulings and pronouncements of the Internal Revenue
Service ("IRS"), all of which are subject to change.
CLASSIFICATION AS A PARTNERSHIP. Counsel to the Fund has issued an opinion that
the Fund will be treated as a partnership and not as an association taxable as a
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 General
Partners, 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 IRS regarding the requirements of taxation as a
partnership.
An opinion of counsel is not binding on the IRS or the courts. The Fund will
not seek a ruling from the IRS regarding its classification as a partnership for
tax purposes.
The principal Federal income tax consequences resulting from qualification
of the Fund as a partnership for Federal income tax purposes is that the Fund
will not be subject to the tax; instead, the Shareholders will report and pay
tax on the Fund's taxable income, as discussed more fully below in "Taxation of
Fund Operations -- In General." If the Fund did not qualify as a partnership for
tax purposes, investors should be aware that the Fund most likely would be
regarded as an association taxable as a corporation. In that case, certain
adverse tax consequences could ensue, including: (a) Shareholders would not be
permitted to report their distributive shares of the Fund's tax items on their
income tax returns; (b) the Fund would be subject to the corporate income tax;
(c) distributions from the Fund to the Shareholders generally would be treated
as dividends, taxable as ordinary income to the Shareholders; and (d)
distributions would not be deductible by the Fund. Thus, the Fund would be
subject to tax on its taxable income and amounts distributed to Shareholders
generally also would be subject to tax in their hands.
PUBLICLY TRADED PARTNERSHIPS -- CODE SECTION 7704. Entities that otherwise
qualify for partnership tax treatment nonetheless may be reclassified for
Federal income
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tax purposes as corporations under Code Section 7704 if the interests in the
partnership are regarded as being "publicly traded" and certain other conditions
are met. Open-end partnerships, such as the Fund, which stand ready to redeem
their interests or shares, generally are treated as "publicly traded
partnerships" for this purpose. Moreover, the General Partners anticipate that
the Fund will satisfy the other conditions for application of the Code Section
7704. Accordingly, once Code Section 7704 becomes applicable to the Fund, it is
expected that the Fund will be treated as a corporation for Federal income tax
purposes.
Code Section 7704 generally applies to partnership taxable years beginning
after 1987. However, that provision is inapplicable to "existing partnerships"
until the earlier of the first day of the first partnership taxable year
beginning after 1997 or the time at which the existing partnership enters into a
"substantial new line of business." The Fund has obtained a ruling from the IRS
to the effect that, under Code Section 7704, it qualifies as an existing
partnership provided that it does not engage in a substantial new line of
business. Thus, the General Partners believe that the Fund should not be
classified as a corporation under Code Section 7704 through December 31, 1997,
so long as the restriction on entering into a substantial new line of business
before that date is observed. The General Partners intend to manage the Fund so
that it will not be treated as undertaking a substantial new line of business,
but absolute assurance cannot be given that the Fund would not be deemed to have
engaged in such an undertaking were the IRS to assert otherwise.
A change in the Fund's tax status from a partnership to a corporation
pursuant to Code Section 7704 could result in adverse tax consequences to
Shareholders, including the possibility that the Fund's investment portfolio
would be treated for tax purposes as having been sold as of the time at which
the change in status occurs. If the Fund were deemed to have sold its assets,
the net gain generated by the sale could be taxable to shareholders, but this
result is not entirely clear under current law.
Once Code Section 7704 causes the Fund to be classified as a corporation for
Federal income tax purposes, the Fund itself will be subject to Federal income
tax (and, possibly, other taxes). Accordingly, before Code Section 7704 becomes
applicable to the Fund (or as soon thereafter as is practicable in the event
Code Section 7704 becomes applicable to the Fund earlier than expected), the
Individual General Partners are authorized, but not required, to take such
actions as they deem necessary or advisable, in their sole discretion, in
connection with such reclassification. These may include, among others,
terminating the Fund, electing to have the Fund taxed as a regulated investment
company ("RIC") or causing the Fund to transfer its assets to a corporation
which elects to be taxed as a RIC. RICs generally are relieved from Federal
income tax on the income and gains distributed to their Shareholders; however,
to qualify as a RIC, a mutual fund must satisfy various Code requirements. These
requirements may limit the flexibility of the Fund to invest in certain assets
and to undertake certain investment strategies. Shareholders will be informed of
final decisions made by the Individual General Partners in connection with the
application of Code Section 7704 to the Fund.
The discussion that follows summarizes the tax treatment of the Fund as a
partnership for Federal income tax purposes.
TAXATION OF FUND OPERATIONS -- IN GENERAL. As a partnership, the Fund will not
be subject to Federal income tax. Instead, each Shareholder will report on his
or her Federal income tax return the Shareholder's distributive share of the
Fund's tax items, including net long-term capital gain or loss, net short-term
capital gain or loss, and net ordinary income or loss. While the Fund may make
distributions to Shareholders, there can be no assurance that distributions
will, in fact, be made. Nonetheless, each Shareholder will be liable for any
taxes owed with respect to his distributive share of the taxable income
recognized by the Fund, regardless of whether he actually has received or will
receive any cash or other distribution from the Fund. ACCORDINGLY, IT IS
POSSIBLE THAT A SHAREHOLDER'S DISTRIBUTIVE SHARE OF TAXABLE INCOME
FROM THE FUND
(AS WELL AS THE TAXES IMPOSED ON THAT INCOME) COULD EXCEED THE
DISTRIBUTIONS, IF
ANY, HE RECEIVES OR IS ENTITLED TO
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<PAGE>
RECEIVE FROM THE FUND. In this connection, Shareholders should in particular be
aware that their taxable income from the Fund (and the tax thereon) could exceed
distributions made to them in cases where the Fund utilizes taxable income
earned by it to reduce indebtedness of the Fund. The Fund will furnish each
Shareholder with a tax information report annually stating his distributive
share of the Fund's tax items.
A Shareholder's distributive share of the Fund's tax items will be
determined in accordance with the Partnership Agreement and policies established
by the Individual General Partners in light of IRS pronouncements and other
authorities. The law governing allocations of partnership tax items is evolving
and the controlling Regulations do not address expressly the allocation of tax
items by an entity such as the Fund. Were the IRS to challenge successfully the
allocations of the Fund's tax items, a Shareholder might be required to
recognize different amounts of income, gain, loss, or deduction in a given
taxable year than he or she would have reported pursuant to the allocations made
initially by the Fund. This, in turn, could result in additional taxes to
Shareholders and the imposition of tax penalties and interest charges.
For Federal income tax purposes, the Fund expects to continue to use the
calendar year as its taxable year, or any other taxable year required under the
Code. The Fund will report the results of its operations using the accrual
method of accounting.
TAXATION OF PARTNERSHIP OPERATIONS -- INVESTMENTS. With certain
exceptions, gain
or loss recognized by the Fund on the disposition of an asset will be capital
gain and loss. Capital gain or loss will be short-term or long-term, depending
generally upon the length of time the Fund has held the asset. Interest and
dividends earned by the Fund will be taxable as ordinary income. In addition, as
described further below, certain foreign currency gains and losses will be
treated as ordinary income or loss.
OPTIONS, FUTURES CONTRACTS, AND FORWARD CONTRACTS; STRADDLE
RULES. Certain
options, futures contracts, and forward contracts in which the Fund may invest
may be classified as "Section 1256 contracts." Gains or losses from Section 1256
contracts generally are considered 60% long-term and 40% short-term capital
gains or losses; however, foreign currency gains or losses (as discussed below)
arising from certain Section 1256 contracts may be treated as ordinary income or
loss. If Section 1256 contracts are held by the Fund at the end of a taxable
year, those contracts generally will have to be "marked-to-market" with the
result that unrealized gains or losses will be treated as though they were
realized at that time. Moreover, it may be necessary to mark-to-market the
Fund's Section 1256 contracts when the proportion of a Shareholder's interest in
the Fund changes, although this matter is not entirely clear. The Fund reserves
the right to mark assets to market for tax purposes as it deems appropriate.
Certain transactions undertaken by the Fund may result in "straddles" for
Federal income tax purposes. The straddle rules may affect the character of
gains (or losses) realized by the Fund, and losses realized by the Fund on
positions that are part of a straddle may be deferred under the straddle rules,
rather than being taken into account in calculating the taxable income for the
taxable year in which the losses are realized. In addition, certain carrying
charges (including interest expense) associated with positions in a straddle may
be required to be capitalized rather than deducted currently. Because only a few
regulations implementing the straddle rules have been promulgated, the tax
consequences to the Fund and its Shareholders from these transactions are not
entirely clear.
Shareholders should be aware that investments held by the Fund will be
treated as being held by the Shareholders for purposes of applying the straddle
rules to the Shareholders, unless otherwise provided in regulations. To date,
such regulations have not been issued. Thus, for example, a Shareholder may be
deemed to hold positions which, taken together, constitute a straddle for tax
purposes in cases where one position is held by the Shareholder directly and an
offsetting position is held by the Fund.
The Fund may make one or more of the elections available under the Code with
respect to straddles. If the Fund makes any such elections, the amount,
character and timing of the recognition of gains or losses from the
24
<PAGE>
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions. Under current law, it is unclear whether any
straddle-related elections made by the Fund will be deemed to apply to a
Shareholder as well.
Because application of the straddle rules may affect the character and
timing of recognition of gains or losses from the affected straddle positions,
the amounts which must be reported by Shareholders may differ from the amount
that would be reportable with respect to a partnership that does not engage in
such straddle transactions. For example, straddle transactions may increase the
amount of short-term capital gain recognized by the Fund, even though the Fund
held the asset for a period of time that would otherwise cause the gain to
qualify as long-term capital gain.
WASH SALE AND SHORT SALE RULES. Generally, some of the Fund's investment
activities may result in "wash sales" and "short sales" for Federal income tax
purposes. Under the wash sale rules, losses realized upon a disposition of
certain stock or securities may not be deductible. For purposes of the wash sale
rules, the term "stock or securities" generally includes contracts or options to
acquire or sell stock or securities. In general, a loss realized upon a
disposition subject to the wash sale rules will not be deductible to the extent
that within a 61 day period beginning 30 days before and ending 30 days after
the date of the disposition, "substantially identical" stock or securities are
acquired or contracted to be acquired. Similar rules apply to losses realized on
closing a short sale of stock or securities. If a loss is not deductible
pursuant to the wash sale rules, the basis of the substantially identical
property acquired will be adjusted to reflect the disallowed loss and the
holding period of such property will include the holding period of the property
disposed of.
The short sale rules may, among other things, affect the character of
certain gains and losses realized by the Fund upon the disposition of certain
stock, securities and commodity futures contracts. Under the short sale rules,
if at the time of a short sale of property subject to the short sale rules, the
Fund has held property substantially similar to that sold short for less than
the holding period for long-term capital gain treatment (presently generally
more than one year), or if substantially identical property is acquired by the
Fund after the short sale and on or before the short sale is closed, then any
gain on closing the short sale will be short-term capital gain and the holding
period of the substantially identical property generally will begin when the
short sale is closed. For purposes of the short sale rules, the acquisition of
certain put options is treated as a short sale and the exercise or failure to
exercise such an option is treated as a closing of the short sale. In addition,
if at the time of a short sale of property subject to the short sale rules,
substantially identical property has been held for the long-term holding period,
any loss on the closing of such short sale will be treated as a long-term loss.
Because each of the Fund's Portfolio Managers normally will make investment
decisions independently of the Fund's other Portfolio Managers, there exists the
possibility that a particular Portfolio Manager may purchase a particular
investment on or about the same time another Portfolio Manager decides to sell
it, or that the Fund may have long and short positions on the same investment at
the same time. Accordingly, the losses of the Fund subject to the wash sale
rules and the gains and losses subject to the short sale rules may be higher
than with respect to a partnership without multiple investment advisers making
independent investment decisions.
FOREIGN CURRENCY GAINS AND LOSSES. Under the Code, gains or losses attributable
to fluctuations in foreign currency exchange rates which occur between the time
the Fund accrues receivables or expenses denominated in a foreign currency and
the time the Fund actually collects such receivables or pays such liabilities
generally are treated as ordinary gain or loss. Similarly, on disposition of
debt securities denominated in a foreign currency and on disposition of certain
futures contracts, forward contracts, and options, gains or losses attributable
to fluctuations in the value of foreign currency between the date of acquisition
of the security or contract and the date of disposition also are treated as
25
<PAGE>
ordinary gain or loss. These gains or losses, referred to under the Code as
"Section 988" gains or losses, may increase or decrease the amount of the
ordinary income or loss recognized by the Fund.
OBLIGATIONS ACQUIRED AT A DISCOUNT. Some of the debt instruments acquired by
the
Fund (with a fixed maturity date of more than one year from the date of
issuance) may be treated as debt instruments that are issued originally at a
discount. The amount of original issue discount ("OID") generally equals the
difference between the price at which the debt instrument was issued and its
stated redemption price at maturity (which can include certain interest payments
as well as principal). Generally, OID (with respect to obligations other than
tax-exempt obligations) is treated as interest income with respect to the debt
instrument and is included in gross income over the term of the debt instrument,
even though payment of that amount is not received until a later time, generally
when the debt instrument matures. Generally, the amount of OID included in
income each year is determined using economic accrual of interest principles and
a constant yield-to-maturity. A portion of the OID includable in income with
respect to certain high-yield corporate debt instruments may be treated as
dividends for Federal income tax purposes and, in the case of corporate
Shareholders, may be eligible for the dividends received deduction.
Some debt instruments (with a maturity of more than one year from the date
of issuance) which the Fund may acquire may be purchased in the secondary market
at a discount which exceeds the OID, if any, on such debt instrument. This
additional discount represents market discount (with respect to obligations
other than tax-exempt obligations). The gain realized on the disposition of any
debt instrument issued after July 18, 1984, having market discount is treated as
ordinary income to the extent the gain does not exceed the "accrued market
discount" on such debt instrument. The Fund may elect to include the market
discount in income as it accrues, instead of including it in income upon a
disposition of the debt instrument. In general, market discount will accrue at a
constant rate on a daily basis for each day the debt instrument is held by the
Fund, but the Fund may elect to compute the amount of accrued market discount on
the basis of a constant interest rate.
Some debt instruments (with a fixed maturity date of one year or less from
the date of issuance) acquired by the Fund may have a purchase price that is
less than the stated redemption price at maturity of the debt instrument. In
such situations involving "government obligations" (obligations of the United
States or any of its possessions, a state or any political subdivision thereof,
or the District of Columbia), an amount equal to the difference between the
purchase price and the stated redemption price at maturity represents
acquisition discount. In general, acquisition discount must be accrued as income
at a constant rate on a daily basis for each day the debt instrument is held by
the Fund, but the Fund may elect to compute the amount of accrued acquisition
discount on the basis of a constant interest rate. The Fund will be required to
include the acquisition discount (with respect to obligations other than tax-
exempt obligations) in gross income as it accrues, even though cash with respect
to the acquisition discount is not payable until a later time, generally when
the debt instrument matures. Similar rules will apply with respect to certain
nongovernmental obligations (with a fixed maturity date of one year or less from
the date of issuance) acquired by the Fund.
FOREIGN INVESTMENT COMPANIES. The Fund may invest in the stock of foreign
investment companies which may be classified under the Code as passive foreign
investment companies ("PFICs"). Generally speaking, a foreign corporation is
classified as a PFIC if at least one-half of its assets constitute
investment-type assets (such as stocks or securities) or 75% or more of its
gross income is investment-type income (such as, but not limited to, interest,
dividends, and capital gain from the sale of securities).
Under the Code, U.S. persons who receive so-called "excess distributions"
with respect to PFIC stock are taxed pursuant to special rules. In general,
under those rules, the excess distribution is treated as having been realized
ratably over the period during which the Shareholder held the PFIC stock. In
computing the tax due for the year in which the excess distribution was
26
<PAGE>
received, reference is made to the taxes that would have been due had the
portion of the excess distribution allocable to each prior year and the current
year been taxable at those times, and an interest factor is added. Certain
distributions from a PFIC as well as gain from the sale of PFIC stock are
treated as "excess distributions." Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
Although to date, the IRS has not issued final guidance on the subject, it
appears that excess distributions received by the Fund will be reportable by the
shareholders as part of their distributive share of the Fund's tax items, who
would then be required to compute their tax under the PFIC rules with respect to
the excess distribution included in their distributive share.
The Fund may elect an alternative tax treatment with respect to PFIC stock
that it holds. Under that election, the Fund generally would be required to
include in gross income annually its share of a PFIC's ordinary income and net
capital gain for the year, regardless of whether those amounts were distributed
to the Fund. If the election is made, the special rules, discussed above,
relating to the taxation to excess distributions, would not apply.
The Fund may invest in the stock of foreign corporations which may be
classified under the Code as controlled foreign corporations ("CFCs"). Generally
speaking, the classification of a foreign corporation as a CFC depends upon the
extent to which the corporation's stock is owned by U.S. persons. Under the
Code, if the Fund owns voting stock in a CFC, it may be required to include in
income its share of certain types of the corporation's current income, whether
or not that income was distributed to the Fund.
