[Graphic of Map]
undiscovered
managers(TM)
UNDISCOVERED MANAGERS FUNDS
FOR INSTITUTIONAL INVESTORS
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
FEBRUARY 28, 1998
Undiscovered Managers
Behavioral Growth Fund
Undiscovered Managers
Special Small Cap Fund
Undiscovered Managers
REIT Fund
Undiscovered Managers
Small Cap Value Fund
Undiscovered Managers
Hidden Value Fund
Undiscovered Managers
Core Equity Fund
Undiscovered Managers
All Cap Value Fund
<PAGE>
- --------------------------------------------------------------------------------
DISTRIBUTOR
First Data Distributors, Inc.
4400 Computer Drive
Westborough, Massachusetts 01581
Attn: Susan Moscaritolo
508 871-9768
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Attn: John Kingston
617 951-7000
TRANSFER AGENT
First Data Investor Services Group, Inc.
4400 Computer Drive
Westborough, Massachusetts 01581
Attn: Neil Forrest
508 871-4306
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP
125 Summer Street
Boston, Massachusetts 02110
Attn: Brian Gallagher
617 261-8398
CUSTODIAN
The Bank of New York
48 Wall Street
New York, New York 10286
Attn: Richard Yacovone
212 495-2376
The report and the financial statements contained herein are submitted for the
general information of the shareholders of Undiscovered Managers Funds. The
report is not authorized for distribution to prospective investors in
Undiscovered Managers Funds unless preceded or accompanied by the current
prospectus.
- --------------------------------------------------------------------------------
<PAGE>
undiscovered
managers(TM)
To Our Shareholders:
We are delighted to provide to you our inaugural semi-annual report for the
Undiscovered Managers Funds. This report offers you a view to the financial and
operational activities of the funds since their introduction and includes a
listing of the securities owned in each of our portfolios as of February 28,
1998.
We are pleased with the initial response to our product offerings among
institutional investors, and in particular, registered investment advisers. We
look ahead enthusiastically to continuing to grow in the upcoming months.
We would like to thank all of our managers for their support and cooperation in
developing and launching the Undiscovered Managers Funds. Most importantly, we
would like to thank you, our clients, for your interest and participation.
If you have any questions about this report, or would like additional
information about the Undiscovered Managers Funds, please do not hesitate to
call us at 1-888-242-3514.
Sincerely,
/s/ Mark P. Hurley
Mark P. Hurley
President and Chief Executive Officer
Undiscovered Managers, LLC
<PAGE>
undiscovered
managers(TM)
Undiscovered Managers Funds
and Sub-Advisers
UNDISCOVERED MANAGERS BEHAVIORAL GROWTH FUND
("BEHAVIORAL GROWTH FUND")
Sub-Adviser: RJF Asset Management, Inc.
UNDISCOVERED MANAGERS SPECIAL SMALL CAP FUND
("SPECIAL SMALL CAP FUND")
Sub-Adviser: Kestrel Investment Management Corporation
UNDISCOVERED MANAGERS REIT FUND
("REIT FUND")
Sub-Adviser: Bay Isle Financial Corporation
UNDISCOVERED MANAGERS SMALL CAP VALUE FUND
("SMALL CAP VALUE FUND")
UNDISCOVERED MANAGERS HIDDEN VALUE FUND
("HIDDEN VALUE FUND")
Sub-Adviser: J.L. Kaplan Associates, LLC
UNDISCOVERED MANAGERS CORE EQUITY FUND
("CORE EQUITY FUND")
Sub-Adviser: Waite & Associates, L.L.C.
UNDISCOVERED MANAGERS ALL CAP VALUE FUND
("ALL CAP VALUE FUND")
Sub-Adviser: E.R. Taylor Investments, Inc.
