As filed with the Securities and Exchange Commission on
Registration Nos. [ ] and [ ]
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. __ [ ]
and
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. __ [ ]
(Check appropriate box or boxes)
-----------
UNDISCOVERED MANAGERS FUNDS
(Exact name of registrant as specified in charter)
Plaza of the Americas
700 North Pearl Street, 17th Floor
Dallas, Texas 75201
Registrant's telephone number, including area code: (214) 999-7200
Name and address
of agent for service with a copy to:
Mark P. Hurley John M. Loder, Esq.
Undiscovered Managers, LLC Ropes & Gray
Plaza of the Americas One International Place
700 North Pearl Street, 17th Floor Boston, MA 02110
Dallas, Texas 75201
-----------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
DECLARATION PURSUANT TO RULE 24f-2
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
Registrant has registered an indefinite number or amount of its shares of
beneficial interest under the Securities Act of 1933.
<PAGE>
UNDISCOVERED MANAGERS FUNDS
Cross Reference Sheet
Items required by Form N-1A
PART A
<TABLE>
<CAPTION>
Item No. Registration Statement Caption Caption in Prospectus
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Summary of Expenses
3. Condensed Financial Information Not Applicable
4. General Description of Registrant Cover Page; The Funds; More Information About the
Funds' Investments and Risk Considerations; The Trust
5. Management of the Fund Cover Page; The Funds; Management of the Funds;
The Trust; Portfolio Transactions; Back Cover
5A. Management's Discussion of Fund Not Applicable
Performance
6. Capital Stock and Other Securities Shareholder Services; How to Redeem Shares;
Dividends, Capital Gain Distributions and Taxes; The
Trust
7. Purchase of Securities Being Offered How to Purchase Shares; Shareholder Services
8. Redemption or Repurchase How to Redeem Shares
9. Pending Legal Proceedings Not Applicable
</TABLE>
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<PAGE>
PART B
<TABLE>
<CAPTION>
Item No. Registration Statement Caption Caption in Prospectus
<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Not Applicable
13. Investment Objectives and Policies Investment Objectives, Policies and Restrictions
14. Management of the Fund Management of the Trust
15. Control Persons and Principal Holders of Ownership of Shares of the Funds
Securities
16. Investment Advisory and Other Services Investment Advisory and Other Services; Management
of the Funds (Prospectus)
17. Brokerage Allocation and Other Practices Portfolio Transactions and Brokerage; Portfolio
Transactions (Prospectus)
18. Capital Stock and Other Securities How to Redeem Shares (Prospectus); Redemptions;
Dividends, Capital Gain Distributions and Taxes
(Prospectus); Income Dividends, Capital Gain
Distributions and Tax Status
19. Purchase, Redemption and Pricing of How to Purchase Shares (Prospectus); How to Buy
Securities Being Offered Shares; Shareholder Services; How to Redeem Shares
(Prospectus); Redemptions; Net Asset Value
20. Tax Status Dividends, Capital Gain Distributions and Taxes
(Prospectus); Income Dividends, Capital Gain
Distributions and Tax Status
21. Underwriters Not Applicable
22. Calculations of Performance Data Not Applicable
23. Financial Statements Not Applicable
</TABLE>
-3-
<PAGE>
PART C
The information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of the Registration Statement.
-4-
<PAGE>
UNDISCOVERED MANAGERS FUNDS
-----------------------------
INSTITUTIONAL CLASS
PROSPECTUS
December ___, 1997
<PAGE>
-----------------------------
UNDISCOVERED MANAGERS FUNDS
-----------------------------
Plaza of the Americas
700 North Pearl Street
Dallas, Texas 75201
(214) 999-7200
Undiscovered Managers Funds
Institutional Class shares of:
Undiscovered Managers All Cap Value Fund
Undiscovered Managers Behavioral Growth Fund
Undiscovered Managers Core Equity Fund
Undiscovered Managers Hidden Value Fund
Undiscovered Managers REIT Fund
Undiscovered Managers Small Cap Value Fund
Undiscovered Managers Special Small Cap Fund
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<PAGE>
SUBJECT TO COMPLETION
Preliminary Prospectus Dated December , 1997
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of such state.
Prospectus December __, 1997
Undiscovered Managers Funds
Undiscovered Managers Funds (the "Trust") is a registered open-end
management investment company with seven separately managed, no-load portfolios
(each a "Fund" and collectively, the "Funds"). Undiscovered Managers, LLC
("Undiscovered Managers") is the investment adviser of the Funds. Each Fund's
portfolio is managed by a sub-adviser selected by Undiscovered Managers for its
experience managing a portfolio of this kind:
o Undiscovered Managers All Cap Value Fund (the "All Cap Value Fund") is managed
by E.R. Taylor Investments, Inc.
o Undiscovered Managers Behavioral Growth Fund (the "Behavioral Growth Fund")
is managed by RJF Asset Management, Inc.
o Undiscovered Managers Core Equity Fund (the "Core Equity Fund") is managed by
Waite & Associates L.L.C.
o Undiscovered Managers Hidden Value Fund (the "Hidden Value Fund") is managed
by J.L. Kaplan Associates.
o Undiscovered Managers Small Cap Value Fund (the "Small Cap Value Fund") is
managed by J.L. Kaplan Associates.
o Undiscovered Managers Special Small Cap Fund (the "Special Small Cap Fund") is
managed by Kestrel Investment Management Corporation.
o Undiscovered Managers REIT Fund (the "REIT Fund") is managed by Bay Isle
Financial Corporation.
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<PAGE>
Each Fund's investment objective is long-term growth of capital, except
for the REIT Fund, which has the investment objective of high total investment
return. In seeking to achieve its objective, each Fund invests primarily in
equity securities of U.S. companies. There can be no assurance that the Funds
will achieve their investment objectives.
Each Fund currently offers one class of shares -- the Institutional
Class. This Prospectus concisely describes the information that an investor
should know before investing in each Fund. Please read it carefully and keep it
for future reference. A Statement of Additional Information dated December __,
1997, is available free of charge. Write to Undiscovered Managers, LLC, Plaza of
the Americas, 700 North Pearl Street, 17th Floor, Dallas, Texas 75201, or call
toll free at [___-___-____]. The Statement of Additional Information, which
contains more detailed information about the Funds, has been filed with the
Securities and Exchange Commission (the "SEC") and is incorporated by reference
into this Prospectus.
For more information about establishing an account, or any other
information about the Funds, call [___-___-____].
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-4-
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY OF EXPENSES............................................................6
THE FUNDS......................................................................8
MORE INFORMATION ABOUT THE FUNDS' INVESTMENTS
AND RISK CONSIDERATIONS..............................................12
PAST PERFORMANCE OF THE FUNDS' SUB-ADVISERS...................................15
MANAGEMENT OF THE FUNDS.......................................................20
PORTFOLIO TRANSACTIONS........................................................23
HOW TO PURCHASE SHARES........................................................25
SHAREHOLDER SERVICES..........................................................27
HOW TO REDEEM SHARES..........................................................28
CALCULATION OF PERFORMANCE INFORMATION........................................29
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES...............................29
THE TRUST.....................................................................30
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<PAGE>
SUMMARY OF EXPENSES
The following information is provided to assist an investor in
understanding the various expenses that an investor in a Fund will bear
indirectly. Since the Funds had not commenced operations as of the date of this
Prospectus, the information about each Fund shown below is based on annualized
projected expenses of the Institutional Class shares for the 1998 fiscal year.
The information below should not be considered a representation of past or
future expenses, as actual expenses may be greater or less than those shown. The
examples show the cumulative expenses attributable to a hypothetical $1,000
investment over specified periods, assuming the 5% annual return required under
federal regulations.
<TABLE>
<CAPTION>
All Behavioral Core Hidden
Cap Value Growth Equity Value
Fund Fund Fund Fund
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on
Purchases (as % of offering price)............... none none none none
Maximum Sales Load Imposed on
Reinvested Dividends (as % of offering
price)........................................... none none none none
Maximum Deferred Sales Load (as % of
original purchase price or redemption
proceeds as applicable)........................... none none none none
Redemption Fees.................................... none none none none
Exchange Fees...................................... none none none none
Annual Operating Expenses
(as a percentage of average net assets):
Management Fees................................... 0.84% 0.95% 0.84% 0.95%
12b-1 Fees........................................ none none none none
Other Operating Expenses (after expense
reimbursements)................................. 0.15% 0.35% 0.15% 0.35%
Total Operating Expenses (after expense
reimbursements)................................. 0.99% 1.30% 0.99% 1.30%
Example(1):
An investor would pay the following
expenses on a $1,000 investment assuming
a 5% annual return (with or without a
redemption at the end of each time
period):
One Year........................................... [ ] [ ] [ ] [ ]
Three Years........................................ [ ] [ ] [ ] [ ]
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Small Special
REIT Cap Value Small
Fund Fund Cap Fund
---- ---- --------
<S> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases (as
% of offering price)................................... none none none
Maximum Sales Load Imposed on Reinvested
Dividends (as % of offering price)..................... none none none
Deferred Sales Load (as % of original purchase
price or redemption proceeds as applicable)............ none none none
Redemption Fees.......................................... none none none
Exchange Fees............................................ none none none
Annual Operating Expenses
(as a percentage of average net assets):
Management Fees........................................... 1.05% 1.05% 0.65%-1.65%*
12b-1 Fees................................................ none none none
Other Operating Expenses (after expense
reimbursements)......................................... 0.35% 0.35% 0.55%
Total Operating Expenses (after expense
reimbursements)......................................... 1.40% 1.40% 1.20%-2.20%*
Example(1):
An investor would pay the following expenses on a $1,000
investment assuming a 5% annual return (with or without
a redemption at the end of each time period):
One Year................................................... [ ] [ ] [ ]
Three Years................................................ [ ] [ ] [ ]
</TABLE>
- --------------------
* Will vary based on investment performance of the Fund. See "Management of
the Funds--Advisory and Sub-Advisory Fees."
(1) Under SEC rules, newly-organized funds, such as the Funds, are required to
show expenses for the one- and three-year periods only.
Other Operating Expenses are based on estimated amounts for the 1998
fiscal year after giving effect to voluntary expense limitations. Undiscovered
Managers, the Funds' investment adviser, has voluntarily agreed, for an
indefinite period, to limit each Fund's Total Operating Expenses to the
percentages of net assets shown above, subject to later reimbursement by the
Funds in certain circumstances. Without this agreement, estimated Other
Operating Expenses and Total Operating Expenses would be [ ] and [ ],
respectively for the All Value Fund, [ ] and [ ], respectively for the
Behavioral Growth Fund, [ ] and [ ], respectively, for the Core Equity Fund, [ ]
and [ ], respectively, for the Hidden Value Fund, [ ] and [ ], respectively, for
the REIT Fund, [ ] and [ ], respectively, for the Small Cap Value Fund, and [ ]
and [ ], respectively, for the Special Small Cap Fund. See "Management of the
Funds--Advisory and Sub-Advisory Fees."
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<PAGE>
THE FUNDS
All Cap Value Fund
The All Cap Value Fund's investment objective is long-term growth of
capital.
The Fund seeks to achieve its objective by investing in common stocks
of companies that its sub-adviser believes are undervalued and therefore offer
above-average potential for capital growth. In selecting these stocks, the
sub-adviser will consider, among other things, the issuer's cash flow,
price-to-book ratio, return on capital, balance sheets, and management. The Fund
will ordinarily remain substantially fully invested in common stocks.
E.R. Taylor Investments, Inc. ("E.R. Taylor") is the sub-adviser to the
Fund. E.R. Taylor, 46 South Main Street, Suite 4, Concord, New Hampshire, was
founded in 1983, and serves as an investment adviser to endowment funds,
charitable organizations and other institutional and individual investors. E.R.
Taylor's philosophy is to invest in undervalued, quality companies where
management uses cash flow to build shareholder value.
Investment decisions for the Fund are made by E.R. Taylor's Investment
Committee, which consists of six investment professionals. Sherwood T. Small,
President of E.R. Taylor, is the chairman of the Investment Committee. Mr.
Small has served as President of E.R. Taylor since 1992.
Behavioral Growth Fund
The Behavioral Growth Fund's investment objective is long-term growth
of capital.
The Fund seeks to achieve its objective by investing primarily in
common stocks of U.S. companies that the Fund's sub-adviser believes have growth
characteristics. In selecting stocks for the Fund, the sub-adviser seeks to
identify companies whose stocks have been underpriced by virtue of certain
behavioral biases causing investors to under-react to new, positive information
concerning the issuer. The Fund invests in stocks with market capitalization of
$150 million or more. The sub-adviser expects that the median market
capitalization of stocks held by the Fund will ordinarily be approximately $1
billion, and that the average market capitalization will be between $1.5 and $2
billion, but the median and average capitalizations could be significantly
higher or lower. The Fund will ordinarily remain substantially fully invested in
common stocks.
RJF Asset Management, Inc. ("RJF Management") is the sub-adviser to the
Fund. RJF Management, 1300 S. El Camino Real, Suite 504, San Mateo, California
was founded in 1993, and currently serves as an investment adviser to pension
and profit sharing plans, academic institutions and other institutional
investors. RJF Management's investment
-8-
<PAGE>
approach seeks to capitalize on systematic mental mistakes caused by behavioral
biases on the part of investors. RJF Management believes that the market's
biased expectations as to the future profitability and earnings of companies can
cause companies' securities to be mispriced. Because of biased expectations, the
market often undervalues stocks of companies that have announced unexpected
positive changes in their earnings. In selecting investments for the Fund, RJF
Management seeks to identify companies that have announced unexpected positive
earnings changes that are likely to be lasting.
Russell J. Fuller and Frederick W. Stanske have day-to-day
responsibility for the management of the Fund's portfolio. Mr. Fuller founded
RJF Management and has served as its President since 1993. He was a Vice
President of Strategic Development of Concord Capital Management from 1990 to
1993, and a Professor of Finance and Chair of the Department of Finance at
Washington State University from 1984 to 1990. Mr. Stanske joined RJF Management
in 1996, having previously been employed as _______ at Farmers Insurance Group
from [ ] to [ ] and as ________ at Fisher Investments from [ ] to [ ].
Core Equity Fund
The Core Equity Fund's investment objective is long-term growth of
capital.
The Fund seeks to achieve its objective by investing substantially all
of its assets in common stocks of well-established, high-quality U.S. companies.
Although the common stocks in which the Fund invests will typically have larger
market capitalization, the Fund may invest in stocks with capitalization as low
as $1 billion. In selecting investments for the Fund, the Fund's sub-adviser
will consider, among other things, its expectations as to the relative
performance of various sectors of the economy and the relative growth prospects
of different companies within such sectors. Under normal market conditions, the
Fund will ordinarily be substantially fully invested in common stocks of U.S.
companies.
Waite & Associates L.L.C. ("Waite & Associates") is the Fund's
sub-adviser. Waite & Associates, 601 South Figueroa Street, Los Angeles,
California, is the successor to Waite & Associates, an investment advisory firm
founded in 1978. Leslie A. Waite and Diana L. Calhoun have day-to-day
responsibility for the management of the Fund's portfolio. Mr. Waite founded
Waite & Associates' predecessor firm in 1978 and has served as its President and
Chief Investment Officer since then. Ms. Calhoun joined the firm in 1981 and
holds the positions of Managing Director and Senior Portfolio Manager.
Hidden Value Fund
The Hidden Value Fund's investment objective is long-term growth of
capital.
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<PAGE>
The Fund seeks to achieve its objective by investing primarily in
common stocks of companies that the Fund's sub-adviser considers to be
undervalued at the time of purchase and to have the potential for long-term
capital appreciation. The sub-adviser expects that the median market
capitalization of stocks held by the Fund will ordinarily range from $800
million to $5 billion. In selecting stocks for the Fund, the sub-adviser will
consider, among other things, the issuer's earning power and the relative value
of the issuer's assets. Under normal market conditions, the Fund will invest at
least 65% of its total assets in common stocks.
J.L. Kaplan Associates ("Kaplan Associates") is the sub-adviser to the
Fund. Kaplan Associates, 75 Park Plaza, 4th Floor, Boston, Massachusetts, was
founded in 1976, and serves as an investment adviser to pension and profit
sharing plans, trusts, charitable organizations and other institutional and
private investors. Kaplan Associates believes that a stock can be a good value
either by virtue of exceptional earning power or because such stock sells at a
substantial discount to its asset base.
James L. Kaplan and Paul Weisman have day-to-day responsibility for
managing the Fund's portfolio. Mr. Kaplan founded Kaplan Associates in 1976.
From 1972 to 1984, he was Associate Professor of Mathematics at Boston
University. Mr. Weisman has been a portfolio manager at Kaplan Associates since
1986. From 1984 to 1986, Mr. Weisman was an investment analyst at Delphi
Management, Inc.
Small Cap Value Fund
The Small Cap Value Fund's investment objective is long-term growth of
capital.
The Fund seeks to achieve its objective by investing primarily in
common stocks of companies with a market float of $1.2 billion or less that the
Fund's sub-adviser considers to be undervalued at the time of purchase and to
have the potential for long-term capital appreciation. (Market float is the
total value of all the outstanding shares of a company that are registered for
public trading and does not include shares held by company founders or other
insiders that are not freely resalable.) In selecting stocks for the Fund, the
Fund's sub- adviser will consider, among other things, the issuer's earning
power and the relative value of the issuer's assets. Under normal market
conditions, the Fund will invest at least 65% of its total assets in common
stocks of companies with a market float of $1.2 billion or less.
The Fund's sub-adviser is Kaplan Associates, and James L. Kaplan and
Paul Weisman have day-to-day responsibility for managing the Fund's portfolio.
For more information about Kaplan Associates and Messrs. Kaplan and Weisman, see
"Hidden Value Fund" above.
Special Small Cap Fund
The Special Small Cap Fund's investment objective is long-term growth
of capital.
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<PAGE>
The Fund seeks to achieve its objective by investing a majority of its
assets in common stocks of small cap U.S. companies that are undergoing or have
recently undergone a significant restructuring (such as stock buybacks,
spin-offs or asset sales). The Fund may also invest its assets in other groups
of companies sharing common characteristics which the sub- adviser believes are
undervalued, such as companies undergoing government regulatory changes. Under
normal market conditions, the Fund invests at least 65% of its assets in stock
with market capitalization of between $50 million and $1.2 billion.
Kestrel Investment Management Corporation ("Kestrel Management") is the
sub- adviser to the Fund. Kestrel Management, 1300 S. El Camino Real, Suite 502,
San Mateo, California, was founded in 1993, and serves as an investment adviser
for pension and profit sharing plans, trusts, charitable organizations, and
other institutional and individual investors.
David J. Steirman and Abbott J. Keller have day-to-day responsibility
for the management of the Fund. Messrs. Steirman and Keller have served as
President and Chief Investment Officer, respectively, of Kestrel Management
since founding the firm in 1993. Messrs. Steirman and Keller have worked
together in the investment management business for nearly twenty years, having
served from 1981 to 1993 as vice president and investment strategist,
respectively, at Concord Capital Management, and having both been employed
before that at American National Bank of Chicago.
REIT Fund
The REIT Fund's investment objective is high total investment return
through a combination of capital appreciation and current income.
The Fund seeks to achieve its objective by normally investing
substantially all of its assets in equity securities of real estate investment
trusts ("REITs"), including REITs with relatively small market capitalization.
In selecting investments for the Fund, the Fund's sub- adviser seeks to identify
REITs that have good management, strong balance sheets, above average growth in
funds from operations and that trade at a discount to their underlying value.
Bay Isle Financial Corporation ("Bay Isle") is the Fund's sub-adviser.
Bay Isle, 160 Sansome Street, San Francisco, California, was founded in 1986,
and serves an investment adviser to pension and profit sharing plans, trusts,
charitable organizations, and other institutional and individual investors.
William F.K. Schaff has day-to-day responsibility for the management of
the Fund's portfolio. He receives significant analytical assistance from Bay
Isle's chief REIT analyst, Ralph L. Block. Mr. Schaff has served as a portfolio
manager and Chief Investment Officer of Bay Isle since 1989. Mr. Block has
nearly 30 years' experience investing in REITs and is the author of a recent
book on REIT investing, The Essential REIT.
-11-
<PAGE>
All Funds
In addition to the investments described above, each Fund may lend its
portfolio securities and enter into repurchase agreements. See "More Information
About the Funds' Investments and Risk Considerations" below.
Except for investment policies that are identified as "fundamental,"
all of the investment policies of each Fund may be changed without a vote of
Fund shareholders.
Each Fund is a "diversified" fund, as defined in the Investment Company
Act of 1940 (the "1940 Act"), except for the REIT and the Special Small Cap
Funds, which are "non-diversified." With respect to 75% of its assets, a
diversified fund may not invest more than 5% of its total assets in the
securities of any one issuer (except U.S. government securities) while the
remaining 25% of its total assets is not subject to such restriction. A
non-diversified fund is restricted with respect to 50% of its total assets from
investing more than 5% of its total assets in the securities of any one issuer
(except U.S. government securities), and with respect to the remaining 50% of
its total assets from investing more than 25% of its total assets in the
securities of any one issuer. A non-diversified fund may invest a greater
percentage of its total assets in securities of individual issuers, or may
invest in a smaller number of different issuers, than a diversified fund.
Accordingly, a non-diversified fund is more susceptible to risks associated with
particular issuers than a diversified fund.
MORE INFORMATION ABOUT THE FUNDS' INVESTMENTS
AND RISK CONSIDERATIONS
It is important to understand the following risks inherent in a Fund
before you invest.
Common Stocks and Other Equity Securities
Common stocks and similar equity securities are securities that
represent an ownership interest (or the right to acquire such an interest) in a
company and include securities exercisable for or convertible into common stocks
(e.g. warrants). While offering greater potential for long-term growth, common
stocks and similar equity securities are more volatile and more risky than some
other forms of investment. Therefore, the value of your investment in a Fund may
sometimes decrease instead of increase. Each Fund may invest in equity
securities of companies with relatively small market capitalization. Securities
of such companies may be more volatile than the securities of larger, more
established companies and the broad equity market indices. See "Small Companies"
below. Each Fund's investments may include securities traded "over-the-counter"
as well as those traded on a securities exchange. Some over-the-counter
securities may be more difficult to sell under some market conditions.
Convertible securities include other securities, such as warrants, that
provide an opportunity for equity participation. Because convertible securities
can be converted into equity securities, their values will normally increase or
decrease as the values of the underlying equity securities increase or decrease.
The movements in the prices of convertible
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<PAGE>
securities, however, may be smaller than the movements in the value of the
underlying equity securities.
Small Companies
All of the Funds may invest in companies with relatively small market
capitalization, and several of the Funds will invest primarily in such
companies. See "The Funds" above.
Investments in companies with relatively small capitalization may
involve greater risk than is usually associated with stocks of larger companies.
These companies often have sales and earnings growth rates which exceed those of
companies with larger capitalization. Such growth rates may in turn be reflected
in more rapid share price appreciation. However, companies with smaller
capitalization often have limited product lines, markets or financial resources
and may be dependent upon a relatively small management group. The securities
may have limited marketability and may be subject to more abrupt or erratic
movements in price than securities of companies with larger capitalization or
market averages in general. The net asset value per share of Funds that invest
in companies with smaller capitalization therefore may fluctuate more widely
than market averages.
Repurchase Agreements
All of the Funds will normally invest at least 65% of their total
assets in common stocks. Any assets not invested in common stocks or other
equity securities will generally be held in the form of cash or in repurchase
agreements.
Under a repurchase agreement, a Fund buys securities from a seller,
usually a bank or brokerage firm, with the understanding that the seller will
repurchase the securities at a higher price at a later date. If the seller fails
to repurchase the securities, the Fund has rights to sell the securities to
third parties. Repurchase agreements can be regarded as loans by the Fund to the
seller, collateralized by the securities that are the subject of the agreement.
Repurchase agreements afford an opportunity for the Fund to earn a return on
available cash at relatively low credit risk, although the Fund may be subject
to various delays and risks of loss if the seller fails to meet its obligation
to repurchase.
The staff of the SEC is currently of the view that repurchase
agreements maturing in more than seven days are illiquid securities.
Loans of Securities
The Funds may lend their portfolio securities, provided that cash or
equivalent collateral equal to at least 100% of the market value of the
securities loaned is continuously maintained by the borrower with the Funds.
During the time securities are on loan, the borrower will pay the Fund an amount
equivalent to any dividends or interest paid on such securities, and the Fund
may invest the cash collateral and earn additional income, or it may receive an
agreed upon amount of interest income from the borrower who has delivered
equivalent collateral. These loans are subject to termination at the option of
the Fund or the
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<PAGE>
borrower. A Fund may pay reasonable administrative and custodial fees in
connection with a loan and may pay a negotiated portion of the interest earned
on the cash or equivalent collateral to the borrower or placing broker. It is
not currently anticipated that any Fund will have on loan at any given time
securities totaling more than one-third of its net assets. A Fund runs the risk
that the counterparty to a loan transaction will default on its obligation and
that the value of the collateral received may be insufficient to cover the
securities loaned as a result of an increase in the value of the securities or
decline in the value of the collateral.
Real Estate Investment Trusts
The REIT Fund will invest primarily in shares of real estate investment
trusts ("REITs"). REITs pool investors' funds for investment primarily in income
producing real estate or real estate related loans or interests. Under the
federal Internal Revenue Code (the "Code"), a REIT is not taxed on income it
distributes to its shareholders if it complies with several requirements
relating to its organization, ownership, assets, and income and a requirement
that it generally distribute to its shareholders at least 95% of its taxable
income (other than net capital gains) for each taxable year. REITs can generally
be classified as Equity REITs, Mortgage REITs, and Hybrid REITs. Equity REITs,
which invest the majority of their assets directly in real property, derive
their income primarily from rents. Equity REITs can also realize capital gains
by selling properties that have appreciated in value. Mortgage REITs, which
invest the majority of their assets in real estate mortgages, derive their
income primarily from interest payments. Hybrid REITS combine the
characteristics of both Equity REITs and Mortgage REITs.
While the Fund will not invest in real estate directly, the Fund may be
subject to risks similar to those associated with the direct ownership of real
estate (in addition to securities markets risks) because of its policy of
concentration in the securities of companies in the real estate industry. These
include declines in the value of real estate, risks related to general and local
economic conditions, dependency on management skill, heavy cash flow dependency,
possible lack of availability of mortgage funds, overbuilding, extended
vacancies of properties, increased competition, increases in property taxes and
operating expenses, changes in zoning laws, losses due to costs resulting from
the clean-up of environmental problems, liability to third parties for damages
resulting from environmental problems, casualty or condemnation losses,
limitations on rents, changes in neighborhood values and in the appeal of
properties to tenants and changes in interest rates.
In addition to these risks, Equity REITs may be affected by changes in
the value of the underlying property owned by the trusts, while Mortgage REITs
may be affected by the quality of any credit they extend. Further, Equity REITs
and Mortgage REITs are dependent upon management skills and generally may not be
diversified. Equity REITs and Mortgage REITs are also subject to heavy cash flow
dependency, defaults by borrowers and self- liquidation. In addition, Equity
REITs and Mortgage REITs could possibly fail to qualify for tax free
pass-through of income under the Internal Revenue Code or to maintain their
exemptions from registration under the 1940 Act. The above factors may also
adversely affect a borrower's or a lessee's ability to meet its obligations to
the REIT. In the event of a default by a borrower or lessee, the REIT may
experience delays in enforcing its rights as a
-14-
<PAGE>
mortgagee or lessor and may incur substantial costs associated with protecting
its investments. In addition to the foregoing risks, certain "special purpose"
REITs in which the Fund invests may invest their assets in specific real estate
sectors, such as hotel REITs, nursing home REITs or warehouse REITs, and are
therefore subject to the risks associated with adverse developments in the
respective sectors.
PAST PERFORMANCE OF THE FUNDS' SUB-ADVISERS
The tables below present information about the investment performance
of accounts managed by the Funds' sub-advisers. Investment performance is shown
on an annual return basis from January 1, 1993 to September 30, 1997, with
returns for periods of less than one year not annualized; and on an average
annual return and cumulative return basis for one-, three- and five-year periods
(or since inception of the applicable sub-adviser, if such sub- adviser has been
in existence less than five years) ended September 30, 1997.
The information below represents performance data furnished by each
Fund's sub- adviser relating to accounts managed by them (the "Accounts"). Each
sub-adviser's Accounts have investment objectives substantially similar to that
of the Fund(s) managed by that sub- adviser; were managed throughout the periods
shown using investment styles and strategies substantially similar (although not
necessarily identical) to the relevant Fund's; and except as noted below include
all of the fully-discretionary, fee-paying equity accounts managed by such
sub-adviser during the periods shown using investment objectives, policies and
strategies substantially similar to the relevant Fund's. The following returns
are adjusted to give effect to the greater of the level of (a) the actual
expenses of the Accounts or (b) the estimated annualized expenses for the
relevant Fund's first full fiscal year. The following information does not
represent the performance of the Funds. The Funds are newly organized and have
no performance record of their own. The following information should not be
considered a prediction of future performance of any of the Funds. Each Fund's
performance may be higher or lower than that shown below.
During the periods shown, each sub-adviser's Accounts were managed by
the portfolio manager who will be responsible for the day-to-day portfolio
management of the Fund(s) managed by that sub-adviser, except that, in the case
of RJF Management, the Accounts were managed until __________, 1996 by Russell
J. Fuller and have been co-managed since then by Mr. Fuller and Frederick W.
Stanske, who joined the firm at that time.
The Accounts are not subject to the same types of expenses to which
each of the Funds are subject, nor to the diversification requirements, specific
tax restrictions and investment limitations imposed on each of the Funds by the
1940 Act or the Code. The performance results for the Accounts shown below might
have been less favorable had the Accounts been subject to these requirements,
restrictions and limitations.
-15-
<PAGE>
E.R. Taylor Investments, Inc.
- --------------------------------------------------------------------------------
Accounts* S&P 500
- --------------------------------------------------------------------------------
1/1/97 - 9/30/97
- --------------------------------------------------------------------------------
1996
- --------------------------------------------------------------------------------
1995
- --------------------------------------------------------------------------------
1994
- --------------------------------------------------------------------------------
1993
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Accounts* S&P 500
- --------------------------------------------------------------------------------
Average Annual Returns
- --------------------------------------------------------------------------------
1 Year
- --------------------------------------------------------------------------------
3 Years
- --------------------------------------------------------------------------------
5 Years
- --------------------------------------------------------------------------------
Cumulative Returns
- --------------------------------------------------------------------------------
1 Year
- --------------------------------------------------------------------------------
3 Years
- --------------------------------------------------------------------------------
5 years
- --------------------------------------------------------------------------------
* The performance information for Accounts managed by E.R. Taylor represents
non-taxable portfolios with a beginning market value greater than E.R. Taylor's
minimum account size (currently $500,000) which have been under management with
E.R. Taylor for at least one full quarter.
RJF Asset Management, Inc.