FOREIGN TAXES. The Fund may be required to pay income and other taxes to foreign
countries with respect to the Fund's foreign investments. A Shareholder's
distributive share of the Fund's income from foreign investments will include
any foreign taxes that are withheld at the source. Each Shareholder will be
deemed to have paid their distributive share of the Fund's foreign taxes and may
be eligible to claim a foreign tax credit with respect to foreign income and
similar taxes paid or incurred by the Fund or to deduct such taxes in computing
their U.S. taxable income. Noncorporate taxpayers seeking to deduct foreign
income and similar taxes must itemize their deductions. Credits for foreign
income and similar taxes are subject to various limitations; as a result,
Shareholders may be unable to claim a foreign tax credit for the full amount of
otherwise creditable foreign taxes incurred by the Fund. For purposes of
computing the alternative minimum tax, foreign taxes generally are not
deductible by an individual and foreign tax credits can offset only up to 90% of
the otherwise applicable alternative minimum tax liability (prior to reduction
for the "regular" tax liability for the year).
TAXATION OF SHARES -- BASIS. A Shareholder's tax basis in shares acquired from
the Fund initially will equal the cost to the Shareholder of purchasing those
shares. In general, such basis will be increased by additional capital
contributions made by the Shareholder to the Fund and by his or her distributive
share of the Fund's net income, and decreased (but not below zero) by cash
distributed to the Shareholder by the Fund and by the Shareholder's distributive
share of the Fund's tax deductions and net losses.
TAXATION OF SHARES -- DISTRIBUTIONS AND REDEMPTIONS. Cash distributed to a
Shareholder by the Fund, either currently or in redemption of shares, generally
will not be taxable to the Shareholder to the extent such amount does not exceed
a Shareholder's aggregate tax basis in his or her shares, but will reduce the
tax basis in his or her shares by the amount distributed. Cash distributed to
Shareholders in excess of the aggregate tax basis in their shares generally will
be taxable, with certain exceptions, to a Shareholder as capital gain, which
either may be long-term or short-term, depending on the Shareholder's holding
period for his or her shares. Although not entirely free from doubt,
distributions from the Fund that are reinvested in additional shares apparently
will be treated for tax purposes as if made in cash, with the cash then used to
purchase additional shares.
27
<PAGE>
In certain circumstances, to the extent a current or redemption distribution
is considered to be in exchange for a Shareholder's interest in the Fund's
"unrealized receivables" and certain "inventory items," the Shareholder may
recognize ordinary income. Unrealized receivables and inventory items may
include, among other items, accrued market discount on bonds with a fixed
maturity date of more than one year from issuance as well as the appreciation in
value of certain stocks of foreign corporations which the Fund may hold directly
or indirectly. In addition, for Shareholders who would be treated as dealers for
tax purposes with respect to investments held by the Fund, special rules may
apply relating to inventory items. Such Shareholders should consult their tax
advisors to determine the effect of the special rules. The Fund may make
elections to minimize the Fund's unrealized receivables and inventory items, but
undertakes no obligation to do so.
Unless a distribution is a complete redemption of a Shareholder's interest
in the Fund, a Shareholder will not be eligible to claim a tax loss with respect
to his or her shares.
Property other than cash distributed to a Shareholder by the Fund, either
currently or in redemption of shares, generally will not result in taxable
income or loss to the Shareholder (except to the extent such distribution is
treated as made in exchange for such Shareholder's interest in the Fund's
unrealized receivables and inventory items). If a distribution is in complete
redemption of a Shareholder's interest in the Fund, the basis to the Shareholder
of property distributed generally will equal the adjusted tax basis of his or
her shares decreased by any cash received in the distribution. In any other
distribution of property other than cash, the basis to the Shareholder of the
property distributed generally will be the lesser of the Fund's basis prior to
the distribution or the Shareholder's adjusted tax basis in the shares decreased
by any cash received in the distribution. The Shareholder's tax basis in the
shares will be reduced by the amount of the basis to the Shareholder of the
property distributed. It is not currently anticipated that the Fund will make
distributions in property rather than in cash, but assurance cannot be given
that the Fund will not do so.
TAXATION OF SHARES -- LIMITATIONS ON LOSSES AND DEDUCTIONS. For
purposes of
computing Federal income tax, a Shareholder will take into account his or her
distributive share of the Fund's tax items (see Taxation of Fund
Operations -- In General). However, a Shareholder's ability to deduct his or her
distributive share of the Fund's losses and expenses may be limited under one or
more provisions of the Code.
A Shareholder's distributive share of the Fund's net losses (including
capital losses) can be taken into account by the Shareholder only to the extent
of the Shareholder's basis (see Taxation of Shares -- Basis) in his or her
shares at the end of the Fund's taxable year in which the losses arose. Any
losses not taken into account under this provision can be taken into account in
a later year to the extent that the Shareholder has sufficient basis (after the
annual basis adjustments required under the Code) in his or her shares.
Capital losses of an individual taxpayer (including those that are part of
the Shareholder's distributive share of the Fund's tax items) generally are
deductible to the extent of the Shareholder's capital gains and any excess
capital losses are deductible up to $3,000 per year ($1,500 for a married
individual filing a separate return). An individual's capital losses which
otherwise are deductible in a given year, but exceed these limits, can be
carried forward indefinitely for possible deduction in later taxable years.
Capital losses of a corporation generally are deductible to the extent of its
capital gains. Capital losses of a corporation which otherwise are deductible,
but which exceed its capital gains for the taxable year, generally are subject
to a three year carry back and five year carryover period.
Miscellaneous itemized deductions (including investment expenses) of
non-corporate taxpayers are allowable only to the extent that they exceed 2% of
the taxpayer's adjusted gross income. Accordingly, the deduction by such a
Shareholder of his or her distributive share of the Fund's investment expenses
may be subject to the 2% limitation. Moreover, in general, certain itemized
deductions (not including investment interest expenses) of individuals may be
subject to other limitations. For
28
<PAGE>
example, for tax years beginning in 1992, these deductions of individuals with
adjusted gross incomes exceeding $108,450 ($54,225 for a married individual
filing a separate return) may be reduced by 3% of the amount by which the
individual's adjusted gross income exceeds $108,450 ($54,225 for a married
individual filing a separate return). The deduction by an individual Shareholder
of his or her distributive share of the Fund's investment expenses thus may be
limited.
The deduction of interest expense incurred on indebtedness to acquire shares
and interest expense that is part of a Shareholder's distributive share of the
Fund's tax items may be limited or deferred under various Code provisions,
including principally the so-called "investment interest" rules. These rules
provide generally that the "investment interest expense" of a taxpayer other
than a corporation for a taxable year may be deducted only to the extent of the
taxpayer's "net investment income" for the taxable year.
For this purpose, net investment income is the excess of investment income
over investment expenses. In general, investment income includes gross income
from property held for investment and net gain from the disposition of property
held for investment, while investment expenses include deductions (other than
interest) that are directly connected with the production of investment income.
It is possible that all or a portion of a Shareholder's distributive share of
the Fund's interest expenses, if any, may be classified as investment interest
expense and that interest on indebtedness incurred to purchase shares may be
subject to the limitation. The Fund will report to Shareholders for each year
their shares of the Fund's investment interest expense, the Shareholder's
deduction of which will be subject to the investment interest limitation. Any
investment interest expense disallowed under the investment interest rules
generally can be deducted in a later year if the Shareholder has sufficient net
investment income.
For purposes of the alternative minimum tax, the investment interest rules
apply in a modified form. For example, the calculations of investment interest
expense, investment income and investment expenses are based upon income and
expenses determined pursuant to the alternative minimum tax rules.
The deduction of interest expense and other carrying charges allocable to an
investment that is part of a straddle also may be deferred. Such interest
expense and carrying charges generally must be added to the basis of the
investment that constitutes part of the straddle, thus increasing the loss or
decreasing the gain recognized upon a disposition of the investment.
Deductions for interest expense allocable to tax-exempt obligations also may
be limited. Generally, interest on debt incurred to purchase tax-exempt
obligations and on debt that is secured by tax-exempt obligations is not
deductible. In addition, if a taxpayer holds tax-exempt obligations and has debt
outstanding (generally, other than debt incurred for personal purposes and for
an active trade or business), a portion of the debt may be deemed to be
allocable to the tax-exempt obligations. In that case, the deduction for a
portion of the taxpayer's interest expense will be disallowed, determined using
a formula generally based upon the amount of the taxpayer's tax-exempt
obligations and assets. With respect to a partnership, it appears that the
partners should be treated as incurring or holding their share of the
partnership's debt and tax-exempt obligations for purposes of these rules. Thus,
to the extent that the Fund holds tax-exempt obligations or incurs debt,
Shareholders will take into account their share of such items for purposes of
applying the tax-exempt interest rules to determine whether a portion of their
expense (including their distributive share of the Fund's interest expense) is
nondeductible.
Losses attributable to "passive activities" are limited under the Code.
Temporary Regulations interpreting Code Section 469 provide that the activity of
trading personal property for the account of owners of interests in the activity
does not constitute a passive activity. Based on this Regulation, the General
Partners believe that the Fund will not be treated as a passive activity.
Accordingly, the income and losses generated by the
29
<PAGE>
Fund should not be classified as passive, but instead should be classified as
portfolio income. Portfolio income generally includes such items as interest,
dividends and gain or loss from property held for investment (that is not a
passive activity). On that basis, Shareholders' passive losses are not expected
to be available to offset income from the Fund.
As previously discussed (see Taxation of Partnership
Operations -- Investments), certain losses realized by the Fund may not be
deductible pursuant to the wash sale rules. In the case of a partnership, it is
not entirely clear how the wash sale rules apply when the partnership (or a
partner) disposes of a stock or security and within the prohibited period, a
partner (or the partnership) acquires or contracts to acquire substantially
identical property. It is possible that the IRS could assert that dispositions
and acquisitions of stock and securities by the Fund and Shareholders should be
aggregated for purposes of the wash sale rules, resulting in the disallowance of
certain otherwise deductible losses.
The foregoing discussion is intended to be a summary of some of the Code
provisions that may limit a Shareholder's tax deductions for losses and expenses
with respect to the Fund and does not purport to be a comprehensive analysis or
a complete list of all such Code provisions. Each prospective Shareholder should
consult his or her tax advisor to determine the extent to which the deduction of
his distributive share of the Fund's losses and expenses may be limited.
TAXATION OF FUND OPERATIONS -- IRS AUDIT AND REPORTING
REQUIREMENTS. Each
Shareholder generally must report their distributive share of the Fund's income
and deductions consistently with the tax information report furnished to the
Shareholder by the Fund. If a Shareholder treats any item inconsistently, he or
she must notify the IRS and identify the inconsistency. A failure to properly
notify the IRS could result in the assertion of tax penalties against the
shareholder.
Under rules contained in the Code, an IRS audit, if any, of tax items of the
Fund generally would be conducted initially as an audit of the Fund. The
partnership audit rules provide, in general, that the "tax matters partner" (who
will be a General Partner of the Fund) has the authority to represent the Fund
in a tax audit and subsequent judicial proceedings. Under the Partnership
Agreement, the General Partners are given broad authority to represent the Fund
and the Shareholders on tax matters and Shareholders are subject to certain
restrictions in this regard. Thus, for example, the tax matters partner
generally has the authority to extend the statute of limitations with respect to
a partnership tax item and to enter into a settlement agreement with the IRS.
Determinations reached as a result of such audits generally will "flow through"
to Shareholders and could require changes to the Shareholders' tax returns. As
with any tax audit, additional taxes, interest, and penalties might be due from
Shareholders were the determinations to be adverse to positions previously taken
by Shareholders.
TAX SHELTER REGISTRATION. Code Section 6111 provides for the registration of
certain "tax shelters" with the IRS. Each participant in a registered tax
shelter must include the registration number on a Federal income tax return
claiming a deduction or loss with respect to the tax shelter. The failure to
include a tax shelter registration number on a Federal income tax return as
required by the Code may result in the imposition of monetary penalties. The
rules relating to classification of the Fund as a tax shelter for purposes of
those registration provisions are not entirely clear. However, the Fund is not
being marketed as, nor will it function as, a vehicle to reduce the Federal
income tax liability of Shareholders and thus does not appear to be the type of
entity that Congress meant to including within the scope of Code Section 6111.
Accordingly, the Fund has not and does not intend to register under Code Section
6111.
TAXPAYER IDENTIFICATION NUMBERS AND U.S. TAX STATUS. Pursuant to the
requirements of various Code provisions, Shareholders will be required to
furnish the Fund with a certified statement containing their taxpayer
identification number (in the case of an individual, this is usually the
person's social security number), a representation
30
<PAGE>
that the shareholder is not a foreign person for U.S. tax purposes and other tax
information needed by the Fund to comply with tax reporting and withholding
requirements.
STATE AND LOCAL TAXES
TAXATION OF SHARES -- NEW YORK STATE PERSONAL INCOME AND
CORPORATE FRANCHISE
TAXES. An individual partner in a partnership that has income derived from New
York State may be subject to the New York State personal income tax even though
the partner is not a resident of New York State. New York State tax law provides
that a partnership will not have income derived from New York State solely by
the purchase or sale of property or the sale or writing of stock option
contracts, or both, for its own account for purposes of computing the New York
State taxable income of a nonresident individual. Pursuant to this law, New York
State tax authorities have ruled privately that a partnership engaged in the
purchase or sale of futures contracts and writing options on financial
instruments for its own account will not have income derived from New York
State.
Accordingly, although the Fund currently intends to maintain its principal
place of business in New York, it appears that the Fund should not have income
derived from New York State for purposes of applying the New York State personal
income tax to Shareholders who are not residents of New York State. At the
present time, the General Partners do not anticipate obtaining a ruling on this
matter from the New York State tax authorities.
With respect to a corporation, New York State tax law provides that a
corporation will be subject to the New York State corporate franchise tax if the
corporation is exercising a corporate franchise, doing business, employing
capital, owning or leasing property in a corporate or organized capacity, or
maintaining an office in New York State. Pursuant to this law, New York State
tax regulations provide that a corporation not incorporated in New York State
that is a limited partner in a partnership engaged in an activity upon which the
New York State corporate franchise tax is based will be subject to the corporate
franchise tax under various circumstances. Since the Fund currently maintains an
office in New York City, it is possible that a corporation incorporated outside
New York that invests in the Fund will be subject to the New York State
corporate franchise tax. However, depending upon the circumstances of the
corporate investor as well as the types of income earned by the Fund, it is
possible that the investor would not become subject to the tax by virtue of
being a Fund Shareholder. Accordingly, corporate shareholders should consult
their own tax advisors regarding New York State and City taxation.
In the event that the Fund is deemed to derive income from other states or
localities, the states or localities may seek to tax Shareholders on their
income derived by the Fund from such states or localities. For example, a
Shareholder may be subject to tax on income derived from the Fund in a
jurisdiction if the Fund is regarded under applicable law as doing business in,
or as having income derived from, that jurisdiction. If a Shareholder is subject
to tax on income derived from the Fund in a jurisdiction by reason of owning
Shares, the Shareholder may be entitled to claim a credit or a deduction with
respect to such taxes in the jurisdiction in which he or she resides, but this
is not always the case. Note, however, that it is possible that Shareholders
could become subject to tax in more than one jurisdiction as a result of the
Fund's activities in those jurisdictions.
OTHER TAXES
The Shareholders may be subject to other taxes including, but not limited to,
the alternative minimum tax, state and local income taxes, estate and
inheritance taxes, and intangible taxes that may be imposed by various
jurisdictions. The Fund also may be subject to state, local and foreign taxes.
Each prospective Shareholder should consider his potential consequences of such
taxes. It is the responsibility of each prospective Shareholder to satisfy
himself or herself as to the legal and tax consequences of an investment in the
Fund by obtaining advice from his or her own advisers and to file all
appropriate tax returns that may be required.
31
<PAGE>
The foregoing is a summary of some of the more important tax rules and
considerations affecting the Shareholders, the Fund, and the Fund's operations,
and does not purport to be a complete analysis of all relevant tax rules and
considerations, nor does it purport to be a complete listing of all potential
tax risks inherent in purchasing or holding shares. Each prospective Shareholder
should consult his or her tax advisor with respect to any investment in the
Fund.
CUSTODIAN AND TRANSFER AGENT
The Fund's assets are held under bank custodianship in accordance with the 1940
Act. Boston Safe Deposit and Trust Company ("Boston Safe"), a wholly owned
subsidiary of TBC is located at One Boston Place, Boston, Massachusetts 02108,
and serves as custodian for the Fund. Under its custody agreement with the Fund,
Boston Safe is authorized to appoint one or more subcustodians that may hold
assets owned by the Fund. All subcustodians of the Fund's assets will be
selected and appointed in accordance with, and will fulfill their obligations
under, the 1940 Act and the rules and regulations promulgated thereunder.
For its custody services, Boston Safe receives monthly fees based upon the
month-end aggregate net asset value of the Fund, plus certain charges for
securities transactions. The Fund also reimburses Boston Safe for its
out-of-pocket expenses, including the costs of any subcustodian.