<PAGE>
undiscovered
managers(TM)
BEHAVIORAL GROWTH FUND
Portfolio of Investments -- February 28, 1998 (unaudited)
Market
Value
Shares (Note 2)
- ------ --------
COMMON STOCKS - 93.26%
Aerospace and Defense - 4.49%
800 United Technologies Corp. ......... $ 71,450
-----------
Banks - 2.46%
1,100 Golden State Bancorp, Inc. * ...... 39,188
-----------
Building and Construction - 2.76%
600 Centex Corp. ...................... 43,838
-----------
Computers - 22.17%
600 Adobe Systems, Inc. ............... 26,512
1,000 Compuware Corp. * ................. 42,125
1,000 Cyberoptics Corp. * ............... 26,750
1,000 Gateway 2000 * .................... 44,000
900 Keane, Inc. * ..................... 41,850
1,100 Progress Software Corp. * ......... 27,912
2,200 Software AG Systems, Inc. * ....... 42,625
600 Sterling Software, Inc. * ......... 31,613
1,100 Syntel, Inc. * .................... 29,700
900 Systems & Computer Technology Corp. * 39,375
-----------
352,462
-----------
Consumer Products - 4.94%
1,800 Fossil, Inc. * .................... 48,375
900 Interstate Bakeries Corp. ......... 30,150
-----------
78,525
-----------
Finance - 2.93%
1,000 Torchmark Corp. ................... 46,563
-----------
Manufacturing - 8.49%
1,600 Alpha Industries, Inc. * .......... 26,100
700 Carlisle Companies, Inc. .......... 33,906
900 Dana Corp. ........................ 49,106
1,200 Input/Output, Inc. * .............. 25,875
-----------
134,987
-----------
Oil, Gas and Petroleum - 2.85%
400 Camco International, Inc. ......... 23,400
400 Cooper Cameron Corp. * ............ 21,813
-----------
45,213
-----------
Recreation - 2.65%
900 Fleetwood Enterprises ............. 42,188
-----------
Retail - 15.28%
1,400 Best Buy Co., Inc. * .............. $ 83,475
800 Brylane, Inc. * ................... 42,900
600 Miller (Herman), Inc. ............. 36,750
1,000 TJX Companies, Inc. * ............. 38,624
800 Williams-Sonoma, Inc.* ............ 41,200
-----------
242,949
-----------
Telecommunications - 16.23%
1,100 Avid Technology, Inc. * ........... 38,019
700 CIENA Corp. * ..................... 29,356
1,300 Corsair Communications, Inc. * .... 26,650
400 Lucent Technologies, Inc.* ........ 43,350
1,700 Neomagic Corp. * .................. 31,450
1,400 Superior Telecommunications, Inc. * 54,688
1,300 360 (Degrees) Communications Co. * 34,450
-----------
257,963
-----------
Transportation - 8.01%
1,100 Expeditors International, WA ...... 44,550
1,200 Hunt (JB) Transport Services, Inc. 32,100
1,900 MotivePower Industries, Inc. * .... 50,706
-----------
127,356
-----------
Total Common Stocks ............... 1,482,682
-----------
(Cost $1,405,893)
Total Investments - 93.26% ...................... 1,482,682
-----------
(Cost $1,405,893)
Net Other Assets and Liabilities - 6.74% ........ 107,201
-----------
Net Assets - 100.00% ............................ $1,589,883
-----------
- --------------------------------
* Non-income producing security.
See Notes to Financial Statements.