- --------------------------------------------------------------------------------
Russell
Accounts* 2500 Growth S&P 500
- --------------------------------------------------------------------------------
1/1/97 - 9/30/97
- --------------------------------------------------------------------------------
1996
- --------------------------------------------------------------------------------
1995
- --------------------------------------------------------------------------------
1994
- --------------------------------------------------------------------------------
1993
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Russell
Accounts* 2500 Growth S&P 500
- --------------------------------------------------------------------------------
Average Annual Returns
- --------------------------------------------------------------------------------
1 Year
- --------------------------------------------------------------------------------
3 Years
- --------------------------------------------------------------------------------
5 Years
- --------------------------------------------------------------------------------
Cumulative Returns
- --------------------------------------------------------------------------------
-16-
<PAGE>
- --------------------------------------------------------------------------------
1 Year
- --------------------------------------------------------------------------------
3 Years
- --------------------------------------------------------------------------------
5 Years
- --------------------------------------------------------------------------------
* The performance information for Accounts managed by RJF Management represents
a composite of the growth portion (including cash) of Fuller Partners Ltd.,
which was managed by Russell J. Fuller, the President and Chief Investment
Officer of RJF Management, for the first quarter of 1993 through the third
quarter of 1993; the growth portion (including cash) of the Small/Mid-Cap Core
performance portfolio of RJF Management for the first quarter of 1996 through
the first quarter of 1997; and all other periods represent a composite of all
managed growth accounts.
Waite & Associates, L.L.C.
- --------------------------------------------------------------------------------
Accounts S&P 500
- --------------------------------------------------------------------------------
1/1/97- 9/30/97
- --------------------------------------------------------------------------------
1996
- --------------------------------------------------------------------------------
1995
- --------------------------------------------------------------------------------
1994
- --------------------------------------------------------------------------------
1993
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Accounts S&P 500
- --------------------------------------------------------------------------------
Average Annual Returns
- --------------------------------------------------------------------------------
1 Year
- --------------------------------------------------------------------------------
3 Years
- --------------------------------------------------------------------------------
5 Years
- --------------------------------------------------------------------------------
Cumulative Returns
- --------------------------------------------------------------------------------
1 Year
- --------------------------------------------------------------------------------
3 Years
- --------------------------------------------------------------------------------
5 Years
- --------------------------------------------------------------------------------
J.L. Kaplan Associates
- --------------------------------------------------------------------------------
Small Cap Equity Accounts* Russell 2000
- --------------------------------------------------------------------------------
1/1/97 - 9/30/97
- --------------------------------------------------------------------------------
1996
- --------------------------------------------------------------------------------
1995
- --------------------------------------------------------------------------------
1994
- --------------------------------------------------------------------------------
1993
- --------------------------------------------------------------------------------
-17-
<PAGE>
- --------------------------------------------------------------------------------
Small Cap Equity Accounts* Russell 2000
- --------------------------------------------------------------------------------
Average Annual Returns
- --------------------------------------------------------------------------------
1 Year
- --------------------------------------------------------------------------------
3 Years
- --------------------------------------------------------------------------------
5 Years
- --------------------------------------------------------------------------------
Cumulative Returns
- --------------------------------------------------------------------------------
1 Year
- --------------------------------------------------------------------------------
3 Years
- --------------------------------------------------------------------------------
5 Years
- --------------------------------------------------------------------------------
* The performance information for Accounts managed by Kaplan Associates
represents the average quarterly returns for Accounts with assets in excess of
$250,000.
- --------------------------------------------------------------------------------
Mid Cap Equity Accounts* S&P 500
- --------------------------------------------------------------------------------
1/1/97 - 9/30/97
- --------------------------------------------------------------------------------
1996
- --------------------------------------------------------------------------------
1995
- --------------------------------------------------------------------------------
1994
- --------------------------------------------------------------------------------
1993
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Mid Cap Equity Accounts* S&P 500
- --------------------------------------------------------------------------------
Average Annual Returns
- --------------------------------------------------------------------------------
1 Year
- --------------------------------------------------------------------------------
3 Years
- --------------------------------------------------------------------------------
5 Years
- --------------------------------------------------------------------------------
Cumulative Returns
- --------------------------------------------------------------------------------
1 Year
- --------------------------------------------------------------------------------
3 Years
- --------------------------------------------------------------------------------
5 Years
- --------------------------------------------------------------------------------
* The performance information for Accounts managed by Kaplan Associates
represents the average quarterly returns for Accounts with assets in excess of
$250,000.
Kestrel Investment Management Corporation
- --------------------------------------------------------------------------------
S&P Russell
Accounts 500 2000
- --------------------------------------------------------------------------------
-18-
<PAGE>
- --------------------------------------------------------------------------------
1/1/97 - 9/30/97
- --------------------------------------------------------------------------------
1996
- --------------------------------------------------------------------------------
1995
- --------------------------------------------------------------------------------
1994
- --------------------------------------------------------------------------------
8/17/93* to 12/31/93
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
S&P Russell
Accounts 500 2000
- --------------------------------------------------------------------------------
Average Annual Returns
- --------------------------------------------------------------------------------
1 Year
- --------------------------------------------------------------------------------
3 Years
- --------------------------------------------------------------------------------
Since 8/17/93*
- --------------------------------------------------------------------------------
Cumulative Returns
- --------------------------------------------------------------------------------
1 Year
- --------------------------------------------------------------------------------
3 Years
- --------------------------------------------------------------------------------
Since 8/17/93*
- --------------------------------------------------------------------------------
* 8/17/93 is the date of inception of Kestrel Management.
Bay Isle Financial Corporation
- --------------------------------------------------------------------------------
Accounts* NAREIT Equity Index
- --------------------------------------------------------------------------------
1/1/97 - 9/30/97
- --------------------------------------------------------------------------------
1996
- --------------------------------------------------------------------------------
1995
- --------------------------------------------------------------------------------
1994
- --------------------------------------------------------------------------------
1993
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Accounts* NAREIT Equity Index
- --------------------------------------------------------------------------------
Average Annual Returns
- --------------------------------------------------------------------------------
1 Year
- --------------------------------------------------------------------------------
3 Years
- --------------------------------------------------------------------------------
5 Years
- --------------------------------------------------------------------------------
Cumulative Returns
- --------------------------------------------------------------------------------
1 Year
- --------------------------------------------------------------------------------
3 Years
- --------------------------------------------------------------------------------
5 Years
- --------------------------------------------------------------------------------
-19-
<PAGE>
* The performance information for Accounts managed by Bay Isle represents
performance of all REIT securities managed by Bay Isle during the periods shown.
For clients whose Accounts invested in asset classes other than REITs, the
performance shown represents only the performance of the REIT component of the
Account, plus cash in amount equal to 2% of the value of the REIT component.
MANAGEMENT OF THE FUNDS
Undiscovered Managers is the investment adviser of each Fund and has
responsibility for the management of the Funds' affairs, under the supervision
of the Trust's Board of Trustees. Each Fund's investment portfolio is managed on
a day-to-day basis by that Fund's sub-adviser, under the general oversight of
Undiscovered Managers and the Board of Trustees. Undiscovered Managers monitors
and evaluates each sub-adviser to assure that the sub-adviser is managing its
Fund consistently with the Fund's investment objective and restrictions and
applicable laws and guidelines. Undiscovered Managers does not, however,
determine what investments will be purchased or sold for a Fund.
Pursuant to an Administrative Services Agreement, Undiscovered Managers
has agreed to provide each Fund administrative services which include, among
other things, day-to-day administration of matters related to the Fund's
existence, maintenance of its records, preparation of reports and assistance in
the preparation of the Trust's registration statement under federal and state
laws. Undiscovered Managers has entered into an agreement with [ ] to
provide certain of the foregoing administrative services. [ ] has no
responsibility with respect to the oversight of any Fund's investment management
services.
Undiscovered Managers was organized in 1997 and has no prior experience
managing mutual funds. The address of Undiscovered Managers is Plaza of the
Americas, 700 North Pearl Street, Dallas, Texas 75201. The President of
Undiscovered Managers, Mark P. Hurley, and AMRESCO, Inc., a publicly traded
corporation engaged in residential mortgage banking, commercial mortgage
banking, asset management and commercial finance, each own more than 25% of the
voting securities of Undiscovered Managers and therefore are regarded to control
Undiscovered Managers for purposes of the 1940 Act. Each of the sub-advisers is
regarded for purposes of the 1940 Act as being controlled by the following
persons, each of whom is a principal of the firm and owns more than 25% of the
voting securities of the firm: Sherwood T. Small (E.R. Taylor); Russell J.
Fuller (RJF Management); Leslie A. Waite (Waite & Associates); James L. Kaplan
(Kaplan Associates); David J. Steirman and Abbott J. Keller (Kestrel
Management); and Gary G. Pollock and William F.K. Schaff (Bay Isle). Except for
Bay Isle, none of the sub-advisers has prior experience managing a mutual fund.
[ ] is the custodian for the Funds, [ ] is the distributor of the
Funds, and [ ] is the administrator and investor servicing transfer agent for
the Funds.
Advisory and Sub-Advisory Fees
Each Fund pays Undiscovered Managers a management fee at the following
annual percentage rates of the Fund's daily net assets:
-20-
<PAGE>
-----------------------------------------------
Fund Fee Rate
-----------------------------------------------
All Cap Value Fund 0.84%
-----------------------------------------------
Behavioral Growth Fund 0.95%
-----------------------------------------------
Core Equity Fund 0.84%
-----------------------------------------------
Hidden Value Fund 0.95%
-----------------------------------------------
REIT Fund 1.05%
-----------------------------------------------
Small Cap Value Fund 1.05%
-----------------------------------------------
Special Small Cap Fund 0.65-1.65%*
-----------------------------------------------
*The advisory fee rate for the Special Small Cap Fund will vary depending on the
investment performance of the Fund. In particular, the applicable fee rate is
determined by adding to (or subtracting from) 1.15% one-fifth of the number of
basis points by which the total return of the Fund during the one-year period
ending at the end of a quarter exceeds (or falls short of) the sum of (1) the
total return of the Russell 2000 Index during the one-year period ending at the
end of such quarter plus (2) one hundred fifty (150) basis points. The advisory
fee rate will not exceed the annual rate of 1.65% nor be less than the annual
rate of 0.65%. The Russell 2000 Index is composed of the common stocks of the
2000 smallest of the 3000 largest publicly-traded U.S. companies, measured by
market capitalization. The Fund uses the Russell 2000 Index as the standard of
performance comparison because that index is well known to investors, and is
commonly regarded as representative of the performance of United States smaller
capitalization stocks. The sponsor of the Russell 2000 Index does not sponsor
and is not in any other way affiliated with the Fund.
Undiscovered Managers pays each Fund's sub-adviser a sub-advisory fee at the
following annual percentage rates of the specified levels of the Fund's average
daily net assets:
-21-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Fund Sub-adviser Fee Rate as % of Fund's Net
Assets
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
All Cap Value Fund E.R. Taylor 0.40% of the first $200 million
------------------------------------------
0.35% of the next $100 million
------------------------------------------
0.30% of assets in excess of $300
million
- ------------------------------------------------------------------------------------------------
Behavioral Growth Fund RJF Management 0.60% of the first $200 million
------------------------------------------
0.55% of the next $100 million
------------------------------------------
0.50% of assets in excess of $300
million
- ------------------------------------------------------------------------------------------------
Core Equity Fund Waite & 0.40% of the first $200 million
Associates ------------------------------------------
0.35% of the next $100 million
------------------------------------------
0.30% of assets in excess of $300
million
- ------------------------------------------------------------------------------------------------
Hidden Value Fund Kaplan 0.60% of the first $200 million
Associates ------------------------------------------
0.55% of the next $100 million
------------------------------------------
0.50% of assets in excess of $300
million
- ------------------------------------------------------------------------------------------------
REIT Fund Bay Isle 0.70% of the first $200 million
------------------------------------------
0.65% of the next $100 million
------------------------------------------
0.60% of assets in excess of $300
million
- ------------------------------------------------------------------------------------------------
Small Cap Value Fund Kaplan 0.70% of the first $200 million
Associates ------------------------------------------
0.65% of the next $100 million
------------------------------------------
0.60% of assets in excess of $300
million
- ------------------------------------------------------------------------------------------------
Special Small Cap Fund Kestrel 0.30% - of all assets
Management 1.30%*
- ------------------------------------------------------------------------------------------------
</TABLE>
*The sub-advisory fee rate for the Special Small Cap Fund will vary depending on
the investment performance of the Fund. In particular, the applicable fee rate
is determined by adding to (or subtracting from) 0.80% one-fifth of the number
of basis points by which the total return of the Fund during the one-year period
ending at the end of a quarter exceeds (or falls short of) the sum of (1) the
total return of the Russell 2000 Index during the one-year period ending at the
end of such quarter plus (2) one hundred fifty (150) basis points. The
sub-advisory fee rate
-22-
<PAGE>
will not exceed the annual rate of 1.30% nor be less than the annual rate of
0.30%. Until the end of the first calendar quarter ending on or after the 364th
day following the commencement of the Fund's operations, the annual fee rate
shall be 0.80%. For more information about the Russell 2000 Index, see the
footnote to the Funds' Advisory Fee Table above.
The Trust has applied for an exemptive order from the Securities and
Exchange Commission to permit Undiscovered Managers, subject to the approval of
the Trust's Board of Trustees and certain other conditions, to enter into
sub-advisory agreements with sub-advisers other than the current sub-adviser of
any Fund without obtaining shareholder approval. The exemptive request also
seeks to permit, without shareholder approval, the terms of an existing
sub-advisory agreement to be changed or the employment of an existing
sub-adviser to be continued after events that would otherwise cause an automatic
termination of a sub-advisory agreement, when such changes or continuation are
approved by the Trust's Board of Trustees. This Prospectus would be revised and
shareholders notified if the sub-adviser of any Fund is changed.
Other Fund Expenses
In addition to the investment advisory fee, each Fund pays all expenses
not expressly assumed by Undiscovered Managers, including taxes, brokerage
commissions, fees and expenses of registering or qualifying the Fund's shares
under federal and state securities laws, fees of the Fund's custodian, transfer
agent, independent accountants and legal counsel, expenses of shareholders' and
trustees' meetings, expenses of preparing, printing and mailing prospectuses to
existing shareholders and fees of trustees who are not directors, officers or
employees of Undiscovered Managers.
Undiscovered Managers has voluntarily agreed, for an indefinite period,
to pay the expenses of each Fund in excess of the following annual percentage
rates of the average daily net assets of the Institutional Class shares of each
Fund, subject to the obligation of the Fund to repay Undiscovered Managers such
expenses in future years, if any, when the Fund's expenses fall below the stated
percentage rate, but only to the extent that such repayment would not cause the
Fund's expenses in any such future year to exceed the stated percentage rate,
and provided that the Funds are not obligated to repay any such expenses more
than two years after the end of the fiscal year in which they were incurred:
0.99% for the All Cap Value Fund and the Core Equity Fund; 1.30% for the
Behavioral Growth Fund and the Hidden Value Fund; 1.4% for the REIT Fund and the
Small Cap Value Fund; and, for the Special Small Cap Fund, the sum of 0.90% plus
the advisory fee rate for the Fund for the year in question. Undiscovered
Managers may change or terminate these voluntary arrangements at any time, but
the Funds' Prospectus would be supplemented to describe the change.
PORTFOLIO TRANSACTIONS
In addition to selecting portfolio investments for the Fund(s) it
manages, each sub- adviser selects brokers or dealers to execute securities
purchases and sales for the Fund's account. Each sub-adviser selects only
brokers or dealers which it believes are financially responsible, will provide
efficient and effective services in executing, clearing and settling an order
and will charge commission rates which, when combined with the quality of the
-23-
<PAGE>
foregoing services, will produce best price and execution for the transaction.
This does not necessarily mean that the lowest available brokerage commission
will be paid. However, the commissions are believed to be competitive with
generally prevailing rates. Each sub-adviser will use its best efforts to obtain
information as to the general level of commission rates being charged by the
brokerage community from time to time and will evaluate the overall
reasonableness of brokerage commissions paid on transactions by reference to
such data. In making such evaluation, all factors affecting liquidity and
execution of the order, as well as the amount of the capital commitment by the
broker in connection with the order, are taken into account. The Funds will not
pay a broker a commission at a higher rate than otherwise available for the same
transaction in recognition of the value of research services provided by the
broker or in recognition of the value of any other services provided by the
broker which do not contribute to the best price and execution of the
transaction.
A sub-adviser's receipt of research services from brokers may sometimes
be a factor in its selection of a broker that it believes will provide best
price and execution for a transaction. These research services include not only
a wide variety of reports on such matters as economic and political
developments, industries, companies, securities, portfolio strategy, account
performance, daily prices of securities, stock and bond market conditions and
projections, asset allocation and portfolio structure, but also meetings with
management representatives of issuers and with other analysts and specialists.
Although it is in many cases not possible to assign an exact dollar value to
these services, they may, to the extent used, tend to reduce the sub-adviser's
expenses. Such services may be used by a sub-adviser in managing other client
accounts and in some cases may not be used with respect to the Funds. Receipt of
services or products other than research from brokers is not a factor in the
selection of brokers. Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., and subject to seeking best price and
execution, purchases of shares of the Trust by customers of broker-dealers may
be considered as a factor in the selection of broker-dealers to execute the
Trust's securities transactions.
A sub-adviser may cause a Fund to pay a broker-dealer that provides
brokerage and research services to the sub-adviser an amount of commission for
effecting a securities transaction for that Fund in excess of the amount another
broker-dealer would have charged for effecting that transaction. The sub-adviser
must determine in good faith that such greater commission is reasonable in
relation to the value of the brokerage and research services provided by the
executing broker-dealer viewed in terms of that particular transaction or the
sub-adviser's overall responsibilities to the Fund and its other clients. The
sub-advisers currently have no intention of executing transactions on such
basis. The sub-adviser's authority to cause a Fund to pay greater commissions is
also subject to such policies as the Trustees of the Trust may adopt from time
to time.
It is not possible to predict the Funds' portfolio turnover rates with
certainty. Each Fund's sub-adviser has indicated, however, that it does not
expect that the annual portfolio turnover rate of the Fund(s) it manages would
normally exceed the following rates: 50% for the All Cap Value, Core Equity and
REIT Funds; 75% for the Small Cap Value, Hidden Value and Special Small Cap
Funds; and 200% for the Behavioral Growth Fund. Any Fund's portfolio turnover
rate in any year could be significantly higher or lower than these estimates.
-24-
<PAGE>
Higher levels of portfolio turnover may result in higher transactions costs and
higher levels of realized capital gains.
HOW TO PURCHASE SHARES
An investor may make an initial purchase of shares of any Fund by
submitting a completed application form and payment to:
[ ]
[ ]
[ ]
Attn: Undiscovered Managers Funds
The minimum initial investment for the Institutional Class of each
Fund's shares is $250,000 in that Fund. A minimum investment of $10,000 applies
to the trustees of the Trust, investment advisory clients of the sub-advisers
(and their directors, officers and employees), and employees of Undiscovered
Managers and the parents, spouses and children of the foregoing. The minimum
investment may be waived by Undiscovered Managers in its sole discretion and
will be waived for any new shareholder in Undiscovered Managers Funds who
initially invests less than $250,000 but signs a letter of intent stating the
shareholder's intention to bring his or her balance to $250,000 within six
months after the initial purchase. For investors who purchase through a
financial intermediary and hold their shares through an omnibus account with
that financial intermediary, the minimum initial investment applies to the
omnibus account, and not to the investors individually. Undiscovered Managers
reserves the right to redeem the accounts at net asset value of shareholders
that have signed a letter of intent but fail to meet the minimum investment
within the specified time or to waive any minimum investment in its sole
discretion. Subsequent investments must be at least $____.
If the balance in a shareholder's account with a Fund is less than a
minimum amount set by the Trustees of the Trust from time to time (currently
___________ for all accounts), that Fund may close the account and send the
proceeds to the Shareholder. Shareholders who are affected by this policy will
be notified of the Fund's intention to close the account and will have 60 days
immediately following the notice to bring the account up to the minimum. The
minimum does not apply to automatic investment plans or accounts that have
fallen below the minimum solely because of fluctuations in a Fund's net asset
value per share.
Shares of any Fund may be purchased by (i) cash, (ii) exchanging
securities on deposit with a custodian acceptable to Undiscovered Managers or
(iii) combination of such securities and cash. Purchase of shares of the Fund in
exchange for securities is subject in each case to the determination by
Undiscovered Managers that the securities to be exchanged are acceptable for
purchase by the Fund. In all cases Undiscovered Managers reserves the right to
reject any securities that are proposed for exchange. Securities accepted by
Undiscovered Managers in exchange for Fund shares will be valued in the same
manner as the Fund's assets as described below as of the time of the Fund's next
determination of net asset value after such acceptance. All dividends and
subscription or other rights which are reflected in the market price of accepted
securities at the time of valuation become the property of the Fund and must be
-25-
<PAGE>
delivered to the Fund upon receipt by the investor from the issuer. Generally, a
gain or loss for federal income tax purposes would be realized upon the exchange
by an investor that is subject to federal income taxation, depending upon the
investor's basis in the securities tendered. An investor who wishes to purchase
shares by exchanging securities should obtain instructions by calling [ - - ].
Undiscovered Managers will not approve the acceptance of securities in
exchange for shares of any Fund unless (1) Undiscovered Managers and the
applicable sub-adviser in their discretion, believes the securities are
appropriate investments for the Fund; (2) the investor represents and agrees
that all securities offered to the Fund can be resold by the Fund without
restriction under the Securities Act of 1933, as amended (the "Securities Act")
or otherwise; and (3) the securities are eligible to be acquired under the
Fund's investment policies and restrictions. No investor owning 5% or more of
Fund's shares may purchase additional shares of that fund by exchange of
securities.
All purchases made by check should be in U.S. dollars and made payable
to Undiscovered Managers Funds or [transfer agent]. Third party checks will not
be accepted. When purchases are made by check or periodic account investment,
redemption will not be allowed until the investment being redeemed has been in
the account for 15 calendar days.
Upon acceptance of an investor's order, [ ] opens an account, applies
the payment to the purchase of full and fractional Fund shares and mails a
statement of the account confirming the transaction.
After an account has been established, an investor may send subsequent
investments at any time directly to [ ] at the above address. The remittance
must be accompanied by either the account identification slip detached from a
statement of account or a note containing sufficient information to identify the
account, i.e., the Fund name and the investor's account number or name and
social security number.
Subsequent investments can also be made by federal funds wire.
Investors should instruct their banks to wire federal funds to [ ], ABA #[ ].
The text of the wire should read as follows:
$ amount, [ ] ATTN Mutual Funds,
Credit Fund (Fund Name and Institutional Class), DDA #[ ],
Shareholder Name, Shareholder Account Number.
A bank may charge a fee for transmitting funds by wire.
Each Fund and the Distributor reserve the right to reject any purchase
order, including orders in connection with exchanges, for any reason which the
Fund or the Distributor in its sole discretion deems appropriate. Although the
Funds do not presently anticipate that they will do so, each Fund reserves the
right to suspend or change the terms of the offering of its shares.
-26-
<PAGE>
The price an investor pays will be the per share net asset value next
calculated after a proper investment order is received by the Trust's transfer
or other agent or subagent. Shares of each Fund are sold with no sales charge.
The net asset value of each Fund's shares is calculated once daily as of the
close of regular trading on the New York Stock Exchange on each day the Exchange
is open for trading, by dividing the Fund's net assets by the number of shares
outstanding. Portfolio securities are valued at their market value as more fully
described in the Statement of Additional Information.
The Distributor may accept telephone orders from broker-dealers who
have been previously approved by the Distributor. It is the responsibility of
such broker-dealers to promptly forward purchase or redemption orders to the
Distributor. Although there is no sales charge imposed by the Fund or the
Distributor, broker-dealers may charge the investor a transaction-based fee or
other fee for their services at either the time of purchase or the time of
redemption. Such charges may vary among broker-dealers but in all cases will be
retained by the broker-dealers and not remitted to the Fund.
SHAREHOLDER SERVICES
The Funds offer the following shareholder services, which are more
fully described in the Statement of Additional Information. Explanations and
forms are available from [ ]. Telephone redemption and exchange privileges will
be established automatically when an investor opens an account unless an
investor elects on the application to decline the privileges. Other privileges
must be specifically elected. A signature guarantee will be required to
establish a privilege after an account is opened.
Free Exchange Privilege. Institutional Class shares of any Fund may be
exchanged for shares of the Institutional Class of any other Fund. Exchanges may
be made by written instructions or by telephone, unless an investor elected on
the application to decline telephone exchange privileges. The exchange privilege
should not be viewed as a means for taking advantage of short-term swings in the
market, and the Funds reserve the right to terminate or limit the privilege of
any shareholder who makes more than four exchanges in any calendar year. The
Funds may terminate or change the terms of the exchange privilege at any time,
upon 60 days' notice to shareholders.
Retirement Plans. The Funds' Institutional Class shares may be
purchased by all types of tax-deferred retirement plans. The Distributor makes
available retirement plan forms for IRAs.
Systematic Withdrawal Plan. If the value of an account is at least
$25,000, an investor may have periodic cash withdrawals automatically paid to
the investor or any person designated by the investor.
Automatic Investment Plan. Voluntary monthly investments of at least
$1,000 may be made automatically by pre-authorized withdrawals from an
investor's checking account.
-27-
<PAGE>
HOW TO REDEEM SHARES
An investor can redeem shares by sending a written request to [ ].
As described below, an investor may also redeem shares by calling [ ]
at [ - - ]. Proceeds resulting from a written or telephone redemption
request can be wired to an investor's bank account or sent by check in the name
of the registered owners to their record address.
The written request must include the name of the Fund, the account
number, the exact name(s) in which the shares are registered, and the number of
shares or the dollar amount to be redeemed. All owners of the shares must sign
the request in the exact names in which the shares are registered (this appears
on an investor's confirmation statement) and should indicate any special
capacity in which they are signing (such as trustee or custodian or on behalf of
a partnership, corporation or other entity). Investors requesting that
redemption proceeds be wired to their bank accounts must provide specific wire
instructions.
If (1) an investor is redeeming shares worth more than $50,000, (2) an
investor is requesting that the proceeds check be made out to someone other than
the registered owners or be sent to an address other than the record address,
(3) the account registration has changed within the last 30 days or (4) an
investor is instructing us to wire the proceeds to a bank account not designated
on the application, the investor must have his or her signature guaranteed by an
eligible guarantor. Eligible guarantors include commercial banks, trust
companies, savings associations, credit unions and brokerage firms that are
members of domestic securities exchanges. Before submitting the redemption
request, an investor should verify with the guarantor institution that it is an
eligible guarantor. Signature guarantees by notaries public are not acceptable.
If an investor has requested certificates for the investment, an
investor must enclose the certificates and a properly completed redemption form
or stock power. The Funds recommend that certificates be sent by registered
mail.
When an investor telephones a redemption request, the proceeds are
wired to the bank account previously chosen by the investor. A wire fee
(currently $5) will be deducted from the proceeds. A telephonic redemption
request must be received by [ ] prior to the close of regular trading on the New
York Stock Exchange. If an investor telephones a request to [ ] after the
Exchange closes or on a day when the Exchange is not open for business, [ ]
cannot accept the request and a new one will be necessary.
If an investor decides to change the bank account to which proceeds are
to be wired, an investor must send in this change on the Service Options Form
with a signature guarantee. Telephonic redemptions may only be made if an
investor's bank is a member of the Federal Reserve System or has a correspondent
bank that is a member of the System. Unless an investor indicates otherwise on
the account application, [ ] will be authorized to act upon redemption and
exchange instructions received by telephone from the investor or any person
claiming to act as the investor's representative who can provide [ ] with the
investor's account registration and address as it appears on the records of [ ].
[ ]
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<PAGE>
will employ these or other reasonable procedures to confirm that instructions
communicated by telephone are genuine; the Fund, [ ], the Distributor,
Undiscovered Managers and the sub-advisers will not be liable for any losses due
to unauthorized or fraudulent instructions if these or other reasonably
procedures are followed. For information, consult [ ]. In times of heavy market
activity, an investor who encounters difficulty in placing a redemption or
exchange order by telephone may wish to place the order by mail as described
above.
The redemption price will be the net asset value per share next
determined after the redemption request and any necessary special documentation
are received by [ ] in proper form.
Proceeds resulting from a written redemption request will normally be
mailed to an investor within seven days after receipt of the investor's request
in good order. Telephonic redemption proceeds will normally be wired to an
investor's bank on the first business day following receipt of a proper
redemption request. If an investor purchased shares by check and the check was
deposited less than fifteen days prior to the redemption request, the Fund may
withhold redemption proceeds until the check has cleared.
The Fund may suspend the right of redemption and may postpone payment
for more than seven days when the New York Stock Exchange is closed for other
than weekends or holidays, or if permitted by the rules of the SEC when trading
on the Exchange is restricted or during an emergency which makes it
impracticable for the Fund to dispose of its securities or to determine fairly
the value of its net assets, or during any other period permitted by the SEC for
the protection of investors.
CALCULATION OF PERFORMANCE INFORMATION
The Funds may include in advertising their "total return" for the one-,
five- and ten-year periods (or for the life of a Fund, if shorter) through the
most recent calendar quarter. These total returns represent the average annual
compounded rate of return on a hypothetical investment of $1,000 in a Fund.
Total return may also be presented for other periods and on a cumulative (in
addition to average annual) basis.
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES
The Funds declare and pay their net investment income to shareholders
as dividends annually. Each Fund also distributes all of its net capital gains
realized from the sale of portfolio securities. Any capital gain distributions
are normally made annually, but may, to the extent permitted by law, be made
more frequently as deemed advisable by the Trustees of the Trust. The Trustees
may change the frequency with which the Funds declare or pay dividends.
Dividends and capital gain distributions will automatically be
reinvested in additional shares of the same Fund on the record date unless an
investor has elected to receive cash.
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<PAGE>
Each Fund intends to qualify as a regulated investment company under
the Code. As a regulated investment company, and provided that the Fund
distributes substantially all its net investment income to its shareholders, the
Fund itself will not pay any federal income tax on its distributed income and
gains.
Income dividends and short term capital gain distributions are taxable
as ordinary income whether distributed in cash or additional shares. Long-term
capital gain distributions from all Funds are taxable as long-term capital gains
whether distributed in cash or additional shares and regardless of how long an
investor has owned shares of a Fund. Pursuant to the Taxpayer Relief Act of
1997, long-term capital gains generally are subject to a maximum tax rate of 28%
or 20% depending upon the holding period in the portfolio investment generating
the distributed gains.
Each Fund is required to withhold 31% of any redemption proceeds
(including the value or shares exchanged) and all income dividends and capital
gain distributions it pays to the investor (1) if the investor does not provide
a correct, certified taxpayer identification number, (2) if the Fund is notified
that the investor has underreported income in the past, or (3) if an investor
fails to certify to the Fund that the investor is not subject to such
withholding.
Certain designated dividends from the Funds are expected to be eligible
for the dividends-received deduction for corporate shareholders (subject to a
holding period requirement). However, any distributions received by a Fund from
REITs will not qualify for the dividends-received deduction. A Fund's investment
in REIT securities may require such Fund to accrue and distribute income not yet
received. In order to generate sufficient cash to make the requisite
distributions, the Fund may be required to sell securities in its portfolio that
it otherwise would have continued to hold (including when it is not advantageous
to do so). A Fund's investment in REIT securities also may result in the Fund's
receipt of cash in excess of the REIT's earnings; if the Fund distributes such
amounts, such distribution could constitute a return of capital to Fund
shareholders for federal income tax purposes.