TSSG is located at Exchange Place, Boston, Massachusetts 02108, and serves
as the Fund's transfer agent. Under the transfer agency agreement, TSSG
maintains the shareholder account records of 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 that it
maintains for the Fund during the month and is reimbursed for out-of-pocket
expenses.
Pursuant to rules adopted under the 1940 Act, the Fund may maintain foreign
securities and cash in the custody of certain eligible foreign banks and
securities depositories. Selection of these foreign custodial institutions is
made by the Individual General Partners following a consideration of a number of
factors, including (but not limited to) the reliability and financial stability
of the institution; the ability of the institution to perform capably custodial
services for the Fund; the reputation of the institution in its national market;
the political and economic stability of the country in which the institution is
located; and further risks of potential nationalization or expropriation of Fund
assets. The Individual General Partners review annually the continuance of
foreign custodial arrangements for the Fund. No assurance can be given that this
appraisal of the risks in connection with foreign custodial arrangements will
always be correct or that expropriation, nationalization, freezes, or
confiscation of assets that would impact assets of the Fund will not occur, and
Shareholders bear the risk of losses arising from these or other events.
OTHER INFORMATION
COUNSEL AND AUDITORS
Dechert Price & Rhoads serves as counsel to the Fund. Stroock & Stroock & Lavan
serves as counsel to the Independent General Partners.
Coopers & Lybrand, independent accountants, serve as auditors of the Fund
and render an opinion on the Fund's financial statements annually.
ORGANIZATION OF THE FUND
The Fund was organized as a limited partnership under the laws of the State of
Delaware on November 16, 1987. The text of the Fund's Amended and Restated
Agreement of Limited Partnership (the "Partnership Agreement") is set out in
Appendix B to this Statement of Additional Information.
LEGAL PROCEEDINGS
On August 17, 1988, the SEC instituted and simultaneously accepted offers for
the settlement of an administrative proceeding charging that Gabelli Rosenthal &
Partners, L.P., G&R Partners and certain of their affiliates, including Gabelli
Funds, Inc. and Mr. Mario J. Gabelli who, together with certain affiliated
entities,
32
<PAGE>
controls 60.4% of the voting stock of Tremont Advisors, Inc. (as defined by Rule
13d-3 under the Securities Exchange Act of 1934), the ultimate parent of Tremont
(the "Parties"), were part of a group formed to pursue a subsequently abandoned
leveraged buyout of a portfolio company of an open-end investment company and of
a closed-end investment company managed by Gabelli Funds, Inc. (the "Advised
Funds"); failed to comply with the requirements of Section 13(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") and Rule 13d-1 thereunder
by the timely filing of a Schedule 13D report disclosing the amount and purpose
of their combined acquisitions, both direct and beneficial (as in the case of
both Mr. Gabelli and Gabelli Funds, Inc., although Mr. Gabelli did not
personally own shares of the portfolio company), of the voting securities of the
portfolio company; and that the Parties, other than Mr. Gabelli, violated
Section 17(d) of the 1940 Act and Rule 17d-1 thereunder by involving the Advised
Funds in a "joint enterprise" pursuant to which the Advised Funds were no longer
free to act with respect to that investment of Advised Funds' assets without
regard for the interests of its affiliates. As applied to the Advised Funds
which were not a party to the proceeding, Section 17(d) and Rule 17d-1 prohibit
Gabelli Funds, Inc. and its affiliates from engaging in transactions in which
the Advised Funds are a joint participant with the affiliated persons unless the
SEC has previously reviewed the transactions and determined that the Advised
Funds' participation therein is not on a basis that is different from or less
advantageous than that of the other participants.
The settlement offer of the Parties was submitted solely for purposes of the
proceeding and any other proceeding instituted by or on behalf of the SEC,
neither admitted nor denied the SEC charges; and was accepted by the SEC prior
to any adjudication of its charges.
The Parties undertook by their offers to comply in all material respects
with such law and rules; to retain outside counsel to review their existing
procedures for compliance with such statutes and rules and prepare a report with
recommendations for ensuring such compliance; to provide such report and
recommendations to the management and Directors of the Advised Funds; and to
provide such report and recommendations to the SEC Staff with a description of
the action taken by the management and the Directors of the Advised Funds in
response therein. A report prepared by outside counsel engaged by the Parties
pursuant to their settlement offers, dated November 4, 1988, recommended the
strengthening of existing systems and compliance procedures as well as the
adoption of a new "Joint Transactions Policy." The Directors of the Advised
Funds approved Gabelli Fund, Inc.'s implementation of the policies recommended
for ensuring compliance with Section 17(d) of and Rule 17d-1 under the 1940 Act
and concurred in recommendations for ensuring compliance with Rule 13d-1 under
Section 13(d) of the Exchange Act. The procedures adopted by Gabelli Funds, Inc.
for ensuring compliance with Rule 17d-1 were adopted to comply with the
undertaking in the settlement offer of the Parties. Responsibility for ensuring
future compliance with Section 17(d) and Rule 17d-1 remains that of Gabelli
Funds, Inc. and its other affiliates, as overseen in respect to the management
of the Advised Funds by the Directors of the Advised Funds. In that regard, the
SEC has neither approved nor disapproved of the procedures which Gabelli Funds,
Inc. and its affiliates have adopted for the purpose of ensuring future
compliance with Section 17(d) and Rule 17d-1, nor has the SEC passed upon the
adequacy of the procedures.
FINANCIAL STATEMENTS
The Fund's Annual Report for the fiscal year ended December 31, 1993 accompanies
this Statement of Additional Information and is incorporated herein by reference
in its entirety.
33
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
THIS APPENDIX DESCRIBES RATINGS APPLIED TO CORPORATE BONDS BY
MOODY'S AND S&P.
MOODY'S RATINGS
AAA -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge". Interest payments are protected by a large or an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, the changes as can be visualized are most unlikely to impair
the fundamentally strong position of these issues.
AA -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
BAA -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA -- Bonds that are rated Ca represent obligations that are speculative in
a high degree. These issues are often in default or have other market
shortcomings.
Moody's applies numerical modifiers in each generic rating classified from
Aa through B in its corporate bond rating system. The modifier 1 indicates that
the security ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the
issue ranks in the lower end of its generic rating category.
S&P'S RATINGS
AAA -- Bonds rated AAA have the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal.
A-1
<PAGE>
Whereas they normally exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds in this category than in
higher rated categories.
BB -- B -- CCC -- CC -- C -- Bonds rated BB, B, CCC, CC, and C are regarded
as having predominantly speculative characteristics with respect to capacity to
pay interest and repay principal. BB indicates the least degree of speculation
and C the highest. While such bonds will likely have some quality and protective
characteristics, these are out-weighed by large uncertainties or major exposures
to adverse conditions.
BB -- Bonds rated BB have less near-term vulnerability to default than other
speculative issues. However, they face major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for bonds subordinated to senior debt that is
assigned an actual or implied BBB-rating.
B -- Bonds rated B have a greater vulnerability to default but currently
have the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for bonds subordinated to senior debt that is assigned an actual or implied
BB or BB-rating.
CCC -- Bonds rated CCC have a currently identifiable vulnerability to
default and are dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions they are not likely
to have the capacity to pay interest and repay principal. The CCC rating
category is also used for bonds subordinated to senior debt that is assigned an
actual or implied B or B-rating.
PLUS (+) OR MINUS (-) -- The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
PROVISIONAL RATINGS -- The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
N.R. -- Indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
Debt obligations of issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
A-2
<PAGE>
APPENDIX B
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
THE ADVISORS FUND L.P.
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
<C>
I. FORMATION AND
NAME................................................................................ B-4
II. BUSINESS OF THE FUND, INVESTMENT OBJECTIVE AND OPERATING
POLICY................................... B-4
(a) Business of the Fund...................................................................
B-4
(b) Investment Objective...................................................................
B-4
(c) Operating Policy.......................................................................
B-4
(d) Investment Restrictions................................................................
B-4
III. PLACE OF BUSINESS, REGISTERED OFFICE AND REGISTERED
AGENT......................................... B-5
(a) Place of Business......................................................................
B-5
(b) Registered Office......................................................................
B-5
(c) Registered Agent.......................................................................
B-6
IV. SHARES OF FUND
INTEREST........................................................................... B-6
(a) Shares of Fund Interest................................................................
B-6
(b) Classification of Shares...............................................................
B-6
(c) Class Designation......................................................................
B-6
(d) Conversion of Class B Shares to Class A
Shares......................................... B-6
V. GENERAL
PARTNERS.................................................................................. B-7
(a) Identity and Number of General
Partners................................................ B-7
(b) General Partners' Contributions........................................................
B-7
(c) Management and
Control................................................................. B-8
(d) Action by the Individual General
Partners.............................................. B-9
(e) Limitations on the Authority of the Individual General
Partners........................ B-9
(f) Right of General Partners to Become Limited
Partners................................... B-9
(g) Removal of a General
Partner........................................................... B-10
(h) Withdrawal of a General
Partner........................................................ B-10
(i) Additional or Successor General
Partners............................................... B-10
(j) Liability to Limited Partners..........................................................
B-11
(k) Assignment and Substitution............................................................
B-11
(l) No Agency..............................................................................
B-11
(m) Reimbursement and
Compensation......................................................... B-11
(n) Indemnification........................................................................
B-11
(o) Discretion to Redeem...................................................................
B-12
VI. LIMITED
PARTNERS.................................................................................. B-13
(a) Admission of Limited
Partners.......................................................... B-13
(b) Other Admission of Additional Limited
Partners......................................... B-13
(c) Contributions of the Limited
Partners.................................................. B-13
</TABLE>
B-1
<PAGE>
<TABLE>
<S> <C> <C>
<C>
(d) Additional Contributions of Limited Partners and
Assessments........................... B-13
(e) Use of Contributions...................................................................
B-13
(f) Redemption by Limited
Partners......................................................... B-13
(g) Minimum Investment and Discretion to
Redeem............................................ B-14
(h) Limited Liability......................................................................
B-14
(i) No Power to Control
Business........................................................... B-14
VII. MATTERS AFFECTING BASIC STRUCTURE OF THE
FUND..................................................... B-15
(a) Rights of Limited Partners.............................................................
B-15
(b) Meetings of the Partners...............................................................
B-16
(c) Voting Lists........................................................................... B-
16
(d) Proxies................................................................................ B-
17
(e) Number of Votes........................................................................
B-17
VIII. DISTRIBUTIONS, ALLOCATION OF PROFITS AND LOSSES AND CAPITAL
ACCOUNTS.............................. B-17
(a) Definitions............................................................................ B-
17
(b) Allocations of Fund Income, Gains, Losses, Deductions and
Credits...................... B-18
(c) Distributions.......................................................................... B-
18
(d) Additional Authority of Individual General
Partners.................................... B-18
(e) Distributions upon Dissolution.........................................................
B-18
(f) Withholding Taxes......................................................................
B-18
IX. ASSIGNMENT OF SHARES AND SUBSTITUTION OF
ASSIGNEE................................................. B-19
(a) Prohibition on Assignment..............................................................
B-19
(b) Rights of the Holders of Shares as
Collateral.......................................... B-19
(c) Death, Insanity or Termination of the Existence of a Limited
Partner................... B-20
X. DISSOLUTION AND WINDING UP OF THE
FUND............................................................ B-20
(a) Term................................................................................... B-
20
(b) Dissolution of the Fund................................................................
B-20
(c) Removal of General
Partner............................................................. B-21
(d) Successor General Partners.............................................................
B-21
(e) Determination Not to
Continue.......................................................... B-21
(f) Winding Up of the Fund.................................................................
B-21
(g) Accountant's Statement.................................................................
B-21
(h) Gains or Losses in Process of
Liquidation.............................................. B-22
XI. FUND DOCUMENTATION, AMENDMENT OF THE CERTIFICATE AND
AGREEMENT AND POWER-OF-ATTORNEY.............. B-22
(a) Agreement and Other
Documentation...................................................... B-22
(b) Events Requiring Amendment of the
Certificate.......................................... B-22
(c) Documentation Requiring the Signatures of Partners and Power of
Attorney............... B-22
XII. CERTAIN OPERATING
POLICIES........................................................................ B-23
(a) Fiscal Year............................................................................ B-
23
</TABLE>
B-2
<PAGE>
<TABLE>
<S> <C> <C>
<C>
(b) Record Dates...........................................................................
B-23
XIII. RECORDS, STATEMENTS AND INCOME TAX
INFORMATION.................................................... B-23
(a) Records and Accounting.................................................................
B-23
(b) Statements............................................................................. B-
24
(c) Income Tax Matters.....................................................................
B-24
XIV. GENERAL
PROVISIONS................................................................................ B-24
(a) Agreement in Counterparts..............................................................
B-24
(b) Principles of Construction and
Severability............................................ B-24
(c) Paragraph Headings.....................................................................
B-25
(d) Variations in Pronouns.................................................................
B-25
(e) Delaware Law...........................................................................
B-25
(f) Integrated Agreement...................................................................
B-25
(g) Independent Activities.................................................................
B-25
(h) Interested Partners....................................................................
B-25
(i) Tax Election........................................................................... B-
25
(j) Custodian.............................................................................. B-
25
(k) Notices................................................................................ B-
25
(l) Benefit................................................................................ B-
25
(m) Nonrecourse Creditors..................................................................
B-25
(n) Insurance.............................................................................. B-
26
</TABLE>
B-3
<PAGE>
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
THE ADVISORS FUND L.P.
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP dated
October 2,
1992, as amended from time to time (the "Agreement"), is entered into by and
among Shearson Lehman Investment Strategy Advisors Inc., (the "Corporate General
Partner"), Walter E. Auch, Martin Brody, Stephen E. Kaufman, Heath B. McLendon,
Richard P. Roelofs and Madelon DeVoe Talley as the individual general partners
(the "Individual General Partners") (the Individual General Partners together
with the Corporate General Partner, the "General Partners") of The Advisors Fund
L.P. and those persons reflected on the books and records of the Fund as limited
partners (the "Limited Partners") of The Advisors Fund L.P. (collectively the
"Partners").
I. FORMATION AND NAME
(a) The Fund was initially formed as a limited partnership, named Hutton
Options Trading L.P. (the "Fund"), pursuant to the Delaware Revised Uniform
Limited Partnership Act (the "Partnership Act") and evidenced by a Certificate
of Limited Partnership filed with the Office of the Secretary of State of the
State of Delaware on November 16, 1987 (the "Certificate") and an Agreement of
Limited Partnership dated as of November 13, 1987 (the "Original Agreement").
(b) The Partners hereby continue the Fund and amend and restate the Original
Agreement as set forth below.
II. BUSINESS OF THE FUND, INVESTMENT
OBJECTIVE AND OPERATING POLICY
(a) BUSINESS OF THE FUND. The business of the Fund is to purchase, sell
and otherwise deal with securities and other assets in accordance with the
Fund's then current Prospectus (the "Prospectus") and Statement of Additional
Information (the "Statement of Additional Information") filed with the
Securities and Exchange Commission as part of a Registration Statement on Form
N-1A, or any successor form under and pursuant to the Investment Company Act of
1940, as amended, (the "1940 Act"), and any amendment thereto.
(b) INVESTMENT OBJECTIVE. The investment objective of the Fund is to
maximize total return. This objective may be changed only upon the approving
vote of a majority of the outstanding voting securities of the Fund, as defined
in the 1940 Act.
(c) OPERATING POLICY. The Fund is authorized and empowered to operate and
intends to operate as an open-end, non-diversified management investment company
under the 1940 Act.
(d) INVESTMENT RESTRICTIONS.
(1) The following investment restrictions of the Fund may not be changed
without a Majority Vote of Partners (as defined in Section VII(b)(4)) of this
Agreement:
(i) the Fund will invest no more than 25% of the value of its total
assets in securities of issuers in any one industry, except that this
restriction does not apply to investments in repurchase agreements and U.S.