1
<PAGE>
undiscovered
managers(TM)
SPECIAL SMALL CAP FUND
Portfolio of Investments -- February 28, 1998 (unaudited)
Market
Value
Shares (Note 2)
- ------ --------
COMMON STOCKS - 94.49%
Automobile - 6.15%
2,000 Midas, Inc.* ...................... $ 35,125
800 Strattec Security Corp.* .......... 21,050
800 TBC Corp.* ........................ 7,300
800 TransPro, Inc. .................... 6,100
-----------
69,575
-----------
Building Materials - 2.60%
1,000 Congoleum Corp., Class A* ......... 10,000
1,500 Justin Industries, Inc. ........... 19,500
-----------
29,500
-----------
Capital Goods - 8.31%
700 Alltrista Corp.* .................. 18,856
400 Franklin Electric Co, Inc. ........ 27,150
800 Jacobs Engineering Group, Inc.* ... 23,950
600 Lawson Products ................... 16,650
1,300 Stimsonite Corp.* ................. 7,475
-----------
94,081
-----------
Chemicals - 5.94%
700 Georgia Gulf Corp. ................ 23,056
700 LeaRonal, Inc. .................... 19,818
400 NCH Corp. ......................... 24,375
-----------
67,249
-----------
Electronics - 8.56%
1,100 CIDCO, Inc.* ...................... 18,425
2,200 Commscope, Inc.* .................. 29,425
1,500 ESCO Electronics Corp.* ........... 25,875
400 Varian Associates Inc. ............ 23,200
-----------
96,925
-----------
Finance - 12.02%
718 ADVANTA Corp., Class A ............ 16,908
1,000 Echelon International Corp.* ...... 21,813
600 FirstBank Puerto Rico ............. 23,737
200 Fund American Enterprises Holding, Inc. 26,150
1,196 Queens County Bancorp., Inc. ...... 47,541
-----------
136,149
-----------
Food and Beverages - 3.08%
400 Coca-Cola Bottling Co. Consolidated 23,900
600 GoodMark Foods, Inc. .............. 10,950
-----------
34,850
-----------
Health Care Services - 3.52%
500 CorVel Corp.* ..................... $ 17,813
1,100 Morrison Health Care .............. 22,000
-----------
39,813
-----------
Leisure - 5.35%
3,200 Handleman Co.* .................... 21,600
1,900 Scientific Games Holdings Corp.* .. 38,950
-----------
60,550
-----------
Medical Products - 4.95%
1,200 EMPI, Inc.* ....................... 21,600
1,500 Invacare Corp. .................... 34,406
-----------
56,006
-----------
Oil, Gas and Petroleum - 2.78%
700 Castle Energy Corp. ............... 11,025
2,000 Costilla Energy, Inc.* ............ 20,500
-----------
31,525
-----------
Pharmaceuticals - 1.80%
1,900 Perrigo Co.* ...................... 20,425
-----------
Publishing - 2.22%
1,100 Cadmus Communications Corp. ....... 25,163
-----------
Restaurants - 5.72%
1,900 Host Marriott Services Corp.* ..... 25,413
1,100 Outback Steakhouse, Inc.* ......... 39,325
-----------
64,738
-----------
Retail - 3.14%
800 Tandy Corp. ....................... 35,600
-----------
Technology - 2.90%
2,300 Information Resources, Inc.* ...... 32,878
-----------
Textiles - 1.95%
700 Oxford Industries, Inc. ........... 22,050
-----------
Transportation - 10.56%
1,300 Arnold Industries, Inc. ........... 20,718
1,200 Landstar Systems, Inc.* ........... 35,700
900 Midwest Express Holdings, Inc.* ... 43,763
1,100 Transport Corp. of America, Inc.* . 19,388
-----------
119,569
-----------
See Notes to Financial Statements.
2
<PAGE>
undiscovered
managers(TM)
SPECIAL SMALL CAP FUND
Portfolio of Investments (continued) -- February 28, 1998 (unaudited)
Market
Value
Shares (Note 2)
- ------ --------
Utilities - 2.94%
1,200 Illinova Corp. .................... $ 33,300
-----------
Total Common Stocks ............... 1,069,946
-----------
(Cost $1,031,902)
Total Investments - 94.49% ...................... 1,069,946
-----------
(Cost $1,031,902)
Net Other Assets and Liabilities - 5.51% ........ 62,399
-----------
Net Assets - 100.00% ............................ $ 1,132,345
===========
- --------------------------------
* Non-income producing security.