[ ] will send each investor and the Internal Revenue Service an annual
statement detailing federal tax information, including information about
dividends and distributions paid to the investor during the preceding year. Be
sure to keep this statement as a permanent record. A fee may be charged for any
duplicate information that an investor requests.
NOTE: The foregoing summarizes certain tax consequences of investing
in the Funds. Before investing, an investor should consult his
or her own tax adviser for more information concerning the
federal, state and local tax consequences of investing in,
redeeming or exchanging Fund shares.
THE TRUST
Each Fund is a series of the Trust. The Trust was organized as a
Massachusetts business trust on September 29, 1997. The Trust is authorized to
issue an unlimited number of full and fractional shares of beneficial interest
in multiple series. Currently each Fund has only one class of shares. Each share
in a Fund has one vote, with fractional shares voting proportionally. Shares in
each Fund vote separately from shares of other Funds, except as otherwise
required by law. Shares are freely transferable, are entitled to dividends as
declared by the Trustees of the Trust, and, if a Fund were liquidated, would
receive the net assets of such Fund. Each Fund may suspend the sale of shares at
any time and may refuse any order to purchase shares. The Trust does not
generally hold regular shareholder meetings and will
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<PAGE>
do so only when required by law. Shareholders may remove the trustees of the
Trust from office by votes cast at a shareholder meeting or by written consent.
-31-
<PAGE>
INVESTMENT ADVISER
Undiscovered Managers, LLC
Plaza of the Americas
700 North Pearl Street, 17th Floor
Dallas, Texas 75201
DISTRIBUTOR
[ ]
TRANSFER AGENT
[ ]
CUSTODIAN
[ ]
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, Massachusetts 02110
INDEPENDENT ACCOUNTANTS
[ ]
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<PAGE>
UNDISCOVERED MANAGERS FUNDS
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
December __, 1997
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Statement of Additional Information shall not constitute an
offer to sell or the solicitation of an offer to buy nor shall there be any sale
of these securities in any state in which such offer, solicitation or sale would
be unlawful prior to registration or qualification under the securities laws of
such state.
This Statement of Additional Information is not a prospectus. This
Statement of Additional Information relates to the Undiscovered Managers Funds
Prospectus dated December __, 1997, and should be read in conjunction therewith.
A copy of the Prospectus may be obtained from Undiscovered Managers Funds, Plaza
of the Americas, 700 North Pearl Street, 17th Floor, Dallas, Texas 75201.
<PAGE>
- -----------------------------------------------------------------------------
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS............................1
MANAGEMENT OF THE TRUST.....................................................3
OWNERSHIP OF SHARES OF THE FUNDS............................................4
INVESTMENT ADVISORY AND OTHER SERVICES......................................5
PORTFOLIO TRANSACTIONS AND BROKERAGE........................................7
DESCRIPTION OF THE TRUST....................................................7
HOW TO BUY SHARES..........................................................10
NET ASSET VALUE............................................................11
SHAREHOLDER SERVICES.......................................................11
REDEMPTIONS................................................................13
INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS................14
CALCULATION OF TOTAL RETURN................................................17
PERFORMANCE COMPARISONS....................................................18
APPENDIX A - PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION...............A-1
APPENDIX B - ADVERTISING AND PROMOTIONAL LITERATURE.......................B-1
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
- --------------------------------------------------------------------------------
The investment objective and policies of each series (each a "Fund" and
collectively, the "Funds") of Undiscovered Managers Funds (the "Trust") are
summarized in the Prospectus under "The Funds" and "More Information About the
Funds' Investments and Risk Considerations." The investment policies of each
Fund set forth in the Prospectus and in this Statement of Additional Information
may be changed by the Funds' adviser, subject to review and approval by the
Trust's Board of Trustees, without shareholder approval except that any Fund
policy explicitly identified as "fundamental" may not be changed without the
approval of the holders of a majority of the outstanding shares of the relevant
Fund (which in the Prospectus and this Statement of Additional Information means
the lesser of (i) 67% of the shares of that Fund represented at a meeting at
which 50% of the outstanding shares are represented or (ii) more than 50% of the
outstanding shares).
The following investment restrictions are fundamental policies of each
Fund.
Each Fund will not:
1. Borrow money in excess of 33 1/3% of the value of its total assets (not
including the amount borrowed) at the time the borrowing is made.
2. Underwrite securities issued by other persons except to the extent that, in
connection with the disposition of its portfolio investments, it may be deemed
to be an underwriter under certain federal securities laws.
3. Purchase or sell real estate, although it may purchase securities of issuers
which deal in real estate, securities which are secured by interests in real
estate, and securities which represent interests in real estate, and it may
acquire and dispose of real estate or interests in real estate acquired through
the exercise of its rights as a holder of debt obligations secured by real
estate or interests therein.
4. Purchase or sell commodities or commodity contracts, except that the Fund may
purchase and sell financial futures contracts and options, and may enter into
swap agreements, foreign exchange contracts and other financial transactions not
involving physical commodities.
5. Make loans, except by purchase of debt obligations in which the Fund may
invest consistent with its investment policies, by entering into repurchase
agreements, or by lending its portfolio securities.
<PAGE>
6. Purchase securities (other than securities of the U.S. government, its
agencies or instrumentalities) if, as a result of such purchase, more than 25%
of the Fund's total assets would be invested in any one industry; except that
the REIT Fund will invest more than 25% of its total assets in securities issued
by real estate investment trusts (as defined in the Internal Revenue Code).
7. Issue any class of securities which is senior to the Fund's shares of
beneficial interest, except for permitted borrowings.
Although the Funds are permitted to borrow money to a limited extent,
no Fund currently intends to do so.
In addition to the foregoing fundamental investment restrictions, it is
contrary to each Fund's present policy, which may be changed without shareholder
approval, to:
Invest in (a) securities which at the time of such investment are not
readily marketable, (b) securities restricted as to resale (excluding securities
determined by the Trustees of the Trust (or the person designated by the
Trustees to make such determinations) to be readily marketable), and (c)
repurchase agreements maturing in more than seven days, if, as a result, more
than 15% of the Fund's net assets (taken at current value) would be invested in
securities described in (a), (b) and (c) above.
All percentage limitations on investments will apply at the time of the
making of an investment (except for the non-fundamental restriction set forth in
the immediately preceding paragraph) and shall not be considered violated unless
an excess or deficiency occurs or exists immediately after and as a result of
such investment.
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<PAGE>
- -------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
- -------------------------------------------------------------------------------
The Trustees and officers of the Trust and their principal occupations
during the past five years are as follows:
Name, Address, Position(s) held with Principal Occupation(s)
and Age Registrant During Past Five Years
------- ---------- ----------------------
Mark P. Hurley* Trustee of the Trust.
(39) President, Treasurer and
Secretary of the Trust.
* Trustees who are "interested persons" (as defined in the Investment Company
Act of 1940) of the Trust or of the Trust's investment adviser, Undiscovered
Managers, LLC.
The address of each Trustee and officer of the Trust affiliated with
Undiscovered Managers, LLC ("Undiscovered Managers") is Plaza of the Americas,
700 North Pearl Street, 17th Floor, Dallas, Texas 75201. The Trust pays no
compensation to its officers or to the Trustees listed above who are officers or
employees of Undiscovered Managers. Each Trustee who is not an officer or
employee of Undiscovered Managers is compensated at the rate of [ ] per annum.
-3-
<PAGE>
The following table shows the fees estimated to be paid to each Trustee for
fiscal 1998:
Compensation Table
for the year ended December 31, 1998
<TABLE>
============================================================================================
<S> <C> <C> <C> <C>
Total
Pension or Estimated Compensation
Estimated Retirement Benefits Annual From the Trust and
Name of Person, Compensation Accrued as Part of Benefits Upon Fund Complex
Position from the Trust* Fund Expenses Retirement Paid to Trustee**
=============================================================================================
</TABLE>
* The estimated compensation information is furnished for the calendar year
1998.
** No Trustee receives any compensation from any mutual fund affiliated with
Undiscovered Managers, LLC, other than the Trust.
- -------------------------------------------------------------------------------
OWNERSHIP OF SHARES OF THE FUNDS
- -------------------------------------------------------------------------------
As of December __, 1997, Undiscovered Managers owned __%, __%, __%, ___%,
___%, ___%, and ___% of Undiscovered Managers All Cap Value Fund (the "All Cap
Value Fund"), Undiscovered Managers Behavioral Growth Fund (the "Behavioral
Growth Fund"), Undiscovered Managers Core Equity Fund (the "Core Equity Fund"),
Undiscovered Managers Hidden Value Fund (the "Hidden Value Fund"), Undiscovered
Managers REIT Fund (the "REIT Fund"), Undiscovered Managers Small Cap Value Fund
(the "Small Cap Value Fund"), and Undiscovered Managers Special Small Cap Fund
(the "Special Small Cap Fund"), and therefore may be regarded to control each
Fund. Undiscovered Managers is a limited liability company organized under the
laws of Delaware with two members, Mark P. Hurley and AMRESCO, INC., a publicly
traded corporation, each owning more than 25% of the voting securities of
Undiscovered Managers and therefore regarded to control Undiscovered Managers
for purposes of the Investment Company Act of 1940 (the "1940 Act").
-4-
<PAGE>
As of December __, 1997 the officers and Trustees of the Trust owned
beneficially shares of each Fund as follows: _______ shares of the All Cap Value
Fund, ______ shares of the Behavioral Growth Fund, ______ shares of the Core
Equity Fund, ______ shares of the Hidden Value Fund, ______ shares of the REIT
Fund, ______ shares of the Small Cap Value Fund, and ______ shares of the
Special Small Cap Fund.
- -------------------------------------------------------------------------------
INVESTMENT ADVISORY AND OTHER SERVICES
- -------------------------------------------------------------------------------
As described in the Prospectus, Undiscovered Managers is the investment
adviser of each Fund and has responsibility for the management of the Funds'
affairs, under the supervision of the Trust's Board of Trustees. Each Fund's
investment portfolio is managed on a day-to-day basis by that Fund's
sub-adviser, under the general oversight of Undiscovered Managers and the Board
of Trustees. See "Management of the Funds" in the Prospectus.
The Trust pays the compensation of its Trustees who are not officers or
employees of Undiscovered Managers; registration, filing and other fees in
connection with requirements of regulatory authorities; all charges and expenses
of its custodian and transfer agent; the charges and expenses of its independent
accountants; all brokerage commissions and transfer taxes in connection with
portfolio transactions; all taxes and fees payable to governmental agencies; the
cost of any certificates representing shares of the Funds; the expenses of
meetings of the shareholders and trustees of the Trust; the charges and expenses
of the Trust's legal counsel; interest on any borrowings by the Funds; the cost
of services, including services of counsel, required in connection with the
preparation of, and the cost of printing, the Trust's registration statements
and prospectuses, including amendments and revisions thereto, annual, semiannual
and other periodic reports of the Trust, and notices and proxy solicitation
material furnished to shareholders or regulatory authorities, to the extent that
any such materials relate to the Trust or its shareholders; and the Trust's
expenses of bookkeeping, accounting, auditing and financial reporting, including
related clerical expenses.
As described in the Prospectus, Undiscovered Managers has agreed to
certain additional, voluntary arrangements to limit each Fund's expenses. These
arrangements may be modified or terminated by Undiscovered Managers at any time.
Each Fund's advisory agreement and sub-advisory agreement provides that
it will continue in effect for two years from its date of execution and
thereafter from year to year if its continuance is approved at least annually
(i) by the Board of Trustees of the Trust or by vote of a majority of the
outstanding voting securities of the relevant Fund and (ii) by vote of a
majority of the Trustees who are not "interested persons" of the Trust,
Undiscovered Managers or the relevant sub-adviser, as that term is defined in
the 1940 Act, cast in person at a meeting called for the purpose of voting on
such approval. Any amendment to an advisory
-5-
<PAGE>
agreement or sub-advisory agreement must be approved by vote of a majority of
the outstanding voting securities of the relevant Fund and by vote of a majority
of the Trustees who are not such interested persons, cast in person at a meeting
called for the purpose of voting on such approval.
The advisory agreement may be terminated without penalty by vote of the
Board of Trustees of the Trust or by vote of a majority of the outstanding
securities of the relevant Fund, upon sixty days' written notice, and by
Undiscovered Managers upon ninety days' written notice to the Trust. The
advisory agreement shall automatically terminate in the event of its assignment.
The advisory agreement provides that Undiscovered Managers owns all rights to
and control of the name "Undiscovered Managers." The advisory agreement will
automatically terminate if the Trust or the Fund shall at any time be required
by Undiscovered Managers to eliminate all reference to the words "Undiscovered
Managers" in the name of the Trust or the Fund, unless the continuance of the
agreement after such change of name is approved by a majority of the outstanding
voting securities of the relevant Fund and by a majority of the Trustees who are
not interested persons of the Trust or Undiscovered Managers.
Each sub-advisory agreement may be terminated without penalty by
Undiscovered Managers, by vote of the Board of Trustees or by vote of a majority
of the outstanding voting securities of the relevant Fund, upon sixty days'
written notice, and each terminates automatically in the event of its assignment
and automatically terminates upon termination of the related advisory agreement.
Certain of the sub-advisory agreements may be terminated by the relevant
sub-adviser in certain circumstances.
Each advisory and sub-advisory agreement provides that Undiscovered
Managers or the applicable sub-adviser shall not be subject to any liability in
connection with the performance of its services thereunder in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties.
The Trust has applied for an exemptive order from the Securities and
Exchange Commission to permit Undiscovered Managers, subject to the approval of
the Trust's Board of Trustees and certain other conditions, to enter into
sub-advisory agreements with sub-advisers other than the current sub-adviser of
any Fund without obtaining shareholder approval. See "Management of the Funds"
in the Prospectus.
Pursuant to an Administrative Services Agreement, Undiscovered Managers
has agreed to provide administrative services for each Fund. Undiscovered
Managers has entered into an agreement with [ ] for the provision of certain
administrative services to the Funds at Undiscovered Managers' expense. See
"Management of the Funds" in the Prospectus.
Custodial Arrangements. [ ] (the "Custodian") is the Trust's custodian.
The Custodian holds in safekeeping certificated securities and cash belonging to
the Funds and, in such capacity, is the registered owner of securities held in
book entry form belonging
-6-
<PAGE>
to the Funds. Upon instruction, the Custodian receives and delivers cash and
securities of the Funds in connection with Fund transactions and collects all
dividends and other distributions made with respect to Fund portfolio
securities. The Custodian also maintains certain accounts and records of the
Funds.
Independent Accountants. The Fund's independent accountants are [ ].
[ ] conducts an annual audit of the Trust's financial statements, assists in
the preparation of the Funds' federal and state income tax returns and consults
with the Funds as to matters of accounting and federal and state income
taxation.
- -------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS AND BROKERAGE
- -------------------------------------------------------------------------------
In placing orders for the purchase and sale of portfolio securities for
each Fund, each sub-adviser seeks the best price and execution. Each sub-adviser
has the ability to pay brokers or dealers commissions in excess of commissions
another broker or dealer would have charged for effecting such transaction on
the basis of receiving brokerage and research products and/or services. The
sub-advisers do not currently intend to effect transactions on such basis.
Transactions in unlisted securities are carried out through broker-dealers who
make the primary market for such securities unless, in the judgment of each
sub-adviser, a more favorable price can be obtained by carrying out such
transactions through other brokers or dealers. See "Portfolio Transactions" in
the Prospectus.
- -------------------------------------------------------------------------------
DESCRIPTION OF THE TRUST
- -------------------------------------------------------------------------------
The Trust, registered with the Securities and Exchange Commission as an
open-end management investment company, is organized as a Massachusetts business
trust under the laws of Massachusetts by an Agreement and Declaration of Trust
(the "Declaration of Trust") dated September 29, 1997.
The Declaration of Trust currently permits the Trustees to issue an
unlimited number of full and fractional shares of each series. Each share of
each Fund represents an equal proportionate interest in such Fund with each
other share of that Fund and is entitled to a proportionate interest in the
dividends and distributions from that Fund. The shares of each Fund do not have
any preemptive rights. Upon termination of any Fund, whether pursuant to
liquidation of the Trust or otherwise, shareholders of that Fund are entitled to
share pro rata in the net assets of that Fund available for distribution to
shareholders. The Declaration of Trust also permits the Trustees to charge
shareholders directly for custodial, transfer agency and servicing expenses.
-7-
<PAGE>
The assets received by each Fund for the issue or sale of its shares
and all income, earnings, profits, losses and proceeds therefrom, subject only
to the rights of creditors, are allocated to, and constitute the underlying
assets of, that Fund. The underlying assets are segregated and are charged with
the expenses with respect to that Fund and with a share of the general expenses
of the Trust. Any general expenses of the Trust that are not readily
identifiable as belonging to a particular Fund are allocated by or under the
direction of the Trustees in such manner as the Trustees determine to be fair
and equitable. While the expenses of the Trust are allocated to the separate
books of account of each Fund, certain expenses may be legally chargeable
against the assets of all Funds.
The Declaration of Trust also permits the Trustees, without shareholder
approval, to subdivide any series of shares or Fund into various sub-series of
shares with such dividend preferences and other rights as the Trustees may
designate. While the Trustees have no current intention to exercise this power,
it is intended to allow them to provide for an equitable allocation of the
impact of any future regulatory requirements which might affect various classes
of shareholders differently, or to permit shares of a series to be distributed
through more than one distribution channel, with the costs of the particular
means of distribution (or costs of related services) to be borne by the
shareholders who purchase through that means of distribution. The Trustees may
also, without shareholder approval, establish one or more additional separate
portfolios for investments in the Trust. Shareholders' investments in such an
additional portfolio would be evidenced by a separate series of shares (i.e., a
new "Fund").
The Declaration of Trust provides for the perpetual existence of the
Trust. The Trust or any Fund, however, may be terminated at any time by vote of
at least two-thirds of the outstanding shares of each Fund affected. The
Declaration of Trust further provides that the Trustees may also terminate the
Trust or any Fund upon written notice to the shareholders. As a matter of
policy, however, the Trustees will not terminate the Trust or any Fund without
submitting the matter to a vote of the shareholders of the Trust or the relevant
Fund.
Voting Rights
As summarized in the Prospectus, shareholders are entitled to one vote
for each full share held (with fractional votes for each fractional share held)
and may vote (to the extent provided in the Declaration of Trust) on the
election of Trustees and the termination of the Trust and on other matters
submitted to the vote of shareholders.
The Declaration of Trust provides that on any matter submitted to a
vote of all Trust shareholders, all Trust shares entitled to vote shall be voted
together irrespective of series or sub-series unless the rights of a particular
series or sub-series would be adversely affected by the vote, in which case a
separate vote of that series or sub-series shall also be required to decide the
question. Also, a separate vote shall be held whenever required by the 1940 Act
or any rule thereunder. Rule 18f-2 under the 1940 Act provides in effect that a
class shall be deemed to be affected by a matter unless it is clear that the
interests of each class in the matter
-8-
<PAGE>
are substantially identical or that the matter does not affect any interest of
such class. On matters affecting an individual series, only shareholders of that
series are entitled to vote. Consistent with the current position of the SEC,
shareholders of all series vote together, irrespective of series, on the
election of Trustees and the selection of the Trust's independent accountants,
but shareholders of each series vote separately on other matters requiring
shareholder approval, such as certain changes in investment policies of that
series or the approval of the investment advisory agreement relating to that
series.
There will normally be no meetings of shareholders for the purpose of
electing Trustees except that, in accordance with the 1940 Act, (i) the Trust
will hold a shareholders' meeting for the election of Trustees at such time as
less than a majority of the Trustees holding office have been elected by
shareholders, and (ii) if, as a result of a vacancy on the Board of Trustees,
less than two-thirds of the Trustees holding office have been elected by the
shareholders, that vacancy may be filled only by a vote of the shareholders. In
addition, Trustees may be removed from office by a written consent signed by the
holders of two-thirds of the outstanding shares and filed with the Trust's
custodian or by a vote of the holders of two-thirds of the outstanding shares at
a meeting duly called for that purpose, which meeting shall be held upon the
written request of the holders of not less than 10% of the outstanding shares.
Upon written request by ten holders of shares having an aggregate net
asset value constituting 1% of the outstanding shares stating that such
shareholders wish to communicate with the other shareholders for the purpose of
obtaining the signatures necessary to demand a meeting to consider removal of a
Trustee, the Trust has undertaken to provide a list of shareholders or to
disseminate appropriate materials (at the expense of the requesting
shareholders).
Except as set forth above, the Trustees shall continue to hold office
and may appoint successor Trustees. Voting rights are not cumulative.
No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the outstanding shares of the Trust, except
(i) to change the Trust's name or to cure technical problems in the Declaration
of Trust and (ii) to establish, change or eliminate the par value of any shares
(currently all shares have no par value).
Shareholder and Trustee Liability
Under Massachusetts law shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund of
which they are shareholders. However, the Declaration of Trust disclaims
shareholder liability for acts or obligations of each Fund and requires that
notice of such disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Trust or the Trustees. The Declaration of Trust
provides for indemnification out of Fund property for all loss and expense of
any shareholder held personally liable for the obligations of the Fund. Thus,
the risk of a shareholder incurring
-9-
<PAGE>
financial loss on account of shareholder liability is considered remote since it
is limited to circumstances in which the disclaimer is inoperative and the Fund
itself would be unable to meet its obligations.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law. However, nothing in
the Declaration of Trust protects a Trustee against any liability to which the
Trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office. The By-Laws of the Trust provide for indemnification by the Trust of
the Trustees and officers of the Trust except with respect to any matter as to
which any such person did not act in good faith in the reasonable belief that
such action was in the best interests of the Trust. No officer or Trustee may be
indemnified against any liability to the Trust or the Trust's shareholders to
which such 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 his or her office.
- -------------------------------------------------------------------------------
HOW TO BUY SHARES
- -------------------------------------------------------------------------------
Subject to minimum initial investment requirements and certain other
conditions, an investor may make an initial purchase of shares of any Fund by
submitting a completed application form and payment to:
[ ]
[ ]
[ ]
Attention: Undiscovered Managers Funds
The procedures for purchasing shares of the Funds are summarized in "How to
Purchase Shares" in the Prospectus.
-10-
<PAGE>
- -------------------------------------------------------------------------------
NET ASSET VALUE
- -------------------------------------------------------------------------------
The net asset value of the shares of each Fund is determined by
dividing that Fund's total net assets (the excess of its assets over its
liabilities) by the total number of shares of the Fund outstanding and rounding
to the nearest cent. Such determination is made as of the close of regular
trading on the New York Stock Exchange on each day on which that Exchange is
open for unrestricted trading, and no less frequently than once daily on each
day during which there is sufficient trading in a Fund's portfolio securities
that the value of that Fund's shares might be materially affected. During the 12
months following the date of this Statement of Additional Information, the New
York Stock Exchange is expected to be closed on the following weekdays: New
Year's Day, Presidents' Day, Martin Luther King, Jr. Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Equity
securities listed on an established securities exchange or on the Nasdaq
National Market System are normally valued at their last sale price on the
exchange where primarily traded or, if there is no reported sale during the day,
and in the case of over-the-counter securities not so listed, at the last bid
price. Other securities for which current market quotations are not readily
available (including restricted securities, if any) and all other assets are
taken at fair value as determined in good faith by the Board of Trustees,
although the actual calculations may be made by persons acting pursuant to the
direction of the Board.
- -------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- -------------------------------------------------------------------------------
Open Accounts
A shareholder's investment in any Fund is automatically credited to an
open account maintained for the shareholder by [ ]. Certificates representing
shares are issued only upon written request to [ ] but are not issued for
fractional shares. Following each transaction in the account, a shareholder will
receive an account statement disclosing the current balance of shares owned and
the details of recent transactions in the account. After the close of each
fiscal year [ ] will send each shareholder a statement providing federal tax
information on dividends and distributions paid to the shareholder during the
year. This should be retained as a permanent record. Shareholders will be
charged a fee for duplicate information.
The open account system permits the purchase of full and fractional
shares and, by making the issuance and delivery of certificates representing
shares unnecessary, eliminates the problems of handling and safekeeping
certificates, and the cost and inconvenience of replacing lost, stolen,
mutilated or destroyed certificates.
-11-
<PAGE>
The costs of maintaining the open account system are borne by the
Trust, and no direct charges are made to shareholders. Although the Trust has no
present intention of making such direct charges to shareholders, it reserves the
right to do so. Shareholders will receive prior notice before any such charges
are made.
Systematic Withdrawal Plan
A Systematic Withdrawal Plan, referred to in the Prospectus under
"Shareholder Services--Systematic Withdrawal Plan," provides for monthly,
quarterly, semiannual or annual withdrawal payments of $1000 or more from the
account of a shareholder provided that the account has a value of at least
$25,000 at the time the plan is established.
Payments will be made either to the shareholder or to any other person
designated by the shareholder. If payments are issued to an individual other
than the registered owner(s), a signature guarantee will be required on the Plan
application. All shares in an account that is subject to a Systematic Withdrawal
Plan must be held in an open account rather than in certificated form. Income
dividends and capital gain distributions will be reinvested at the net asset
value determined as of the close of regular trading on the New York Stock
Exchange on the record date for the dividend or distribution.
Since withdrawal payments represent proceeds from liquidation of
shares, the shareholder should recognize that withdrawals may reduce and
possibly exhaust the value of the account, particularly in the event of a
decline in net asset value. Accordingly, the shareholder should consider whether
a Systematic Withdrawal Plan and the specified amounts to be withdrawn are
appropriate in the circumstances. The Trust makes no recommendations or
representations in this regard. It may be appropriate for the shareholder to
consult a tax adviser before establishing such a plan. See "Redemptions" and
"Income Dividends, Capital Gain Distributions and Tax Status" below for certain
information as to federal income taxes.
Exchange Privilege
Shareholders may redeem their shares of any Fund and have the proceeds
applied on the same day to purchase shares of any other Fund. The value of
shares exchanged must be at least $1,000 and all exchanges are subject to the
minimum investment requirement of the Fund into which the exchange is being
made. This option is summarized in the Prospectus under "Shareholder
Services--Free Exchange Privilege."
Exchanges may be effected by (1) making a telephone request by calling
[ ], provided that a special authorization form is on file with [ ], or (2)
sending a written exchange request to [ ] accompanied by an account application
for the appropriate Fund. The Trust reserves the right to modify this exchange
privilege without prior notice.
-12-
<PAGE>
An exchange constitutes a sale of the shares for federal income tax
purposes on which the investor may realize a capital gain or loss.
IRAs
Under "Shareholder Services--Retirement Plans" the Prospectus refers to
IRAs established under a prototype plan made available by the Distributor. These
plans may be funded with shares of any Fund. All income dividends and capital
gain distributions of plan participants must be reinvested. Plan documents and
further information can be obtained from the Distributor.
Check with your financial or tax adviser as to the suitability of Fund
shares for your retirement plan.
- -------------------------------------------------------------------------------
REDEMPTIONS
- -------------------------------------------------------------------------------
The procedures for redemption of Fund shares are summarized in the
Prospectus under "How to Redeem Shares."
Except as noted below, signatures on redemption requests must be
guaranteed by commercial banks, trust companies, savings associations, credit
unions or brokerage firms that are members of domestic securities exchanges.
Signature guarantees by notaries public are not acceptable. However, as noted in
the Prospectus, a signature guarantee will not be required if the proceeds of
the redemption do not exceed $50,000 and the proceeds check is made payable to
the registered owner(s) and mailed to the record address.
If a shareholder selects the telephone redemption service in the manner
described in the next paragraph, Fund shares may be redeemed by making a
telephone call directly to [ ] at [ ]. When a telephonic redemption request is
received, the proceeds are wired to the bank account previously chosen by the
shareholder and a nominal wire fee (currently $5.00) is deducted. Telephonic
redemption requests must be received by [ ] prior to the close of regular
trading on the New York Stock Exchange on a day when the Exchange is open for
business. Requests made after that time or on a day when the New York Stock
Exchange is not open for business cannot be accepted by [ ] and a new request
will be necessary.
In order to redeem shares by telephone, a shareholder must either
select this service when completing the Fund application or must do so
subsequently on the Service Options Form available from [ ]. When selecting the
service, a shareholder must designate a bank account to which the redemption
proceeds should be wired. Any change in the bank account so designated must be
made by furnishing to [ ] a completed Service Options Form with a signature
guarantee. Whenever the Service Options Form is used, the shareholder's
signature
-13-
<PAGE>
must be guaranteed as described above. Telephone redemptions may only be made if
an investor's bank is a member of the Federal Reserve System or has a
correspondent bank that is a member of the System. If the account is with a
savings bank, it must have only one correspondent bank that is a member of the
System. The Trust, [ ] and [ ] are not responsible for the authenticity of
withdrawal instructions received by telephone.
The redemption price will be the net asset value per share next
determined after the redemption request and any necessary special documentation
are received by [ ] in proper form. Proceeds resulting from a written redemption
request will normally be mailed to you within seven days after receipt of your
request in good order. Telephonic redemption proceeds will normally be wired on
the first business day following receipt of a proper redemption request. In
those cases where you have recently purchased your shares by check and your
check was received less than fifteen days prior to the redemption request, the
Fund may withhold redemption proceeds until your check has cleared.
Each Fund will normally redeem shares for cash; however, each Fund
reserves the right to pay the redemption price wholly or partly in kind if the
Board of Trustees of the Trust determines it to be advisable in the interest of
the remaining shareholders. If portfolio securities are distributed in lieu of
cash, the shareholder will normally incur brokerage commissions upon subsequent
disposition of any such securities. However, the Trust has elected to be
governed by Rule 18f-1 under the 1940 Act pursuant to which the Trust is
obligated to redeem shares solely in cash for any shareholder during any 90-day
period up to the lesser of $250,000 or 1% of the total net asset value of the
Trust at the beginning of such period.
A redemption constitutes a sale of the shares for federal income tax
purposes on which the investor may realize a long- or short-term capital gain or
loss. See "Income Dividends, Capital Gain Distributions and Tax Status."
- -------------------------------------------------------------------------------
INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS
- -------------------------------------------------------------------------------
As described in the Prospectus under "Dividends, Capital Gain
Distributions and Taxes" it is the policy of each Fund to pay its shareholders,
as dividends, substantially all net investment income and to distribute annually
all net realized capital gains, if any, after offsetting any capital loss
carryovers.
Income dividends and capital gain distributions are payable in full and
fractional shares of the particular Fund based upon the net asset value
determined as of the close of regular trading on the New York Stock Exchange on
the record date for each dividend or distribution. Shareholders, however, may
elect to receive their income dividends or capital gain distributions, or both,
in cash. The election may be made at any time by submitting a written
-14-
<PAGE>
request directly to [ ]. In order for a change to be in effect for any dividend
or distribution, it must be received by [ ] on or before the record date for
such dividend or distribution.
As required by federal law, detailed federal tax information will be
furnished to each shareholder for each calendar year on or before January 31 of
the succeeding year.