Government securities;
(ii) the Fund will not lend money to other persons, except through
purchasing debt obligations, lending portfolio securities and entering into
repurchase agreements in the manner described in the Fund's Prospectus and
Statement of Additional Information;
(iii) the Fund will not employ the trading technique commonly known as
"pyramiding," in which a commodities trader uses unrealized profits
B-4
<PAGE>
on existing positions as margin for the purchase or sale of additional
positions in the same or related commodities;
(iv) the Fund will not enter into commodity futures contracts and
options on commodities or futures contracts on any domestic contract market
for which the aggregate initial margin and premiums exceed 10% of the assets
of the Fund, after taking into account unrealized profits and losses on
those contracts;
(v) the Fund will not underwrite the securities of other issuers, except
insofar as the Fund may be deemed an underwriter under the Securities Act of
1933, as amended, by virtue of disposing of portfolio securities;
(vi) the Fund will not purchase real estate, except that the Fund may
purchase and sell securities that are secured by real estate and may
purchase securities issued by companies that invest or deal in real estate;
(vii) the Fund will not purchase securities on margin, except: (A) the
Fund may obtain any short-term credits necessary for the clearance of
purchases and sales of portfolio securities; (B) in connection with the
Fund's borrowing; or (C) in connection with futures and options contracts
trading strategies as described in the Prospectus or the Statement of
Additional Information;
(viii) the Fund will not pledge, hypothecate, mortgage or encumber in
any other way more than one-third of the Fund's net assets;
(ix) the Fund will not invest in oil, gas or other mineral exploration
or development programs, except that the Fund may invest in the securities
of companies that invest in or sponsor those programs;
(x) the Fund will not invest in securities of other investment companies
registered or required to be registered under the 1940 Act, except as they
may be acquired as part of a merger, consolidation, reorganization,
acquisition of assets or an offer of exchange;
(xi) the Fund will not purchase any security if, as a result, the Fund
will then have more than 10% of its total assets invested in securities of
companies (including predecessor companies) that have been in continuous
operation for fewer than three years;
(xii) the Fund will not make investments for the purpose of exercising
control or management of any other issuer; and
(xiii) the Fund will only borrow from banks and then only in an amount
not exceeding one-third of the market value of its total assets (including
borrowings) less liabilities (other than borrowings) immediately after the
borrowing.
(2) The following investment restrictions of the Fund may be changed by the
Individual General Partners without shareholder approval:
(i) the Fund will not invest more than 15% of its net assets in
securities that are illiquid;
(ii) the Fund will not purchase or retain securities of any issuer if,
to the knowledge of the Fund, any of the Fund's Individual General Partners,
or any officer or director of Shearson Lehman Brothers Inc., the Portfolio
Managers or The Boston Company Advisors, Inc. ("Boston Advisors"),
individually own more than 1/2 of 1% of the outstanding securities of the
issuer and together own beneficially more than 5% of such issuer's
securities; and
(iii) the Fund will not invest in warrants (other than warrants acquired
by the Fund as part of a unit or attached to securities at the time of
purchase) if, as a result, the investments (valued at the lower of cost or
market) would exceed 5% of the value of the Fund's net assets of which not
more
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than 2% of the Fund's net assets may be invested in warrants not listed on a
recognized United States or foreign stock exchange.
III. PLACE OF BUSINESS, REGISTERED OFFICE
AND REGISTERED AGENT
(a) PLACE OF BUSINESS. The principal place of business of the Fund is
located at Two World Trade Center, New York, New York 10048.
(b) REGISTERED OFFICE. The address of the registered office of the Fund in
the State of Delaware is c/o The Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware 19801.
(c) REGISTERED AGENT. The name and address of the registered agent of the
Fund for service of process on the Fund in the State of Delaware is The
Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801.
The Individual General Partners of the Fund may, from time to time, change
the location of the Fund's principal place of business, establish additional
places of business, change the Fund's registered agent in Delaware and change or
agree to a change in the Fund's registered office in Delaware, as the Individual
General Partners, or any of them, may deem necessary or desirable for the
conduct of the Fund's business.
IV. SHARES OF FUND INTEREST
(a) SHARES OF FUND INTEREST. All interests in the Fund, including
contributions by the General Partners, pursuant to Section V(b) of this
Agreement, and by the Limited Partners, pursuant to Section VI(c) of this
Agreement, shall be expressed in shares (herein referred to as "Shares").
(b) CLASSIFICATION OF SHARES. The Individual General Partners, in their
discretion, may authorize the creation of classes of Shares ("Classes") of the
Fund and may classify and reclassify authorized issued and unissued Shares in
the Fund, and the different Classes shall be established and designated, and the
variations in the relative rights and preferences as between the different
Classes shall be fixed and determined by the Individual General Partners without
the vote or approval of Partners; provided, that all Shares of the Fund shall be
identical to all other Shares of the Fund, except that there may be variations
between different Classes as to allocations and distributions, restrictions,
qualifications or terms or conditions of redemption, special and relative rights
as to distributions and on liquidation, conversion and other rights, and
conditions under which the several Classes shall have separate voting rights.
The Individual General Partners, in their sole discretion, may dissolve and
liquidate a Class of Shares of the Fund without the vote or approval of the
holders of Shares of such Class. All references to Shares in this Agreement
shall be deemed to be Shares of any or all Classes, unless the context requires
otherwise.
All provisions herein relating to the Fund shall apply equally to each Class
of Shares of the Fund, except as the context requires otherwise.
(1) The assets of the Fund will be invested in a common investment portfolio
with the various Classes having interests in the Portfolio.
(2) Each Class shall be charged with the expenses and liabilities of that
Class and with that Class' share of the general expenses and liabilities of the
Fund as determined by the Individual General Partners.
(c) CLASS DESIGNATION. The Individual General Partners hereby classify and
designate the currently authorized issued and an unlimited number of unissued
Shares as Class A Shares and classify and designate an unlimited number of
authorized and unissued Shares as Class B Shares.
The Shares classified hereby and all other classes designated pursuant
hereto shall have the preferences, conversion and other rights, voting powers,
restrictions, limitations as to distributions, qualifications, and terms and
conditions of redemption as set forth in this Section IV of this Agreement and
established by the Individual General Partners in their discretion and shall be
subject to all provisions of this Agreement relating to Shares of the Fund
generally.
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(d) CONVERSION OF CLASS B SHARES TO CLASS A SHARES.
(1) Each share of Class B Shares, other than a share purchased through the
automatic reinvestment of a distribution with respect to the Class B Shares,
shall be converted automatically, and without any action or choice on the part
of the holder thereof, into Class A Shares of the Fund on the date that is the
first Fund business day in the month following the month in which the eighth
anniversary date of the date of issuance of the Class B Share falls (the
"Conversion Date"). With respect to Class B Shares issued in an exchange or
series of exchanges for shares of capital stock of another investment company or
class or series thereof registered under the Investment Company Act of 1940
pursuant to an exchange privilege granted by the Fund, the date of issuance of
the Class B Shares for purposes of the immediately preceding sentence shall be
the date of issuance of the original shares of capital stock.
(2) Each Class B Share purchased through the automatic reinvestment of a
distribution with respect to Class B Shares shall be segregated in a separate
sub-account on the share records of the Fund for each of the holders of record
thereof. On any Conversion Date, a number of the Shares held in the sub-account
of the holder of record of the Share or Shares being converted, calculated in
accordance with the next following sentence, shall be converted automatically,
and without any action or choice on the part of the holder, into Class A Shares
of the Fund. The number of Shares in the holder's sub-account so converted shall
bear the same relation to the total number of Shares maintained in the
sub-account on the Conversion Date (immediately prior to conversion) as the
number of Shares of the holder converted on the Conversion Date pursuant to
paragraph (d)(1) hereof bears to the total number of the Class B Shares of the
holder on the Conversion Date (immediately prior to conversion) not purchased
through the automatic reinvestment of distributions with respect to the Class B
Shares.
(3) The number of Class A Shares into which the Class B Shares are converted
pursuant to paragraphs (1) and (2) hereof shall equal the number (including for
this purpose fractions of a Share) obtained by dividing the net asset value per
share of the Class B Shares for purposes of sales and redemptions thereof on the
Conversion Date by the net asset value per share of the Class A Shares for
purposes of sales and redemptions thereof on the Conversion Date.
(4) On the Conversion Date, the Class B Shares converted into Class A Shares
will no longer be deemed outstanding and the rights of the holders thereof
(except the right to receive the number of Class A Shares into which the Class B
Shares have been converted and any declared but unpaid distributions to the
Conversion Date) will cease. Certificates representing Class A Shares of the
Fund resulting from the conversion need not be issued until certificates
representing shares of the Class B Shares converted, if issued, have been
received by the Fund or its agent duly endorsed for transfer.
(5) Conversions will occur subject to necessary regulatory approvals and
opinions of counsel as deemed appropriate by the Individual General Partners.
V. GENERAL PARTNERS
(a) IDENTITY AND NUMBER OF GENERAL PARTNERS.
(1) The names and mailing addresses of the General Partners, the number of
Shares owned by each of them and the amount of cash contributed by each of them
shall be set forth in the books and records of the Fund. The General Partners
shall be listed separately as "Individual General Partners" and "Corporate
General Partners." The Individual General Partners shall, from time to time,
determine the number of persons to be approved and elected as General Partners.
(2) Only individuals may act as Individual General Partners and all General
Partners who are individuals shall act as Individual General Partners. Any
General Partner that is a corporation, association, partnership, joint venture
or trust shall act as a Corporate General
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Partner. Except as provided in Section V(c) of this Agreement, a Corporate
General Partner shall, in that capacity, take no part in the management, conduct
or operation of the Fund's business and shall have no authority to act on behalf
of the Fund or to bind the Fund. All General Partners, including Individual
General Partners and Corporate General Partners, shall be admitted and removed
by the Partners as provided in this Agreement.
(b) GENERAL PARTNERS' CONTRIBUTIONS.
(1) Each General Partner shall make a contribution of cash to the Fund
sufficient to purchase at least one Share and shall continue to own at least one
Share at all times while serving as a General Partner.
(2) The Corporate General Partner shall in that capacity be obligated to
make Capital Contributions, as defined in Section VIII(a)(1) of this Agreement,
to the Fund through the purchase of Shares from time to time in an amount
sufficient to enable the General Partners, as a group, to maintain minimum
Capital Account balances, as defined in Section VIII(a)(2) of this Agreement,
equal to 1% of total positive Capital Account balances for the Fund, or
$500,000, whichever is less. The Capital Contributions of the General Partners,
as a group, shall in all events be in an amount sufficient to entitle the
General Partners, as a group, at all times to at least a 1% interest in each
material item of the Fund's income, gain, loss, deduction or credit during the
Fund's existence, except that if the Fund has total Capital Contributions
exceeding $50 million, then the interests of the General Partners, as a group,
in each material item of the Fund's income, gain, loss, deduction or credit
during the Fund's existence must at all times be at least 1% divided by the
ratio of total Capital Contributions to $50 million, but in no event shall such
aggregate interest in each material item be less than 0.2%. The failure of the
General Partners, as a group, to maintain the required interest in each material
item of the Fund's income, gain, loss, deduction or credit because of a
temporary allocation required under Section 704(b) or (c) of the Internal
Revenue Code of 1986, as amended from time to time (the "Code"), or the Treasury
Department Regulations promulgated thereunder (for example, a qualified income
offset or minimum gain chargeback), will not be considered a violation of this
requirement.
As long as the Corporate General Partner continues to serve in that
capacity, it shall not redeem or assign Shares it holds in its capacity as the
Corporate General Partner or otherwise accept distributions in cash or property
if that action would result in the failure of the General Partners, in the
aggregate, to maintain the required interest in the outstanding Shares of the
Fund. In the event that the Corporate General Partner is removed, the Corporate
General Partner may, upon not less than thirty (30) days' written notice, redeem
its Shares in the same manner as is provided for Limited Partners in Section
VI(f) of this Agreement. In the event that the Corporate General Partner
voluntarily withdraws, the Corporate General Partner may, upon not less than
thirty (30) days' written notice following the occurrence of an event described
in paragraph (2) of Section V(h) of this Agreement, redeem its Shares in the
same manner as is provided in Section VI(f) below as to Limited Partners, or may
retain its Shares and become a Limited Partner. In the event that the Corporate
General Partner is removed or voluntarily withdraws, the Individual General
Partners shall cause the Certificate to be amended to reflect the withdrawal.
(c) MANAGEMENT AND CONTROL. Subject to the terms of this Agreement and the
1940 Act, the Fund will be managed by the Individual General Partners, who will
have complete and exclusive control over the management, conduct and operation
of the Fund's business, and, except as otherwise specifically provided in this
Agreement, the Individual General Partners shall have the rights, powers and
authority, on behalf of the Fund and in its name, to exercise all of the rights,
powers and authority of partners of a partnership without limited partners under
the Partnership Act. The Individual General Partners may specifically contract
on behalf of
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the Fund with one or more banks, trust companies, distributors, investment
advisers, brokers and administrators for the performance of those functions that
the Individual General Partners may determine, but subject always to the
continuing supervision of the Individual General Partners, including, but not by
way of limitation, the investment and reinvestment of all or part of the Fund's
assets and execution of portfolio transactions and any and all administrative
functions. The Individual General Partners may also appoint agents, who need not
be Partners, to perform any other duties on behalf of the Fund as the Individual
General Partners deem desirable. The Individual General Partners shall devote
themselves to the Fund's business to the extent they may determine necessary for
the efficient conduct of the Fund's business, which need not, however, occupy
their full time. Individual General Partners may also engage, subject to the
limitations of the 1940 Act, in other businesses, whether or not similar in
nature to the business of the Fund. In the event that no Individual General
Partner shall remain for the purpose of deciding whether to continue the
business of the Fund as provided in Section X(b)(3) of this Agreement, the
Corporate General Partner shall promptly call a meeting of the Partners to be
held within sixty (60) days of the date the last Individual General Partner
ceased to act in that capacity for the purpose of determining whether to agree
to continue the business of the Fund and, if the business is to be continued,
the appointment of Individual General Partners, effective as of the date the
last Individual General Partner shall remain, the Corporate General Partner,
subject to the terms and provisions of this Agreement, shall continue the
management, conduct and operation of the business of the Fund.
(d) ACTION BY THE INDIVIDUAL GENERAL PARTNERS. Unless otherwise required
by
the 1940 Act of this Agreement with respect to any particular action, the
Individual General Partners may act to bind the Fund individually or by the vote
of a majority of the Individual General Partners at a meeting duly called at
which a quorum of the Individual General Partners is present or by unanimous
written or telephonic consent of the Individual General Partners without a
meeting. At any meeting of the Individual General Partners, a majority of the
Individual General Partners shall constitute a quorum. The Individual General
Partners shall appoint one of their number to be Principal Individual General
Partner and Chairman. Meetings of the Individual General Partners may be called
orally or in writing by the Principal Individual General Partner or by any two
Individual General Partners. Notice of the time, date and place of all meetings
of the Individual General Partners shall be given by the Principal Individual
General Partner or Partners calling the meeting to each Individual General
Partner by telephone or telegram sent to such Individual General Partner's home
or business address at least twenty-four (24) hours in advance of the meeting or
by written notice mailed to such Individual General Partner's home or business
address at least seventy-two (72) hours in advance of the meeting. Notice need
not be given to any Individual General Partner who attends a meeting of the
Individual General Partners without objecting to the lack of notice or who
executes a written waiver of notice with respect to the meeting. The Principal
Individual General Partner shall, if present, preside at all meetings of
Partners.
(e) LIMITATIONS ON THE AUTHORITY OF THE INDIVIDUAL GENERAL
PARTNERS. The
Individual General Partners shall have no authority, without the approval, which
may be by vote, written consent or ratification, of a majority of the Limited
Partners, to:
(1) do any act in contravention of this Agreement;
(2) do any act that would make it impossible to carry on the ordinary
business of the Fund;
(3) possess Fund property, or assign their rights in specific Fund
property, for other than a Fund purpose;
(4) admit a person as a General Partner, except in accordance with the
terms of this Agreement;
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<PAGE>
(5) admit a person as a Limited Partner, except in accordance with the
terms of this Agreement.
The individual General Partners shall have no authority, without the
unanimous approval (by vote, written consent or ratification) of the Limited
Partners to continue the Fund's business with Fund property when a General
Partner ceases to be a general partner of the Fund, except in accordance with
Section X.
Nothing in this Section V(e) shall preclude dissolution of the Fund in
accordance with this Agreement. In addition, certain actions of the individual
General Partners shall be subject to the approval of a Majority Vote of Partners
as defined in Section VII(b)(4).
(f) RIGHT OF GENERAL PARTNERS TO BECOME LIMITED PARTNERS. A
General
Partner may also become a Limited Partner without obtaining the approval of the
Limited Partners. Should a General Partner become a Limited Partner, the General
Partner will be entitled to all the rights of a Limited Partner to the extent of
the Limited Partner's interest so acquired. A General Partner's becoming a
Limited Partner shall not, however, be deemed to reduce or affect, in any other
way, any of the General Partner's liability under this Agreement as a General
Partner.
(g) REMOVAL OF A GENERAL PARTNER. Partners of record who are holders of
more than 66 2/3% of the outstanding Share of the Fund at the time of such vote
may remove a General Partner through an approval in writing or by an approving
vote cast in person or proxy at a meeting of the Partners called for the purpose
of removing the General Partner.
(h) WITHDRAWAL OF A GENERAL PARTNER.
(1) The interest of a General Partner shall terminate and the General
Partner shall have no further right or power to act as a General Partner if the
General Partner (i) dies; (ii) is adjudicated incompetent; (iii) voluntarily
retires upon not less than ninety (90) days' written notice to the other
Partners; (iv) is removed or not re-elected; (v) assigns such General Partner's
interest pursuant to Section V(k) of this Agreement; (vi) becomes bankrupt; or
(vii) otherwise ceases to be a Partner under the Partnership Act.
