As filed with the Securities and Exchange Commission on December 3, 1997
Registration Nos. 811-8437 and 333-37711
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. 1 [X]
Post-Effective Amendment No. __ [ ]
and
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 1 [X]
(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>
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<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.
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<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 Behavioral Growth Fund, which has the investment objective of growth of
capital, and 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.
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<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 CERTAIN 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% 1.15% for the first year;
thereafter, fees will vary
from 0.65% to 1.65% based
on the investment performance
of the Fund relative to a
benchmark.*
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% 1.70% for the first year;
thereafter, expenses will vary
from 1.20% to 2.20% based on,
among other things, the
investment performance of the
Fund relative to a benchmark.*
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>
- --------------------
*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. 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 of any market capitalization (small-, mid- or large-cap) 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 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 applies
principles based on behavioral studies. The sub-adviser believes that behavioral
biases on the part of investors may cause the market to under-react to new,
positive information concerning a company. The sub-adviser analyzes companies
that have recently announced higher than expected earnings, and seeks to
determine whether the market value of the company's stock fully reflects the
sub-adviser's expectations as to the company's future earnings and growth
prospects. 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.
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<PAGE>
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 a Securities Analyst at Farmers
Insurance Group from 1987 to 1989 and as Vice President and Research Analyst at
Fisher Investments from 1989 to 1996.
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 believes the value of certain stocks will
tend to be "hidden" from the market for reasons including the coverage of
certain companies by relatively few securities analysts. 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 has been the principal of Kaplan
Associates since founding the firm 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 primarily in
common stocks of small cap U.S. companies that have one or more of the following
special characteristics: (1) the company has recently been spun off or divested
from a former parent company, (2) the company has announced or is conducting a
program to buy back its own stock, or (3) the sub-adviser believes the company
is undervalued because of other special circumstances, such as regulatory
changes affecting its industry. Under normal market conditions, the Fund invests
at least 65% of its assets in stocks of companies in such special situations
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 investing substantially all
of its assets, and in any event in normal market conditions at least 65% 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. Mr. Block has served as a REIT
analyst for Bay Isle since 1993. Mr. Block was also a Partner in the law firm of
Graven, Perry, Block, Brody & Qualls until 1995.
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<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 CERTAIN SUB-ADVISERS
The tables below present information about the investment performance
of accounts managed by certain of 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 certain
of the Funds' sub-advisers relating to accounts managed by them (the
"Accounts"). In each case, the relevant 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 that of
the relevant Fund; 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 that of the relevant Fund. 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, the 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.
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.
-16-
<PAGE>
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
- --------------------------------------------------------------------------------
-17-
<PAGE>
J.L. Kaplan Associates
- --------------------------------------------------------------------------------
Small Cap Equity Accounts* Russell 2000
- --------------------------------------------------------------------------------
1/1/97 - 9/30/97
- --------------------------------------------------------------------------------
1996
- --------------------------------------------------------------------------------
1995
- --------------------------------------------------------------------------------
1994
- --------------------------------------------------------------------------------
1993
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
-18-
<PAGE>
Kestrel Investment Management Corporation
- --------------------------------------------------------------------------------
S&P Russell
Accounts 500 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
-19-
<PAGE>
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.
As described above, the advisory fee rate for the Special Small Cap
Fund will vary depending on the investment performance of the Fund. The
following table provides information concerning a range of potential advisory
fee rates for the Special Small Cap Fund. For illustrative purposes only, it has
been assumed that the total return of the Russell 2000 Index during the one-year
period ending at the end of the hypothetical quarter reflected below equals ten
percent (10%). The following performance figures should not be considered a
prediction of the Fund's future performance. The Fund's performance may be
higher or lower than that shown.
Special
Small Cap
Fund Russell 2000 Fulcrum Fee
Total Return Index Percentage
9% 10% .65%*
10% 10% .85%
11.5% 10% 1.15%
13% 10% 1.45%
14% 10% 1.65%**
* Minimum advisory fee rate even if Total Return for the Fund for the
hypothetical period fell below 9%.
** Maximum advisory fee rate even if Total Return for the Fund for the
hypothetical period exceeded 14%.
-21-
<PAGE>
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:
<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 taxable 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 redemption proceeds will not be
sent until the check paying for the investment has cleared, which may take up to
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.
-2-
<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") -- Incorporated by reference to the Registrant's
Registration Statement on Form N-1A.
2. By-Laws of the Trust -- Incorporated by reference to the Registrant's
Registration Statement on Form N-1A.
3. None.
4. None.
5. (a) Form of Management Agreement between the Trust and
Undiscovered Managers, LLC ("Undiscovered Managers")
-- Incorporated by reference to the Registrant's
Registration Statement on Form N-1A.
(b) Form of Sub-Advisory Agreements between
Undiscovered Managers and each sub-adviser
relating to each series of the Trust
-- Incorporated by reference to the Registrant's
Registration Statement on Form N-1A.
(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 3rd day of December, 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 December 3, 1997
- ------------------------ Secretary and Trustee
Mark P. Hurley
-10-