Each Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Code and to qualify for the special tax
treatment accorded regulated investment companies and their shareholders. In
order so to qualify, the Fund must, among other things, (i) derive at least 90%
of its gross income from dividends, interest, payments with respect to certain
securities loans, gains from the sale of stock, securities or foreign
currencies, or other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; (ii) distribute with respect to each
taxable year at least 90% of the sum of its taxable net investment income, its
net tax-exempt income (if any), and the excess, if any, of net short-term
capital gains over net long-term capital losses for such year; and (iii) at the
end of each fiscal quarter maintain at least 50% of the value of its total
assets in cash, cash items (including receivables), government securities,
securities of other regulated investment companies, and other securities of
issuers which represent, with respect to each issuer, no more than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and with no more than 25% of the value of its total assets invested
in the securities (other than those of the U.S. government or other regulated
investment companies) of any one issuer or of two or more issuers which the Fund
controls and which are engaged in the same, similar or related trades and
businesses. If it qualifies for treatment as a regulated investment company, the
Fund will not be subject to federal income tax on income paid to its
shareholders in the form of dividends or capital gain distributions.
An excise tax at the rate of 4% will be imposed on the excess, if any,
of each Fund's "required distribution" over its actual distributions in any
calendar year. Generally, the "required distribution" is 98% of the Fund's
ordinary income for the calendar year plus 98% of its capital gain net income
recognized during the one-year period ending on October 31 (or December 31, if
the Fund so elects) plus undistributed amounts from prior years. Each Fund
intends to make distributions sufficient to avoid imposition of the excise tax.
Distributions declared by a Fund during October, November or December to
shareholders of record on a date in any such month and paid by the Fund during
the following January will be treated for federal tax purposes as paid by the
Fund and received by shareholders on December 31 of the year in which declared.
Shareholders of each Fund will be subject to federal income taxes on
distributions made by the Fund whether received in cash or additional shares of
the Fund. Distributions by each Fund of net income and short-term capital gains,
if any, will be taxable to shareholders as ordinary income. Distributions of
long-term capital gains, if any, will be taxable to shareholders as long-term
capital gains, without regard to how long a shareholder has held
-15-
<PAGE>
shares of the Fund. Pursuant to the Taxpayer Relief Act of 1997 (the "1997
Act"), dividends of long-term capital gains generally will be subject to a
maximum tax rate of 28% or 20% depending upon the holding period in the
portfolio investment generating the distributed gains. A loss on the sale of
shares held for 12 months or less will be treated as a long-term capital loss to
the extent of any long-term capital gain dividend paid to the shareholder with
respect to such shares.
Dividends and distributions on Fund shares received shortly after their
purchase, although in effect a return of capital, are subject to federal income
taxes.
Redemptions and exchanges of each Fund's shares are taxable events and,
accordingly, shareholders may realize gains and losses on these transactions. If
shares have been held for more than one year, gain or loss realized will be
long-term capital gain or loss, provided the shareholder holds the shares as a
capital asset. Pursuant to the 1997 Act, long-term capital gains generally will
be subject to a maximum tax rate of 28% or 20% depending upon the shareholder's
holding period in Fund shares. However, if a shareholder sells Fund shares
at a loss within six months after purchasing the shares, the loss will be
treated as a long-term capital loss to the extent of any long-term capital gain
distributions received by the shareholder. Furthermore, no loss will be allowed
on the sale of Fund shares to the extent the shareholder acquired other shares
of the same Fund within 30 days prior to the sale of the loss shares or 30 days
after such sale.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and regulations currently in effect. For the complete
provisions, reference should be made to the pertinent Code sections and
regulations. The Code and regulations are subject to change by legislative or
administrative action.
Dividends and distributions also may be subject to state and local
taxes. Shareholders are urged to consult their tax advisers regarding specific
questions as to federal, state or local taxes.
The foregoing discussion relates solely to U.S. federal income tax law.
Non-U.S. investors should consult their tax advisers concerning the tax
consequences of ownership of shares of the Fund, including the possibility that
distributions may be subject to a 30% U.S. withholding tax (or a reduced rate of
withholding provided by treaty).
-16-
<PAGE>
- -------------------------------------------------------------------------------
CALCULATION OF TOTAL RETURN
- -------------------------------------------------------------------------------
Total Return with respect to a Fund is a measure of the change in value
of an investment in such Fund over the period covered, and assumes any dividends
or capital gains distributions are reinvested immediately, rather than paid to
the investor in cash. The formula for calculating total return includes four
steps: (1) adding to the total number of shares purchased through a hypothetical
$1,000 investment in the Fund all additional shares which would have been
purchased if all dividends and distributions paid or distributed during the
period had been immediately reinvested; (2) calculating the value of the
hypothetical initial investment of $1,000 as of the end of the period by
multiplying the total number of shares owned at the end of the period by the net
asset value per share on the last trading day of the period; (3) assuming
redemption at the end of the period; and (4) dividing the resulting account
value by the initial $1,000 investment.
-17-
<PAGE>
- -------------------------------------------------------------------------------
PERFORMANCE COMPARISONS
- -------------------------------------------------------------------------------
Total Return. Each Fund may from time to time include its total return
information in advertisements or in information furnished to present or
prospective shareholders. Each Fund may from time to time include in
advertisements or information furnished to present or prospective shareholders
(i) the ranking of performance figures relative to such figures for groups of
mutual funds categorized by Lipper Analytical Services, Inc. or Micropal, Inc.
as having similar investment objectives, (ii) the rating assigned to the Fund by
Morningstar, Inc. based on the Fund's risk-adjusted performance relative to
other mutual funds in its broad investment class, and/or (iii) the ranking of
performance figures relative to such figures for mutual funds in its general
investment category as determined by CDA/Weisenberger's Management Results.
Lipper Analytical Services, Inc. ("Lipper") distributes mutual fund
rankings monthly. The rankings are based on total return performance calculated
by Lipper, generally reflecting changes in net asset value adjusted for
reinvestment of capital gains and income dividends. They do not reflect
deduction of any sales charges. Lipper rankings cover a variety of performance
periods, including year-to-date, 1-year, 5-year, and 10-year performance. Lipper
classifies mutual funds by investment objective and asset category.
Micropal, Inc. ("Micropal") distributes mutual fund rankings weekly and
monthly. The rankings are based upon performance calculated by Micropal,
generally reflecting changes in net asset value that can be adjusted for the
reinvestment of capital gains and dividends. If deemed appropriate by the user,
performance can also reflect deductions for sales charges. Micropal rankings
cover a variety of performance periods, including year-to-date, 1-year, 5- year
and 10-year performance. Micropal classifies mutual funds by investment
objective and asset category.
Morningstar, Inc. ("Morningstar") distributes mutual fund ratings twice
a month. The ratings are divided into five groups: highest, above average,
neutral, below average and lowest. They represent a fund's historical
risk/reward ratio relative to other funds in its broad investment class as
determined by Morningstar. Morningstar ratings cover a variety of performance
periods, including 3-year, 5-year, 10-year and overall performance. The
performance factor for the overall rating is a weighted-average return
performance (if available) reflecting deduction of expenses and sales charges.
Performance is adjusted using quantitative techniques to reflect the risk
profile of the fund. The ratings are derived from a purely quantitative system
that does not utilize the subjective criteria customarily employed by rating
agencies such as Standard & Poor's and Moody's Investors Service, Inc.
-18-
<PAGE>
CDA/Weisenberger's Management Results ("Weisenberger") publishes mutual
fund rankings and is distributed monthly. The rankings are based entirely on
total return calculated by Weisenberger for periods such as year-to-date,
1-year, 3-year, 5-year and 10-year. Mutual funds are ranked in general
categories (e.g., international bond, international equity, municipal bond, and
maximum capital gain). Weisenberger rankings do not reflect deduction of sales
charges or fees.
Performance information may also be used to compare the performance of
the Funds to certain widely acknowledged standards or indices for stock market
performance, such as those listed below.
Consumer Price Index. The Consumer Price Index, published by the U.S.
Bureau of Labor Statistics, is a statistical measure of changes, over time, in
the prices of goods and services in major expenditure groups.
Dow Jones Industrial Average. The Dow Jones Industrial Average is a
market value- weighted and unmanaged index of 30 large industrial stocks traded
on the New York Stock Exchange.
MSCI-EAFE Index. The MSCI-EAFE Index contains over 1000 stocks from 20
different countries with Japan (approximately 50%), United Kingdom, France and
Germany being the most heavily weighted.
MSCI-EAFE ex-Japan Index. The MSCI-EAFE ex-Japan Index consists of all
stocks contained in the MSCI-EAFE Index, other than stocks from Japan.
NAREIT Equity Index. [To be provided.]
Russell 2000 Index. The Russell 2000 Index is comprised of the 2000
smallest of the 3000 largest U.S.-domiciled corporations, ranked by market
capitalization.
Standard & Poor's/Barra Growth Index. The Standard & Poor's/Barra
Growth Index is constructed by ranking the securities in the S&P 500 by
price-to-book ratio and including the securities with the highest price-to-book
ratios that represent approximately half of the market capitalization of the S&P
500.
Standard & Poor's/Barra Value Index. The Standard & Poor's/Barra Value
Index is constructed by ranking the securities in the S&P 500 by price-to-book
ratio and including the securities with the lowest price-to-book ratios that
represent approximately half of the market capitalization of the S&P 500.
Standard & Poor's 500 Composite Stock Price Index (the "S&P 500"). The
S&P 500 is a market value-weighted and unmanaged index showing the changes in
the aggregate
-19-
<PAGE>
market value of 500 stocks relative to the base period 1941-43. The S&P 500 is
composed almost entirely of common stocks of companies listed on the New York
Stock Exchange, although the common stocks of a few companies listed on the
American Stock Exchange or traded over-the-counter are included. The 500
companies represented include 400 industrial, 60 transportation and 40 financial
services concerns. The S&P 500 represents about 80% of the market value of all
issues traded on the New York Stock Exchange. The S&P 500 is the most common
index for the overall U.S. stock market.
From time to time, articles about the Funds regarding performance,
rankings and other characteristics of the Funds may appear in publications
including, but not limited to, the publications included in Appendix A. In
particular, some or all of these publications may publish their own rankings or
performance reviews of mutual funds, including the Funds. References to or
reprints of such articles may be used in the Funds' promotional literature.
References to articles regarding personnel of the [ ] who have portfolio
management responsibility may also be used in the Funds' promotional literature.
For additional information about the Funds' advertising and promotional
literature, see Appendix B.
-20-
<PAGE>
APPENDIX A
PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION
ABC and affiliates Dow Jones News Service
Adam Smith's Money World Economist
America On Line FACS of the Week
Anchorage Daily News Fee Adviser
Atlanta Constitution Financial News Network
Atlanta Journal Financial Planning
Arizona Republic Financial Planning on Wall Street
Austin American Statesman Financial Research Corp.
Baltimore Sun Financial Services Week
Bank Investment Marketing Financial World
Barron's Fitch Insights
Bergen County Record (NJ) Forbes
Bloomberg Business News Fort Worth Star-Telegram
Bond Buyer Fortune
Boston Business Journal Fox Network and affiliates
Boston Globe Fund Action
Boston Herald Fund Decoder
Broker World Global Finance
Business Radio Network (the) Guarantor
Business Week Hartford Courant
CBS and affiliates Houston Chronicle
CDA Investment Technologies INC
CFO Indianapolis Star
Changing Times Individual Investor
Chicago Sun Times Institutional Investor
Chicago Tribune International Herald Tribune
Christian Science Monitor Internet
Christian Science Monitor News Service Investment Advisor
Cincinnati Enquirer Investment Company Institute
Cincinnati Post Investment Dealers Digest
CNBC Investment Profiles
CNN Investment Vision
Columbus Dispatch Investor's Daily
CompuServe IRA Reporter
Dallas Morning News Journal of Commerce
Dallas Times-Herald Kansas City Star
Denver Post KCMO (Kansas City)
Des Moines Register KOA-AM (Denver)
Detroit Free Press LA Times
Donoghues Money Fund Report Leckey, Andrew (syndicated column)
Dorman, Dan (syndicated column) Life Association News
A-1
<PAGE>
Lifetime Channel Seattle Post-Intelligencer
Miami Herald Seattle Times
Milwaukee Sentinel Securities Industry Management
Money Magazine Smart Money
Money Maker St. Louis Post Dispatch
Money Management Letter St. Petersburg Times
Morningstar Standard & Poor's Outlook
Mutual Fund Market News Standard & Poor's Stock Guide
Mutual Funds Magazine Stanger's Investment Advisor
National Public Radio Stockbroker's Register
National Underwriter Strategic Insight
NBC and affiliates Tampa Tribune
New England Business Time
New England Cable News Tobias, Andrew (syndicated column)
New Orleans Times-Picayune Toledo Blade
New York Daily News UP
New York Times US News and World Report
Newark Star Ledger USA Today
Newsday USA TV Network
Newsweek Value Line
Nightly Business Report Wall Street Journal
Orange County Register Wall Street Letter
Orlando Sentinel Wall Street Week
Palm Beach Post Washington Post
Pension World WBZ
Pensions and Investments WBZ-TV
Personal Investor WCVB-TV
Philadelphia Inquirer WEEI
Porter, Sylvia (syndicated column) WHDH
Portland Oregonian Worcester Telegram
Prodigy Public Broadcasting Service World Wide Web
Quinn, Jane Bryant (syndicated column) Worth Magazine
Registered Representative WRKO
Research Magazine
Resource
Reuters
Rocky Mountain News
Rukeyser's Business (syndicated column)
Sacramento Bee
San Diego Tribune
San Francisco Chronicle
San Francisco Examiner
San Jose Mercury
A-2
<PAGE>
APPENDIX B
ADVERTISING AND PROMOTIONAL LITERATURE
Undiscovered Managers Funds' advertising and promotional material may include,
but is not limited to, discussions of the following information:
o Undiscovered Managers Funds' participation in wrap fee and no
transaction fee programs
o Characteristics of the various sub-advisers, including the locations of
offices, investment practices and clients
o Specific and general investment philosophies, strategies, processes and
techniques
o Specific and general sources of information, economic models, forecasts
and data services utilized, consulted or considered in the course of
providing advisory or other services
o Industry conferences at which the various sub-advisers participate
o Current capitalization, levels of profitability and other financial
information
o Identification of portfolio managers, researchers, economists,
principals and other staff members and employees
o The specific credentials of the above individuals, including but not
limited to, previous employment, current and past positions, titles and
duties performed, industry experience, educational background and
degrees, awards and honors
o Specific identification of, and general reference to, current
individual, corporate and institutional clients, including pension and
profit sharing plans
o Current and historical statistics relating to:
-total dollar amount of assets managed
-Undiscovered Managers Funds' assets managed in total and by Fund
-the growth of assets
-asset types managed
References may be included in Undiscovered Managers Funds' advertising
and promotional literature about 401(k) and retirement plans that offer the
Funds. The information may include, but is not limited to:
o Specific and general references to industry statistics regarding 401(k)
and retirement
B-1
<PAGE>
plans including historical information and industry trends and
forecasts regarding the growth of assets, numbers or plans, funding
vehicles, participants, sponsors and other demographic data relating to
plans, participants and sponsors, third party and other administrators,
benefits consultants and firms with whom Undiscovered Managers Funds
may or may not have a relationship.
o Specific and general reference to comparative ratings, rankings and
other forms of evaluation as well as statistics regarding the Funds as
401(k) or retirement plan funding vehicles produced by industry
authorities, research organizations and publications.
B-2
<PAGE>
UNDISCOVERED MANAGERS FUNDS
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(A) (1) Financial Statements: To be filed by amendment.
(B) Exhibits
<TABLE>
<S> <C> <C>
1. Agreement and Declaration of Trust of Undiscovered Managers
Funds (the "Trust").
2. By-Laws of the Trust.
3. None.
4. None.
5. (a) Form of Management Agreement between the Trust and
Undiscovered Managers, LLC ("Undiscovered Managers").
(b) Form of Sub-Advisory Agreements between
Undiscovered Managers and each sub-adviser
relating to each series of the Trust.
(i) Undiscovered Managers All Cap Value Fund (the "All
Cap Value Fund"): E.R. Taylor Investments, Inc.
("E.R. Taylor")
(ii) Undiscovered Managers Behavioral Growth Fund (the
"Behavioral Growth Fund"): RJF Asset Management,
Inc. ("RJF Management")
(iii) Undiscovered Managers Core Equity Fund (the "Core
Equity Fund"): Waite & Associates, L.L.C. ("Waite &
Associates")
(iv) Undiscovered Managers Hidden Value Fund (the
"Hidden Value Fund") and Undiscovered Managers
Small Cap Value Fund (the "Small Cap Value Fund"):
J.L. Kaplan Associates ("Kaplan Associates")
(v) Undiscovered Managers REIT Fund (the "REIT Fund"):
Bay Isle Financial Corporation ("Bay Isle")
(vi) Undiscovered Managers Special Small Cap Fund (the
"Special Small Cap Fund"): Kestrel Investment
Management Corporation ("Kestrel Management")
6. Form of Distribution Agreement between the Trust and
____________ (to be filed by amendment).
-1-
<PAGE>
7. None.
8. Form of Custodian Agreement (to be filed by amendment).
9. (a) Form of Shareholder Servicing and Transfer Agent Agreement
between the Trust and ____________ (to be filed by
amendment).
(b) Form of Organizational Expense
Reimbursement Agreement between the Trust
and Undiscovered Managers (to be filed by
amendment).
(c) Form of Expense Deferral Agreement between
the Trust and Undiscovered Managers (to be
filed by amendment).
(d) Form of Administrative Services Agreement
between the Trust and Undiscovered Managers
(to be filed by amendment).
(e) Form of Administrative Services Agreement
between Undiscovered Managers and _______
(to be filed by amendment).
10. Opinion and Consent of Counsel (to be filed by amendment).
11. Consent of Independent Accountants (to be filed by amendment).
12. None.
13. Investment Representation Letter (to be filed by amendment).
14. None.
15. None.
16. None.
17. None.
18. None.
19. None.
-2-
</TABLE>
<PAGE>
Item 25. Persons Controlled by or Under Common Control with the Trust
None.
Item 26. Number of Holders of Securities
The following table sets forth the number of record holders of each
series of the Trust as of December __, 1997.
Title of Series Number of Record Holders
--------------- ------------------------
All Cap Value Fund [ ]
Behavioral Growth Fund [ ]
Core Equity Fund [ ]
Hidden Value Fund [ ]
REIT Fund [ ]
Small Cap Value Fund [ ]
Special Small Cap Fund [ ]
Item 27. Indemnification
Article VIII of the Trust's Agreement and Declaration of
Trust (Exhibit 1 hereto) and Article 4 of the Trust's
By-Laws (Exhibit 2 hereto) provides for indemnification of
its Trustees and officers. The effect of these provisions
is to provide indemnification for each of the Trust's
Trustees and officers against liabilities and counsel fees
reasonably incurred in connection with the defense of any
legal proceeding in which such Trustee or officer may be
involved by reason of being or having been a Trustee or
officer, except with respect to any matter as to which
such Trustee of officer shall have been adjudicated not to
have acted in good faith in the reasonable belief that
such Trustee's or officer's action was in the best
interest of the Trust, and except that no Trustee or
officer shall be indemnified against any liability to the
Trust or its shareholders to which such Trustee or officer
otherwise would be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such
Trustee's or officer's office.
-3-
<PAGE>
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 (the "Act") may be permitted to
Trustees, officers and controlling persons of the Trust
pursuant to the foregoing provisions, or otherwise, the
Trust has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification
is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Trust of expenses incurred or paid by a
Trustee, officer or controlling person of the Trust in the
successful defense of any action, suit or proceeding) is
asserted by such Trustee, officer or controlling person in
connection with the securities being registered, the Trust
will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such
indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
(a) Undiscovered Managers is the investment adviser to all series of the
Trust, and its business is summarized in "Management of the Funds" in
the Prospectus. Undiscovered Managers' members, directors and officers
have been engaged during the past two fiscal years in the following
businesses, professions, vocations or employments of a substantial
nature (former affiliations are marked with an asterisk):
Name and Office with Name and Address of Nature of
Undiscovered Managers Other Affiliations Connection
- --------------------- ------------------ ----------
Mark P. Hurley
President, Chief Executive
Officer and Management
Committee Member
-4-
<PAGE>
(b) E.R. Taylor is the sub-adviser to the All Cap Value Fund, and its
business is summarized in "The Funds" and "Management of the Funds" in
the Prospectus. E.R. Taylor's directors and officers have been engaged
during the past two fiscal years in the following businesses,
professions, vocations or employments of a substantial nature (former
affiliations are marked with an asterisk):
Name and Office with Name and Address of Nature of
E.R. Taylor Other Affiliations Connection
----------- ------------------ ----------
Sherwood T. Small None None
President
Martha E. Cottrill None None
Vice President
Kenneth E. DeWitt None None
Vice President
John S. Tamagni Lazard Freres & Co. LLC Managing Director
Director One Rockefeller Plaza
New York, NY 10020
Salvatore J. Cozzolino None None
Director
C. Michael Hazard Westfield Capital CEO & Chairman
Director Management of the Board
One Financial Center
Boston, MA 02111
John C. Hou Prince Capital President
Director Management, LLC
240 Madison Avenue
New York, NY 10016
(c) RJF Management is the sub-adviser to the Behavioral Growth Fund,
and its business is summarized in "The Funds" and "Management of
the Funds" in the Prospectus. RJF Management's directors and
officers have been engaged during the past two fiscal years in
the following businesses, professions, vocations or employments
of a substantial nature:
-5-
<PAGE>
Name and Office with Name and Address of Nature of
RFJ Management Other Affiliations Connection
----------- ------------------ ----------
Russell J. Fuller Fuller Partners, Ltd. General Partner
President 1300 S. El Camino Real
Suite 504
San Mateo, CA 94402
John L. Kling Fuller Partners, Ltd. General Partner
Vice President
Washington State Professor of Finance
University
[address]
Faiz Hakim None None
Vice President
Joanne S. Ott None None
Vice President
Frederick W. Stanske None None
Vice President
(d) Waite & Associates is the sub-adviser to the Core Equity Fund
and its business is summarized in "The Funds" and "Management of
the Funds" in the Prospectus. Waite & Associates' members,
directors and officers have been engaged during the past two
fiscal years in the following businesses, professions, vocations
or employments of a substantial nature:
-6-
<PAGE>
Name and Office with Name and Address of Nature of
Waite & Associates Other Affiliations Connection
----------- ------------------ ----------
Leslie A. Waite None None
President
Peter D. Tamny None None
Managing Director
Peter C. Brockett None None
Managing Director
Patrick Westmoreland None None
Managing Director
(e) Kaplan Associates is the sub-adviser to the Hidden Value Fund
and Small Cap Value Funds and its business is summarized in "The
Funds" and "Management of the Funds" in the Prospectus. Kaplan
Associates' partners, directors and officers have been engaged
during the past two fiscal years in the following businesses,
professions, vocations or employments of a substantial nature:
Name and Office with Name and Address of Nature of
Kaplan Associates Other Affiliations Connection
----------- ------------------ ----------
James L. Kaplan None None
Proprietor
Paul Weisman None None
Portfolio Manager
(f) Bay Isle is the sub-adviser to the REIT Fund, and its business
is summarized in "The Funds" and "Management of the Funds" in
the Prospectus. Bay Isle's directors and officers have been
engaged during the past two fiscal years in the following
businesses, professions, vocations or employments of a
substantial nature:
-7-
<PAGE>
Name and Office with Name and Address of Nature of
Bay Isle Other Affiliations Connection
----------- ------------------ ----------
Gary Pollock None None
President
William Schaff None None
Chief Investment Officer
(g) Kestrel Management is the sub-adviser to the Special Small Cap
Fund, and its business is summarized in "The Funds" and
"Management of the Funds" in the Prospectus. Kestrel
Management's directors and officers have been engaged during the
past two fiscal years in the following businesses, professions,
vocations or employments of a substantial nature:
Name and Office with Name and Address of Nature of
Kestrel Management Other Affiliations Connection
- ------------------ ------------------ ----------
Abbott J. Keller None None
President
David J. Steirman None None
Chief Investment Officer
Item 29.
Not Applicable.
-8-
<PAGE>
Item 30. Location of Accounts and Records
Persons maintaining physical possession of accounts, books and
other documents required to be maintained by Section 31(a) of
the Investment Company Act of 1940 and the Rules promulgated
thereunder are the Trust's Secretary, Mark P. Hurley; the
Trust's investment adviser, Undiscovered Managers; the Trust's
principal underwriter, [ ]; the Trust's custodian, [ ]; and the
Trust's transfer agent, [ ]. The address of the Secretary and
the investment adviser is Plaza of the Americas, 700 North Pearl
Street, 17th Floor, Dallas, Texas 75201; the address of the
principal underwriter is [ ]; the address of the custodian is
[ ]; and the address of the transfer agent is [ ].
Item 31. Management Services
None.
Item 32. Undertakings
(a) The undersigned Trust hereby undertakes to call a
meeting of shareholders for the purpose of voting on
the removal of a trustee or trustees when requested in
writing to do so by the holders of at least 10% of the
Trust's outstanding voting securities 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.
(b) The Trust hereby undertakes to furnish each person to
whom a prospectus is delivered with a copy of the
Trust's latest Annual Report to shareholders upon
request and without charge.
(c) The Trust hereby undertakes to file a post-effective
amendment to this Registration Statement on Form N-1A,
using financial statements which need not be certified,
within four to six months from the effective date of
this Registration Statement.
NOTICE
A copy of the Agreement and Declaration of Trust of the Trust is on
file with the Secretary of State of The Commonwealth of Massachusetts and notice
is hereby given that this instrument is executed on behalf of the Trust by an
officer of the Trust as an officer and not individually and the obligations of
or arising out of this instrument are not binding upon any of the Trustees or
shareholders individually but are binding only upon the assets and property of
the Trust.
-9-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the
Trust has duly caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Dallas and state of
Texas on the 10th day of October, 1997.
UNDISCOVERED MANAGERS FUNDS
By: /s/ Mark P. Hurley
------------------------------
Mark P. Hurley
Title: President
Pursuant to the Securities Act of 1933, this registration statement has
been signed below by the following persons in the capacities and on the dates
indicated.
Signatures Title Date
- ---------- ----- ----
/s/ Mark P. Hurley President, Treasurer October 10, 1997
- ------------------------
Mark P. Hurley Secretary and Trustee
-10-
<PAGE>
UNDISCOVERED MANAGERS FUNDS
Index to Exhibits
Exhibit No.
Description
99.1 Agreement and Declaration of Trust of the Trust
99.2 By-Laws of the Trust
99.5(a) Form of Management Agreement between the Trust and
Undiscovered Managers relating to each series of the Trust.
99.5(b) Form of Sub-Advisory Agreements relating to each series of
the Trust between Undiscovered Managers and the sub-advisers
indicated in parentheses:
(1) Undiscovered Managers All Cap Value Fund (E.R.
Taylor)
(2) Undiscovered Managers Behavioral Growth Fund
(RJF Management)
(3) Undiscovered Managers Core Equity Fund (Waite
& Associates)
(4) Undiscovered Managers Hidden Value Fund
and Undiscovered Managers Small Cap Value Fund (Kaplan
Associates)
(5) Undiscovered Managers REIT Fund (Bay Isle)
(6) Undiscovered Managers Special Small to Mid Cap Fund
(Kestrel Management)
-11-
EXHIBIT 99.1:
-------------
AGREEMENT AND DECLARATION OF TRUST OF THE TRUST
<PAGE>
UNDISCOVERED MANAGERS FUNDS
AGREEMENT AND DECLARATION OF TRUST
AGREEMENT AND DECLARATION OF TRUST made at Boston, Massachusetts, this 29th
day of September, 1997 by the Trustees hereunder and by the holders of shares of
beneficial interest to be issued hereunder as hereinafter provided.
WITNESSETH that
WHEREAS, this Trust has been formed to carry on the business of an
investment company; and
WHEREAS, the Trustees have agreed to manage all property coming into their
hands as trustees of a Massachusetts voluntary association with transferable
shares in accordance with the provisions hereinafter set forth;
NOW, THEREFORE, the Trustees hereby declare that they will hold all cash,
securities and other assets, which they may from time to time acquire in any
manner as Trustees hereunder, IN TRUST to manage and dispose of the same upon
the following terms and conditions for the benefit of the holders from time to
time of Shares in this Trust as hereinafter set forth.
ARTICLE I
Name and Definitions
Name
Section 1. This Trust shall be known as "Undiscovered Managers Funds", and
the Trustees shall conduct the business of the Trust under that name or any
other name as they may from time to time determine.
Definitions
Section 2. Whenever used herein, unless otherwise required by the context
or specifically provided:
(a) "Trust" refers to the Massachusetts business trust established by this
Agreement and Declaration of Trust, as amended from time to time;
(b) "Trustees" refers to the Trustees of the Trust named herein or elected
in accordance with Article IV hereof;
-1-
<PAGE>
(c) "Shares" means the equal proportionate transferable units of interest
into which the beneficial interest in the Trust shall be divided from time
to time or, if more than one series or class of Shares is authorized by the
Trustees, the equal proportionate transferable units into which each series
or class of Shares shall be divided from time to time;
(d) "Shareholder" means a record owner of Shares;
(e) "1940 Act" refers to the Investment Company Act of 1940 and the Rules
and Regulations thereunder, all as amended from time to time;
(f) The terms "Affiliated Person", "Assignment", "Commission", "Interested
Person", "Principal Underwriter" and "Majority Shareholder Vote" (the
sixty-seven percent (67%) or fifty percent (50%) requirement of the third
sentence of Section 2(a)(42) of the 1940 Act, whichever may be applicable)
shall have the meanings given them in the 1940 Act;
(g) "Declaration of Trust" shall mean this Agreement and Declaration of
Trust as amended or restated from time to time;
(h) "By-Laws" shall mean the By-Laws of the Trust as amended from time to
time;
(i) "Series" or "Series of Shares" refers to the one or more separate
investment portfolios of the Trust into which the assets and liabilities of
the Trust may be divided and the Shares of the Trust representing the
beneficial interest of Shareholders in such respective portfolios; and
(j) "Class" or "Class of Shares" refers to the division of Shares
representing any Series into two or more Classes as provided in Article
III, Section 1 hereof.
ARTICLE II
Purpose of Trust
The purpose of the Trust is to provide investors a managed investment
primarily in securities, debt instruments and other instruments and rights of a
financial character and to carry on such other business as the Trustees may from
time to time determine pursuant to their authority under this Declaration of
Trust.
-2-
<PAGE>
ARTICLE III
Shares
Division of Beneficial Interest
Section 1. The Shares of the Trust shall be issued in one or more Series as
the Trustees may, without shareholder approval, authorize. Each Series shall be
preferred over all other Series in respect of the assets specifically allocated
to that Series within the meaning of the 1940 Act and shall represent a separate
investment portfolio of the Trust. The beneficial interest in each Series shall
at all times be divided into Shares, without par value, each of which shall,
except as provided in the following sentence, represent an equal proportionate
interest in the Series with each other Share of the same Series, none having
priority or preference over another. The Trustees may, without Shareholder
approval, divide the Shares of any Series into two or more Classes, Shares of
each such Class having such preferences and special or relative rights and
privileges (including conversion rights, if any) as the Trustees may determine
or as shall be set forth in the By-Laws. The number of Shares authorized shall
be unlimited. The Trustees may from time to time divide or combine the Shares of
any Series or Class into a greater or lesser number without thereby changing the
proportionate beneficial interest in the Series or Class.
Ownership of Shares
Section 2. The ownership of Shares shall be recorded on the books of the
Trust or a transfer or similar agent. No certificates certifying the ownership
of Shares shall be issued except as the Trustees may otherwise determine from
time to time. The Trustees may make such rules as they consider appropriate for
the issuance of Share certificates, the transfer of Shares and similar matters.