(2) Notwithstanding the provisions of paragraph (1) of this Section V(h),
the Corporate General Partner may voluntarily withdraw or otherwise voluntarily
terminate its status as the Corporate General Partner, provided that the
Corporate General Partner gives the other General Partners written notice of its
intention to withdraw as a Corporate General Partner one hundred-eighty (180)
days prior to the intended date of withdrawal. The Corporate General Partner
shall not voluntarily withdraw or otherwise terminate its status as the
Corporate General Partner until the earliest of (i) the date that a successor
Corporate General Partner, who has agreed to assume the obligations imposed upon
the Corporate General Partner pursuant to Section V(b)(2) of this Agreement, is
approved and elected by the Partners pursuant to Section VII of this Agreement,
or (ii) the date that another General Partner assumes the obligations imposed
upon the Corporate General Partner pursuant to Section V(b)(2) of this
Agreement. The failure of the Corporate General Partner to seek reelection at a
meeting of the Partners shall be deemed to constitute a voluntary withdrawal as
of the date of the meeting and shall constitute written notice as of the date of
the meeting of its intention to withdraw as a Corporate General Partner, unless
it has delivered written notice at an earlier date.
(3) Termination of a person's status as a General Partner shall not affect
his status, if any, as a Limited Partner.
(i) ADDITIONAL OR SUCCESSOR GENERAL PARTNERS. A person may be added or
substituted as a General Partner subject to his approval and election by the
Partners, except that if the percentage of individual General Partners who are
deemed not to be "interested persons" (within the meaning of the 1940 Act) of
the Fund, its principal underwriter or an affiliate of its principal underwriter
shall constitute less than a majority of all
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<PAGE>
individual General Partners or such higher percentage required by the 1940 Act,
then the remaining individual General Partners may, in their discretion, elect
such number of additional or successor individual General Partners who are not
"interested persons" to cause the percentage of these individual General
Partners to equal or exceed such majority or such higher percentage required by
the 1940 Act, if immediately after such election by the remaining individual
General Partners at least two-thirds of the individual General Partners then
serving shall have been approved and elected by the Partners. If at any time
less than a majority of the individual General Partners holding office have been
approved and elected by the Partners, the remaining individual General Partners
shall, within sixty (60) days of the date on which less than a majority of the
individual General Partners have been approved and elected by the Partners, call
a meeting of Partners for the purpose of approving and electing an additional
individual General Partner or additional individual General Partners so that at
least a majority of individual General Partners holding office have been
approved and elected by the Partners.
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 this Agreement. Any person who is
approved and elected as General Partner at a meeting of the Partners in
accordance with Section VII(b) of this Agreement and who is not serving as a
General Partner at the time of the election shall be admitted to the Fund as a
General Partner effective as of the date of the approval and election.
(j) LIABILITY TO LIMITED PARTNERS. The General Partners shall not be
personally liable to any Limited Partner for the repayment of any amounts
standing in the account of the Limited Partner or holder of Shares including,
but not limited to, contributions with respect to such Shares. Any such payment
shall be solely from the Fund's assets.
The General Partners shall not have any personal liability to any holder of
Shares or to any Limited Partner (1) by reason of any change in Federal or state
income tax laws, or in interpretations thereof, as they apply to the Fund, the
holders of Shares or the Limited Partners, whether such change occurs through
legislative, judicial or administrative action, or (2) by reason of any other
matters, unless the result of willful misfeasance, bad faith, gross negligence
or reckless disregard of their duties.
(k) ASSIGNMENT AND SUBSTITUTION. Each Share held by a General Partner
pursuant to Section V(b) shall be held as a General Partner and not as a Limited
Partner, and each such Share shall be nonassignable, except to another person
who already is a General Partner, and then only with the consent of a majority
of the individual General Partners, and shall be redeemable by the Fund only in
the event that (1) the holder of the Share has ceased to be a General Partner,
and (2) in the opinion of counsel for the Fund, redemption of the Share held by
a General Partner would not jeopardize the status of the Fund as a partnership
for Federal income tax purposes.
(l) NO AGENCY. Except as provided in Section XI, nothing shall be
construed as establishing any General Partner as an agent of any Limited
Partner.
(m) REIMBURSEMENT AND COMPENSATION. Individual General Partners who are
not "interested persons" (within the meaning of the 1940 Act) of the Fund, its
principal underwriter or an affiliate of its principal underwriter may receive
reasonable compensation for their services as individual General Partners and
will be reimbursed for all reasonable out-of-pocket expenses incurred in
performing their duties under this Agreement. Payment of compensation to an
individual General Partner shall not be deemed a distribution for purposes of
Section VIII of this Agreement.
(n) INDEMNIFICATION.
(1) The Fund shall indemnify each of its General Partners and agents,
including the Corporate General Partner, its officers, directors, employees and
agents
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(hereinafter referred to as a "Covered Person") in a total amount no greater
than the assets of the Fund to the fullest extent permitted by law against all
liabilities and expenses, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and counsel
fees reasonably incurred by any Covered Person in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
before any court or administrative or legislative body, in which such Covered
Person may be or may have been involved as a party or otherwise or with which
such person may or may have been threatened, while in office or thereafter, by
reason of being or having been such a General Partner or any other person
serving in the capacities referenced above, except with respect to any matter as
to which such Covered Person shall have been finally adjudicated in a decision
on the merits in any such action, suit or other proceeding to be liable to the
Fund or its Partners by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
Covered Person's office. Expenses, including counsel fees so incurred by any
such Covered Person (but excluding amounts paid in satisfaction of judgments, in
compromise or as fines or penalties), may be paid from time to time by the Fund
in advance of the final disposition of any such action, suit or proceeding upon
receipt of an undertaking by or on behalf of such Covered Person to repay
amounts so paid to the Fund if it is ultimately determined that indemnification
of such expenses is not authorized under this provision, PROVIDED THAT (a) such
Covered Person shall provide security for such Covered Person's undertaking, (b)
the Fund shall be insured against losses arising by reason of such Covered
Person's failure to fulfill such Covered Person's undertaking, or (c) a majority
of the individual General Partners who are disinterested persons (as that term
is defined hereunder) and who are not "interested persons" (as that term is
defined in the 1940 Act) (provided that a majority of such individual General
Partners then in office act on the matter), or independent legal counsel in a
written opinion, shall determine, based on a review of readily available facts
(but not a full trial-type inquiry), that there is reason to believe such
Covered Person ultimately will be entitled to indemnification.
(2) As to any matter disposed of (whether by a compromise payment, pursuant
to a consent decree or otherwise) without an adjudication or a decision on the
merits by a court, or by any other body before which the proceeding was brought,
that such Covered Person is liable to the Fund or its Partners by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office, indemnification
shall be provided if (i) approved as in the best interests of the Fund, after
notice that the matter involves such indemnification, by at least a majority of
the Individual General Partners who are not disinterested persons (as that term
is defined hereunder) and are not "interested persons" (provided that a majority
of such Individual General Partners then in office act on the matter), upon a
determination, based upon a review of readily available facts (but not a full
trial-type inquiry) that such Covered Person is not liable to the Fund or its
Partners by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such Covered
Person's office, or (ii) there has been obtained an opinion in writing of
independent legal counsel, based upon a review of readily available facts (but
not a full trial-type inquiry) to the effect that it appears that such
indemnification would not protect such Covered Person against any liability to
the Fund to which such Covered Person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Persons's office. Any approval
pursuant to this Section shall not prevent the recovery from any Covered Person
of any amount paid to such Covered Person in accordance with this Section as
indemnification if such Covered Person is subsequently adjudicated by a court of
competent jurisdiction not to have been liable to the Fund or its Partners by
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reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such Covered Person's office.
(3) The right of indemnification hereby provided shall not be exclusive of
or affect any other rights to which any such Covered Person may be entitled. As
used in this Section V, the term "Covered Person" shall include such person's
heirs, executors and administrators, and a "disinterested person" is a person
against whom none of the actions, suits or other proceedings in question or
another action, suit or other proceeding on the same or similar grounds is then
or has been pending. Nothing contained in this Section shall affect any rights
to indemnification to which personnel of the Fund, other than General Partners
and officers, and other persons may be entitled by contract or otherwise under
law, nor the power of the Fund to purchase and maintain liability insurance on
behalf of such person.
(o) DISCRETION TO REDEEM. The Individual General Partners reserve the
right, in their sole discretion, to redeem all or a portion of the Shares of any
General Partner in the following circumstances (1) a General Partner fails to
comply with a request by the Fund to furnish any information or certifications
in connection with tax law requirements or provisions (including, but not
limited to, furnishing the General Partner's taxpayer identification number,
taxable year and country of residence and/or citizenship) and (2) in order to
pay any taxes, fees or other charges, in accordance with Section VIII(f) of this
Agreement, that the Fund has determined it must withhold and/or remit to a tax
authority with respect to such General Partner.
VI. LIMITED PARTNERS
(a) ADMISSION OF LIMITED PARTNERS. The Fund may offer Shares continually
(or at such times as the Individual General Partners determine) to investors at
the public offering price described in the Fund's Prospectus and Statement of
Additional Information. The Fund reserves the right to reject any specific
order. The Individual General Partners may, in their sole discretion, admit a
purchaser or other acquiror of Shares as a Limited Partner upon (1) the
execution and acknowledgment by the purchaser of any instrument or instruments
that the Individual General Partners may deem necessary or desirable to
effectuate the admission, and (2) the purchaser's written acceptance and
adoption of all the terms and provisions of this Agreement. In the case of an
admission of a Limited Partner pursuant to Section IX(c)(3) of this Agreement,
such consent of the Individual General Partners must be unanimous
(notwithstanding any other provision of this Agreement). Following the admission
of such purchasers of Shares as Limited Partners, the Individual General
Partners shall cause the names and mailing addresses of the Limited Partners to
be reflected on the books and records of the Fund. In no event shall the
admission of a Limited Partner to the Fund require the approval of any other
Limited Partner.
(b) OTHER ADMISSION OF ADDITIONAL LIMITED PARTNERS. A person who
purchases
a Share from the Fund, and who has not already qualified as a Partner of the
Fund under the conditions set forth in Section IX of this Agreement, and a
person to whom an outstanding Share is assigned, does not become a Limited
Partner or a substituted Limited Partner of the Fund, except upon satisfaction
of the conditions set forth in Section IX of this Agreement.
(c) CONTRIBUTIONS OF THE LIMITED PARTNERS. The Capital Contributions (as
defined in Section VIII(a)(1) of this Agreement) of the Limited Partners shall
be made in cash, or in other consideration deemed acceptable by the Individual
General Partners in their sole discretion, and the amounts so contributed and
the number of Shares owned by them shall be set forth in the books and records
of the Fund.
(d) ADDITIONAL CONTRIBUTIONS OF LIMITED PARTNERS AND
ASSESSMENTS. No
Limited Partner has agreed to make any additional contribution, or to lend
additional funds to the Fund, and, except as provided in the
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Partnership Act, no Limited Partner shall be liable for any additional
assessment for any additional contribution of funds.
(e) USE OF CONTRIBUTIONS. The aggregate of all Capital Contributions shall
be available to the Fund to carry out the objectives and purposes of the Fund.
(f) REDEMPTION BY LIMITED PARTNERS. The Fund will redeem all or any
portion of the Shares owned by a Limited Partner, so long as the Limited Partner
complies with the procedures specified in the Fund's Prospectus and Statement of
Additional Information. The Limited Partner shall be entitled to payment of the
net asset value of his redeemed Shares, calculated in accordance with the manner
specified in the Fund's Prospectus and Statement of Additional Information, and
subject to any charges or fees described in the Fund's Prospectus and Statement
of Additional Information and further subject to any amounts payable pursuant to
Section VIII(f) of this Agreement. For purposes of the Partnership Act, any
distribution to a Limited Partner upon redemption pursuant to this Section VI(f)
shall constitute a return in full of the redeeming Limited Partner's
contribution attributable to the Shares that are redeemed, regardless of the
amount originally paid or the amount so distributed with respect to the Shares.
No approval of any of the Partners shall be required for the withdrawal or
return of a Limited Partner's contribution by means of a redemption of Shares.
The Individual General Partners shall have sole discretion to determine the
amount of cash and/or securities to be distributed to a withdrawing Partner.
The Individual General Partners may suspend redemptions and defer payment of
the redemption price at any time, subject to the rules and regulations of the
Securities and Exchange Commission.
Notwithstanding the foregoing, no Limited Partner shall be entitled to
receive the return of any part of the contribution with respect to his Shares
unless all liabilities of the Fund, except liabilities to General Partners and
to Limited Partners on account of their contributions, have been paid or
sufficient property of the Fund remains to pay them.
The Individual General Partners shall cause the books and records of the
Fund to be amended to reflect the withdrawal of any Limited Partner or the
return, in whole or in part, of the contribution of any Limited Partner.
(g) MINIMUM INVESTMENT AND DISCRETION TO REDEEM
(1) The Individual General Partners shall determine the minimum amounts
required for the initial or additional investment of a Limited Partner, which
amounts may, from time to time, be changed by the Individual General Partners.
In addition, the Individual General Partners may, from time to time, establish a
minimum total investment for Limited Partners, and reserve the right to redeem
the interest of any Limited Partner whose investment is less than the minimum
upon the giving of notice to the Limited Partner.
(2) The Individual General Partners reserve the right, in their sole
discretion, to redeem all or a portion of the Shares of any Limited Partner in
the following circumstances (i) a Limited Partner fails to comply with a request
by the Fund to furnish any information or certifications in connection with tax
law requirements or provisions (including, but not limited to, furnishing the
Limited Partner's taxpayer identification number, taxable year and country of
residence and/or citizenship) and (ii) in order to pay any taxes, fees or other
charges, in accordance with Section VIII(f) of this Agreement, that the Fund has
determined it must withhold and/or remit to a tax authority with respect to such
Limited Partner.
(h) LIMITED LIABILITY. No Limited Partner shall be liable for any debts or
obligations of the Fund, except that the contributions of a Limited Partner
shall be subject to the risks of the business of the Fund and subject to the
claims of the Fund's creditors.
The Fund shall not make any distribution to a Limited Partner if it would
result in a violation of
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Section 17-607(a) of the Partnership Act. Section 17-607(a) limits the ability
of the Fund to make any distributions to the extent that at the time of the
distribution, after giving effect to the distribution, all liabilities of the
Fund, other than liabilities to Partners on account of their interests in the
Fund and liabilities for which the recourse of creditors is limited to specified
property of the Fund, exceed the fair value of the assets of the Fund. For
purposes of this limitation, the fair value of property that is subject to a
liability for which the recourse of creditors is limited shall be included in
the assets of the Fund only to the extent that the fair value of the property
exceeds that liability.
Any Limited Partner who receives a distribution from the Fund and who knows
that the receipt of the distribution is in violation of Section 17-607(a) will
be liable to the Fund for the amount of the distribution for a period of three
(3) years. Any Limited Partner who receives a distribution in violation of
Section 17-607(a) and who did not know at the time of the distribution that the
distribution violated Section 17-607(a) will not be liable for the amount of the
distribution.
(i) NO POWER TO CONTROL BUSINESS. A Limited Partner shall have no right to
participate in and shall take no part in control or management of the Fund's
business and shall have no right or authority to act for or bind the Fund.
VII. MATTERS AFFECTING THE BASIC
STRUCTURE OF THE FUND
(a) RIGHTS OF LIMITED PARTNERS. The Limited Partners entitled to vote at a
meeting may vote together with the General Partners, at a meeting of Partners
held in accordance with the provisions of Section VII(b) of this Agreement, only
upon the matters set forth below that affect the basic structure of the Fund,
including the rights required under the 1940 Act for voting security holders,
subject to the separate Class voting provisions provided under Section VII(f),
as applicable. Nothing in this Agreement shall be construed to require the vote
of the Limited Partners on any matter, except when such vote is required by the
Partnership Act or the 1940 Act:
(1) the removal of General Partner(s) and the approval and election of
new General Partner(s);
(2) the approval or disapproval and continuation or termination of
investment advisory contracts and/or sub-investment advisory contracts
(which may be with an affiliate of the Corporate General Partner);
(3) the approval or disapproval and continuation or termination of
administration contracts;
(4) the approval or disapproval and continuation or termination of
custodial contracts;
(5) the approval or disapproval and continuation or termination of a
plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act;
(6) the approval or disapproval of the sale of all or substantially all
of the assets of the Fund other than sales of assets in the ordinary course
of business;
(7) the approval and ratification or disapproval and rejection of the
appointment of, and the disapproval and termination of the employment of,
the independent public accountants of the Fund;
(8) the amendment of this Agreement, including, without limitation, the
approval or disapproval of proposed changes in the "Investment Restrictions"
set forth in Section II(d)(1) of this Agreement and the approval or
disapproval of proposed changes in the nature of the Fund's business as
described in Sections II(a), (b) and (c) of this Agreement, except that no
amendment may (i) conflict with the 1940 Act or rules and regulations under
the 1940 Act, so long as the Fund intends to remain registered under the
1940 Act, or (ii) affect the liability of the General Partners without their
approval, or the limited liability of the Limited Partners as provided under
Section VI(h);
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(9) the dissolution of the Fund, to the extent provided in Sections
X(b)(2) and (4); and
(10) the approval of any other matters that hereinafter may be required
to be voted on by the Partners under the 1940 Act and the rules and
regulations under the 1940 Act applicable to investment companies registered
under the 1940 Act.