See Notes to Financial Statements.
3
<PAGE>
undiscovered
managers(TM)
REIT FUND
Portfolio of Investments -- February 28, 1998 (unaudited)
Market
Value
Shares (Note 2)
- ------ --------
COMMON STOCKS - 92.15%
Apartments - 21.21%
1,300 Avalon Properties, Inc. ........... $ 37,375
1,600 Bay Apartment Communities, Inc. ... 60,500
2000 Manufactured Home Communities, Inc. 51,500
1,800 Security Capital Pacific Trust .... 41,287
1500 Sun Communities, Inc. ............. 52,313
-----------
242,975
-----------
Diversified - 7.04%
800 Golf Trust of America, Inc. ....... 23,100
2200 U.S. Restaurants Properties, Inc. . 57,475
-----------
80,575
-----------
Healthcare Properties - 5.26%
1,500 LTC Properties, Inc. .............. 31,125
750 Omega Healthcare Investors, Inc. .. 29,109
-----------
60,234
-----------
Hotels, Lodging and Restaurants - 7.05%
2500 Innkeepers USA Trust .............. 37,030
1750 Patriot American Hospitality, Inc. 43,750
-----------
80,780
-----------
Industrial - 7.92%
1800 Security Capital Industries Trust . 43,650
1425 Weeks Corp. ....................... 47,025
-----------
90,675
-----------
Neighborhood Shopping Centers - 5.65%
650 Kimco Realty Corp. ................ 22,831
1600 Regency Realty Corp. .............. 41,900
-----------
64,731
-----------
Office Properties - 19.82%
1700 CarrAmerica Realty Corp. .......... 50,575
1400 Cornerstone Properties, Inc. ...... 25,025
1100 Great Lakes REIT, Inc. ............ 20,831
1350 Mack-Cali Realty Corp. ............ 50,963
1000 Prentiss Properties Trust ......... 26,687
2100 Reckson Associates Realty Corp. ... 52,894
-----------
226,975
-----------
Outlet Centers - 4.24%
1300 Chelsea GCA Realty, Inc. .......... $ 48,588
-----------
Regional Malls - 6.71%
1500 CBL & Associates Properties, Inc. . 37,313
1400 Macerich Co. (The) ................ 39,550
-----------
76,863
-----------
Storage - 7.25%
1400 Public Storage, Inc. .............. 43,138
1000 Storage USA ....................... 39,938
-----------
83,076
-----------
Total Common Stocks ............... 1,055,472
-----------
(Cost $1,076,386)
Total Investments - 92.15% ...................... 1,055,472
-----------
(Cost $1,076,386)
Net Other Assets and Liabilities - 7.85% ........ 89,901
-----------
Net Assets - 100.00% ............................ $ 1,145,373
===========
- -----------------------------------
REIT Real Estate Investment Trust
See Notes to Financial Statements.