The record books of the Trust as kept by the Trust or any transfer or similar
agent, as the case may be, shall be conclusive as to who are the Shareholders of
each Series and Class and as to the number of Shares of each Series and Class
held from time to time by each Shareholder.
Investment in the Trust
Section 3. The Trustees shall accept investments in the Trust from such
persons and on such terms and for such consideration, which may consist of cash
or tangible or intangible property or a combination thereof, as they or the
By-Laws from time to time authorize.
All consideration received by the Trust for the issue or sale of Shares of
each Series, together with all income, earnings, profits and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation thereof,
and any funds or payments derived from any reinvestment of such proceeds in
whatever form the same
-3-
<PAGE>
may be, shall irrevocably belong to the Series of Shares with respect to which
the same were received by the Trust for all purposes, subject only to the rights
of creditors, and shall be so handled upon the books of account of the Trust and
are herein referred to as "assets of" such Series.
No Preemptive Rights
Section 4. Shareholders shall have no preemptive or other right to
subscribe to any additional Shares or other securities issued by the Trust.
Status of Shares and Limitation of Personal Liability
Section 5. Shares shall be deemed to be personal property giving only the
rights provided in this Declaration of Trust or the By-Laws. Every Shareholder
by virtue of having become a Shareholder shall be held to have expressly
assented and agreed to the terms of this Declaration of Trust and the By-Laws
and to have become a party hereto. The death of a Shareholder during the
continuance of the Trust shall not operate to terminate the same nor entitle the
representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but such
representative shall be entitled only to the rights of said decedent under this
Declaration of Trust. Ownership of Shares shall not entitle the Shareholder to
any title in or to the whole or any part of the Trust property or right to call
for a partition or division of the same or for an accounting, nor shall the
ownership of Shares constitute the Shareholders partners. Neither the Trust nor
the Trustees, nor any officer, employee or agent of the Trust, shall have any
power to bind personally any Shareholder, nor except as specifically provided in
this Declaration of Trust to call upon any Shareholder for the payment of any
sum of money or assessment whatsoever other than such as the Shareholder may at
any time personally agree to pay.
ARTICLE IV
The Trustees
Election, Tenure and Removal
Section 1. The initial Trustee shall be Gregory C. Davis. The Trustees may
fix the number of Trustees, fill vacancies in the Trustees, including vacancies
arising from an increase in the number of Trustees, or remove Trustees with or
without cause. Each Trustee shall serve during the continued lifetime of the
Trust until he or she dies, resigns or is removed, or, if sooner, until the next
meeting of Shareholders called for the purpose of electing Trustees and until
the election and qualification of his or her successor. Any Trustee may resign
at any time by written instrument signed by him or her and delivered to any
officer of the Trust or to a meeting of the Trustees. Such resignation shall be
effective upon receipt unless specified to be effective at some other
-4-
<PAGE>
time. Except to the extent expressly provided in a written agreement with the
Trust, no Trustee resigning and no Trustee removed shall have any right to any
compensation for any period following his or her resignation or removal, or any
right to damages on account of such removal. The Shareholders may fix the number
of Trustees and elect Trustees at any meeting of Shareholders called by the
Trustees for that purpose and to the extent required by applicable law,
including paragraphs (a) and (b) of Section 16 of the 1940 Act.
No natural person shall serve as Trustee after the holders of record of not
less than two-thirds of the outstanding Shares have declared that such Trustee
be removed from that office either by declaration in writing filed with the
Trust's custodian or by votes cast in person or by proxy at a meeting called for
the purpose. The Trustees shall promptly call a meeting of Shareholders for the
purpose of voting upon the question of removal of any Trustee when requested to
do so in writing by the record holders of not less than ten percent (10%) of the
outstanding Shares.
Whenever ten or more Shareholders of record, who have been such for at
least six months preceding the date of application and who hold Shares in the
aggregate having a net asset value of at least one percent (1%) of the
outstanding Shares, shall apply to the Trustees in writing, stating that they
wish to communicate with other Shareholders with a view to obtaining signatures
to request a meeting pursuant to this Section and accompanied by a form of
communication and request which they wish to transmit, the Trustees shall within
five business days after receipt of such application either (a) afford to such
applicants access to a list of the names and addresses of all Shareholders as
recorded on the books of the Trust; or (b) inform such applicants as to the
approximate cost of mailing to all Shareholders the proposed communication and
form of request. If the Trustees elect to follow the course specified in clause
(b), the Trustees, upon the written request of such applicants, accompanied by a
tender of the material to be mailed and of the reasonable expenses of mailing,
shall, with reasonable promptness, mail such material to all Shareholders of
record at their addresses as recorded on the books of the Trust, unless within
five business days after such tender the Trustees shall mail to such applicants
and file with the Commission, together with a copy of the material proposed to
be mailed, a written statement signed by at least a majority of the Trustees to
the effect that in their opinion either such material contains untrue statements
of fact or omits to state facts necessary to make the statements contained
therein not misleading, or would be in violation of applicable law, and
specifying the basis of such opinion. If the Commission shall enter an order
refusing to sustain any of the objections specified in the written statement so
filed, or if, after the entry of an order sustaining one or more of such
objections, the Commission shall find, after notice and opportunity for hearing,
that all objections so sustained have been met, and shall enter an order so
declaring, the Trustees shall mail copies of such material to all Shareholders
with reasonable promptness after the entry of such order and the renewal of such
tender.
-5-
<PAGE>
Effect of Death, Resignation, etc. of a Trustee
Section 2. The death, declination, resignation, retirement, removal or
incapacity of the Trustees, or any one of them, shall not operate to annul the
Trust or to revoke any existing agency created pursuant to the terms of this
Declaration of Trust.
Powers
Section 3. Subject to the provisions of this Declaration of Trust, the
business of the Trust shall be managed by the Trustees, and they shall have all
powers necessary or convenient to carry out that responsibility. Without
limiting the foregoing, the Trustees may adopt By-Laws not inconsistent with
this Declaration of Trust providing for the conduct of the business of the Trust
and may amend and repeal them to the extent that such By-Laws do not reserve
that right to the Shareholders; they may fill vacancies, including vacancies
caused by enlargement of their number, and may remove Trustees with or without
cause; they may elect and remove, with or without cause, such officers and
appoint and terminate such agents as they consider appropriate; they may appoint
from their own number, and terminate, any one or more committees consisting of
two or more Trustees, including an executive committee which may, when the
Trustees are not in session, exercise some or all of the power and authority of
the Trustees as the Trustees may determine; they may employ one or more
custodians of the assets of the Trust and may authorize such custodians to
employ subcustodians and to deposit all or any part of such assets in a system
or systems for the central handling of securities, retain a transfer agent or a
Shareholder servicing agent, or both, provide for the distribution of Shares by
the Trust, through one or more principal underwriters or otherwise, set record
dates for the determination of Shareholders with respect to various matters, and
in general delegate such authority as they consider desirable to any officer of
the Trust, to any committee of the Trustees and to any agent or employee of the
Trust or to any such custodian or underwriter.
Without limiting the foregoing, the Trustees shall have power and
authority:
(a) To invest and reinvest cash, and to hold cash uninvested;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, write options
on and lease any or all of the assets of the Trust;
(c) To act as a distributor of shares and as underwriter of, or broker or
dealer in, securities and other property;
(d) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and
deliver proxies or powers of attorney to such person or persons as the
Trustees
-6-
<PAGE>
shall deem proper, granting to such person or persons such power and
discretion with relation to securities or property as the Trustees shall
deem proper;
(e) To exercise powers and rights of subscription or otherwise which in any
manner arise out of ownership of securities;
(f) To hold any security or property in a form not indicating any trust,
whether in bearer, unregistered or other negotiable form, or in the name of
the Trustees or of the Trust or in the name of a custodian, subcustodian or
other depositary or a nominee or nominees or otherwise;
(g) To allocate assets, liabilities, income and expenses of the Trust to a
particular Series of Shares or to apportion the same among two or more
Series, provided that any liabilities or expenses incurred by a particular
Series of Shares shall be payable solely out of the assets of that Series;
and, to the extent necessary or appropriate to give effect to the
preferences and special or relative rights and privileges of any Classes of
Shares, to allocate assets, liabilities, income and expenses of a Series to
a particular Class of Shares of that Series or to apportion the same among
two or more Classes of Shares of that Series;
(h) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer, any security of which
is or was held in the Trust; to consent to any contract, lease, mortgage,
purchase or sale of property by such corporation or issuer, and to pay
calls or subscriptions with respect to any security held in the Trust;
(i) To join other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit
any security with, or transfer any security to, any such committee,
depositary or trustee, and to delegate to them such power and authority
with relation to any security (whether or not so deposited or transferred)
as the Trustees shall deem proper, and to agree to pay, and to pay, such
portion of the expenses and compensation of such committee, depositary or
trustee as the Trustees shall deem proper;
(j) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including but not limited
to claims for taxes;
(k) To enter into joint ventures, general or limited partnerships and any
other combinations or associations;
-7-
<PAGE>
(l) To borrow funds;
(m) To endorse or guarantee the payment of any notes or other obligations
of any person; to make contracts of guaranty or suretyship, or otherwise
assume liability for payment thereof; and to mortgage and pledge the Trust
property or any part thereof to secure any of or all such obligations;
(n) To purchase and pay for entirely out of Trust property such insurance
as they may deem necessary or appropriate for the conduct of the Trust's
business, including, without limitation, insurance policies insuring the
assets of the Trust and payment of distributions and principal on its
portfolio investments, and insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisers or managers,
principal underwriters or independent contractors of the Trust individually
against all claims and liabilities of every nature arising by reason of
holding or having held any such office or position, or by reason of any
action alleged to have been taken or omitted by any such person as
Shareholder, Trustee, officer, employee, agent, investment adviser or
manager, principal underwriter or independent contractor, including any
action taken or omitted that may be determined to constitute negligence,
whether or not the Trust would have the power to indemnify such person
against such liability;
(o) To pay pensions for faithful service, as deemed appropriate by the
Trustees, and to adopt, establish and carry out pension, profit-sharing,
share bonus, share purchase, savings, thrift and other retirement,
incentive and benefit plans, trusts and provisions, including the
purchasing of life insurance and annuity contracts as a means of providing
such retirement and other benefits, for any or all of the Trustees,
officers, employees and agents of the Trust; and
(p) To engage in any other lawful act or activity in which corporations
organized under the Massachusetts Business Corporation Act may engage.
The Trustees shall not in any way be bound or limited by any present or
future law or custom in regard to investments by trustees.
Except as otherwise provided herein or from time to time in the By-Laws,
any action to be taken by the Trustees may be taken (A) by a majority of the
Trustees present at a meeting of the Trustees (a quorum being present), within
or without Massachusetts, including any meeting held by means of a conference
telephone or other communications equipment by means of which all persons
participating in the meeting can hear each
-8-
<PAGE>
other at the same time (participation by which means shall for all purposes
constitute presence in person at a meeting), or (B) by written consents of a
majority of the Trustees then in office (which written consents shall be filed
with the records of the meetings of the Trustees and shall be treated for all
purposes as a vote taken at a meeting of Trustees).
Payment of Expenses by Trust and by Shareholders
Section 4. The Trustees are authorized to pay or to cause to be paid out of
the principal or income of the Trust, or partly out of principal and partly out
of income, as they deem fair, all expenses, fees, charges, taxes and liabilities
incurred or arising in connection with the Trust, in connection with the
management thereof, or in connection with the financing of the sale of Shares,
including, but not limited to, the Trustees' compensation and such expenses and
charges for the services of the Trust's officers, employees, any investment
adviser, manager or sub-adviser, principal underwriter, auditor, counsel,
custodian, transfer agent, shareholder servicing agent, and such other agents or
independent contractors and such other expenses and charges as the Trustees may
deem necessary or proper to incur, provided, however, that all expenses, fees,
charges, taxes and liabilities incurred by or arising in connection with a
particular Series of Shares, as determined by the Trustees, shall be payable
solely out of the assets of that Series and may, as the Trustees from time to
time may determine, be allocated to a particular Class of Shares of a Series or
apportioned among two or more Classes of Shares of a Series.
The Trustees shall have the power, as frequently as they may determine, to
cause each Shareholder, or each Shareholder of any particular Series or Class,
to pay directly, in advance or arrears, for charges of the Trust's custodian or
transfer, shareholder servicing or similar agent, an amount fixed from time to
time by the Trustees, by setting off such charges due from such Shareholder from
declared but unpaid dividends owed such Shareholder and/or by reducing the
number of Shares in the account of such Shareholder by that number of full
and/or fractional Shares which represents the outstanding amount of such charges
due from such Shareholder.
Ownership of Assets of the Trust
Section 5. Title to all of the assets of each Series of Shares and of the
Trust shall at all times be considered as vested in the Trustees.
Advisory, Management and Distribution
Section 6. The Trustees may, at any time and from time to time, contract
for exclusive or nonexclusive advisory and/or management services with any
corporation, trust, association or other organization (the "Manager"), every
such contract to comply
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<PAGE>
with such requirements and restrictions as may be set forth in the By-Laws; and
any such contract may provide for one or more sub-advisers who shall perform all
or part of the obligations of the Manager under such contract and may contain
such other terms interpretive of or in addition to said requirements and
restrictions as the Trustees may determine, including, without limitation,
authority to determine from time to time what investments shall be purchased,
held, sold or exchanged and what portion, if any, of the assets of the Trust
shall be held uninvested and to make changes in the Trust's investments. The
Trustees may also, at any time and from time to time, contract with the Manager
or any other corporation, trust, association or other organization, appointing
it exclusive or nonexclusive distributor or principal underwriter for the
Shares, every such contract to comply with such requirements and restrictions as
may be set forth in the By-Laws; and any such contract may contain such other
terms interpretive of or in addition to said requirements and restrictions as
the Trustees may determine.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager,
adviser, principal underwriter or distributor or agent of or for any
corporation, trust, association or other organization, or of or for any
parent or affiliate of any organization, with which an advisory or
management contract, or principal underwriter's or distributor's contract,
or transfer, shareholder servicing or other agency contract may have been
or may hereafter be made, or that any such organization, or any parent or
affiliate thereof, is a Shareholder or has an interest in the Trust, or
that
(ii) any corporation, trust, association or other organization with which
an advisory or management contract or principal underwriter's or
distributor's contract, or transfer, shareholder servicing or other agency
contract may have been or may hereafter be made also has an advisory or
management contract, or principal underwriter's or distributor's contract,
or transfer, shareholder servicing or other agency contract with one or
more other corporations, trusts, associations or other organizations, or
has other business or interests
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders.
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<PAGE>
ARTICLE V
Shareholders' Voting Powers and Meetings
Voting Powers
Section 1. The Shareholders shall have power to vote only (i) for the
election of Trustees as provided in Article IV, Section 1 of this Declaration of
Trust, provided, however, that no meeting of Shareholders is required to be
called for the purpose of electing Trustees unless and until such time as less
than a majority of the Trustees have been elected by the Shareholders, (ii) with
respect to any Manager or Sub-Adviser as provided in Article IV, Section 6 of
this Declaration of Trust to the extent required by the 1940 Act, (iii) with
respect to any termination of this Trust to the extent and as provided in
Article IX, Section 5 of this Declaration of Trust, (iv) with respect to any
amendment of this Declaration of Trust to the extent and as provided in Article
IX, Section 8 of this Declaration of Trust, (v) to the same extent as the
stockholders of a Massachusetts business corporation as to whether or not a
court action, proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Trust or the Shareholders,
and (vi) with respect to such additional matters relating to the Trust as may be
required by law, this Declaration of Trust, the By-Laws or any registration of
the Trust with the Commission (or any successor agency) or any state, or as the
Trustees may consider necessary or desirable. Each whole Share shall be entitled
to one vote as to any matter on which it is entitled to vote and each fractional
Share shall be entitled to a proportionate fractional vote. On any matter
submitted to a vote of Shareholders all Shares of the Trust then entitled to
vote shall be voted by individual Series, except (i) when required by the 1940
Act, Shares shall be voted in the aggregate and not by individual Series and
(ii) when the Trustees have determined that the matter affects only the
interests of one or more Series or Classes, then only Shareholders of such
Series or Classes shall be entitled to vote thereon. There shall be no
cumulative voting in the election of Trustees. Shares may be voted in person or
by proxy. A proxy with respect to Shares held in the name of two or more persons
shall be valid if executed by any one of them unless at or prior to exercise of
the proxy the Trust receives a specific written notice to the contrary from any
one of them. A proxy purporting to be executed by or on behalf of a Shareholder
shall be deemed valid unless challenged at or prior to its exercise and the
burden of proving invalidity shall rest on the challenger. Until Shares are
issued, the Trustees may exercise all rights of Shareholders and may take any
action permitted or required of the Shareholders by law, this Declaration of
Trust or the By-Laws.
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<PAGE>
Meetings
Section 2. Meetings of the Shareholders may be called by the Trustees for
the purpose of electing Trustees as provided in Article IV, Section 1 of this
Declaration of Trust and for such other purposes as may be prescribed by law, by
this Declaration of Trust or by the By-Laws. Meetings of the Shareholders may
also be called by the Trustees from time to time for the purpose of taking
action upon any other matter deemed by the Trustees to be necessary or
desirable. A meeting of Shareholders may be held at any place designated by the
Trustees. Written notice of any meeting of Shareholders shall be given or caused
to be given by the Trustees by mailing such notice at least seven days before
such meeting, postage prepaid, stating the time and place of the meeting, to
each Shareholder entitled to vote at such meeting at the Shareholder's address
as it appears on the records of the Trust. Whenever notice of a meeting is
required to be given to a Shareholder under this Declaration of Trust or the
By-Laws, a written waiver thereof, executed before or after the meeting by such
Shareholder or his or her attorney thereunto authorized and filed with the
records of the meeting, shall be deemed equivalent to such notice.
Quorum and Required Vote
Section 3. Forty percent (40%) of the Shares entitled to vote shall be a
quorum for the transaction of business at a Shareholders' meeting, except that
where any provision of law or of this Declaration of Trust or the By-Laws
permits or requires that holders of any Series or Class shall vote as a Series
or Class, then forty percent (40%) of the aggregate number of Shares of that
Series or Class entitled to vote shall be necessary to constitute a quorum for
the transaction of business by that Series or Class. Any lesser number shall be
sufficient for adjournments. Any adjourned session or sessions may be held,
within a reasonable time after the date set for the original meeting, without
the necessity of further notice. Except when a larger vote is required by any
provision of law or this Declaration of Trust or the By-Laws, a majority of the
Shares voted shall decide any questions and a plurality shall elect a Trustee,
provided that where any provision of law or of this Declaration of Trust or the
By-Laws permits or requires that the holders of any Series or Class shall vote
as a Series or Class, then a majority of the Shares of that Series or Class
voted on the matter (or a plurality with respect to the election of a Trustee)
shall decide that matter insofar as that Series or Class is concerned.
Action by Written Consent
Section 4. Any action taken by Shareholders may be taken without a meeting
if a majority of Shareholders entitled to vote on the matter (or such larger
proportion thereof as shall be required by any express provision of law or this
Declaration of Trust or the By-Laws) consent to the action in writing and such
written consents are filed with the
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<PAGE>
records of the meetings of Shareholders. Such consent shall be treated for all
purposes as a vote taken at a meeting of Shareholders.
Additional Provisions
Section 5. The By-Laws may include further provisions for Shareholders'
votes and meetings and related matters.
ARTICLE VI
Distributions, Redemptions and Repurchases
Distributions
Section 1. The Trustees may each year, or more frequently if they so
determine, distribute to the Shareholders of each Series out of the assets of
such Series such amounts as the Trustees may determine. Any such distribution to
the Shareholders of a particular Series shall be made to said Shareholders pro
rata in proportion to the number of Shares of such Series held by each of them,
except to the extent otherwise required or permitted by the preferences and
special or relative rights and privileges of any Classes of Shares of that
Series, and any distribution to the Shareholders of a particular Class of Shares
shall be made to such Shareholders pro rata in proportion to the number of
Shares of such Class held by each of them. Such distributions shall be made in
cash, Shares or other property, or a combination thereof, as determined by the
Trustees. Any such distribution paid in Shares will be paid at the net asset
value thereof as determined in accordance with the By-Laws.
Redemptions and Repurchases
Section 2. The Trust shall purchase such Shares as are offered by any
Shareholder for redemption, upon the presentation of any certificate for the
Shares to be purchased, a proper instrument of transfer and a request directed
to the Trust or a person designated by the Trust that the Trust purchase such
Shares, or in accordance with such other procedures for redemption as the
Trustees may from time to time authorize; and the Trust will pay therefor the
net asset value thereof, as next determined in accordance with the By-Laws, less
any redemption charge or fee as the Trustees may from time to time authorize.
Payment for said Shares shall be made by the Trust to the Shareholder within
seven days after the date on which the request is made. The obligation set forth
in this Section 2 is subject to the provision that in the event that any time
the New York Stock Exchange is closed for other than customary weekends or
holidays, or, if permitted by rules of the Commission, during periods when
trading on the Exchange is restricted or during any emergency which makes it
impractical for the Trust to dispose of its investments or to determine fairly
the value of its net assets, or during any other period permitted by order or
other action of the Commission for the protection of
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3238970.02
<PAGE>
investors, such obligation may be suspended or postponed by the Trustees. The
Trust may also purchase or repurchase Shares at a price not exceeding the net
asset value of such Shares in effect when the purchase or repurchase or any
contract to purchase or repurchase is made.
Redemption at the Option of the Trust
Section 3. The Trust shall have the right at its option and at any time to
redeem Shares of any Shareholder at the net asset value thereof as determined in
accordance with the By-Laws: (i) if at such time such Shareholder owns fewer
Shares than, or Shares having an aggregate net asset value of less than, an
amount determined from time to time by the Trustees; or (ii) to the extent that
such Shareholder owns Shares of a particular Series or Class of Shares equal to
or in excess of a percentage of the outstanding Shares of that Series or Class
determined from time to time by the Trustees; or (iii) to the extent that such
Shareholder owns Shares of the Trust representing a percentage equal to or in
excess of such percentage of the aggregate number of outstanding Shares of the
Trust or the aggregate net asset value of the Trust determined from time to time
by the Trustees.
ARTICLE VII
Compensation and Limitation of Liability of Trustees
Compensation
Section 1. The Trustees as such shall be entitled to reasonable
compensation from the Trust; they may fix the amount of their compensation.
Nothing herein shall in any way prevent the employment of any Trustee for
advisory, management, legal, accounting, investment banking, underwriting,
brokerage or other services and payment for the same by the Trust.
Limitation of Liability
Section 2. The Trustees shall not be responsible or liable in any event for
any neglect or wrongdoing of any officer, agent, employee, manager or principal
underwriter of the Trust, nor shall any Trustee be responsible for the act or
omission of any other Trustee, but nothing herein contained shall protect any
Trustee against any liability to which he or she would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office.
Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever executed or done by or on behalf of the
Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been
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<PAGE>
executed or done only in or with respect to their or his or her capacity as
Trustees or Trustee, and such Trustees or Trustee shall not be personally liable
thereon.
ARTICLE VIII
Indemnification
Trustees, Officers, etc.
Section 1. The By-Laws may include provisions whereby the Trust may provide
indemnity to its Trustees and officers, including persons who serve at the
Trust's request as directors, officers or trustees of another organization in
which the Trust has any interest as a shareholder, creditor or otherwise (each
such Trustee, officer or person hereinafter referred to as a "Covered Person"),
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 Covered Person may be or may have been threatened, while in office or
thereafter, by reason of being or having been such a Covered Person. Any
indemnity provided to Covered Persons by the By-Laws may, if the By-Laws so
provide, be in addition to any other indemnity to which such persons may be
entitled by law, contract or otherwise.
ARTICLE IX
Miscellaneous
Trustees, Shareholders etc. Not Personally Liable; Notice
Section 1. All persons extending credit to, contracting with or having any
claim against the Trust or a particular Series of Shares shall look only to the
assets of the Trust or the assets of that particular Series of Shares for
payment under such credit, contract or claim, and neither the Shareholders nor
the Trustees, nor any of the Trust's officers, employees or agents, whether
past, present or future, shall be personally liable therefor. Nothing in this
Declaration of Trust shall protect any Trustee against any liability to which
such Trustee would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or undertaking made or
issued by the Trustees or by any officer or officers shall give notice that this
Declaration of Trust is on file with the Secretary of State of The Commonwealth
of Massachusetts and shall recite that the same was executed or made by or on
behalf of the Trust or by them
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<PAGE>
as Trustee or Trustees or as officer or officers and not individually and that
the obligations of such instrument are not binding upon any of them or the
Shareholders individually but are binding only upon the assets and property of
the Trust, and may contain such further recital as he or she or they may deem
appropriate, but the omission thereof shall not operate to bind any Trustee or
Trustees or officer or officers or Shareholder or Shareholders individually.
Shareholders
Section 2. In case any Shareholder or former Shareholder shall be held to
be personally liable solely by reason of his or her being or having been a
Shareholder and not because of his or her acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his or her heirs, executors,
administrators or other legal representative or, in the case of a corporation or
other entity, its corporate or other general successor) shall be entitled to be
held harmless from and indemnified against all loss and expense arising from
such liability, but only out of the assets of the particular Series of Shares of
which he or she is or was a Shareholder.
Trustee's Good Faith Action, Expert Advice, No Bond or Surety
Section 3. The exercise by the Trustees of their powers and discretions
hereunder shall be binding upon everyone interested. A Trustee shall be liable
for his or her own willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of Trustee, and
for nothing else, and shall not be liable for the errors of judgment or mistakes
of fact or law. The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust, and shall be
under no liability for any act or omission in accordance with such advice or for
failing to follow such advice. The Trustees as such shall not be required to
give any bond, nor any surety if a bond is required.
Liability of Third Persons Dealing with Trustees
Section 4. No person dealing with the Trustees shall be bound to make any
inquiry concerning the validity of any transaction made or to be made by the
Trustees or to see to the application of any payments made or property
transferred to the Trust or upon its order.
Duration and Termination of Trust
Section 5. Unless terminated as provided herein, the Trust shall continue
without limitation of time. The Trust may be terminated at any time by vote of
Shareholders holding at least sixty-six and two-thirds percent (66 2/3%) of the
Shares entitled to vote, or by the Trustees by written notice to the
Shareholders. Any Series or Class of Shares
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<PAGE>
may be terminated at any time by vote of Shareholders holding at least sixty-six
and two-thirds percent (66 2/3%) of the Shares of such Series or Class entitled
to vote, or by the Trustees by written notice to the Shareholders of such Series
or Class. Upon termination of the Trust or of any one or more Series or Classes
of Shares, after paying or otherwise providing for all charges, taxes, expenses
and liabilities, whether due or accrued or anticipated, of the Trust or of the
particular Series or Class as may be determined by the Trustees, the Trust shall
in accordance with such procedures as the Trustees consider appropriate reduce
the remaining assets to distributable form in cash or shares or other property,
or any combination thereof, and distribute the proceeds to the Shareholders of
the Series involved, ratably according to the number of Shares of such Series
held by the several Shareholders of such Series on the date of termination,
except to the extent otherwise required or permitted by the preferences and
special or relative rights and privileges of any Classes of Shares of that
Series, provided that any distribution to the Shareholders of a particular Class
of Shares shall be made to such Shareholders pro rata in proportion to the
number of Shares of such Class held by each of them.
Filing and Copies, References, Headings
Section 6. The original or a copy of this instrument and of each amendment
hereto shall be kept at the office of the Trust where it may be inspected by any
Shareholder. A copy of this instrument and of each amendment hereto shall be
filed by the Trust with the Secretary of State of The Commonwealth of
Massachusetts and with the Boston City Clerk, as well as any other governmental
office where such filing may from time to time be required. Anyone dealing with
the Trust may rely on a certificate by an officer of the Trust as to whether or
not any such amendments have been made and as to any matters in connection with
the Trust hereunder, and, with the same effect as if it were the original, may
rely on a copy certified by an officer of the Trust to be a copy of this
instrument or of any such amendments. In this instrument and in any such
amendment, references to this instrument and all expressions like "herein",
"hereof" and "hereunder" shall be deemed to refer to this instrument as amended
or affected by any such amendments. Headings are placed herein for convenience
of reference only and shall not be taken as a part hereof or control or affect
the meaning, construction or effect of this instrument. This instrument may be
executed in any number of counterparts each of which shall be deemed an
original.
Applicable Law
Section 7. This Declaration of Trust is made in The Commonwealth of
Massachusetts, and it is created under and is to be governed by and construed
and administered according to the laws of said Commonwealth. The Trust shall be
of the type commonly called a Massachusetts business trust and, without limiting
the provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.
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<PAGE>
Amendments
Section 8. This Declaration of Trust may be amended at any time by an
instrument in writing signed by a majority of the then Trustees when authorized
to do so by vote of Shareholders holding a majority of the Shares entitled to
vote, except that an amendment which in the determination of the Trustees shall
affect the holders of one or more Series or Classes of Shares but not the
holders of all outstanding Series and Classes shall be authorized by vote of the
Shareholders holding a majority of the Shares entitled to vote of each Series
and Class affected and no vote of Shareholders of a Series or Class not affected
shall be required. Amendments having the purpose of changing the name of the
Trust, of establishing, changing or eliminating the par value of any Shares or
of supplying any omission, curing any ambiguity or curing, correcting or
supplementing any defective or inconsistent provision contained herein shall not
require authorization by vote of any Shareholders.
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IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal in
the City of Boston, Massachusetts for himself and his assigns, as of the day and
year first above written.
/s/ Gregory C. Davis
-------------------------------
Gregory C. Davis
THE COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. Boston, September 29, 1997
Then personally appeared the above named Gregory C. Davis and acknowledged
the foregoing instrument to be his free act and deed, before me,
/s/ Richard E. Cordet
-------------------------------
Notary Public
My Commission Expires February 26, 2004
Trustee: Gregory C. Davis
172 Beech Street
Belmont, MA 02178
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EXHIBIT 99.2:
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BY-LAWS OF THE TRUST
<PAGE>
BY-LAWS
OF
UNDISCOVERED MANAGERS FUNDS
ARTICLE 1
Agreement and Declaration
of Trust and Principal Office
1.1 Agreement and Declaration of Trust. These By-Laws shall be subject to the
Agreement and Declaration of Trust, as from time to time in effect (the
"Declaration of Trust"), of Undiscovered Managers Funds (the "Trust"), the
Massachusetts business trust established by the Declaration of Trust.
1.2 Principal Office of the Trust. The principal office of the Trust shall be
located in Dallas, Texas.
ARTICLE 2
Meetings of Trustees
2.1 Regular Meetings. Regular meetings of the Trustees may be held without call
or notice at such places and at such times as the Trustees may from time to time
determine, provided that notice of the first regular meeting following any such
determination shall be given to absent Trustees.
2.2 Special Meetings. Special meetings of the Trustees may be held, at any time
and at any place designated in the call of the meeting, when called by the
Chairman of the Board, if any, the President or the Treasurer or by two or more
Trustees, sufficient notice thereof being given to each Trustee by the Secretary
or an Assistant Secretary or by the officer or the Trustees calling the meeting.