The Limited Partners shall have no right or power to cause the
termination and dissolution of the Fund, except as set forth in this
Agreement. No Limited Partner shall have the right to bring an action for
partition against the Fund.
Notwithstanding the foregoing, no approval shall be required of the Limited
Partners to amend this Agreement in any of the following ways: (i) to reflect
any change in the amount or character of the contribution of any Limited
Partner; (ii) to substitute or delete a Limited Partner; (iii) to admit any
additional Limited Partner; (iv) to reflect the retirement, resignation, death
or insanity of an Individual General Partner; (v) to correct any false or
erroneous statement, or to make a change in any statement so that the statement
accurately represents the agreement among the Partners in this Agreement; (v) to
modify the manner in which the Capital Accounts, as defined in Section
VIII(a)(2) of this Agreement; or (vii) to reflect recommendations by legal
counsel for the Fund the adoption of which are deemed by the Individual General
Partners to be necessary or appropriate to comply with provisions of law or in
connection with the Fund's status as a partnership for tax purposes.
(b) MEETINGS OF THE PARTNERS.
(1) Actions that require the vote of the Partners under this Agreement shall
be taken at a meeting of the Partners entitled to vote at such meeting, which
may be held within the State of Delaware or at any other place designated by the
Individual General Partners or the Corporate General Partner, in the case of a
meeting called pursuant to Section V(c).
(2) A meeting of the Partners shall be held within one year after the first
sale of Shares to the public at a date and time fixed by the Individual General
Partners. At the initial meeting, the Partners will vote upon the approval and
election of General Partners and on any other matters determined by the
Individual General Partners. No meeting of the Partners, other than the initial
meeting, shall be required for the purpose of approving and electing General
Partners, unless and until less than a majority of the Individual General
Partners holding office have been approved and elected by the Partners, in which
case a meeting of the Partners shall be called as provided for in Section V(l)
of this Agreement.
(3) Partners holding more than 10% of the Fund's outstanding Shares may
require the calling of a meeting of the Partners for the purposes of voting on
the removal of a General Partner. Meetings of the Partners for the purpose of
taking any other action that the Limited Partners are permitted to take under
this Agreement may be called by a majority vote of the Individual General
Partners or by Limited Partners representing 10% of the fund's outstanding
Shares (as defined in the 1940 Act).
(4) Written notice stating the place, day and hour of a meeting of the
Partners shall be mailed to each Partner entitled to vote at the meeting at the
Partner's last known post office address as shown on the books of the Fund no
fewer than fifteen (15) days nor more than (60) days before the date of the
meeting. Failure to receive notice of a meeting on the part of any Partner shall
not affect the validity of any act or proceeding at the meeting, so long as a
lawful quorum is present at the meeting. Matters set forth in the notice of a
meeting may be voted on by the Partners at a meeting, as well as any other
matters that properly come before the meeting. The presence in person or by
proxy of more than 50% of the outstanding Shares on the record date as reflected
in the Agreement constitutes a quorum at any meeting. In the absence of a
quorum, the Individual General Partners may adjourn a meeting to a time or times
as determined by the Individual General Partners
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<PAGE>
without additional notice to the Partners. Other than in the approval and
election of General Partners and except to the extent that a higher vote
requirement is specified herein, all action by the Partners taken at meetings of
Partners shall require the lesser of (i) the vote of Partners holding a majority
of the then outstanding voting securities of the Fund (as defined in the 1940
Act) or (ii) the vote of Partners holding 67% or more of the outstanding voting
securities of the Fund (as defined in the 1940 Act) represented at a meeting at
which a quorum is present (a "Majority Vote of Partners"). In the approval and
election of General Partners, those candidates receiving the highest number of
votes cast at a meeting at which Partners owning a majority of outstanding
voting securities of the Fund (as defined in the 1940 Act) are present in person
or by proxy, up to the number of General Partners proposed to be approved and
elected, shall be approved and elected as General Partners to serve until their
successors are duly approved, elected and qualified.
(c) VOTING LISTS. The Fund shall establish a record date pursuant to
Section XII(b) of this Agreement to determine eligibility to vote at the meeting
and the number of votes to which each Partner will be entitled and shall
maintain a list setting forth the name of each Partner and the number of votes
each Partner will be entitled to cast. This list will be available for
examination at the principal office of the Fund during regular business hours
for any purpose reasonably related to a Partner's interest as a Partner in the
Fund and, upon compliance with Section XIII(a) of this Agreement, a copy of the
list may be obtained by each Partner for any purpose reasonably related to the
Partner's interest as a Partner in the Fund.
(d) PROXIES. A Partner entitled to vote at a meeting may vote at any such
meeting by a proxy executed in writing by the Partner. All proxies shall be
filed with the Fund before or at the time of the meeting. The law of the State
of Delaware pertaining to corporate proxies will be deemed to govern all Fund
proxies as if they were proxies with respect to shares of a business
corporation. A proxy may be revoked by the person executing the proxy in writing
delivered to the Individual General Partners at any time prior to its exercise.
Notwithstanding that a valid proxy is outstanding, powers of the proxy holders
will be suspended if the person executing the proxy is present at the meeting
and decides to vote in person.
(e) NUMBER OF VOTES. All Shares shall have equal voting rights except as
specified in this Agreement. Each Partner entitled to vote at a meeting shall
have the right to vote the number of Shares standing of record in such Partner's
name as of the record date set forth in the notice of meeting. All assignees of
Shares shown on the records of the Fund on the record date (and not the
assignor) shall be entitled to vote at the meeting, so long as they become
substituted Limited Partners, pursuant to Section IX(c) of this Agreement prior
to the date of the meeting.
(f) VOTING OF SHARES OF CLASSES. Shares of all Classes shall vote together
as a single class or voting group except (i) to the extent voting by separate
class or voting group is required under the 1940 Act or the Partnership Act, in
which case such separate vote shall apply in lieu of a general vote of all
Classes, and (ii) as to any matter which does not affect a particular Class, in
which case only the Class or Classes affected shall be entitled to vote.
VIII. DISTRIBUTIONS, ALLOCATIONS OF PROFITS
AND LOSSES AND CAPITAL ACCOUNTS
(a) DEFINITIONS.
(1) "Capital Contribution" means any amount of money and the fair market
value of any property contributed to the Fund by any Partner, reduced by any
applicable sales charge (as described in the Fund's Prospectus or Statement of
Additional Information).
(2) "Capital Account" means an account maintained for each Partner on the
books of the Fund reflecting the Capital Contribution made by any Partner,
adjusted as follows:
the Capital Account of a Partner shall be:
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(i) Increased by
(A) subsequent Capital Contributions by the Partner; and
(B) the items of income and gain included in Income and Loss that
have been allocated to the Partner; and
(ii) decreased by
(A) distributions to the Partner under Section VIII(c) of this
Agreement;
(B) the items of loss, deduction and expenditure included in Income
and Loss that were allocated to the Partner;
(C) a pro rata share of expenditures classified as "syndication
expenses" pursuant to Treasury Regulations Section 1.709-2(b);
(D) any applicable contingent deferred sales charge or redemption
charge or other fee (as described in the Fund's Prospectus and Statement
of Additional Information) allocable to the Partner; and
(E) any other amounts chargeable pursuant to this Agreement.
The foregoing definition is intended to comply with Treasury Regulations
under Code section 704, and shall be interpreted and applied in a manner
consistent with those Regulations.
(3) "Income" and "Loss" means an amount equal to the Fund's taxable income
or loss for each taxable year, determined in accordance with Section 703(a) of
the Code (for this purpose, all items of income, gain, loss or deduction
required to be stated separately pursuant to Section 703(a)(1) of the Code shall
be included in Income or Loss), with the following adjustments:
(i) any income of the Fund that is exempt from Federal income tax and
not otherwise taken into account in computing Income or Loss shall be taken
into account;
(ii) any expenditures of the Fund described in Section 705(a)(2)(B) of
the Code or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Treasury Regulations promulgated under Code Section 704, and not otherwise
taken into account in computing Income or Loss shall be taken into account;
(iii) upon the distribution of property by the Fund to a Partner, gain
or loss attributable to the difference between the fair market value of the
property and its basis shall be treated as recognized; and
(iv) gain or loss attributable to any Section 1256 contracts (as defined
in Section 1256 of the Code) held by the Fund on the last day of a month
shall be calculated and recognized as provided in Section 1256 of the Code
on that last day as though that day were the last day of the taxable year.
(b) ALLOCATIONS OF FUND INCOME, GAINS, LOSSES, DEDUCTIONS AND
CREDITS. Except as otherwise provided in this Agreement, Income and Loss shall
be determined monthly and allocated to each Partner in a manner reflecting each
Partner's interest in the Fund, by allocating the items of income, gain, loss,
deduction and expenditure comprising Income and Loss to each Partner in
accordance with policies adopted by the Individual General Partners under
Section VIII(d) of this Agreement. To the extent that the Corporate General
Partner pays or agrees to pay any expenses incurred by the Fund, the Corporate
General Partner shall be allocated the deduction with respect to such expenses.
(c) DISTRIBUTIONS. The Individual General Partners, in their sole
discretion, shall determine the amounts, if any, to be distributed to holders of
Shares of
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<PAGE>
each Class and the time or times when those distributions, if any, shall be
made. Any distribution under this Section VIII(c), unless otherwise elected in
accordance with the Fund's Prospectus and Statement of Additional Information,
will be made in additional full and fractional Shares at the net asset value per
Share of the applicable Class on the date of the distribution.
(d) ADDITIONAL AUTHORITY OF INDIVIDUAL GENERAL PARTNERS. The
Individual
General Partners may adopt such policies with respect to the allocation of
Income and Loss, and items thereof (including methods of calculating Income and
Loss) among the Partners which the Individual General Partners, in their sole
discretion, deem appropriate for purposes of satisfying relevant tax law
considerations, including Section 704 of the Code and the regulations
thereunder. Such policies shall have the same effect as if they were set forth
in this Agreement.
(e) DISTRIBUTIONS UPON DISSOLUTION. Notwithstanding anything to the
contrary contained in this Agreement, upon a termination of the Fund, proceeds
distributable to Partners shall be distributed to the Partners in accordance
with and in proportion to their respective Capital Account balances after
allocations of all Income and Losses, unless otherwise required by applicable
law. No Partner shall be required to make up any deficit balance in his Capital
Account after such allocations of all Income and Losses.
(f) WITHHOLDING TAXES.
(1) Any taxes, fees or other charges that the Fund determined it must
withhold and/or remit to a tax authority with respect to any Partner shall be so
withheld and/or remitted to the appropriate governmental authorities. Each
Partner hereby authorizes the Fund: (i) to deduct from any income or assets of
the Fund which are allocable to that Partner an amount sufficient to satisfy any
such obligation imposed upon the Fund or the General Partners with respect to
that Partner; and (ii) to deduct from any proceeds from the redemption of Shares
otherwise payable to that Partner an amount sufficient to satisfy any such
obligation imposed upon the Fund or the General Partners with respect to that
Partner. The Fund, in its sole discretion, may satisfy any such obligation: (i)
by making deductions in the manner described; (ii) by demanding payment from the
affected Partner in an amount sufficient to satisfy the obligation; or (iii) by
taking any combination of the preceding actions such that the amounts deducted
pursuant to (i) and the payment received pursuant to (ii) are sufficient to
satisfy the obligation. The demand for payment referred to in (ii) above shall
be in the form of a written notice sent to the affected Partner to the address
of record for such Partner. Any Partner to whom such notice is so sent shall be
obligated to make payment to the Fund in the manner and amount specified in the
notice without any increase in the Partner's capital account or number of
Shares. Any taxes, fees or other charges withheld or remitted by the Fund or the
General Partners in accordance with this Section VIII(f) with respect to any
Partner shall be treated as a distribution from the Fund to that Partner and,
accordingly, shall be charged against that Partner's Capital Account; provided,
however, that a Partner's Capital Account will not be charged under this Section
VIII(f)(1) to the extent that such amount was paid by the Partner to the Fund,
but not credited to the Partner's Capital Account, and provided further that a
Partner's Capital Account also shall not be charged under this Section
VIII(f)(1) to the extent that such amount was from a redemption of shares which
has reduced the Partner's Capital Account but, in that case, treatment of the
redemption as a distribution (if it otherwise would be treated as such) shall
not be affected by this Section VIII(f)(1).
(2) The Fund and the General Partners shall be indemnified by each Partner
for any amounts of tax withheld or remitted or required to be withheld or
remitted with respect to that Partner, and also for any amounts of interest,
additions to tax, penalties or other costs borne by the Fund or the General
Partners in connection therewith; provided, however, that this indemnification
shall not apply to the amounts charged
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<PAGE>
against that Partner's Capital Account and to amounts charged against proceeds
from the redemption of Shares. This indemnification shall apply to any amount
which is collected or collectible from the Fund or the General Partners with
respect to any Partner under applicable law, including but not limited to, taxes
which are collected or collectible by withholding under Sections 1441, 1442 and
1446 of the Code. This indemnification shall continue, notwithstanding a Partner
ceasing to be a Partner, by a redemption of Shares or otherwise. It is expressly
agreed that demand for payment by the Fund under this Section VIII(f) may be
made at any time (including after the withdrawal of a Partner) and that such
Partner (or former Partner) shall make such payment and otherwise fulfill his
obligations under this Section VIII(f) notwithstanding that he may no longer be
a Partner when performance is demanded or made.
IX. ASSIGNMENT OF SHARES AND SUBSTITUTION
OF ASSIGNEE
(a) PROHIBITION ON ASSIGNMENT. A Limited Partner shall not have the right
and hereby unconditionally agrees not to transfer or assign such Limited
Partner's Shares to any other person, but may pledge them as collateral;
provided, however, that the Individual General Partners may, in their sole
discretion, by unanimous consent (notwithstanding any other provision of this
Agreement), permit a Limited Partner to transfer or assign such Limited
Partner's Shares under such circumstances and in accordance with such procedures
as the Individual General Partners shall establish. Any transfer without the
consent required hereunder shall be null and void and without effect.
(b) RIGHTS OF THE HOLDERS OF SHARES AS COLLATERAL. In the event that any
person who is holding Shares as collateral becomes the owner of the Shares due
to foreclosure or otherwise, the person shall not have the right to be
substituted as a Limited Partner, but shall only have the rights, upon the
presentation of evidence satisfactory to the Individual General Partners of his
right, to succeed to the interests of the Limited Partner:
(1) to redeem the Shares in accordance with the provisions of Section VI
of this Agreement; and
(2) to receive distributions with respect to the Shares.
Upon receipt by the Fund of evidence satisfactory to the Individual General
Partners of his ownership of Shares, the owner shall become a holder of record
of the Shares and his name shall be recorded on the books and records of the
Fund maintained for that purpose either by the Fund or its appointed transfer
agent. The owner shall, however, otherwise have none of the rights or
obligations of a substituted Limited Partner.
(c) DEATH, INSANITY OR TERMINATION OF THE EXISTENCE OF A LIMITED
PARTNER. In the event of the death or legal disability of a Limited Partner
(or, in the case of a Limited Partner that is a corporation, association,
partnership, joint venture or trust, the merger, dissolution or other
termination of the existence of the Limited Partner), or under such
circumstances as the Individual General Partners may, in their discretion,
determine, the successor in interest of the Limited Partner, upon the
presentation of evidence satisfactory to the Individual General Partners of his
right to succeed to the interests of the Limited Partner, shall have the
following rights:
(1) to redeem the Shares of the Limited Partner in accordance with the
provisions of Section VI of this Agreement;
(2) to receive distributions with respect to the Shares; and
(3) to be substituted as a Limited Partner upon the compliance with the
conditions of the admission of a Limited Partner as provided in Section
VI(a) of this Agreement.
Upon receipt by the Fund of evidence satisfactory to the Individual General
Partners of his right to succeed to the interests of the Limited Partner, the
successor in interest shall become a holder of record of the Shares and his name
shall be recorded on the books and records of the Fund maintained for that
purpose either by the Fund or its appointed transfer agent. Each
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<PAGE>
successor in interest recorded on the books of record of the Fund, as a holder
of Shares on the record date, shall be entitled to vote at the meeting of the
Partners so long as he is admitted as a substituted Limited Partner prior to the
date of the meeting.
X. DISSOLUTION AND WINDING UP OF THE FUND
(a) TERM.
(1) The term of the Fund commenced on November 16, 1987, the date of initial
filing of the Fund's Certificate with the Office of Secretary of State of the
State of Delaware as required by the Partnership Act, and shall expire on
December 31, 2037, unless earlier dissolved.
(2) Notwithstanding any other provision of this Agreement, the Individual
General Partners are authorized, but not required, before or after Section 7704
of the Code becomes applicable to the Fund (which will result in the Fund being
classified as a corporation for Federal income tax purposes), to take such
actions as they deem necessary or advisable, in their sole discretion, in
connection with such reclassification. These actions may include, for example,
the transfer of the Fund's assets to another entity. The Limited Partners hereby
consent, to the extent not inconsistent with applicable law, to any such actions
by the Individual General Partners.