4
<PAGE>
undiscovered
managers(TM)
SMALL CAP VALUE FUND
Portfolio of Investments -- February 28, 1998 (unaudited)
Market
Value
Shares (Note 2)
- ------ --------
COMMON STOCKS - 93.26%
Automobile - 2.88%
200 Excel Industries, Inc.* ........... $ 3,975
----------
Basic Materials - 6.64%
200 Chase Industries, Inc.* ........... 5,637
100 Reliance Steel & Aluminum Co. ..... 3,525
----------
9,162
----------
Building and Construction - 5.18%
200 ABT Building Products Corp.* ...... 3,200
100 NCI Building Systems, Inc.* ....... 3,950
----------
7,150
----------
Business Services - 5.25%
200 BancTec, Inc.* .................... 5,138
300 Ultra Pac, Inc.* .................. 2,100
----------
7,238
----------
Capital Goods - 16.02%
200 Instron Corp. ..................... 3,425
200 Lydall, Inc.* ..................... 3,512
300 MTS Systems Corp. ................. 4,894
100 Oak Industries, Inc.* ............. 3,068
100 Regal Beloit Corp. ................ 3,250
100 Robbins & Myers, Inc. ............. 3,962
----------
22,111
----------
Chemicals - 5.92%
100 Cambrex Corp. ..................... 4,950
300 CPAC, Inc.* ....................... 3,225
----------
8,175
----------
Conglomerates - 5.62%
200 Stewart & Stevenson Services, Inc. 4,887
100 United Dominion Industries, Ltd. .. 2,875
----------
7,762
----------
Electronics - 6.33%
200 Fluke Corp. ....................... 4,862
200 Kollmorgen Corp. .................. 3,875
----------
8,737
----------
Finance - 7.38%
200 Frontier Insurance Group, Inc. 4,713
200 UST Corp. ......................... 5,475
----------
10,188
----------
Furniture - 2.58%
100 Chromcraft Revington, Inc.* ....... $ 3,563
----------
Leisure - 2.07%
100 Coachmen Industries, Inc. ......... 2,856
----------
Oil, Gas and Petroleum - 8.42%
200 Key Production Co., Inc.* ......... 2,013
300 Trico Marine Services, Inc.* ...... 5,588
200 Vintage Petroleum, Inc. ........... 4,013
----------
11,614
----------
Restaurants - 2.40%
400 Ryan Family Steak Houses, Inc.* ... 3,313
----------
Retail - 7.50%
400 Filene's Basement Corp.* .......... 2,125
500 Group 1 Automotive, Inc.* ......... 5,000
400 Sport Supply Group, Inc.* ......... 3,225
----------
10,350
----------
Technology - 6.15%
200 Kulicke & Soffa Industries, Inc.* . 5,550
100 Marshall Industries* .............. 2,931
----------
8,481
----------
Transportation - 2.92%
100 ASA Holdings, Inc. ................ 4,025
----------
Total Common Stocks ............... 128,700
----------
(Cost $121,434)
Total Investments - 93.26% ...................... 128,700
----------
(Cost $121,434)
Net Other Assets and Liabilities - 6.74% ........ 9,300
----------
Net Assets - 100.00% ............................ $ 138,000
==========
- --------------------------------
* Non-income producing security.
See Notes to Financial Statements.
5
<PAGE>
undiscovered
managers(TM)
HIDDEN VALUE FUND
Portfolio of Investments -- February 28, 1998 (unaudited)
Market
Value
Shares (Note 2)
- ------ --------
COMMON STOCKS - 92.55%
Aerospace and Defense - 2.88%
100 Raytheon Co., Class B ............. $ 5,881
Basic Materials - 12.53%
200 Carpenter Tech Corp. .............. 9,462
200 Timken Co. ........................ 6,450
100 Trinity Industries, Inc. .......... 5,025
100 Union Carbide Corp.* .............. 4,644
---------
25,581
---------
Business Services - 5.64%
200 BancTec, Inc.* .................... 5,138
300 Reynolds & Reynolds Co., Class A .. 6,375
---------
11,513
---------
Capital Goods - 13.87%
100 Case Corp. ........................ 6,506
200 Flowserve Corp. ................... 6,338
100 General Signal Corp. .............. 4,063
300 Lydall, Inc.* ..................... 5,269
200 Oak Industries, Inc.* ............. 6,138
---------
28,314
---------
Chemicals and Allied Products - 5.60%
100 Cambrex Corp. ..................... 4,950
100 PPG Industries Inc. ............... 6,480