2.3 Notice. It shall be sufficient notice to a Trustee of a special meeting to
send notice by mail at least forty-eight hours or by telegram at least
twenty-four hours before the meeting addressed to the Trustee at his or her
usual or last known business or residence address or to give notice to him or
her in person or by telephone at least twenty-four hours before the meeting.
Notice of a meeting need not be given (a) to any Trustee if a written waiver of
notice, executed by him before or after the meeting, is filed with the records
of the meeting; or (b) to any Trustee who attends the meeting without protesting
prior thereto or at its commencement the lack of notice to him or her. Neither
notice of a meeting nor a waiver of a notice need specify the purposes of the
meeting.
2.4 Quorum. At any meeting of the Trustees a majority of the Trustees then in
office shall constitute a quorum. Any meeting may be adjourned from time to time
by a majority of the
<PAGE>
votes cast upon the question, whether or not a quorum is present, and the
meeting may be held as adjourned without further notice.
ARTICLE 3
Officers
3.1 Enumeration; Qualification. The officers of the Trust shall be a President,
a Treasurer, a Secretary, and such other officers, if any, as the Trustees from
time to time may in their discretion elect. The Trust may also have such agents
as the Trustees may appoint from time to time in their discretion. If a Chairman
of the Board is elected, he or she shall be a Trustee and may but need not be a
shareholder; and any other officer may be but none need be a Trustee or
shareholder. Any two or more offices may be held by the same person.
3.2 Election and Tenure. The President, the Treasurer, the Secretary and such
other officers as the Trustees may in their discretion from time to time elect
shall each be elected by the Trustees to serve until his or her successor is
elected or qualified, or until he or she sooner dies, resigns, is removed or
becomes disqualified. Each officer shall hold office and each agent shall retain
authority at the pleasure of the Trustees.
3.3 Powers. Subject to the other provisions of these By-Laws, each officer shall
have, in addition to the duties and powers herein and in the Declaration of
Trust set forth, such duties and powers as are commonly incident to the office
occupied by him or her as if the Trust were organized as a Massachusetts
business corporation and such other duties and powers as the Trustees may from
time to time designate.
3.4 President and Vice Presidents. The President shall have the duties and
powers specified in these By-Laws and shall have such other duties and powers as
may be determined by the Trustees. Any Vice Presidents shall have such duties
and powers as shall be designated from time to time by the Trustees.
3.5 Chief Executive Officer. The Chief Executive Officer of the Trust shall be
the Chairman of the Board, the President or such other officer as is designated
by the Trustees and shall, subject to the control of the Trustees, have general
charge and supervision of the business of the Trust and, except as the Trustees
shall otherwise determine, preside at all meetings of the shareholders and of
the Trustees. If no such designation is made, the President shall be the Chief
Executive Officer.
3.6 Chairman of the Board. If a Chairman of the Board of Trustees is elected, he
or she shall have the duties and powers specified in these By-Laws and shall
have such other duties and powers as may be determined by the Trustees.
3.7 Treasurer. The Treasurer shall be the chief financial and accounting officer
of the Trust, and shall, subject to the provisions of the Declaration of Trust
and to any arrangement made
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<PAGE>
by the Trustees with a custodian, investment adviser or manager or transfer,
shareholder servicing or similar agent, be in charge of the valuable papers,
books of account and accounting records of the Trust, and shall have such other
duties and powers as may be designated from time to time by the Trustees or by
the President.
3.8 Secretary. The Secretary shall record all proceedings of the Shareholders
and the Trustees in books to be kept therefor, which books or a copy thereof
shall be kept at the principal office of the Trust. In the absence of the
Secretary from any meeting of the Shareholders or Trustees, an assistant
Secretary or, if there be none or if he or she is absent, a temporary clerk
chosen at such meeting shall record the proceedings thereof in the aforesaid
books.
3.9 Resignations and Removals. Any officer may resign at any time by written
instrument signed by him or her and delivered to the President or the Secretary
or to a meeting of the Trustees. Such resignation shall be effective upon
receipt unless specified to be effective at some other time. The Trustees may
remove any officer with or without cause. Except to the extent expressly
provided in a written agreement with the Trust, no officer resigning and no
officer removed shall have any right to any compensation for any period
following his or her resignation or removal, or any right to damages on account
of such removal.
ARTICLE 4
Indemnification
4.1 Trustees, Officers, etc. The Trust shall indemnify each of its Trustees and
officers (including persons who serve at the Trust's request as directors,
officers or trustees of another organization in which the Trust has any interest
as a shareholder, creditor or otherwise) (each such Trustee, officer or person
hereinafter referred to as a "Covered Person") 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
be or may have been threatened, while in office or thereafter, by reason of any
alleged act or omission as a Trustee or officer or by reason of his or her being
or having been such a Trustee or officer, except with respect to any matter as
to which such Covered Person shall have been finally adjudicated in any such
action, suit or other proceeding not to have acted in good faith in the
reasonable belief that such Covered Person's action was in the best interest of
the Trust, and except that no Covered Person shall be indemnified against any
liability to the Trust or its Shareholders 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 Person's office. Expenses, including counsel fees so incurred by any
such Covered Person, may be paid from time to time by the Trust in advance of
the final disposition of any such action, suit or proceeding on the condition
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<PAGE>
that the amounts so paid shall be repaid to the Trust if it is ultimately
determined that indemnification of such expenses is not authorized under this
Article.
4.2 Compromise Payment. As to any matter disposed of by a compromise payment by
any such Covered Person referred to in Section 4.1 above, pursuant to a consent
decree or otherwise, no such indemnification either for said payment or for any
other expenses shall be provided unless such compromise shall be approved as in
the best interests of the Trust, after notice that it involved such
indemnification, (a) by a disinterested majority of the Trustees then in office;
or (b) by a majority of the disinterested Trustees then in office; or (c) by any
disinterested person or persons to whom the question may be referred by the
Trustees; or (d) by vote of Shareholders holding a majority of the Shares
entitled to vote thereon, exclusive of any Shares beneficially owned by any
interested Covered Person; provided, however, that such indemnification would
not protect such person against any liability to the Trust or its Shareholders
to which such 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 office. Approval by the Trustees pursuant to clause
(a) or (b) or by any disinterested person or persons pursuant to clause (c) of
this Section shall not prevent the recovery from any Covered Person of any
amount paid as indemnification to such Covered Person in accordance with any of
such clauses if such Covered Person is subsequently adjudicated by a court of
competent jurisdiction not to have acted in good faith in the reasonable belief
that such Covered Person's action was in the best interests of the Trust or to
have been liable to the Trust or its Shareholders 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.
4.3 Indemnification Not Exclusive. 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 Article 4, the term "Covered Person"
shall include such person's heirs, executors and administrators; an "interested
Covered Person" is one against whom the action, suit or other proceeding in
question or another action, suit or other proceeding on the same or similar
grounds is then or has been pending; and a "disinterested Trustee" or
"disinterested person" is a Trustee or a person against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending. Nothing contained in
this Article shall affect any rights to indemnification to which personnel of
the Trust, other than Trustees and officers, and other persons may be entitled
by contract or otherwise under law, or the power of the Trust to purchase and
maintain liability insurance on behalf of any such person.
ARTICLE 5
Reports
5.1 General. The Trustees and officers shall render reports at the time and in
the manner required by the Declaration of Trust or any applicable law. Officers
shall render such
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additional reports as they may deem desirable or from time to time as may be
required by the Trustees.
ARTICLE 6
Fiscal Year
6.1 General. Except as otherwise provided from time to time by the Trustees, the
fiscal year of the Trust shall end on December 31 in each year.
ARTICLE 7
Seal
7.1 General. The seal of the Trust shall consist of a flat-faced die with the
word "Massachusetts", together with the name of the Trust and the year of its
organization cut or engraved thereon. Unless otherwise required by the Trustees,
it shall not be necessary to place the seal on, and its absence shall not impair
the validity of, any document, instrument or other paper executed and delivered
by or on behalf of the Trust.
ARTICLE 8
Execution of Papers
8.1 General. Except as the Trustees, generally or in particular cases, may have
authorized the execution thereof in some other manner, all checks, notes, drafts
and other obligations and all registration statements and amendments thereto and
all applications and amendments thereto to the Securities and Exchange
Commission shall be signed by any of the President, any Vice- President, the
Treasurer or any of such other officers or agents as shall be designated for
that purpose by a vote of the Trustees.
ARTICLE 9
Issuance of Share Certificates
9.1 Share Certificates. In lieu of issuing certificates for shares, the Trustees
or the transfer agent may either issue receipts therefor or may keep accounts
upon the books of the Trust for the record holders of such shares, who shall in
either case be deemed, for all purposes hereunder, to be the holders of
certificates for such shares as if they had accepted such certificates and shall
be held to have expressly assented and agreed to the terms of this Article 9.
The Trustees may at any time authorize the issuance of share certificates. In
that event, each shareholder shall be entitled to a certificate stating the
number of shares owned by him or her, in such form as shall be prescribed from
time to time by the Trustees. Such certificates shall be signed by the President
or any Vice-President and by the Treasurer or any Assistant Treasurer. Such
signatures may be facsimile if the certificate is signed by a transfer agent, or
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by a registrar, other than a Trustee, officer or employee of the Trust. In case
any officer who has signed or whose facsimile signature has been placed on such
certificate shall cease to be such officer before such certificate is issued, it
may be issued by the Trust with the same effect as if he or she were such
officer at the time of its issue.
9.2 Loss of Certificates. In case of the alleged loss or destruction or the
mutilation of a share certificate, a duplicate certificate may be issued in
place thereof, upon such terms as the Trustees shall prescribe.
9.3 Issuance of New Certificates to Pledgee. A pledgee of shares transferred as
collateral security shall be entitled to a new certificate if the instrument of
transfer substantially describes the debt or duty that is intended to be secured
thereby. Such new certificate shall express on its face that it is held as
collateral security, and the name of the pledgor shall be stated thereon, who
alone shall be liable as a shareholder and entitled to vote thereon.
9.4 Discontinuance of Issuance of Certificates. The Trustees may at any time
discontinue the issuance of share certificates and may, by written notice to
each shareholder, require the surrender of share certificates to the Trust for
cancellation. Such surrender and cancellation shall not effect the ownership of
shares in the Trust.
ARTICLE 10
Provisions Relating to the Conduct of the Trust's Business
10.1 Determination of Net Asset Value Per Share. Net asset value per share of
each series or class of shares of the Trust shall be determined at the times and
in the manner specified from time to time by the Trustees.
ARTICLE 11
Shareholders' Voting Powers and Meetings
11.1 Record Dates. For the purpose of determining the shareholders who are
entitled to vote or act at any meeting or any adjournment thereof, or who are
entitled to receive payment of any dividend or of any other distribution, the
Trustees may from time to time fix a time, which shall be not more than 90 days
before the date of any meeting of shareholders or the date for the payment of
any dividend or of any other distribution, as the record date for determining
the shareholders having the right to notice of and to vote at such meeting and
any adjournment thereof or the right to receive such dividend or distribution,
and in such case only shareholders of record on such record date shall have such
right notwithstanding any transfer of shares on the books of the Trust after the
record date; or without fixing such record date the Trustees may for any of such
purposes close the register or transfer books for all or any part of such
period.
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ARTICLE 12
Amendments to the By-Laws
12.1 General. These By-Laws may be amended or repealed, in whole or in part, by
a majority of the Trustees then in office at any meeting of the Trustees.
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EXHIBIT 99.5(a):
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FORM OF MANAGEMENT AGREEMENT BETWEEN THE TRUST AND UNDISCOVERED MANAGERS
RELATING TO EACH SERIES OF THE TRUST
<PAGE>
UNDISCOVERED MANAGERS ______________FUND
Management Agreement
AGREEMENT made this ___ day of ______________, 1997 by and between
UNDISCOVERED MANAGERS FUNDS, a Massachusetts business trust (the "Fund"), with
respect to its [Fund name] series (the "Series"), and UNDISCOVERED MANAGERS,
LLC, a Delaware limited liability company (the "Manager").
WITNESSETH:
WHEREAS, the Fund and the Manager wish to enter into an agreement
setting forth the terms upon which the Manager (or certain other parties acting
pursuant to delegation from the Manager) will perform certain services for the
Series;
NOW, THEREFORE, in consideration of the premises and covenants
hereinafter contained, the parties agree as follows:
1. (a) The Fund hereby employs the Manager to furnish the Fund with
Portfolio Management Services (as defined in Section 2 hereof), subject
to the authority of the Manager to delegate certain of its
responsibilities hereunder to other parties as provided in Section 1(b)
hereof. The Manager hereby accepts such employment and agrees, at its
own expense, to furnish such services (either directly or pursuant to
delegation to other parties as and to the extent permitted by Section
1(b) hereof) and to assume the obligations herein set forth, for the
compensation herein provided. The Manager shall, unless otherwise
expressly provided or authorized, have no authority to act for or
represent the Fund in any way or otherwise be deemed an agent of the
Fund.
(b) The Manager may delegate any or all of its
responsibilities hereunder with respect to the provision of Portfolio
Management Services (and assumption of related expenses) to one or more
other parties (each such party, a "Sub-Adviser"), pursuant in each case
to a written agreement with such Sub-Adviser that meets the
requirements of Section 15 of the Investment Company Act of 1940 and
the rules thereunder (the "1940 Act") applicable to contracts for
service as investment adviser of a registered investment company
(including without limitation the requirements for approval by the
trustees of the Fund and the shareholders of the Series), subject,
however, to such exemptions as may be granted by the Securities and
Exchange Commission. Any Sub-Adviser may (but need not) be affiliated
with the Manager.
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<PAGE>
(c) In the event that the Manager delegates to one or more
Sub-Advisers all or part of its responsibilities hereunder with respect
to the provision of Portfolio Management Services, the Manager hereby
agrees to furnish to the Fund the following services ("Oversight
Services"):
(i) supervision and oversight of each Sub-Adviser's
provision of Portfolio Management Services with respect to
the Series;
(ii) periodic evaluation of the Portfolio Management
Services provided by each Sub-Adviser, and of the investment
performance of the Series;
(iii) advice to and consultation with the Board of Trustees
of the Fund with respect to matters relating to the
investment operations of the Series, including matters
relating to the selection, evaluation, retention and
possible termination of each Sub-Adviser; and
(iv) regular reporting to the Board of Trustees of the Fund
with respect to the foregoing matters.
2. As used in this Agreement, "Portfolio Management Services" means
management of the investment and reinvestment of the assets belonging to the
Series, consisting specifically of the following:
(a) obtaining and evaluating such economic, statistical and
financial data and information and undertaking such additional
investment research as shall be necessary or advisable for the
management of the investment and reinvestment of the assets belonging
to the Series in accordance with the Series' investment objectives and
policies;
(b) taking such steps as are necessary to implement the
investment policies of the Series by purchasing and selling of
securities, including the placing of orders for such purchase and sale;
and
(c) regularly reporting to the Board of Trustees of the Fund
with respect to the implementation of the investment policies of the
Series.
3. Nothing in this Agreement shall require the Manager to bear, or to
reimburse the Fund for:
(a) office space, office supplies, facilities and equipment
for the Fund;
(b) executive and other personnel for managing the affairs of
the Fund, other than for the provision of (1) Portfolio Management
Services and (2) Oversight Services
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<PAGE>
(if the Manager shall have delegated to one or more Sub-Advisers any or
all of its responsibilities hereunder with respect to the provision of
Portfolio Management Services);
(c) any of the costs of printing and mailing the items
referred to in Sub- Section (p) of this Section 3;
(d) any of the costs of preparing, printing and distributing
sales literature;
(e) compensation of trustees of the Fund who are not
directors, officers or employees of the Manager or of any affiliated
person (other than a registered investment company) of the Manager;
(f) registration, filing and other fees in connection with
requirements of regulatory authorities;
(g) the charges and expenses of any entity appointed by the
Fund for custodial, paying agent, shareholder servicing and plan agent
services;
(h) charges and expenses of independent accountants retained
by the Fund;
(i) charges and expenses of any transfer agents and registrars
appointed by the Fund;
(j) brokers' commissions and issue and transfer taxes
chargeable to the Fund in connection with securities transactions to
which the Fund is a party;
(k) taxes and fees payable by the Fund to federal, state or
other governmental agencies;
(l) any cost of certificates representing shares of the Fund;
(m) legal fees and expenses in connection with the affairs of
the Fund, including registering and qualifying its shares with federal
and state regulatory authorities;
(n) expenses of meetings of shareholders and trustees of the
Fund;
(o) interest, including interest on borrowings by the Fund;
(p) the costs of services, including services of counsel,
required in connection with the preparation of the Fund's registration
statements and prospectuses, including amendments and revisions
thereto, annual, semiannual and other periodic reports of the
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<PAGE>
Fund, and notices and proxy solicitation material furnished to
shareholders of the Fund or regulatory authorities; and
(q) the Fund's expenses of bookkeeping, accounting, auditing
and financial reporting, including related clerical expenses.
4. All activities undertaken by the Manager or any Sub-Adviser pursuant
to this Agreement shall at all times be subject to the supervision and control
of the Board of Trustees of the Fund, any duly constituted committee thereof or
any officer of the Fund acting pursuant to like authority.
5. The services to be provided by the Manager and any Sub-Adviser
hereunder are not to be deemed exclusive and the Manager and any Sub-Adviser
shall be free to render similar services to others, so long as its services
hereunder are not impaired thereby.
6. As full compensation for all services rendered, facilities furnished
and expenses borne by the Manager hereunder, the Fund shall pay the Manager
compensation at the annual rate of [ ]% of the average daily net assets of the
Series (or such lesser amount as the Manager may from time to time agree to
receive). Such compensation shall be payable monthly in arrears or at such other
intervals, not less frequently than quarterly, as the Board of Trustees of the
Fund may from time to time determine and specify in writing to the Manager. The
Manager hereby acknowledges that the Fund's obligation to pay such compensation
is binding only on the assets and property belonging to the Series.
7. It is understood that any of the shareholders, trustees, officers,
employees and agents of the Fund may be a shareholder, director, officer,
employee or agent of, or be otherwise interested in, the Manager, any affiliated
person of the Manager, any organization in which the Manager may have an
interest or any organization which may have an interest in the Manager; that the
Manager, any such affiliated person or any such organization may have an
interest in the Fund; and that the existence of any such dual interest shall not
affect the validity hereof or of any transactions hereunder except as otherwise
provided in the Agreement and Declaration of Trust of the Fund, the partnership
agreement of the Manager or specific provisions of applicable law.
8. The Fund acknowledges that, as between the Fund and the Manager, the
Manager owns and controls the name "Undiscovered Managers." The Manager consents
to the use by the Fund of the name "Undiscovered Managers Funds" and by the
Series of the name "Undiscovered Managers ____________ Fund" or any other name
embodying the words "Undiscovered Managers," in such forms as the Manager shall
in writing approve, but only on condition and so long as (i) this Agreement
shall remain in full force and (ii) the Fund shall fully perform, fulfill and
comply with all provisions of this Agreement expressed herein to be performed,
fulfilled or complied with by it. No such name shall be used by the Fund or the
Series at any time or in any place or for any purposes or under any conditions
except as in this section provided. The foregoing authorization by the Manager
to the Fund and the Series to
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<PAGE>
use said words as part of a business or name is not exclusive of the right of
the Manager itself to use, or to authorize others to use, the same; the Fund
acknowledges and agrees that as between the Manager and the Fund, the Manager
has the exclusive right so to use, or authorize others to use, said words, and
the Fund agrees to take such action as may reasonably be requested by the
Manager to give full effect to the provisions of this section (including,
without limitation, consenting to such use of said words). Without limiting the
generality of the foregoing, the Fund agrees that, upon any termination of this
Agreement by either party or upon the violation of any of its provisions by the
Fund, the Fund will, at the request of the Manager made at any time after the
Manager has knowledge of such termination or violation, use its best efforts to
change the name of the Fund and the Series so as to eliminate all reference, if
any, to the words "Undiscovered" and "Managers" and will not thereafter transact
any business in a name containing the words "Undiscovered" or "Managers" in any
form or combination whatsoever, or (except as may otherwise be required by law)
designate itself as the same entity as or successor to any entity of such name,
or otherwise use the words "Undiscovered" or "Managers" or any other reference
to the Manager. Such covenants on the part of the Fund and the Series shall be
binding upon it, its trustees, officers, shareholders, creditors and all other
persons claiming under or through it.
9. This Agreement shall become effective as of the date of its
execution, and
(a) unless otherwise terminated, this Agreement shall continue
in effect for two years from the date of execution, and from year to
year thereafter so long as such continuance is specifically approved at
least annually (i) by the Board of Trustees of the Fund or by vote of a
majority of the outstanding voting securities of the Series, and (ii)
by vote of a majority of the trustees of the Fund who are not
interested persons of the Fund or the Manager, cast in person at a
meeting called for the purpose of voting on, such approval;
(b) this Agreement may at any time be terminated on sixty
days' written notice to the Manager either by vote of the Board of
Trustees of the Fund or by vote of a majority of the outstanding voting
securities of the Series;
(c) this Agreement shall automatically terminate in the event
of its assignment;
(d) this Agreement may be terminated by the Manager on ninety
days' written notice to the Fund; and
(e) if the Manager requires the Fund or the Series to change
its name so as to eliminate all references to the words "Undiscovered
Managers," this Agreement shall automatically terminate at the time of
such change unless the continuance of this Agreement after such change
shall have been specifically approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority
of the trustees
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<PAGE>
of the Fund who are not interested persons of the Fund or the Manager,
cast in person at a meeting called for the purpose of voting on such
approval.
Termination of this Agreement pursuant to this Section 9 shall be
without the payment of any penalty.
10. This Agreement may be amended at any time by mutual consent of the
parties, provided that such consent on the part of the Fund shall have been
approved by vote of a majority of the outstanding voting securities of the
Series and by vote of a majority of the trustees of the Fund who are not
interested persons of the Fund or the Manager, cast in person at a meeting
called for the purpose of voting on such approval.
11. For the purpose of this Agreement, the terms "vote of a majority of
the outstanding voting securities," "interested person," "affiliated person" and
"assignment" shall have their respective meanings defined in the 1940 Act,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under the 1940 Act. References in this Agreement to any
assets, property or liabilities "belonging to" the Series shall have the meaning
defined in the Fund's Agreement and Declaration of Trust as amended from time to
time.
12. In the absence of willful misfeasance, bad faith or gross
negligence on the part of the Manager, or reckless disregard of its obligations
and duties hereunder, the Manager shall not be subject to any liability to the
Fund, to any shareholder of the Fund or to any other person, firm or
organization, for any act or omission in the course of, or connected with,
rendering services hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
UNDISCOVERED MANAGERS FUNDS UNDISCOVERED MANAGERS, LLC
on behalf of its [Fund name] series
By: ________________________________ By: ________________________________
Name: Name:
Title: Title:
NOTICE
A copy of the Agreement and Declaration of Trust establishing
Undiscovered Managers Funds (the "Fund") is on file with the Secretary of The
Commonwealth of Massachusetts, and notice is hereby given that this Agreement is
executed with respect to the Fund's [Fund name] series (the "Series") on behalf
of the Fund by officers of the Fund as officers and not individually
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<PAGE>
and that the obligations of or arising out of this Agreement are not binding
upon any of the trustees, officers or shareholders individually but are binding
only upon the assets and property belonging to the Series.
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EXHIBIT 99.5(b)(i):
-------------------
FORM OF SUB-ADVISORY AGREEMENT BETWEEN UNDISCOVERED MANAGERS AND E.R. TAYLOR
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<PAGE>
UNDISCOVERED MANAGERS FUNDS
SUB-ADVISORY AGREEMENT
(All Cap Value Fund)
This Sub-Advisory Agreement (this "Agreement") is entered into as of
__________, 1997 by and between Undiscovered Managers, LLC, a Delaware limited
liability company (the "Manager") and E. R. Taylor Investments, Inc., a Delaware
corporation (the "Sub-Adviser").
WHEREAS, the Manager has entered into a Management Agreement dated
____________, 1997 (the "Management Agreement") with Undiscovered Managers Funds
(the "Trust"), pursuant to which the Manager provides portfolio management and
administrative services to the All Cap Value Fund of the Trust (the "Series");
WHEREAS, the Management Agreement provides that the Manager may
delegate any or all of its portfolio management responsibilities under the
Management Agreement to one or more sub-advisers; and
WHEREAS, the Manager desires to retain the Sub-Adviser to render
portfolio management services in the manner and on the terms set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, the Manager and the Sub-Adviser agree as follows:
1. Sub-Advisory Services.
a. The Sub-Adviser shall, subject to the supervision of the
Manager and in cooperation with any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the assets of the
Series. The Sub-Adviser shall manage the Series in conformity with (1) the
investment objective, policies and restrictions of the Series set forth in the
Trust's prospectus and statement of additional information relating to the
Series, (2) any additional policies or guidelines established by the Manager or
by the Trust's trustees that have been furnished in writing to the Sub-Adviser
and (3) the provisions of the Internal Revenue Code (the "Code") applicable to
"regulated investment companies" (as defined in Section 851 of the Code), all as
from time to time in effect (collectively, the "Policies"), and with all
applicable provisions of law, including without limitation all applicable
provisions of the Investment Company Act of 1940 (the "1940 Act") and the rules
and regulations thereunder. Subject to the foregoing sentence, the Sub-Adviser
is authorized, in its discretion and without prior consultation with the
Manager, to buy, sell, lend and otherwise trade in any stocks, bonds and other
securities and investment instruments on
<PAGE>
behalf of the Series, without regard to the length of time the securities have
been held and the resulting rate of portfolio turnover or any tax
considerations; and the majority or the whole of the Series may be invested in
such proportions of stocks, bonds, other securities or investment instruments,
or cash, as the Sub-Adviser shall determine. Notwithstanding the foregoing
provisions of this Section 1.a, however, the Sub-Adviser shall, upon written
instructions from the Manager, effect such portfolio transactions for the Series
as the Manager shall determine are necessary in order for the Series to comply
with the Policies.
b. The Sub-Adviser shall furnish the Manager and the
Administrator monthly, quarterly and annual reports concerning portfolio
transactions and performance of the Series in such form as may be mutually
agreed upon, and agrees to review the Series and discuss the management of the
Series with representatives or agents of the Manager, the Administrator or the
Trust at their reasonable request. The Sub-Adviser shall permit all books and
records with respect to the Series to be inspected and audited by the Manager
and the Administrator at all reasonable times during normal business hours, upon
reasonable notice. The Sub-Adviser shall also provide the Manager, the
Administrator or the Trust with such other information and reports as may
reasonably be requested by the Manager, the Administrator or the Trust from time
to time, including without limitation all material as reasonably may be
requested by the trustees of the Trust pursuant to Section 15(c) of the 1940
Act.
c. The Sub-Adviser shall provide to the Manager a copy of the
Sub- Adviser's Form ADV as filed with the Securities and Exchange Commission and
as amended from time to time and a list of the persons whom the Sub-Adviser
wishes to have authorized to give written and/or oral instructions to custodians
of assets of the Series.
2. Obligations of the Manager.
a. The Manager shall provide (or cause the Trust's custodian
to provide) timely information to the Sub-Adviser regarding such matters as the
composition of assets in the Series, cash requirements and cash available for
investment in the Series, and all other information as may be reasonably
necessary for the Sub-Adviser to perform its responsibilities hereunder.
b. The Manager has furnished the Sub-Adviser a copy of the
prospectus and statement of additional information of the Series and agrees
during the continuance of this Agreement to furnish the Sub-Adviser copies of
any revisions or supplements thereto at, or, if practicable, before the time the
revisions or supplements become effective. The Manager agrees to furnish the
Sub-Adviser with (1) minutes of meetings of the trustees of the Trust applicable
to the Series to the extent they may affect the duties of the Sub-Adviser, (2)
copies of any written policies adopted by the Manager or the trustees of the
Trust relating to the operation of the Series and in effect from time to time,
(3) copies of any financial statements or reports made by the Series to its
shareholders, and (4) any further materials or information
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<PAGE>
which the Sub-Adviser may reasonably request to enable it to perform its
functions under this Agreement.
3. Custodian. The Manager shall provide the Sub-Adviser with a copy of
the Series' agreement with the custodian designated to hold the assets of the
Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions of
the Custodian, unless such act or omission is required by and taken in reliance
upon instructions given to the Custodian by a representative of the Sub-Adviser
properly authorized to give such instructions under the Custody Agreement. Any
assets added to the Series shall be delivered directly to the Custodian.
4. Expenses. Except for expenses specifically assumed or agreed to be
paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for
any expenses of the Manager or the Trust including, without limitation, (a)
interest and taxes, (b) brokerage commissions and other costs in connection with
the purchase or sale of securities or other investment instruments with respect
to the Series, and (c) custodian fees and expenses. The Sub-Adviser will pay its
own expenses incurred in furnishing the services to be provided by it pursuant
to this Agreement.
5. Purchase and Sale of Assets. Absent instructions from the Manager to
the contrary, the Sub-Adviser shall place all orders for the purchase and sale
of securities for the Series with brokers or dealers selected by the
Sub-Adviser, which may include brokers or dealers affiliated with the
Sub-Adviser, provided such orders comply with Rule 17e-1 under the 1940 Act in
all respects. To the extent consistent with applicable law, purchase or sell
orders for the Series may be aggregated with contemporaneous purchase or sell
orders of other clients of the Sub-Adviser. The Sub-Adviser shall use its best
efforts to obtain execution of transactions for the Series at prices which are
advantageous to the Series and at commission rates that are reasonable in
relation to the benefits received. However, the Sub-Adviser may select brokers
or dealers on the basis that they provide brokerage, research or other services
or products to the Series and/or other accounts serviced by the Sub-Adviser. To
the extent consistent with applicable law, the Sub-Adviser may pay a broker or
dealer an amount of commission for effecting a securities transaction in excess
of the amount of commission or dealer spread another broker or dealer would have
charged for effecting that transaction if the Sub-Adviser determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research products and/or services provided by such broker or
dealer. This determination with respect to brokerage and research services or
products may be viewed in terms of either that particular transaction or the
overall responsibilities that the Sub-Adviser and its affiliates have with
respect to the Series or to
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<PAGE>
accounts over which they exercise investment discretion. Not all such services
or products need be used by the Sub-Adviser in managing the Series.
6. Compensation of the Sub-Adviser. As full compensation for all
services rendered, facilities furnished and expenses borne by the Sub-Adviser
hereunder, the Manager shall pay the Sub-Adviser compensation at the annual rate
of 0.40% of the first $200 million of the Series' average daily net assets,
0.35% of the next $100 million of such assets and 0.30% of such assets in excess
of $300 million. Such compensation shall be payable in cash, monthly in arrears
(or at such other intervals, not less frequently than quarterly, as the Manager
is paid by the Series pursuant to the Management Agreement), within ten days
after the Manager is paid by the Series pursuant to the Management Agreement
with respect to such month (or other period). The Manager may from time to time
waive the compensation it is entitled to receive from the Trust; however, any
such waiver will have no effect on the Manager's obligation to pay the
Sub-Adviser the compensation provided for herein.