(b) DISSOLUTION OF THE FUND. Subject to the further provisions of this
Section X, the affairs of the Fund shall be wound up and the Fund dissolved
prior to the scheduled date of termination specified above, upon the happening
of any of the following events:
(1) the Fund disposes of all of its assets other than in the ordinary
course of business;
(2) Partners holding a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act) vote, at a meeting called for that
purpose, to dissolve the Fund;
(3) a General Partner (i) retires; (ii) dies; (iii) is adjudicated
incompetent; (iv) is removed or not re-elected; (v) assigns his interest;
(vi) becomes bankrupt; or (vii) otherwise ceases to be a Partner under the
Partnership Act, unless all of the remaining Individual General Partners
elect to continue the business;
(4) the Limited Partners and the Corporate General Partner, at a meeting
called by the Corporate General Partner, when no Individual General Partner
remains to continue the business of the Fund in accordance with Section V(c)
of this Agreement, fail to continue the business or to appoint, effective as
of the date when no Individual General Partner remains, successor Individual
General Partners; or
(5) any other event causing dissolution of the Fund pursuant to the
Partnership Act.
(c) REMOVAL OF GENERAL PARTNER. In the event that a General Partner (i)
retires; (ii) dies; (iii) is adjudicated incompetent; (iv) is removed and not
re-elected; (v) assigns his interest; (vi) becomes bankrupt; or (vii) otherwise
ceases to be a Partner under the Partnership Act, the affairs of the Fund shall
be wound up and the Fund dissolved, unless all of the remaining Individual
General Partners decide within ninety (90) days to continue the business of the
Fund. If the remaining Individual General Partners decide not to continue the
Fund's business, the affairs of the Fund will be wound up and the Fund dissolved
effective not earlier than one hundred-fifty (150) days from the date of the
decision.
(d) SUCCESSOR GENERAL PARTNERS. In the event that the business of the Fund
is not continued in accordance with Section X(c) of this Agreement or in the
event that all General Partners die, retire, dissolve, are removed, are
adjudicated incompetent, assign their interests, become bankrupt or otherwise
cease to be Partners under the Partnership Act, the Fund will not dissolve if,
within ninety (90) days after such events all the Partners (including the
Limited Partners) agree in writing to continue the business of the Fund and to
the appointment, effective as of the date of such withdrawal, of one
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<PAGE>
or more successor General Partners. The successor General Partners shall have
and be subject to all of the rights, powers, duties and obligations that a
General Partner has under this Agreement.
(e) DETERMINATION NOT TO CONTINUE. If the remaining Partners determine not
to continue the business of the Fund in accordance with Section X(d) above, the
Partners shall call a meeting to be held within one hundred-twenty (120) days
after expiration of the ninety (90) day-period referred to in Section X(d), for
the purpose of determining whether to form a new partnership to continue the
Fund's business under terms identical to those described in this Agreement,
except for the identity of the General Partners.
(f) WINDING UP OF THE FUND AND CLASSES OF THE FUND. Upon the
dissolution
and termination of the Fund, the Individual General Partners or trustee, if one
is appointed, shall proceed to wind up the affairs of the Fund and to liquidate
its assets. The Partners shall continue to share profits and losses during
liquidation in the same manner as before dissolution. The proceeds from any
liquidation of the Fund's assets remaining after all liabilities of the Fund and
costs of dissolution are paid or reserved for shall be distributed in accordance
with Section VIII of this Agreement.
Holders of Shares of each Class of the Fund shall be entitled to receive,
out of assets available for distribution, their proportionate interest in the
assets of the Fund. In the event of the liquidation or dissolution of a
particular Class of the Fund, shareholders of such Class shall be entitled to
receive, out of assets available for distribution, the assets properly allocable
to them.
(g) ACCOUNTANT'S STATEMENT. Each of the Partners shall be furnished with a
statement prepared by the Fund's accountants that shall indicate the assets and
liabilities of the Fund as at the date of complete liquidation. When the
Individual General Partners, or the trustee, if one is appointed, have complied
with the terms of paragraph (f) of this Section X, the Limited Partners shall
cease to be such, and the Individual General Partners shall execute,
acknowledge, and cause to be filed on behalf of the Fund a certificate of
cancellation pursuant to Section 17-203 of the Partnership Act.
(h) GAINS OR LOSSES IN PROCESS OF LIQUIDATION. Any gain or loss on
disposition of Fund properties in the process of liquidation shall be credited
or charged in the same manner as before liquidation. Any property distributed in
kind in the liquidation shall be valued and treated as though the property were
sold and the cash proceeds were distributed, except to the extent that the
Individual General Partners determine otherwise.
XI. FUND DOCUMENTATION, AMENDMENT OF THE
CERTIFICATE AND AGREEMENT AND
POWER-OF-ATTORNEY
(a) AGREEMENT AND OTHER DOCUMENTATION. The Certificate has been filed by
the General Partners in accordance with the Partnership Act, and to the extent
required by local law, in the appropriate place of business. The General
Partners shall also cause to be filed, recorded and published any statements of
fictitious business names and other notices, certificates, statements or other
instruments required by a provision of any applicable law of the United States
or any state or other jurisdiction that governs the formation of the Fund or the
conduct of its business from time to time.
(b) EVENTS REQUIRING AMENDMENT OF THE CERTIFICATE. The Certificate
shall
be promptly amended when required under the Partnership Act or other applicable
law.
(c) DOCUMENTATION REQUIRING THE SIGNATURES OF PARTNERS AND
POWER OF
ATTORNEY. Each Limited Partner irrevocably constitutes and appoints (1) each
Individual General Partner, (2) each person who shall, after the date of this
Agreement, become an Individual General Partner, and (3) any substitute that an
Individual General Partner may appoint to act in such Individual General
Partner's place (who need not be a Partner of the Fund), the true and lawful
agent and attorney-in-fact of, and in the name, place and stead of, the Limited
Partner, with the power from time to time to sign, execute, acknowledge, make,
swear to, verify, deliver,
B-22
<PAGE>
file, record and/or publish with respect to the Fund such documents and
instruments as may be necessary or appropriate to carry out the provisions or
purposes of this Agreement, including, without limitation:
(1) any document required, from time to time, to admit the Limited
Partner, to effect such Limited Partner's substitution as a Limited Partner,
or to effect the substitution of the Limited Partner's assignee as a Limited
Partner as to any or all Shares of the Limited Partner;
(2) this Agreement, any amendment to the Certificate or to this
Agreement or any other document required to reflect any action of the
Partners provided for in this Agreement whether or not the Limited Partner
voted in favor of or otherwise approved of the action; and
(3) any other instrument, certificate or document as may be required by
any regulatory agency, the laws of the United States, any state or any other
jurisdiction in which the Fund is doing or intends to do business or that
the Individual General Partners deem advisable to file or record, so long as
the instrument, certificate or document is in accordance with the terms of
this Agreement as then in effect.
Each of the Limited Partners is aware that the terms of this Agreement
permit certain amendments of this Agreement to be effected and certain other
actions to be taken or omitted by or with respect to the Fund, in each case with
the approval of fewer than all the Limited Partners, so long as a specified
percentage of the Partners shall have voted in favor of or otherwise approved of
the action. Those actions include, without limitation, admission of new General
Partners duly elected at meetings of the Partners. If, as and when (i) an
amendment of this Agreement is proposed or an action is proposed to be taken or
omitted by or with respect to the Fund that requires, under the terms of this
Agreement, the approval of a specified percentage in interest (but less than
all) of the Partners, (ii) Partners holding the percentage of interests in the
Fund specified in this Agreement as being required for the amendment or action
have approved the amendment or action in the manner contemplated by this
Agreement, and (iii) a Limited Partner has failed or refused to approve the
amendment or action (a "Non-Consenting Limited Partner"), the Non-Consenting
Limited Partner approves of the amendment or action and agrees that each
attorney-in-fact specified above, with full power of substitution, is authorized
and empowered to execute, acknowledge, make, swear to, verify, deliver, record,
file and/or publish, for and in behalf of the Non-Consenting Limited Partner,
and in such Non-Consenting Limited Partner's name, place and stead, any and all
instruments and documents that may be necessary or appropriate to permit the
amendment to be lawfully made or the action to be lawfully taken or omitted.
Each approving and Non-Consenting Limited Partner is fully aware that such
Non-Consenting Limited Partner and each other Limited Partner have executed this
power of attorney, and that each Limited Partner will rely on the effectiveness
of the powers with a view to the orderly administration of the Fund's affairs.
The foregoing grant of authority is a special power of attorney coupled with
an interest, and shall be irrevocable and shall survive the subsequent death,
incapacity, disability or insanity (or, in the case of a Limited Partner that is
a corporation, association, partnership, joint venture or trust, shall survive
the subsequent merger, dissolution or other termination of the existence) of the
Limited Partner. The special power of attorney may be exercised on behalf of a
Limited Partner by a facsimile signature of any Individual General Partner (or
substitute for an Individual General Partner) or by a single signature of any
Individual General Partner (or substitute for an Individual General Partner)
acting as attorney-in-fact for all of the Limited Partners. The special power of
attorney shall survive the assignment by the Limited Partner of the whole or any
portion of his interest in the Fund, except that in case in which the assignee
of the whole interest of a Limited Partner has furnished a power of attorney and
has been
B-23
<PAGE>
approved by the Individual General Partners for admission to the Fund as a
substituted Limited Partner, this power of attorney shall survive the assignment
for the sole purpose of enabling an Individual General Partner (or substitute
for the Individual General Partner) to execute, acknowledge and file any
instrument necessary to effect the substitution and shall, thereafter,
terminate. In addition, the special power of attorney shall survive the
redemption by a Limited Partner of the whole or any portion of his interest in
the Fund as provided in Section VI(f), so long as in a case in which all of the
Limited Partner's interest is so redeemed, the power of attorney shall survive
the redemption for the sole purpose of enabling an Individual General Partner
(or substitute for the Individual General Partner) to execute, acknowledge and
file any instrument necessary to effect the deletion of the person as a Limited
Partner.
XII. CERTAIN OPERATING POLICIES
(a) FISCAL YEAR. The fiscal year for the Fund shall be the calendar year
or any other period established by the Individual General Partners from time to
time.
(b) RECORD DATES. The Individual General Partners may set in advance a
date for determining the Partners entitled to notice of and to vote at any
meeting and the holders of record entitled to receive distributions. Record
dates with respect to voting shall be not less than twenty (20) days nor more
than sixty (60) days prior to the date of the meeting to which such record date
relates.
XIII. RECORDS, STATEMENTS AND INCOME
TAX INFORMATION
(a) RECORDS AND ACCOUNTING. The Individual General Partners shall cause
the Fund to maintain books and records for the Fund. These books and records
shall be kept on a basis consistent with the accounting methods followed by the
Fund for Federal income tax purposes or other methods deemed appropriate by the
Individual General Partners. The books and records shall include whatever
separate and additional accounts for each Partner as shall be necessary to
reflect the rights and interests of the respective Partners hereunder and shall
specifically reflect the name and address of each Partner and the number of
Shares held by the Partner for the purpose of determining recipients of
distributions and notices. The Partnership's books of account, together with a
copy of the Certificate and this Agreement and any amendments to the Certificate
and this Agreement, all documents relating to the ownership and condition of
title of Fund properties, and copies of all Fund tax returns shall be maintained
by the Fund. Each Partner and his duly authorized representative shall have
access to those records and the right to inspect and copy them at all reasonable
times for any purpose reasonably related to such Partner's interest as a Partner
in the Fund. In addition, each Partner shall have the right to receive by mail,
upon written request to the Fund, a copy of a list of the names and addresses of
the Limited Partners and the number of Shares held by each of them for any
purpose reasonably related to the Partner's interest as a Partner in the Fund. A
Partner exercising the right to receive the list shall reimburse the Fund for
the costs of duplicating and mailing the list to the Partner.
(b) STATEMENTS. The Fund shall cause quarterly reports and an audited
annual report to be prepared and sent to each holder of Shares. Each quarterly
report and each annual report will include a list of the investments held by the
Fund, and each annual report will include a certified report of financial
condition.
(c) INCOME TAX MATTERS.
(1) the Fund shall provide to each Partner information as to the Fund's
Federal taxable income or loss and each class of income, gain, loss, deduction
or credit that is relevant to reporting Fund tax items. The information shall
also show each Partner's allocated share of each class of income, gain, loss,
deduction or credit. This information shall be furnished to the Partners as soon
as practicable after the close of the Fund's taxable year.
(2) The Individual General Partners shall have the exclusive power and
authority to designate for each
B-24
<PAGE>
taxable year of the Fund a General Partner to perform all of the duties and
exercise all of the rights of a "tax matters partner" of the Fund pursuant to
Sections 6221 through 6233 of the Code.
(3) The Limited Partners hereby waive any rights they may have pursuant to
Section 6221 through 6233 of the Code to participate in any administrative or
judicial proceeding involving the Fund, unless the Individual General Partners
consent in writing to such participation by a Limited Partner. The Limited
Partners hereby agree to execute any documents or forms further evidencing such
waiver if requested to do so by the Individual General Partners and to cooperate
with the Fund's tax matters partner(s) in the fulfillment of his or its (or
their) duties as such.
(4) The Limited Partners hereby agree to notify the Fund immediately if such
Limited Partner treats any tax item with respect the Fund inconsistently with
the Fund's treatment of such item. Such notification shall include a copy of the
Limited Partner's notice to the Internal Revenue Service of the inconsistency.
XIV. GENERAL PROVISIONS
(a) AGREEMENT IN COUNTERPARTS. This Agreement may be executed in several
counterparts, and as executed shall constitute one Agreement, binding on all of
the parties to this Agreement, notwithstanding that all the parties are not
signatory to the original or to the same counterpart.
(b) PRINCIPLES OF CONSTRUCTION AND SEVERABILITY. This Agreement shall be
construed to the maximum extent possible to comply with all of the terms and
conditions of the 1940 Act and the Partnership Act. If a court of competent
jurisdiction shall determine that any provision or wording of this Agreement
shall be invalid or unenforceable under the 1940 Act, the Partnership Act or
other applicable law, the invalidity or unenforceability shall not invalidate
the entire Agreement. This Agreement shall be construed so as to limit any term
or provision so as to make it enforceable or valid within the requirements of
the 1940 Act, the Partnership Act and any other applicable law, and in the event
a term or provision cannot be so limited, this Agreement shall be construed to
omit the invalid or unenforceable term or provision.
(c) PARAGRAPH HEADINGS. The paragraph headings used in this Agreement in
no way define, limit, extend or interpret the scope of this Agreement or of any
particular paragraph.
(d) VARIATIONS IN PRONOUNS. All pronouns and any variations shall be
deemed to refer to the masculine, feminine, neuter, singular or plural, as the
identity of the person or persons may require.
(e) DELAWARE LAW. The parties to this Agreement intend that the internal
laws of the State of Delaware and, in particular, the provisions of the
Partnership Act, shall govern the validity of this Agreement, the construction
of its terms and the interpretation of the rights and duties of the parties to
this Agreement.
(f) INTEGRATED AGREEMENT. This Agreement constitutes the entire
understanding and agreement among the parties to it regarding the subject matter
described in this Agreement, and, except for any other written agreements and
representations that the Individual General Partners may require of the
Partners, no other agreements, understandings, restrictions, representations or
warranties exist among the parties other than those set forth in this Agreement.
(g) INDEPENDENT ACTIVITIES. Each Partner reserves the right to conduct
activities similar to those conducted by the Fund, including buying or selling
securities for such Partner's own account or for others.
(h) INTERESTED PARTNERS. The fact that a General Partner or one or more of
the Limited Partners is directly or indirectly interested in or connected with
any company or person with which or with whom the Fund may have dealings,
including, but not limited to, any company that renders investment advisory,
administrative, share transfer or other services shall not preclude those
dealings or make them void or voidable, and the
B-25
<PAGE>
Fund or any of the Partners shall not have any rights in or to the dealings or
any profits derived from them, except any rights as may inure under the 1940
Act.
(i) TAX ELECTION.
(1) No election shall be made by any Partner to be excluded from the
application of the provisions of Subchapter K of the Code or from any similar
provisions of state tax laws, and no such election shall be made by the Fund.
(2) In the event of the transfer of a Partner's interest, or the death of a
Partner, or the distribution of any Fund property to any Partner, the Individual
General Partners, on behalf of the Fund, may, in their sole discretion and
without taking into account the circumstances of any particular Partner, file an
election, in accordance with applicable United States Treasury Regulations, to
cause the basis of the Fund's property to be adjusted for Federal income tax
purposes as provided in Sections 734, 743 and 754 of the Code.