---------
11,430
---------
Conglomerates - 5.50%
100 TRW, Inc. ......................... 5,480
200 United Dominion Industries, Ltd. .. 5,750
---------
11,230
---------
Electronics - 2.84%
100 Varian Associates, Inc. ........... 5,800
---------
Finance - 15.81%
200 Frontier Insurance Group, Inc. .... 4,713
100 KeyCorp ........................... 7,006
100 Ohio Casualty Corp. ............... 4,675
100 Old Republic International Corp. .. 4,219
100 Union Planters Corp. .............. 6,181
200 UST Corp. ......................... 5,475
---------
32,269
---------
Oil, Gas and Petroleum - 10.65%
100 Tidewater, Inc. ................... $ 4,450
200 Trico Marine Services, Inc.* ...... 3,725
200 Unocal Corp. ...................... 7,538
300 Vintage Petroleum, Inc. ........... 6,018
---------
21,731
---------
Retail - 6.26%
200 BJ's Wholesale Club, Inc.* ........ 6,775
600 Group 1 Automotive, Inc.* ......... 6,000
---------
12,775
---------
Technology - 10.97%
300 Cabletron Systems, Inc.* .......... 4,650
200 Marshall Industries* .............. 5,863
300 National Semiconductor Corp.* ..... 7,163
100 Teradyne Inc.* .................... 4,719
---------
22,395
---------
Total Common Stocks ............... 188,919
---------
(Cost $180,398)
Total Investments - 92.55% ...................... 188,919
---------
(Cost $180,398)
Net Other Assets and Liabilities - 7.45% ........ 15,200
---------
Net Assets - 100.00% ............................ $ 204,119
=========
- --------------------------------
* Non-income producing security.
See Notes to Financial Statements.
6
<PAGE>
undiscovered
managers(TM)
CORE EQUITY FUND
Portfolio of Investments -- February 28, 1998 (unaudited)
Market
Value
Shares (Note 2)
- ------ --------
COMMON STOCKS - 96.77%
Banks - 14.79%
80 Bank of New York, Inc. ............ $ 4,685
60 BankAmerica Corp. ................. 4,650
30 U.S. Bancorp ...................... 3,452
10 Wells Fargo & Co. ................. 3,220
---------
16,007
---------
Consumer Goods - 16.72%
50 American Home Products Corp. ...... 4,687
60 General Electric Co. .............. 4,665
100 PepsiCo, Inc. ..................... 3,656
60 Procter & Gamble Co. .............. 5,096
---------
18,104
---------
Finance - 4.72%
80 Federal National Mortgage Association 5,105
---------
Insurance - 11.33%
40 American International Group ...... 4,808
40 Chubb Corp. ....................... 3,193
20 General Re Corp. .................. 4,260
---------
12,261
---------
Machinery - 3.08%
70 Ingersoll-Rand Co. ................ 3,334
---------
Manufacturing - 8.75%
40 Caterpillar, Inc. ................. 2,185
80 Deere & Co. ....................... 4,490
60 Parker-Hannifin Corp. ............. 2,797
---------
9,472
---------
Office Products - 5.85%
20 Avery Dennison Corp. .............. 1,010
60 Xerox Corp. ....................... 5,321
---------
6,331
---------
Oil, Gas and Petroleum - 6.96%
50 Mobil Corp. ....................... 3,622
70 Texaco, Inc. ...................... 3,907
---------
7,529
---------
Retail - 13.10%
80 Costco Companies, Inc. * .......... 3,910
70 Dayton Hudson Corp. ............... 5,412
80 May Department Stores Co. ......... 4,860
---------
14,182
---------
Telecommunications - 7.46%
40 Bell Atlantic Corp. ............... $ 3,590
50 Intel Corp. * ..................... 4,484
---------
8,074
---------
Utilities - 4.01%
40 FPL Group, Inc. ................... 2,323
50 Texas Utilities Co. ............... 2,022
---------
4,345
---------
Total Common Stocks ............... 104,744
---------
(Cost $96,751)
Total Investments - 96.77% ...................... 104,744
---------
(Cost $96,751)
Net Other Assets and Liabilities - 3.23% ........ 3,499
---------
Net Assets - 100.00% ............................ $ 108,243
=========
- --------------------------------
* Non-income producing security.
See Notes to Financial Statements.