7. Non-Exclusivity. The Manager and the Series agree that the services
of the Sub- Adviser are not to be deemed exclusive and that the Sub-Adviser and
its affiliates are free to act as investment manager and provide other services
to various investment companies and other managed accounts, except as the
Sub-Adviser and the Manager may otherwise agree from time to time in writing
before or after the date hereof. This Agreement shall not in any way limit or
restrict the Sub-Adviser or any of its directors, officers, employees or agents
from buying, selling or trading any securities or other investment instruments
for its or their own account or for the account of others for whom it or they
may be acting, provided that such activities do not adversely affect or
otherwise impair the performance by the Sub-Adviser of its duties and
obligations under this Agreement. The Manager and the Series recognize and agree
that the Sub-Adviser may provide advice to or take action with respect to other
clients, which advice or action, including the timing and nature of such action,
may differ from or be identical to advice given or action taken with respect to
the Series. The Sub-Adviser shall for all purposes hereof be deemed to be an
independent contractor and shall, unless otherwise provided or authorized, have
no authority to act for or represent the Trust or the Manager in any way or
otherwise be deemed an agent of the Trust or the Manager.
8. Liability. Except as may otherwise be provided by the 1940 Act or
other federal securities laws, neither the Sub-Adviser nor any of its officers,
directors, employees or agents (the "Indemnified Parties") shall be subject to
any liability to the Manager, the Trust, the Series or any shareholder of the
Series for any error of judgment, any mistake of law or any loss arising out of
any investment or other act or omission in the course of, connected with, or
arising out of any service to be rendered under this Agreement, except by reason
of willful misfeasance, bad faith or gross negligence in the performance of the
Sub-Adviser's duties or by reason of reckless disregard by the Sub-Adviser of
its obligations and duties.
9. Effective Date and Termination. This Agreement shall become
effective as of the date of its execution, and
- 4 -
<PAGE>
a. unless otherwise terminated, this Agreement shall continue
in effect for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at least
annually (i) by the Board of Trustees of the Trust or by vote of a majority of
the outstanding voting securities of the Series, and (ii) by vote of a majority
of the trustees of the Trust who are not interested persons of the Trust, the
Manager or the Sub-Adviser, cast in person at a meeting called for the purpose
of voting on such approval;
b. this Agreement may at any time be terminated on sixty days'
written notice to the Sub-Adviser by the Manager, by vote of the Board of
Trustees of the Trust or by vote of a majority of the outstanding voting
securities of the Series;
c. this Agreement may at any time be terminated by the
Sub-Adviser on one hundred eighty days' written notice to both the Manager and
the Trust, in the event that the Manager shall have materially breached the
provisions of this Agreement and shall have failed to remedy such breach within
fifteen days after receiving written notice of such breach from the Sub-Adviser;
d. this Agreement may at any time be terminated by the
Sub-Adviser on at least sixty days' written notice to both the Manager and the
Trust, in the event that the Sub- Adviser permanently and completely ceases to
conduct any business as an investment adviser, manager or counselor; and
e. this Agreement shall automatically terminate in the event
of its assignment.
Termination of this Agreement pursuant to this Section 9 shall be
without the payment of any penalty.
10. Amendment. This Agreement may be amended at any time by mutual
consent of the Manager and the Sub-Adviser, provided that, if required by law,
such amendment shall also have been approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority of the
trustees of the Trust who are not interested persons of the Trust, the Manager
or the Sub-Adviser, cast in person at a meeting called for the purpose of voting
on such approval.
11. Certain Definitions. For the purpose of this Agreement, the terms
"vote of a majority of the outstanding voting securities," "interested person,"
"affiliated person" and "assignment" shall have their respective meanings
defined in the 1940 Act, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under the 1940 Act.
- 5 -
<PAGE>
12. General.
a. If any term or provision of this Agreement or the
application thereof to any person or circumstances is held to be invalid or
unenforceable to any extent, the remainder of this Agreement or the application
of such provision to other persons or circumstances shall not be affected
thereby and shall be enforced to the fullest extent permitted by law.
b. This Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts.
UNDISCOVERED MANAGERS, LLC
By:------------------------------------
Mark P. Hurley
President
E. R. TAYLOR INVESTMENTS, INC
By:------------------------------------
Sherwood T. Small
President
- 6 -
EXHIBIT 99.5(b)(ii):
--------------------
FORM OF SUB-ADVISORY AGREEMENT BETWEEN UNDISCOVERED MANAGERS AND RJF MANAGEMENT
<PAGE>
UNDISCOVERED MANAGERS FUNDS
SUB-ADVISORY AGREEMENT
(Behavioral Growth Fund)
This Sub-Advisory Agreement (this "Agreement") is entered into as of
__________, 1997 by and between Undiscovered Managers, LLC, a Delaware limited
liability company (the "Manager") and RJF Asset Management, Inc., a California
corporation (the "Sub-Adviser").
WHEREAS, the Manager has entered into a Management Agreement dated
____________, 1997 (the "Management Agreement") with Undiscovered Managers Funds
(the "Trust"), pursuant to which the Manager provides portfolio management and
administrative services to the Behavioral Growth Fund of the Trust (the
"Series");
WHEREAS, the Management Agreement provides that the Manager may
delegate any or all of its portfolio management responsibilities under the
Management Agreement to one or more sub-advisers; and
WHEREAS, the Manager desires to retain the Sub-Adviser to render
portfolio management services in the manner and on the terms set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, the Manager and the Sub-Adviser agree as follows:
1. Sub-Advisory Services.
a. The Sub-Adviser shall, subject to the supervision of the
Manager and in cooperation with any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the assets of the
Series. The Sub-Adviser shall manage the Series in conformity with (1) the
investment objective, policies and restrictions of the Series set forth in the
Trust's prospectus and statement of additional information relating to the
Series, (2) any additional policies or guidelines established by the Manager or
by the Trust's trustees that have been furnished in writing to the Sub-Adviser
and (3) the provisions of the Internal Revenue Code (the "Code") applicable to
"regulated investment companies" (as defined in Section 851 of the Code), all as
from time to time in effect (collectively, the "Policies"), and with all
applicable provisions of law, including without limitation all applicable
provisions of the Investment Company Act of 1940 (the "1940 Act") and the rules
and regulations thereunder. Subject to the foregoing, the Sub-Adviser is
authorized, in its discretion and without prior consultation with the Manager,
to buy, sell, lend and otherwise trade in any stocks, bonds and other securities
and investment instruments on behalf of the
<PAGE>
Series, without regard to the length of time the securities have been held and
the resulting rate of portfolio turnover or any tax considerations; and the
majority or the whole of the Series may be invested in such proportions of
stocks, bonds, other securities or investment instruments, or cash, as the
Sub-Adviser shall determine. Notwithstanding the foregoing provisions of this
Section 1.a, however, the Sub-Adviser shall, upon written instructions from the
Manager, effect such portfolio transactions for the Series as the Manager shall
determine are necessary in order for the Series to comply with the Policies.
b. The Sub-Adviser shall furnish the Manager and the
Administrator monthly, quarterly and annual reports concerning portfolio
transactions and performance of the Series in such form as may be mutually
agreed upon, and agrees to review the Series and discuss the management of the
Series with representatives or agents of the Manager, the Administrator or the
Trust at their reasonable request. The Sub-Adviser shall permit all books and
records with respect to the Series to be inspected and audited by the Manager
and the Administrator at all reasonable times during normal business hours, upon
reasonable notice. The Sub-Adviser shall also provide the Manager, the
Administrator or the Trust with such other information and reports as may
reasonably be requested by the Manager, the Administrator or the Trust from time
to time, including without limitation all material as reasonably may be
requested by the trustees of the Trust pursuant to Section 15(c) of the 1940
Act.
c. The Sub-Adviser shall provide to the Manager a copy of the
Sub- Adviser's Form ADV as filed with the Securities and Exchange Commission and
as amended from time to time and a list of the persons whom the Sub-Adviser
wishes to have authorized to give written and/or oral instructions to custodians
of assets of the Series.
2. Obligations of the Manager.
a. The Manager shall provide (or cause the Trust's custodian
to provide) timely information to the Sub-Adviser regarding such matters as the
composition of assets in the Series, cash requirements and cash available for
investment in the Series, and all other information as may be reasonably
necessary for the Sub-Adviser to perform its responsibilities hereunder.
b. The Manager has furnished the Sub-Adviser a copy of the
prospectus and statement of additional information of the Series and agrees
during the continuance of this Agreement to furnish the Sub-Adviser copies of
any revisions or supplements thereto at, or, if practicable, before the time the
revisions or supplements become effective. The Manager agrees to furnish the
Sub-Adviser with minutes of meetings of the trustees of the Trust applicable to
the Series to the extent they may affect the duties of the Sub-Adviser, and with
copies of any financial statements or reports made by the Series to its
shareholders, and any further materials or information which the Sub-Adviser may
reasonably request to enable it to perform its functions under this Agreement.
- 2-
<PAGE>
3. Custodian. The Manager shall provide the Sub-Adviser with a copy of
the Series' agreement with the custodian designated to hold the assets of the
Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions of
the Custodian, unless such act or omission is required by and taken in reliance
upon instructions given to the Custodian by a representative of the Sub-Adviser
properly authorized to give such instructions under the Custody Agreement. Any
assets added to the Series shall be delivered directly to the Custodian.
4. Expenses. Except for expenses specifically assumed or agreed to be
paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for
any expenses of the Manager or the Trust including, without limitation, (a)
interest and taxes, (b) brokerage commissions and other costs in connection with
the purchase or sale of securities or other investment instruments with respect
to the Series, and (c) custodian fees and expenses. The Sub-Adviser will pay its
own expenses incurred in furnishing the services to be provided by it pursuant
to this Agreement.
5. Purchase and Sale of Assets. Absent instructions from the Manager to
the contrary, the Sub-Adviser shall place all orders for the purchase and sale
of securities for the Series with brokers or dealers selected by the
Sub-Adviser, which may include brokers or dealers affiliated with the
Sub-Adviser, provided such orders comply with Rule 17e-1 under the 1940 Act in
all respects. To the extent consistent with applicable law, purchase or sell
orders for the Series may be aggregated with contemporaneous purchase or sell
orders of other clients of the Sub-Adviser. The Sub-Adviser shall use its best
efforts to obtain execution of transactions for the Series at prices which are
advantageous to the Series and at commission rates that are reasonable in
relation to the benefits received. However, the Sub-Adviser may select brokers
or dealers on the basis that they provide brokerage, research or other services
or products to the Series and/or other accounts serviced by the Sub-Adviser. To
the extent consistent with applicable law, the Sub-Adviser may pay a broker or
dealer an amount of commission for effecting a securities transaction in excess
of the amount of commission or dealer spread another broker or dealer would have
charged for effecting that transaction if the Sub-Adviser determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research products and/or services provided by such broker or
dealer. This determination with respect to brokerage and research services or
products may be viewed in terms of either that particular transaction or the
overall responsibilities that the Sub-Adviser and its affiliates have with
respect to the Series or to accounts over which they exercise investment
discretion. Not all such services or products need be used by the Sub-Adviser in
managing the Series.
- 3 -
<PAGE>
6. Compensation of the Sub-Adviser. As full compensation for all
services rendered, facilities furnished and expenses borne by the Sub-Adviser
hereunder, the Manager shall pay the Sub-Adviser compensation at the annual rate
of 0.60% of the first $200 million of the Series' average net assets, 0.55% of
the next $100 million of such assets and 0.50% of such assets in excess of $300
million. Such compensation shall be payable monthly in arrears or at such other
intervals, not less frequently than quarterly, as the Manager is paid by the
Series pursuant to the Management Agreement. The Manager may from time to time
waive the compensation it is entitled to receive from the Trust; however, any
such waiver will have no effect on the Manager's obligation to pay the
Sub-Adviser the compensation provided for herein.
7. Non-Exclusivity. The Manager and the Series agree that the services
of the Sub- Adviser are not to be deemed exclusive and that the Sub-Adviser and
its affiliates are free to act as investment manager and provide other services
to various investment companies and other managed accounts, except as the
Sub-Adviser and the Manager may otherwise agree from time to time in writing
before or after the date hereof. This Agreement shall not in any way limit or
restrict the Sub-Adviser or any of its directors, officers, employees or agents
from buying, selling or trading any securities or other investment instruments
for its or their own account or for the account of others for whom it or they
may be acting, provided that such activities do not adversely affect or
otherwise impair the performance by the Sub-Adviser of its duties and
obligations under this Agreement. The Manager and the Series recognize and agree
that the Sub-Adviser may provide advice to or take action with respect to other
clients, which advice or action, including the timing and nature of such action,
may differ from or be identical to advice given or action taken with respect to
the Series. The Sub-Adviser shall for all purposes hereof be deemed to be an
independent contractor and shall, unless otherwise provided or authorized, have
no authority to act for or represent the Trust or the Manager in any way or
otherwise be deemed an agent of the Trust or the Manager.
8. Liability. Except as may otherwise be provided by the 1940 Act or
other federal securities laws, neither the Sub-Adviser nor any of its officers,
directors, employees or agents (the "Indemnified Parties") shall be subject to
any liability to the Manager, the Trust, the Series or any shareholder of the
Series for any error of judgment, any mistake of law or any loss arising out of
any investment or other act or omission in the course of, connected with, or
arising out of any service to be rendered under this Agreement, except by reason
of willful misfeasance, bad faith or gross negligence in the performance of the
Sub-Adviser's duties or by reason of reckless disregard by the Sub-Adviser of
its obligations and duties.
9. Effective Date and Termination. This Agreement shall become
effective as of the date of its execution, and
a. unless otherwise terminated, this Agreement shall continue
in effect for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at least
annually (i) by the Board of Trustees of the Trust
- 4 -
<PAGE>
or by vote of a majority of the outstanding voting securities of the Series, and
(ii) by vote of a majority of the trustees of the Trust who are not interested
persons of the Trust, the Manager or the Sub-Adviser, cast in person at a
meeting called for the purpose of voting on such approval;
b. this Agreement may at any time be terminated on sixty days'
written notice to the Sub-Adviser by the Manager, by vote of the Board of
Trustees of the Trust or by vote of a majority of the outstanding voting
securities of the Series;
c. this Agreement may at any time be terminated by the
Sub-Adviser on one hundred eighty days' written notice to both the Manager and
the Trust, in the event that the Manager shall have materially breached the
provisions hereof and shall have failed to remedy such breach within fifteen
days after receiving written notice of such breach from the Sub-Adviser;
d. this Agreement may be terminated by the Sub-Adviser at any
time on or before December 31, 2004, on one hundred eighty days' written notice
to both the Manager and the Trust, but only if the Manager consents in writing
to such termination;
e. this Agreement may be terminated by the Sub-Adviser on one
hundred eighty days' written notice to both the Manager and the Trust, at any
time after December 31, 2004; and
f. this Agreement shall automatically terminate in the event
of its assignment.
Termination of this Agreement pursuant to this Section 9 shall be
without the payment of any penalty.
10. Amendment. This Agreement may be amended at any time by mutual
consent of the Manager and the Sub-Adviser, provided that, if required by law,
such amendment shall also have been approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority of the
trustees of the Trust who are not interested persons of the Trust, the Manager
or the Sub-Adviser, cast in person at a meeting called for the purpose of voting
on such approval.
11. Certain Definitions. For the purpose of this Agreement, the terms
"vote of a majority of the outstanding voting securities," "interested person,"
"affiliated person" and "assignment" shall have their respective meanings
defined in the 1940 Act, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under the 1940 Act.
12. General.
- 5 -
<PAGE>
a. If any term or provision of this Agreement or the
application thereof to any person or circumstances is held to be invalid or
unenforceable to any extent, the remainder of this Agreement or the application
of such provision to other persons or circumstances shall not be affected
thereby and shall be enforced to the fullest extent permitted by law.
b. This Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts.
UNDISCOVERED MANAGERS, LLC
By:----------------------------------
Mark P. Hurley
President
RJF ASSET MANAGEMENT, INC.
By:----------------------------------
Russell J. Fuller
President
-6-
EXHIBIT 99.5(b)(iii):
---------------------
FORM OF SUB-ADVISORY AGREEMENT BETWEEN UNDISCOVERED MANAGERS AND
WAITE & ASSOCIATES
<PAGE>
UNDISCOVERED MANAGERS FUNDS
SUB-ADVISORY AGREEMENT
(Core Equity Fund)
This Sub-Advisory Agreement (this "Agreement") is entered into as of
__________, 1997 by and between Undiscovered Managers, LLC, a Delaware limited
liability company (the "Manager") and Waite & Associates, L.L.C., a California
limited liability company (the "Sub- Adviser").
WHEREAS, the Manager has entered into a Management Agreement dated
____________, 1997 (the "Management Agreement") with Undiscovered Managers Funds
(the "Trust"), pursuant to which the Manager provides portfolio management and
administrative services to the Core Equity Fund of the Trust (the "Series");
WHEREAS, the Management Agreement provides that the Manager may
delegate any or all of its portfolio management responsibilities under the
Management Agreement to one or more sub-advisers; and
WHEREAS, the Manager desires to retain the Sub-Adviser to render
portfolio management services in the manner and on the terms set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, the Manager and the Sub-Adviser agree as follows:
1. Sub-Advisory Services.
a. The Sub-Adviser shall, subject to the supervision of the
Manager and in cooperation with any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the assets of the
Series. The Sub-Adviser shall manage the Series in conformity with (1) the
investment objective, policies and restrictions of the Series set forth in the
Trust's prospectus and statement of additional information relating to the
Series, (2) any additional policies or guidelines established by the Manager or
by the Trust's trustees that have been furnished in writing to the Sub-Adviser
and (3) the provisions of the Internal Revenue Code (the "Code") applicable to
"regulated investment companies" (as defined in Section 851 of the Code), all as
from time to time in effect (collectively, the "Policies"), and with all
applicable provisions of law, including without limitation all applicable
provisions of the Investment Company Act of 1940 (the "1940 Act") and the rules
and regulations thereunder. Subject to the foregoing, the Sub-Adviser is
authorized, in its discretion and without prior consultation with the Manager,
to buy, sell, lend and otherwise
<PAGE>
trade in any stocks, bonds and other securities and investment instruments on
behalf of the Series, without regard to the length of time the securities have
been held and the resulting rate of portfolio turnover or any tax
considerations; and the majority or the whole of the Series may be invested in
such proportions of stocks, bonds, other securities or investment instruments,
or cash, as the Sub-Adviser shall determine. Notwithstanding the foregoing
provisions of this Section 1.a, however, the Sub-Adviser shall, upon written
instructions from the Manager, effect such portfolio transactions for the Series
as the Manager shall determine are necessary in order for the Series to comply
with the Policies.
b. The Sub-Adviser shall furnish the Manager and the
Administrator monthly, quarterly and annual reports concerning portfolio
transactions and performance of the Series in such form as may be mutually
agreed upon, and agrees to review the Series and discuss the management of the
Series with representatives or agents of the Manager, the Administrator or the
Trust at their reasonable request. The Sub-Adviser shall permit all books and
records with respect to the Series to be inspected and audited by the Manager
and the Administrator at all reasonable times during normal business hours, upon
reasonable notice. The Sub-Adviser shall also provide the Manager, the
Administrator or the Trust with such other information and reports as may
reasonably be requested by the Manager, the Administrator or the Trust from time
to time, including without limitation all material as reasonably may be
requested by the trustees of the Trust pursuant to Section 15(c) of the 1940
Act.
c. The Sub-Adviser shall provide to the Manager a copy of the
Sub- Adviser's Form ADV as filed with the Securities and Exchange Commission and
as amended from time to time and a list of the persons whom the Sub-Adviser
wishes to have authorized to give written and/or oral instructions to custodians
of assets of the Series.
2. Obligations of the Manager.
a. The Manager shall provide (or cause the Trust's custodian
to provide) timely information to the Sub-Adviser regarding such matters as the
composition of assets in the Series, cash requirements and cash available for
investment in the Series, and all other information as may be reasonably
necessary for the Sub-Adviser to perform its responsibilities hereunder.
b. The Manager has furnished the Sub-Adviser a copy of the
prospectus and statement of additional information of the Series and agrees
during the continuance of this Agreement to furnish the Sub-Adviser copies of
any revisions or supplements thereto at, or, if practicable, before the time the
revisions or supplements become effective. The Manager agrees to furnish the
Sub-Adviser with minutes of meetings of the trustees of the Trust applicable to
the Series to the extent they may affect the duties of the Sub-Adviser, and with
copies of any financial statements or reports made by the Series to its
shareholders, and any
-2-
<PAGE>
further materials or information which the Sub-Adviser may reasonably request to
enable it to perform its functions under this Agreement.
3. Custodian. The Manager shall provide the Sub-Adviser with a copy of
the Series' agreement with the custodian designated to hold the assets of the
Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions of
the Custodian, unless such act or omission is required by and taken in reliance
upon instructions given to the Custodian by a representative of the Sub-Adviser
properly authorized to give such instructions under the Custody Agreement. Any
assets added to the Series shall be delivered directly to the Custodian.
4. Expenses. Except for expenses specifically assumed or agreed to be
paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for
any expenses of the Manager or the Trust including, without limitation, (a)
interest and taxes, (b) brokerage commissions and other costs in connection with
the purchase or sale of securities or other investment instruments with respect
to the Series, and (c) custodian fees and expenses. The Sub-Adviser will pay its
own expenses incurred in furnishing the services to be provided by it pursuant
to this Agreement.
5. Purchase and Sale of Assets. Absent instructions from the Manager to
the contrary, the Sub-Adviser shall place all orders for the purchase and sale
of securities for the Series with brokers or dealers selected by the
Sub-Adviser, which may include brokers or dealers affiliated with the
Sub-Adviser, provided such orders comply with Rule 17e-1 under the 1940 Act in
all respects. To the extent consistent with applicable law, purchase or sell
orders for the Series may be aggregated with contemporaneous purchase or sell
orders of other clients of the Sub-Adviser. The Sub-Adviser shall use its best
efforts to obtain execution of transactions for the Series at prices which are
advantageous to the Series and at commission rates that are reasonable in
relation to the benefits received. However, the Sub-Adviser may select brokers
or dealers on the basis that they provide brokerage, research or other services
or products to the Series and/or other accounts serviced by the Sub-Adviser. To
the extent consistent with applicable law, the Sub-Adviser may pay a broker or
dealer an amount of commission for effecting a securities transaction in excess
of the amount of commission or dealer spread another broker or dealer would have
charged for effecting that transaction if the Sub-Adviser determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research products and/or services provided by such broker or
dealer. This determination with respect to brokerage and research services or
products may be viewed in terms of either that particular transaction or the
overall responsibilities that the Sub-Adviser and its affiliates have with
respect to the Series or to
-3-
<PAGE>
accounts over which they exercise investment discretion. Not all such services
or products need be used by the Sub-Adviser in managing the Series.
6. Compensation of the Sub-Adviser. As full compensation for all
services rendered, facilities furnished and expenses borne by the Sub-Adviser
hereunder, the Manager shall pay the Sub-Adviser compensation at the annual rate
of 0.40% of the first $200 million of the Series' average net assets, 0.35% of
the next $100 million of such assets and 0.30% of such assets in excess of $300
million. Such compensation shall be payable monthly in arrears or at such other
intervals, not less frequently than quarterly, as the Manager is paid by the
Series pursuant to the Management Agreement. The Manager may from time to time
waive the compensation it is entitled to receive from the Trust; however, any
such waiver will have no effect on the Manager's obligation to pay the
Sub-Adviser the compensation provided for herein.
7. Non-Exclusivity. The Manager and the Series agree that the services
of the Sub- Adviser are not to be deemed exclusive and that the Sub-Adviser and
its affiliates are free to act as investment manager and provide other services
to various investment companies and other managed accounts, except as the
Sub-Adviser and the Manager may otherwise agree from time to time in writing
before or after the date hereof. This Agreement shall not in any way limit or
restrict the Sub-Adviser or any of its directors, officers, employees or agents
from buying, selling or trading any securities or other investment instruments
for its or their own account or for the account of others for whom it or they
may be acting, provided that such activities do not adversely affect or
otherwise impair the performance by the Sub-Adviser of its duties and
obligations under this Agreement. The Manager and the Series recognize and agree
that the Sub-Adviser may provide advice to or take action with respect to other
clients, which advice or action, including the timing and nature of such action,
may differ from or be identical to advice given or action taken with respect to
the Series. The Sub-Adviser shall for all purposes hereof be deemed to be an
independent contractor and shall, unless otherwise provided or authorized, have
no authority to act for or represent the Trust or the Manager in any way or
otherwise be deemed an agent of the Trust or the Manager.
8. Liability. Except as may otherwise be provided by the 1940 Act or
other federal securities laws, neither the Sub-Adviser nor any of its officers,
directors, employees or agents (the "Indemnified Parties") shall be subject to
any liability to the Manager, the Trust, the Series or any shareholder of the
Series for any error of judgment, any mistake of law or any loss arising out of
any investment or other act or omission in the course of, connected with, or
arising out of any service to be rendered under this Agreement, except by reason
of willful misfeasance, bad faith or gross negligence in the performance of the
Sub-Adviser's duties or by reason of reckless disregard by the Sub-Adviser of
its obligations and duties.
9. Effective Date and Termination. This Agreement shall become
effective as of the date of its execution, and
- 4 -
<PAGE>
a. unless otherwise terminated, this Agreement shall continue
in effect for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at least
annually (i) by the Board of Trustees of the Trust or by vote of a majority of
the outstanding voting securities of the Series, and (ii) by vote of a majority
of the trustees of the Trust who are not interested persons of the Trust, the
Manager or the Sub-Adviser, cast in person at a meeting called for the purpose
of voting on such approval;
b. this Agreement may at any time be terminated on sixty days'
written notice to the Sub-Adviser by the Manager, by vote of the Board of
Trustees of the Trust or by vote of a majority of the outstanding voting
securities of the Series; and
c. this Agreement shall automatically terminate in the event
of its assignment.
Termination of this Agreement pursuant to this Section 9 shall be
without the payment of any penalty.
10. Amendment. This Agreement may be amended at any time by mutual
consent of the Manager and the Sub-Adviser, provided that, if required by law,
such amendment shall also have been approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority of the
trustees of the Trust who are not interested persons of the Trust, the Manager
or the Sub-Adviser, cast in person at a meeting called for the purpose of voting
on such approval.
11. Certain Definitions. For the purpose of this Agreement, the terms
"vote of a majority of the outstanding voting securities," "interested person,"
"affiliated person" and "assignment" shall have their respective meanings
defined in the 1940 Act, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under the 1940 Act.
12. General.
a. If any term or provision of this Agreement or the
application thereof to any person or circumstances is held to be invalid or
unenforceable to any extent, the remainder of this Agreement or the application
of such provision to other persons or circumstances shall not be affected
thereby and shall be enforced to the fullest extent permitted by law.
- 5 -
<PAGE>
b. This Agreement shall be governed by and
interpreted in accordance with the laws of the Commonwealth of Massachusetts.
UNDISCOVERED MANAGERS, LLC
By:----------------------------------
Mark P. Hurley
President
WAITE & ASSOCIATES, L.L.C.
By:----------------------------------
Leslie A. Waite
President
- 6 -
EXHIBIT 99.5(b)(iv):
--------------------
FORM OF SUB-ADVISORY AGREEMENT BETWEEN UNDISCOVERED MANAGERS AND KAPLAN
ASSOCIATES
<PAGE>
UNDISCOVERED MANAGERS FUNDS
SUB-ADVISORY AGREEMENT
(Small Cap Value Fund/Hidden Value Fund)
This Sub-Advisory Agreement (this "Agreement") is entered into as of
__________, 1997 by and between Undiscovered Managers, LLC, a Delaware limited
liability company (the "Manager") and James L. Kaplan d/b/a J.L. Kaplan
Associates (the "Sub-Adviser").
WHEREAS, the Manager has entered into a Management Agreement dated
____________, 1997 (the "Management Agreement") with Undiscovered Managers Funds
(the "Trust"), pursuant to which the Manager provides portfolio management and
administrative services to the Small Cap Value Fund/Hidden Value Fund of the
Trust (the "Series");
WHEREAS, the Management Agreement provides that the Manager may
delegate any or all of its portfolio management responsibilities under the
Management Agreement to one or more sub-advisers; and
WHEREAS, the Manager desires to retain the Sub-Adviser to render
portfolio management services in the manner and on the terms set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, the Manager and the Sub-Adviser agree as follows:
1. Sub-Advisory Services.
a. The Sub-Adviser shall, subject to the supervision of the
Manager and in cooperation with any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the assets of the
Series. The Sub-Adviser shall manage the Series in conformity with (1) the
investment objective, policies and restrictions of the Series set forth in the
Trust's prospectus and statement of additional information relating to the
Series, (2) any additional policies or guidelines established by the Manager or
by the Trust's trustees that have been furnished in writing to the Sub-Adviser
and (3) the provisions of the Internal Revenue Code (the "Code") applicable to
"regulated investment companies" (as defined in Section 851 of the Code), all as
from time to time in effect (collectively, the "Policies"), and with all
applicable provisions of law, including without limitation all applicable
provisions of the Investment Company Act of 1940 (the "1940 Act") and the rules
and regulations thereunder. Subject to the foregoing, the Sub-Adviser is
authorized, in its discretion and without prior consultation with the Manager,
to buy, sell, lend and otherwise
<PAGE>
trade in any stocks, bonds and other securities and investment instruments on
behalf of the Series, without regard to the length of time the securities have
been held and the resulting rate of portfolio turnover or any tax
considerations; and the majority or the whole of the Series may be invested in
such proportions of stocks, bonds, other securities or investment instruments,
or cash, as the Sub-Adviser shall determine. Notwithstanding the foregoing
provisions of this Section 1.a, however, the Sub-Adviser shall, upon written
instructions from the Manager, effect such portfolio transactions for the Series
as the Manager shall determine are necessary in order for the Series to comply
with the Policies.
b. The Sub-Adviser shall furnish the Manager and the
Administrator monthly, quarterly and annual reports concerning portfolio
transactions and performance of the Series in such form as may be mutually
agreed upon, and agrees to review the Series and discuss the management of the
Series with representatives or agents of the Manager, the Administrator or the
Trust at their reasonable request. The Sub-Adviser shall permit all books and
records with respect to the Series to be inspected and audited by the Manager
and the Administrator at all reasonable times during normal business hours, upon
reasonable notice. The Sub-Adviser shall also provide the Manager, the
Administrator or the Trust with such other information and reports as may
reasonably be requested by the Manager, the Administrator or the Trust from time
to time, including without limitation all material as reasonably may be
requested by the trustees of the Trust pursuant to Section 15(c) of the 1940
Act.
c. The Sub-Adviser shall provide to the Manager a copy of the
Sub- Adviser's Form ADV as filed with the Securities and Exchange Commission and
as amended from time to time and a list of the persons whom the Sub-Adviser
wishes to have authorized to give written and/or oral instructions to custodians
of assets of the Series.
2. Obligations of the Manager.
a. The Manager shall provide (or cause the Trust's custodian
to provide) timely information to the Sub-Adviser regarding such matters as the
composition of assets in the Series, cash requirements and cash available for
investment in the Series, and all other information as may be reasonably
necessary for the Sub-Adviser to perform its responsibilities hereunder.
b. The Manager has furnished the Sub-Adviser a copy of the
prospectus and statement of additional information of the Series and agrees
during the continuance of this Agreement to furnish the Sub-Adviser copies of
any revisions or supplements thereto at, or, if practicable, before the time the
revisions or supplements become effective. The Manager agrees to furnish the
Sub-Adviser with minutes of meetings of the trustees of the Trust applicable to
the Series to the extent they may affect the duties of the Sub-Adviser, and with
copies of any financial statements or reports made by the Series to its
shareholders, and any
- 2-
<PAGE>
further materials or information which the Sub-Adviser may reasonably request to
enable it to perform its functions under this Agreement.