(j) CUSTODIAN. All assets of the Fund shall be held by a custodian or
custodians (including sub-custodians) meeting the requirements of the 1940 Act
and rules under the 1940 Act, and may be registered in the name of the Fund, a
custodian or a nominee. The terms of the Fund's agreement with a custodian
(including a sub-custodian) shall be determined by the Individual General
Partners, which terms shall be in accordance with the provisions of the 1940 Act
and rules under the 1940 Act.
(k) NOTICES. All notices required or permitted to be given under this
Agreement shall be in writing and shall be given to the parties at the addresses
set forth in the Fund's records and to the Fund at its principal office, or at
such other address as any of the parties may specify in writing to the Fund.
(l) BENEFIT. Except as otherwise provided to the contrary in this
Agreement, this Agreement shall be binding upon and inure to the parties signing
it, and their respective heirs, executors, guardians, representatives,
successors and assigns.
(m) NONRECOURSE CREDITORS. No creditor making a nonrecourse loan to the
Fund shall by reason of the loan, acquire any direct or indirect interest in the
profits, capital or property of the Fund other than as a secured creditor.
(n) INSURANCE. The Individual General Partners shall procure and maintain
insurance concerning the Fund's activities in an amount and covering the risks
as may be appropriate in the judgment of the Individual General Partners.
B-26
<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Certificate of Limited
Partnership, which restates, integrates and amends the Certificate, has been
duly executed as of this 2nd day of October, 1992 and is being filed in
accordance with Section 17-210 of the Act.
Individual General Partners:
_______________________________/s/ Walter E. Auch_______________________________
Walter E. Auch
________________________________/s/ Martin Brody________________________________
Martin Brody
_____________________________/s/ Stephen E. Kaufman_____________________________
Stephen E. Kaufman
______________________________/s/ Heath B. McLendon___________________________
Heath B. McLendon
_____________________________/s/ Richard P. Roelofs_____________________________
Richard P. Roelofs
____________________________/s/ Madelon DeVoe Talley____________________________
Madelon DeVoe Talley
Corporate General Partner:
Smith Barney Shearson Investment Strategy
Advisers Inc.
By: ___________________________/s/ Richard P. Roelofs___________________________
Richard P. Roelofs
Vice President
B-27
<PAGE>
-C- 1993 Shearson Lehman Brothers Inc.
Member SIPC FD
<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
12/93 24,481 26,331
</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
PART C
OTHER INFORMATION
Item 24 Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
Financial Highlights
Included in Part B:
Annual Report dated December 31, 1993
Portfolio of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Cash Flows
Statement of Changes in Net Assets
Condensed Financial Information
Notes to Financial Statements
Report of Independent Accountants
(b) Exhibits:
(1)(a) Amended and Restated Certificate of Limited Partnership,
dated October 2, 1992, is incorporated by reference to Post-Effective
Amendment No. 9 to the Registration Statement ("Post-Effective
Amendment No. 9") as filed with the SEC on April 26, 1993.
(1)(b) Amended and Restated Agreement of Limited Partnership
dated October 2, 1992, is incorporated by reference to Post-Effective
Amendment No. 9.
(2) Not Applicable.
(3) Not Applicable.
(4)(a)
Specimen Share Certificate for Class A shares is
incorporated by reference to Post-Effective Amendment No. 10 to the
Registration Statement ("Post-Effective Amendment No. 10").
(4)(b) Specimen Share Certificate for Class B shares is
incorporated by reference to Post-Effective Amendment No. 10.
(5)(a) Amended and Restated Investment Advisory Agreement,
dated July 30, 1993, is incorporated by reference to Post-Effective
Amendment No. 10.
(5)(b) Portfolio Management Agreement, dated July 30, 1993
between the Fund, Smith Barney Shearson Strategy Advisers Inc. and
Ardsley Advisory Partners, is incorporated by reference to Post-
Effective Amendment No. 10.
(5)(c) Portfolio Management Agreement, dated July 30, 1993
between the Fund, Smith Barney Shearson Strategy Advisers Inc. and
Hellman, Jordan Management Co., Inc., is incorporated by reference to
Post-Effective Amendment No. 10.
(5)(d) Portfolio Management Agreement, dated July 30, 1993
between the Fund, Smith Barney Shearson Strategy Advisers Inc. and
Mark Asset Management Company, is incorporated by reference to Post-
Effective Amendment No. 10.
(5)(e) Portfolio Management Agreement, dated July 30, 1993
between the Fund, Smith Barney Shearson Strategy Advisers Inc. and
Woodward & Associates Inc., is incorporated by reference to Post-
Effective Amendment No. 10.
(5)(f) Consulting Agreement, dated July 30, 1993, is
incorporated by reference to Post-Effective Amendment No. 10.
(6) Distribution Agreement, dated July 30, 1993, is incorporated
by reference to Post-Effective Amendment No. 10.
(7) Not Applicable.
(8)(a) Custody Agreement is incorporated by reference to Pre-
Effective Amendment No. 3 to the Registration Statement as filed with
the SEC on April 13, 1990.
(8)(b) Amendment, dated March 7, 1991, to the Custody Agreement
is incorporated by reference to Post-Effective Amendment No. 4 to the
Registration Statement ("Post-Effective Amendment No. 4") as filed
with the SEC on February 28, 1992.
(8)(c) Transfer Agency and Registrar Agreement, dated
September 2, 1993, is incorporated by reference to Post-Effective
Amendment No. 10.
(9) Administration Agreement, dated May 21, 1993, is incorporated
by reference to Post-Effective Amendment No. 10.
(10) Opinion of Counsel, regarding share registration pursuant to
Rule 24e-2 is filed herein.
(11) Consent of Independent Accountants is filed herein.
(12) Not applicable.
(13) Initial Subscription Agreement is incorporated by reference to
Pre-Effective Amendment No. 4 to the Registration Statement ("Pre-
Effective Amendment No. 4") as filed with the SEC on May 8, 1990.
(14) Not applicable.
(15) Services and Distribution Plan, dated June 1, 1993, is
incorporated by reference to Post-Effective Amendment No. 10.
(16) Performance Data is incorporated by reference to Post-Effective
Amendment No. 1.
(17) Powers of Attorney are incorporated by reference to Post-
effective Amendment No. 10.
Item 25.
Persons Controlled by or Under Common Control with Registrant
Not applicable.
Item 26. Number of Record Holders of Securities
(1) (2)
Number of Record Holders
Title of Class as of February 22, 1994
Class A
Shares of partnership 2,375
interest, no par value
Class B
Shares of partnership 140
interest, no par value
Item 27. Indemnification
The response to this item is incorporated by reference to Pre-
Effective Amendment No. 4.
Item 28(a) Business and Other Connection of Investment Adviser
Investment Adviser -- Smith Barney Shearson Strategy Advisers
Inc.
Smith Barney Shearson Strategy Advisers Inc. ("Strategy Advisers")
was incorporated on October 22, 1986 under the laws of the State of
Delaware. Strategy Advisers is a wholly owned subsidiary of Smith,
Barney Advisers, Inc. ("SBA"), which was incorporated under the laws
of the state of Delaware in 1968. SBA is a wholly owned subsidiary
of Smith Barney Shearson Holdings Inc., which in turn is a wholly
owned subsidiary of The Travelers Inc. ("Travelers"), formerly known
as Primerica Corporation. Strategy Advisers is registered as an
investment adviser under the Investment Advisers Act of 1940 (the
"Advisers Act"). Strategy Advisers is also registered with the
Commodity Futures Trading Commission (the "CFTC") as a commodity pool
operator under the Commodity Exchange Act (the "CEA"), and is a
member of the National Futures Association (the "NFA").
The list required by this Item 28 of officers and directors of SBA
and Strategy Advisers, together with information as to any other
business, profession, vocation or employment of a substantial nature
engaged in by such officers and directors during the past two years,
is incorporated by reference to Schedules A and D of FORM ADV filed
by SBA on behalf of Strategy Advisers pursuant to the Advisers Act
(SEC File No. 801-8314).
Prior to the close of business on July 30, 1993 (the "Closing"),
Shearson Lehman Investment Strategy Advisors Inc. ("Shearson Lehman
Strategy Advisers"), a wholly owned subsidiary of Shearson Lehman
Brothers Inc. ("Shearson Lehman Brothers"), served as the
Registrant's investment adviser. On the Closing, Travelers and Smith
Barney, Harris Upham & Co. Incorporated acquired the domestic retail
brokerage and asset management business of Shearson Lehman Brothers
which included the business of the Registrant's prior investment
adviser. Shearson Lehman Brothers was a wholly owned subsidiary of
Shearson Lehman Brothers Holdings Inc. ("Shearson Holdings"). All of
the issued and outstanding common stock of Shearson Holdings
(representing 92% of the voting stock) was held by American Express
Company. Information as to any past business vocation or employment
of a substantial nature engaged in by officers and directors of
Shearson Lehman Investment Strategy Advisors can be located in
Schedules A and D of FORM ADV filed by Shearson Lehman Investment
Strategy Advisors prior to July 30, 1993. (SEC FILE NO. 801-28715)
Portfolio Managers and Consultant
Reference is made to the Form ADV of Ardsley Advisory Partners
(SEC File No. 801-28944); Hellman, Jordan Management Co., Inc. (SEC
File No. 801-14071); Mark Asset Management Corporation (SEC File No.
801-28992); Woodward & Associates Inc. (SEC File No. 801-39146); and
Tremont Partners, Inc. (SEC File No. 801-23822).
The list required by this Item 28(a) of officers and directors of
each of the above-mentioned investment advisers, together with
information as to any other business profession, vocation or
employment of a substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to
Schedules A and D of each firm's respective Form ADV.
Item 29. Principal Underwriters
Smith Barney Shearson Inc. ("Smith Barney Shearson") currently
acts as distributor for Smith Barney Shearson Managed Municipals Fund
Inc., Smith Barney Shearson New York Municipals Fund Inc., Smith
Barney Shearson California Municipals Fund Inc., Smith Barney
Shearson Massachusetts Municipals Fund, Smith Barney Shearson Global
Opportunities Fund, Smith Barney Shearson Small Capitalization Fund,
Smith Barney Shearson Worldwide Prime Assets Fund, Smith Barney
Shearson Short-Term World Income Fund, Smith Barney Shearson
Principal Return Fund, Smith Barney Shearson Municipal Money Market
Fund Inc., Smith Barney Shearson Daily Dividend Fund Inc., Smith
Barney Shearson Government and Agencies Fund Inc., Smith Barney
Shearson Managed Governments Fund Inc., Smith Barney Shearson New
York Municipal Money Market Fund, Smith Barney Shearson California
Municipal Money Market Fund, Smith Barney Shearson Income Funds,
Smith Barney Shearson Equity Funds, Smith Barney Shearson Investment
Funds Inc., Smith Barney Shearson Precious Metals and Minerals Fund
Inc., Smith Barney Shearson Telecommunications Trust, Smith Barney
Shearson Arizona Municipals Fund Inc., Smith Barney Shearson New
Jersey Municipals Fund Inc., The USA High Yield Fund N.V., Garzarelli
Sector Analysis Portfolio N.V., The Advisors Fund L.P., Smith Barney
Shearson Fundamental Value Fund Inc., Smith Barney Shearson Series
Fund, The Trust for TRAK Investments, Smith Barney Shearson Income
Trust, Smith Barney Shearson FMA Trust, Smith Barney Shearson
Adjustable Rate Government Income Fund, Smith Barney Shearson Florida
Municipals Fund, Smith Barney Funds, Inc., Smith Barney Equity Fund,
Inc., Smith Barney Muni Funds, Smith Barney World Funds, Inc., Smith
Barney Money Funds, Inc., Smith Barney Tax Free Money Fund, Inc.,
Smith Barney Variable Account Funds, Smith Barney U.S. Dollar Reserve
Fund (Cayman), Worldwide Special Fund, N.V., Worldwide Securities
Limited, (Bermuda) and various series of unit investment trusts.
Smith Barney Shearson is a wholly owned subsidiary of Smith Barney
Shearson Holdings Inc., which in turn is a wholly owned subsidiary of
Travelers. The information required by this Item 29 with respect to
each director, officer and partner of Smith Barney Shearson is
incorporated by reference to Schedule A of FORM BD filed by Smith
Barney Shearson pursuant to the Securities Exchange Act of 1934 (SEC
File No. 812-8510).
Item 30. Location of Accounts and Records
The accounts, books and other documents required to be
maintained by the Registrant pursuant to Section 31(a) of the
Investment Company Act of 1940 and the rules thereunder will be
maintained at the following offices:
(1) Smith Barney Shearson Strategy Advisers Inc.
Two World Trade Center
New York, New York 10048
(2) The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
(Records relating to its function as
Registrant's Administrator)
(3) Ardsley Advisors Partners
646 Steamboat Road
Greenwich, CT 06830
(Records relating to its function as
one of Registrant's Portfolio Managers)
(4) Hellman, Jordan Management Co., Inc.
75 State Street
Boston, MA 02109
(Records relating to its function as
one of Registrant's Portfolio Managers)
(5) Mark Asset Management Corporation
767 Fifth Avenue
New York, NY 10153
(Records relating to its function as one of
Registrant's Portfolio Managers)
(6) Woodward & Associates Inc.
17 State Street
New York, NY 10153
(Records relating to its function as
one of Registrant's Portfolio Managers)
(7) Tremont Partners, Inc.
One Corporate Center at Rye
555 Theodore Fremd Avenue
Rye, New York 10580
(Records relating to its function as
Consultant to Registrant's Investment
Adviser)
(8) The Shareholder Services Group, Inc.
Exchange Place
Boston, MA 02109
(Records relating to its function as
Registrant's Transfer Agent)
(9) Boston Safe Deposit and Trust Company
One Boston Place
Boston, MA 02108
(Records relating to its function as
Registrant's Custodian)
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish to each person to
whom a prospectus is delivered a copy of Registrant's latest annual
report to shareholders, upon request and without charge.
(d) Registrant undertakes to call a meeting of
shareholders for the purpose of voting upon the question of removal
of a General Partner or General Partners when requested to do so by
the holders of at least 10% of Registrant's outstanding shares and in
connection with such meeting to comply with the provisions of Section
16(c) of the Investment Company Act of 1940 relating to shareholder
communications.
THE ADVISORS FUND L.P.
EXHIBIT INDEX
Exhibit No.
Description
10
Opinion of Counsel for Rule 24e-2 Registration.
11
Consent of Independent Accountants
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, The Advisors Fund
L.P., has duly caused this Amendment to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, State of New York, on the
1st of March, 1994.
THE ADVISORS FUND L.P.
By: /s/ Heath B. McLendon
Heath B. McLendon
Individual General Partner
and Designated Agent
(Chief Executive Officer)
Witness our hands on the date set forth below.
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
/s/ Heath B. McLendon Individual General March1, 1994
Heath B. McLendon Partner and Designated
Agent (Chief Executive
Officer)
/s/ Vincent Nave Designated Agent March 1, 1994
Vincent Nave (Chief Financial and
Accounting Officer)
/s/ Walter E. Auch Individual March 1, 1994
Walter E. Auch General Partner
/s/ Martin Brody Individual March 1, 1994
Martin Brody General Partner
/s/ Stephen E. Kaufman Individual March 1, 1994
Stephen E. Kaufman General Partner
/s/ Madelon DeVoe Talley Individual March 1, 1994
Madelon DeVoe Talley General Partner
shared/global/advisors/peas/pea#11
February 25, 1994
The Advisors Fund L.P.
Two World Trade Center
New York, New York 10048
Dear Sir or Madam:
As counsel for The Advisors Fund L.P. (the "Fund"), we are familiar with the
registration of the Fund under the Investment Company Act of 1940 (File No.
811-5391) and the registration statement relating to its shares representing
limited partnership interests (the "Shares") under the Securities Act of 1933
(File No. 33-18584). We also have examined such other corporate records,
agreements, documents and instruments as we deemed appropriate.
Based upon the foregoing, it is our opinion that the Shares being registered
pursuant to Post-Effective Amendment No. 11 to the Fund's Registration
Statement will, when sold in accordance with the terms of the Registration
Statement and the prospectus included therein, and delivered by the Fund
against receipt of the net asset value of the Shares, have been duly and
validly authorized and issued as fully paid and non-assessable Shares of the
Fund.
We consent to the filing of this opinion in connection with Post-Effective No.
11 which is filed on behalf of the Fund pursuant to Section 24(e) of the
Investment Company Act of 1940.
Very truly yours,
/s/ Dechert price & Rhoads
advisors/filings/sec/24e2dpr.doc
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Partners of The Advisors Fund L.P.:
We hereby consent to the following with respect to
Post-Effective Amendment No. 11 to the Registration Statement on
Form N-1A (File No. 33-18584) under the Securities Act of 1933,
as amended, of The Advisors Fund L.P.:
1. The incorporation by reference of our report dated February
16, 1994 accompanying the Annual Report dated December 31, 1993
of The Advisors Fund L.P., in the Statement of Additional
information.
2. The reference to our firm under the heading "Financial
Highlights" in the Prospectus.
3. The reference to our firm under the heading "Counsel and
Auditors" in the Statement of Additional Information.
COOPERS & LYBRAND
Boston, Massachusetts
February 25, 1994