3. Custodian. The Manager shall provide the Sub-Adviser with a copy of
the Series' agreement with the custodian designated to hold the assets of the
Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions of
the Custodian, unless such act or omission is required by and taken in reliance
upon instructions given to the Custodian by a representative of the Sub-Adviser
properly authorized to give such instructions under the Custody Agreement. Any
assets added to the Series shall be delivered directly to the Custodian.
4. Expenses. Except for expenses specifically assumed or agreed to be
paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for
any expenses of the Manager or the Trust including, without limitation, (a)
interest and taxes, (b) brokerage commissions and other costs in connection with
the purchase or sale of securities or other investment instruments with respect
to the Series, and (c) custodian fees and expenses. The Sub-Adviser will pay or
arrange for payment of its own expenses incurred in furnishing the services to
be provided by it pursuant to this Agreement.
5. Purchase and Sale of Assets. Absent instructions from the Manager to
the contrary, the Sub-Adviser shall place all orders for the purchase and sale
of securities for the Series with brokers or dealers selected by the
Sub-Adviser, which may include brokers or dealers affiliated with the
Sub-Adviser, provided such orders comply with Rule 17e-1 under the 1940 Act in
all respects. To the extent consistent with applicable law, purchase or sell
orders for the Series may be aggregated with contemporaneous purchase or sell
orders of other clients of the Sub-Adviser. The Sub-Adviser shall use its best
efforts to obtain execution of transactions for the Series at prices which are
advantageous to the Series and at commission rates that are reasonable in
relation to the benefits received. However, the Sub-Adviser may select brokers
or dealers on the basis that they provide brokerage, research or other services
or products to the Series and/or other accounts serviced by the Sub-Adviser. To
the extent consistent with applicable law, the Sub-Adviser may pay a broker or
dealer an amount of commission for effecting a securities transaction in excess
of the amount of commission or dealer spread another broker or dealer would have
charged for effecting that transaction if the Sub-Adviser determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research products and/or services provided by such broker or
dealer. This determination with respect to brokerage and research services or
products may be viewed in terms of either that particular transaction or the
overall responsibilities that the Sub-Adviser and its affiliates have with
respect to the Series or to
- 3 -
<PAGE>
accounts over which they exercise investment discretion. Not all such services
or products need be used by the Sub-Adviser in managing the Series.
6. Compensation of the Sub-Adviser. As full compensation for all
services rendered, facilities furnished and expenses borne by the Sub-Adviser
hereunder, the Manager shall pay the Sub-Adviser compensation at the annual rate
of [Small Cap Value Fund: 0.70% of the first $200 million of the Series' average
daily net assets, 0.65% of the next $100 million of such assets and 0.60% of
such assets in excess of $300 million; Hidden Value Fund: 0.60% of the first
$200 million of the Series' average daily net assets, 0.55% of the next $100
million of such assets and 0.50% of such assets in excess of $300 million]. Such
compensation shall be calculated and paid monthly in arrears or at such other
intervals, not less frequently than quarterly, as the Manager is paid by the
Series pursuant to the Management Agreement; provided that, in the event of any
termination of this Agreement before the end of any such month or other
interval, such compensation shall be calculated and paid within ten business
days following such termination. The Manager may from time to time waive the
compensation it is entitled to receive from the Trust; however, any such waiver
will have no effect on the Manager's obligation to pay the Sub-Adviser the
compensation provided for herein.
7. Non-Exclusivity. The Manager and the Series agree that the services
of the Sub- Adviser are not to be deemed exclusive and that the Sub-Adviser and
its affiliates are free to act as investment manager and provide other services
to various investment companies and other managed accounts, except as the
Sub-Adviser and the Manager may otherwise agree from time to time in writing
before or after the date hereof. This Agreement shall not in any way limit or
restrict the Sub-Adviser or any of its directors, officers, employees or agents
from buying, selling or trading any securities or other investment instruments
for its or their own account or for the account of others for whom it or they
may be acting. The Sub-Adviser shall have no obligation to acquire for the
Series a position in any investment that the Sub- Adviser or any of its
managers, members, officers, employees or agents holds, has acquired or is
acquiring for its or their own accounts or for the account of another client, so
long as it continues to be the policy and practice of the Sub-Adviser not to
favor or disfavor consistently or consciously any client or class of clients in
the allocation of investment opportunities, so that, to the extent practical,
such opportunities will be allocated among clients over a reasonable period of
time on a fair and equitable basis. The Manager and the Series recognize and
agree that the Sub-Adviser may provide advice to or take action with respect to
other clients, which advice or action, including the timing and nature of such
action, may differ from or be identical to advice given or action taken with
respect to the Series. The Sub- Adviser shall for all purposes hereof be deemed
to be an independent contractor and shall, unless otherwise provided or
authorized, have no authority to act for or represent the Trust or the Manager
in any way or otherwise be deemed an agent of the Trust or the Manager.
8. Liability. Except as may otherwise be provided by the 1940 Act or
other federal securities laws, neither the Sub-Adviser nor any of its officers,
directors, employees or
- 4 -
<PAGE>
agents (the "Indemnified Parties") shall be subject to any liability to the
Manager, the Trust, the Series or any shareholder of the Series for any error of
judgment, any mistake of law or any loss arising out of any investment or other
act or omission in the course of, connected with, or arising out of any service
to be rendered under this Agreement, except by reason of willful misfeasance,
bad faith or gross negligence in the performance of the Sub-Adviser's duties or
by reason of reckless disregard by the Sub-Adviser of its obligations and
duties.
9. Effective Date and Termination. This Agreement shall become
effective as of the date of its execution, and
a. unless otherwise terminated, this Agreement shall continue
in effect for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at least
annually (i) by the Board of Trustees of the Trust or by vote of a majority of
the outstanding voting securities of the Series, and (ii) by vote of a majority
of the trustees of the Trust who are not interested persons of the Trust, the
Manager or the Sub-Adviser, cast in person at a meeting called for the purpose
of voting on such approval;
b. this Agreement may at any time be terminated on sixty days'
written notice to the Sub-Adviser by the Manager, by vote of the Board of
Trustees of the Trust or by vote of a majority of the outstanding voting
securities of the Series; and
c. this Agreement shall automatically terminate in the event
of its assignment.
Termination of this Agreement pursuant to this Section 9 shall be
without the payment of any penalty.
10. Amendment. This Agreement may be amended at any time by mutual
consent of the Manager and the Sub-Adviser, provided that, if required by law,
such amendment shall also have been approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority of the
trustees of the Trust who are not interested persons of the Trust, the Manager
or the Sub-Adviser, cast in person at a meeting called for the purpose of voting
on such approval.
11. Certain Definitions. For the purpose of this Agreement, the terms
"vote of a majority of the outstanding voting securities," "interested person,"
"affiliated person" and "assignment" shall have their respective meanings
defined in the 1940 Act, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under the 1940 Act.
- 5 -
<PAGE>
12. General.
a. If any term or provision of this Agreement or the
application thereof to any person or circumstances is held to be invalid or
unenforceable to any extent, the remainder of this Agreement or the application
of such provision to other persons or circumstances shall not be affected
thereby and shall be enforced to the fullest extent permitted by law.
b. This Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts.
UNDISCOVERED MANAGERS, LLC
By:--------------------------------
Mark P. Hurley
President
---------------------------------
James L. Kaplan
- 6 -
EXHIBIT 99.5(b)(v):
-------------------
FORM OF SUB-ADVISORY AGREEMENT BETWEEN UNDISCOVERED MANAGERS AND BAY ISLE
-19-
<PAGE>
UNDISCOVERED MANAGERS FUNDS
SUB-ADVISORY AGREEMENT
(REIT Fund)
This Sub-Advisory Agreement (this "Agreement") is entered into as of
__________, 1997 by and between Undiscovered Managers, LLC, a Delaware limited
liability company (the "Manager") and Bay Isle Financial Corporation, a
California corporation (the "Sub-Adviser").
WHEREAS, the Manager has entered into a Management Agreement dated
____________, 1997 (the "Management Agreement") with Undiscovered Managers Funds
(the "Trust"), pursuant to which the Manager provides portfolio management and
administrative services to the REIT Fund of the Trust (the "Series");
WHEREAS, the Management Agreement provides that the Manager may
delegate any or all of its portfolio management responsibilities under the
Management Agreement to one or more sub-advisers; and
WHEREAS, the Manager desires to retain the Sub-Adviser to render
portfolio management services in the manner and on the terms set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, the Manager and the Sub-Adviser agree as follows:
1. Sub-Advisory Services.
a. The Sub-Adviser shall, subject to the supervision of the
Manager and in cooperation with any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the assets of the
Series. The Sub-Adviser shall manage the Series in conformity with (1) the
investment objective, policies and restrictions of the Series set forth in the
Trust's prospectus and statement of additional information relating to the
Series, (2) any additional policies or guidelines established by the Manager or
by the Trust's trustees that have been furnished in writing to the Sub-Adviser
and (3) the provisions of the Internal Revenue Code (the "Code") applicable to
"regulated investment companies" (as defined in Section 851 of the Code), all as
from time to time in effect (collectively, the "Policies"), and with all
applicable provisions of law, including without limitation all applicable
provisions of the Investment Company Act of 1940 (the "1940 Act") and the rules
and regulations thereunder. Subject to the foregoing, the Sub-Adviser is
authorized, in its discretion and without prior consultation with the Manager,
to buy, sell, lend and otherwise trade in any stocks, bonds and other securities
and investment instruments on behalf of the
<PAGE>
Series, without regard to the length of time the securities have been held and
the resulting rate of portfolio turnover or any tax considerations; and the
majority or the whole of the Series may be invested in such proportions of
stocks, bonds, other securities or investment instruments, or cash, as the
Sub-Adviser shall determine. Notwithstanding the foregoing provisions of this
Section 1.a, however, the Sub-Adviser shall, upon written instructions from the
Manager, effect such portfolio transactions for the Series as the Manager shall
determine are necessary in order for the Series to comply with the Policies.
b. The Sub-Adviser shall furnish the Manager and the
Administrator monthly, quarterly and annual reports concerning portfolio
transactions and performance of the Series in such form as may be mutually
agreed upon, and agrees to review the Series and discuss the management of the
Series with representatives or agents of the Manager, the Administrator or the
Trust at their reasonable request. The Sub-Adviser shall permit all books and
records with respect to the Series to be inspected and audited by the Manager
and the Administrator at all reasonable times during normal business hours, upon
reasonable notice. The Sub-Adviser shall also provide the Manager, the
Administrator or the Trust with such other information and reports as may
reasonably be requested by the Manager, the Administrator or the Trust from time
to time, including without limitation all material as reasonably may be
requested by the trustees of the Trust pursuant to Section 15(c) of the 1940
Act.
c. The Sub-Adviser shall provide to the Manager a copy of the
Sub- Adviser's Form ADV as filed with the Securities and Exchange Commission and
as amended from time to time and a list of the persons whom the Sub-Adviser
wishes to have authorized to give written and/or oral instructions to custodians
of assets of the Series.
2. Obligations of the Manager.
a. The Manager shall provide (or cause the Trust's custodian
to provide) timely information to the Sub-Adviser regarding such matters as the
composition of assets in the Series, cash requirements and cash available for
investment in the Series, and all other information as may be reasonably
necessary for the Sub-Adviser to perform its responsibilities hereunder.
b. The Manager has furnished the Sub-Adviser a copy of the
prospectus and statement of additional information of the Series and agrees
during the continuance of this Agreement to furnish the Sub-Adviser copies of
any revisions or supplements thereto at, or, if practicable, before the time the
revisions or supplements become effective. The Manager agrees to furnish the
Sub-Adviser with minutes of meetings of the trustees of the Trust applicable to
the Series to the extent they may affect the duties of the Sub-Adviser, and with
copies of any financial statements or reports made by the Series to its
shareholders, and any further materials or information which the Sub-Adviser may
reasonably request to enable it to perform its functions under this Agreement.
- 2-
<PAGE>
3. Custodian. The Manager shall provide the Sub-Adviser with a copy of
the Series' agreement with the custodian designated to hold the assets of the
Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions of
the Custodian, unless such act or omission is required by and taken in reliance
upon instructions given to the Custodian by a representative of the Sub-Adviser
properly authorized to give such instructions under the Custody Agreement. Any
assets added to the Series shall be delivered directly to the Custodian.
4. Expenses. Except for expenses specifically assumed or agreed to be
paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for
any expenses of the Manager or the Trust including, without limitation, (a)
interest and taxes, (b) brokerage commissions and other costs in connection with
the purchase or sale of securities or other investment instruments with respect
to the Series, and (c) custodian fees and expenses. The Sub-Adviser will pay its
own expenses incurred in furnishing the services to be provided by it pursuant
to this Agreement.
5. Purchase and Sale of Assets. Absent instructions from the Manager to
the contrary, the Sub-Adviser shall place all orders for the purchase and sale
of securities for the Series with brokers or dealers selected by the
Sub-Adviser, which may include brokers or dealers affiliated with the
Sub-Adviser, provided such orders comply with Rule 17e-1 under the 1940 Act in
all respects. To the extent consistent with applicable law, purchase or sell
orders for the Series may be aggregated with contemporaneous purchase or sell
orders of other clients of the Sub-Adviser. The Sub-Adviser shall use its best
efforts to obtain execution of transactions for the Series at prices which are
advantageous to the Series and at commission rates that are reasonable in
relation to the benefits received. However, the Sub-Adviser may select brokers
or dealers on the basis that they provide brokerage, research or other services
or products to the Series and/or other accounts serviced by the Sub-Adviser. To
the extent consistent with applicable law, the Sub-Adviser may pay a broker or
dealer an amount of commission for effecting a securities transaction in excess
of the amount of commission or dealer spread another broker or dealer would have
charged for effecting that transaction if the Sub-Adviser determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research products and/or services provided by such broker or
dealer. This determination with respect to brokerage and research services or
products may be viewed in terms of either that particular transaction or the
overall responsibilities that the Sub-Adviser and its affiliates have with
respect to the Series or to accounts over which they exercise investment
discretion. Not all such services or products need be used by the Sub-Adviser in
managing the Series.
- 3 -
<PAGE>
6. Compensation of the Sub-Adviser. As full compensation for all
services rendered, facilities furnished and expenses borne by the Sub-Adviser
hereunder, the Manager shall pay the Sub-Adviser compensation at the annual rate
of 0.70% of the first $200 million of the Series' average net assets, 0.65% of
the next $100 million of such assets and 0.60% of such assets in excess of $300
million. Such compensation shall be payable monthly in arrears or at such other
intervals, not less frequently than quarterly, as the Manager is paid by the
Series pursuant to the Management Agreement. The Manager may from time to time
waive the compensation it is entitled to receive from the Trust; however, any
such waiver will have no effect on the Manager's obligation to pay the
Sub-Adviser the compensation provided for herein.
7. Non-Exclusivity. The Manager and the Series agree that the services
of the Sub- Adviser are not to be deemed exclusive and that the Sub-Adviser and
its affiliates are free to act as investment manager and provide other services
to various investment companies and other managed accounts, except as the
Sub-Adviser and the Manager may otherwise agree from time to time in writing
before or after the date hereof. This Agreement shall not in any way limit or
restrict the Sub-Adviser or any of its directors, officers, employees or agents
from buying, selling or trading any securities or other investment instruments
for its or their own account or for the account of others for whom it or they
may be acting, provided that such activities do not adversely affect or
otherwise impair the performance by the Sub-Adviser of its duties and
obligations under this Agreement. The Manager and the Series recognize and agree
that the Sub-Adviser may provide advice to or take action with respect to other
clients, which advice or action, including the timing and nature of such action,
may differ from or be identical to advice given or action taken with respect to
the Series. The Sub-Adviser shall for all purposes hereof be deemed to be an
independent contractor and shall, unless otherwise provided or authorized, have
no authority to act for or represent the Trust or the Manager in any way or
otherwise be deemed an agent of the Trust or the Manager.
8. Liability. Except as may otherwise be provided by the 1940 Act or
other federal securities laws, neither the Sub-Adviser nor any of its officers,
directors, employees or agents (the "Indemnified Parties") shall be subject to
any liability to the Manager, the Trust, the Series or any shareholder of the
Series for any error of judgment, any mistake of law or any loss arising out of
any investment or other act or omission in the course of, connected with, or
arising out of any service to be rendered under this Agreement, except by reason
of willful misfeasance, bad faith or gross negligence in the performance of the
Sub-Adviser's duties or by reason of reckless disregard by the Sub-Adviser of
its obligations and duties.
9. Effective Date and Termination. This Agreement shall become
effective as of the date of its execution, and
a. unless otherwise terminated, this Agreement shall continue
in effect for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at least
annually (i) by the Board of Trustees of the Trust
- 4 -
<PAGE>
or by vote of a majority of the outstanding voting securities of the Series, and
(ii) by vote of a majority of the trustees of the Trust who are not interested
persons of the Trust, the Manager or the Sub-Adviser, cast in person at a
meeting called for the purpose of voting on such approval;
b. this Agreement may at any time be terminated on sixty days'
written notice to the Sub-Adviser by the Manager, by vote of the Board of
Trustees of the Trust or by vote of a majority of the outstanding voting
securities of the Series; and
c. this Agreement shall automatically terminate in the event
of its assignment.
Termination of this Agreement pursuant to this Section 9 shall be
without the payment of any penalty.
10. Amendment. This Agreement may be amended at any time by mutual
consent of the Manager and the Sub-Adviser, provided that, if required by law,
such amendment shall also have been approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority of the
trustees of the Trust who are not interested persons of the Trust, the Manager
or the Sub-Adviser, cast in person at a meeting called for the purpose of voting
on such approval.
11. Certain Definitions. For the purpose of this Agreement, the terms
"vote of a majority of the outstanding voting securities," "interested person,"
"affiliated person" and "assignment" shall have their respective meanings
defined in the 1940 Act, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under the 1940 Act.
12. General.
a. If any term or provision of this Agreement or the
application thereof to any person or circumstances is held to be invalid or
unenforceable to any extent, the remainder of this Agreement or the application
of such provision to other persons or circumstances shall not be affected
thereby and shall be enforced to the fullest extent permitted by law.
- 5 -
<PAGE>
b. This Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts.
UNDISCOVERED MANAGERS, LLC
By:------------------------------
Mark P. Hurley
President
BAY ISLE FINANCIAL CORPORATION
By:------------------------------
Gary G. Pollock
President
- 6 -
EXHIBIT 99.5(b)(vi):
--------------------
FORM OF SUB-ADVISORY AGREEMENT BETWEEN UNDISCOVERED MANAGERS AND KESTREL
MANAGEMENT
-20-
<PAGE>
UNDISCOVERED MANAGERS FUNDS
SUB-ADVISORY AGREEMENT
(Special Small Cap Fund)
This Sub-Advisory Agreement (this "Agreement") is entered into as of
__________, 1997 by and between Undiscovered Managers, LLC, a Delaware limited
liability company (the "Manager") and Kestrel Investment Management Corporation,
a California corporation (the "Sub-Adviser").
WHEREAS, the Manager has entered into a Management Agreement dated
____________, 1997 (the "Management Agreement") with Undiscovered Managers Funds
(the "Trust"), pursuant to which the Manager provides portfolio management and
administrative services to the Special Small Cap Fund of the Trust (the
"Series");
WHEREAS, the Management Agreement provides that the Manager may
delegate any or all of its portfolio management responsibilities under the
Management Agreement to one or more sub-advisers; and
WHEREAS, the Manager desires to retain the Sub-Adviser to render
portfolio management services in the manner and on the terms set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, the Manager and the Sub-Adviser agree as follows:
1. Sub-Advisory Services.
a. The Sub-Adviser shall, subject to the supervision of the
Manager and in cooperation with any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the assets of the
Series. The Sub-Adviser shall manage the Series in conformity with (1) the
investment objective, policies and restrictions of the Series set forth in the
Trust's prospectus and statement of additional information relating to the
Series, (2) any additional policies or guidelines established by the Manager or
by the Trust's trustees that have been furnished in writing to the Sub-Adviser
and (3) the provisions of the Internal Revenue Code (the "Code") applicable to
"regulated investment companies" (as defined in Section 851 of the Code), all as
from time to time in effect (collectively, the "Policies"), and with all
applicable provisions of law, including without limitation all applicable
provisions of the Investment Company Act of 1940 (the "1940 Act") and the rules
and regulations thereunder. Subject to the foregoing, the Sub-Adviser is
authorized, in its discretion and without prior consultation with the Manager,
to buy, sell, lend and otherwise trade in any stocks, bonds and other securities
and investment instruments on behalf of the Series, without regard to the length
of time the securities have been held and the resulting rate
<PAGE>
of portfolio turnover or any tax considerations; and the majority or the whole
of the Series may be invested in such proportions of stocks, bonds, other
securities or investment instruments, or cash, as the Sub-Adviser shall
determine. Notwithstanding the foregoing provisions of this Section 1.a,
however, the Sub-Adviser shall, upon written instructions from the Manager,
effect such portfolio transactions for the Series as the Manager shall determine
are necessary in order for the Series to comply with the Policies.
b. The Sub-Adviser shall furnish the Manager and the
Administrator monthly, quarterly and annual reports concerning portfolio
transactions and performance of the Series in such form as may be mutually
agreed upon, and agrees to review the Series and discuss the management of the
Series with representatives or agents of the Manager, the Administrator or the
Trust at their reasonable request. The Sub-Adviser shall permit all books and
records with respect to the Series to be inspected and audited by the Manager
and the Administrator at all reasonable times during normal business hours, upon
reasonable notice. The Sub-Adviser shall also provide the Manager, the
Administrator or the Trust with such other information and reports as may
reasonably be requested by the Manager, the Administrator or the Trust from time
to time, including without limitation all material as reasonably may be
requested by the trustees of the Trust pursuant to Section 15(c) of the 1940
Act.
c. The Sub-Adviser shall provide to the Manager a copy of the
Sub- Adviser's Form ADV as filed with the Securities and Exchange Commission and
as amended from time to time and a list of the persons whom the Sub-Adviser
wishes to have authorized to give written and/or oral instructions to custodians
of assets of the Series.
2. Obligations of the Manager.
a. The Manager shall provide (or cause the Trust's custodian
to provide) timely information to the Sub-Adviser regarding such matters as the
composition of assets in the Series, cash requirements and cash available for
investment in the Series, and all other information as may be reasonably
necessary for the Sub-Adviser to perform its responsibilities hereunder.
b. The Manager has furnished the Sub-Adviser a copy of the
prospectus and statement of additional information of the Series and agrees
during the continuance of this Agreement to furnish the Sub-Adviser copies of
any revisions or supplements thereto at, or, if practicable, before the time the
revisions or supplements become effective. The Manager agrees to furnish the
Sub-Adviser with minutes of meetings of the trustees of the Trust applicable to
the Series to the extent they may affect the duties of the Sub-Adviser, and with
copies of any financial statements or reports made by the Series to its
shareholders, and any further materials or information which the Sub-Adviser may
reasonably request to enable it to perform its functions under this Agreement.
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<PAGE>
3. Custodian. The Manager shall provide the Sub-Adviser with a copy of
the Series' agreement with the custodian designated to hold the assets of the
Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions of
the Custodian, unless such act or omission is required by and taken in reliance
upon instructions given to the Custodian by a representative of the Sub-Adviser
properly authorized to give such instructions under the Custody Agreement. Any
assets added to the Series shall be delivered directly to the Custodian.
4. Expenses. Except for expenses specifically assumed or agreed to be
paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for
any expenses of the Manager or the Trust including, without limitation, (a)
interest and taxes, (b) brokerage commissions and other costs in connection with
the purchase or sale of securities or other investment instruments with respect
to the Series, and (c) custodian fees and expenses. The Sub-Adviser will pay its
own expenses incurred in furnishing the services to be provided by it pursuant
to this Agreement.
5. Purchase and Sale of Assets. Absent instructions from the Manager to
the contrary, the Sub-Adviser shall place all orders for the purchase and sale
of securities for the Series with brokers or dealers selected by the
Sub-Adviser, which may include brokers or dealers affiliated with the
Sub-Adviser, provided such orders comply with Rule 17e-1 under the 1940 Act in
all respects. To the extent consistent with applicable law, purchase or sell
orders for the Series may be aggregated with contemporaneous purchase or sell
orders of other clients of the Sub-Adviser. The Sub-Adviser shall use its best
efforts to obtain execution of transactions for the Series at prices which are
advantageous to the Series and at commission rates that are reasonable in
relation to the benefits received. However, the Sub-Adviser may select brokers
or dealers on the basis that they provide brokerage, research or other services
or products to the Series and/or other accounts serviced by the Sub-Adviser. To
the extent consistent with applicable law, the Sub-Adviser may pay a broker or
dealer an amount of commission for effecting a securities transaction in excess
of the amount of commission or dealer spread another broker or dealer would have
charged for effecting that transaction if the Sub-Adviser determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research products and/or services provided by such broker or
dealer. This determination with respect to brokerage and research services or
products may be viewed in terms of either that particular transaction or the
overall responsibilities that the Sub-Adviser and its affiliates have with
respect to the Series or to accounts over which they exercise investment
discretion. Not all such services or products need be used by the Sub-Adviser in
managing the Series.
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<PAGE>
6. Compensation of the Sub-Adviser. As full compensation for all
services rendered, facilities furnished and expenses borne by the Sub-Adviser
hereunder, the Manager shall pay the Sub-Adviser compensation, within thirty
days after the end of each calendar quarter, at the Performance Fee Rate. As
used in this Agreement, "Performance Fee Rate" shall mean, with respect to each
calendar quarter, the annual percentage rate of the average daily net assets of
the Series during such quarter that is determined by adding to (or subtracting
from) 0.80% one-fifth of the number of basis points by which the total return of
the Series (expressed as a percentage, and calculated before giving effect to
the Series's expenses) during the one-year period ending at the end of such
quarter exceeds (or falls short of) the Benchmark (as hereinafter defined),
provided, however, that such fee rate shall in no event exceed the annual rate
of 1.30% of such average daily net assets and shall in no event be less than
0.30% of such average daily net assets; and provided further that, until the end
of the first calendar quarter that ends on or after the 364th day following
commencement of the Series's investment operations, the Performance Fee Rate
shall be the annual rate of 0.80% of the average daily net assets of the Series.
As used in this Agreement, "Benchmark" shall mean, with respect to the
calculation of the Performance Fee Rate following the end of each calendar
quarter, the sum of (A) the total return (on a dividends-reinvested basis, and
expressed as a percentage) of the Russell 2000 Index during the one-year period
ending at the end of such quarter plus (B) one hundred fifty (150) basis points.
The Manager may from time to time waive the compensation it is entitled to
receive from the Trust; however, any such waiver will have no effect on the
Manager's obligation to pay the Sub-Adviser the compensation provided for
herein.
7. Non-Exclusivity. The Manager and the Series agree that the services
of the Sub- Adviser are not to be deemed exclusive and that the Sub-Adviser and
its affiliates are free to act as investment manager and provide other services
to various investment companies and other managed accounts, except as the
Sub-Adviser and the Manager may otherwise agree from time to time in writing
before or after the date hereof. This Agreement shall not in any way limit or
restrict the Sub-Adviser or any of its directors, officers, employees or agents
from buying, selling or trading any securities or other investment instruments
for its or their own account or for the account of others for whom it or they
may be acting, provided that such activities do not adversely affect or
otherwise impair the performance by the Sub-Adviser of its duties and
obligations under this Agreement. The Manager and the Series recognize and agree
that the Sub-Adviser may provide advice to or take action with respect to other
clients, which advice or action, including the timing and nature of such action,
may differ from or be identical to advice given or action taken with respect to
the Series. The Sub-Adviser shall for all purposes hereof be deemed to be an
independent contractor and shall, unless otherwise provided or authorized, have
no authority to act for or represent the Trust or the Manager in any way or
otherwise be deemed an agent of the Trust or the Manager.
8. Liability. Except as may otherwise be provided by the 1940 Act or
other federal securities laws, neither the Sub-Adviser nor any of its officers,
directors, employees or agents (the "Indemnified Parties") shall be subject to
any liability to the Manager, the Trust,
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<PAGE>
the Series or any shareholder of the Series for any error of judgment, any
mistake of law or any loss arising out of any investment or other act or
omission in the course of, connected with, or arising out of any service to be
rendered under this Agreement, except by reason of willful misfeasance, bad
faith or gross negligence in the performance of the Sub-Adviser's duties or by
reason of reckless disregard by the Sub-Adviser of its obligations and duties.
9. Effective Date and Termination. This Agreement shall become
effective as of the date of its execution, and
a. unless otherwise terminated, this Agreement shall continue
in effect for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at least
annually (i) by the Board of Trustees of the Trust or by vote of a majority of
the outstanding voting securities of the Series, and (ii) by vote of a majority
of the trustees of the Trust who are not interested persons of the Trust, the
Manager or the Sub-Adviser, cast in person at a meeting called for the purpose
of voting on such approval;
b. this Agreement may at any time be terminated on sixty days'
written notice to the Sub-Adviser by the Manager, by vote of the Board of
Trustees of the Trust or by vote of a majority of the outstanding voting
securities of the Series;
c. this Agreement may at any time be terminated by the
Sub-Adviser on one hundred eighty days' written notice to both the Manager and
the Trust, in the event that the Manager shall have materially breached the
provisions hereof and shall have failed to remedy such breach within fifteen
days after receiving written notice of such breach from the Sub-Adviser;
d. this Agreement may be terminated by the Sub-Adviser at any
time on or before December 31, 2004, on one hundred eighty days' written notice
to both the Manager and the Trust, but only if the Manager consents in writing
to such termination;
e. this Agreement may be terminated by the Sub-Adviser on one
hundred eighty days' written notice to both the Manager and the Trust, at any
time after December 31, 2004; and
f.this Agreement shall automatically terminate in the event of
its assignment.
Termination of this Agreement pursuant to this Section 9 shall be
without the payment of any penalty.
10. Amendment. This Agreement may be amended at any time by mutual
consent of the Manager and the Sub-Adviser, provided that, if required by law,
such amendment shall also have been approved by vote of a majority of the
outstanding voting securities of the Series
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<PAGE>
and by vote of a majority of the trustees of the Trust who are not interested
persons of the Trust, the Manager or the Sub-Adviser, cast in person at a
meeting called for the purpose of voting on such approval.
11. Certain Definitions. For the purpose of this Agreement, the terms
"vote of a majority of the outstanding voting securities," "interested person,"
"affiliated person" and "assignment" shall have their respective meanings
defined in the 1940 Act, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under the 1940 Act.
12. General.
a. If any term or provision of this Agreement or the
application thereof to any person or circumstances is held to be invalid or
unenforceable to any extent, the remainder of this Agreement or the application
of such provision to other persons or circumstances shall not be affected
thereby and shall be enforced to the fullest extent permitted by law.
b. This Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts.
UNDISCOVERED MANAGERS, LLC
By:--------------------------------
Mark P. Hurley
President
KESTREL INVESTMENT MANAGEMENT
CORPORATION
By:--------------------------------
David J. Steirman
President
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