7
<PAGE>
undiscovered
managers(TM)
ALL CAP VALUE FUND
Portfolio of Investments -- February 28, 1998 (unaudited)
Market
Value
Shares (Note 2)
- ------ --------
COMMON STOCKS - 99.41%
Aerospace and Defense - 6.17%
78 AlliedSignal, Inc. ................ $ 3,320
59 Raytheon Co., Class A ............. 3,422
---------
6,742
---------
Automobile - 10.41%
127 Cooper Tire & Rubber .............. 2,929
181 Federal Signal Corp. .............. 4,254
74 Ford Motor ........................ 4,186
---------
11,369
---------
Banks - 10.41%
62 Banc One Corp. .................... 3,480
32 Bankers Trust New York Corp. ...... 3,784
78 First Union Corp. ................. 4,110
---------
11,374
---------
Chemicals and Allied Products - 5.23%
51 duPont (El) deNemours & Co. ....... 3,127
40 Eastman Kodak ..................... 2,587
---------
5,714
---------
Computers - 5.90%
78 Adobe Systems, Inc. ............... 3,447
63 Sun Microsystems, Inc. * .......... 3,000
---------
6,447
---------
Consumer Products - 3.11%
61 Kimberly-Clark Corp. .............. 3,397
---------
Electronics - 5.19%
46 Avnet, Inc. ....................... 2,933
36 SGS-Thomson Microelectronics, NV * 2,741
---------
5,674
---------
Finance - 9.59%
34 American Express Co. .............. 3,063
49 Merrill Lynch & Co. ............... 3,507
70 Travelers Group, Inc. ............. 3,903
---------
10,473
---------
Health Care Services - 6.44%
44 Abbott Laboratories ............... 3,292
40 American Home Products Corp. ...... 3,750
---------
7,042
---------
Hotels and Restaurants - 2.78%
102 Hilton Hotels Corp. ............... $ 3,041
---------
Insurance - 2.74%
69 RenaissanceRe Holdings ............ 2,993
---------
Manufacturing - 8.99%
40 Armstrong World Industries ........ 3,140
63 Caterpillar, Inc. ................. 3,441
84 Dover Corp. ....................... 3,245
---------
9,826
---------
Oil, Gas and Petroleum - 4.31%
57 British Petroleum ADR ............. 4,713
---------
Retail - 6.97%
80 Liz Claiborne, Inc. ............... 4,000
68 Sears Roebuck & Co. ............... 3,608
---------
7,608
---------
Technology - 8.39%
102 Compaq Computer Corp. ............. 3,270
20 International Business Machines Corp. 2,089
43 Xerox Corp. ....................... 3,813
---------
9,172
---------
Telecommunications - 2.78%
95 Cincinatti Bell, Inc. ............. 3,040
---------
Total Common Stocks ............... 108,625
---------
(Cost $100,141)
Total Investments - 99.41% ...................... 108,625
---------
(Cost $100,141)
Net Other Assets and Liabilities - 0.59% ........ 646
---------
Net Assets - 100.00% ............................ $ 109,271
=========
- -------------------------------------
* Non-income producing security.
ADR American Depositary Receipt
See Notes to Financial Statements.
8
<PAGE>
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9
<PAGE>
undiscovered
managers(TM)
STATEMENTS OF ASSETS AND LIABILITIES o February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Behavioral Special Small REIT
Growth Fund Cap Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investments (Note 2):
Investments at cost ........................................ $1,405,893 $1,031,902 $1,076,386
Net unrealized appreciation (depreciation) ................. 76,789 38,044 (20,914)
---------- ---------- ----------
Total investments at value ............................... 1,482,682 1,069,946 1,055,472
Cash ......................................................... 127,226 97,541 90,213
Receivables:
Investments sold ........................................... 10,097 -- --
Fund shares sold ........................................... -- -- --
Dividend and interest ...................................... 1,759 748 799
Due from Adviser, Net ...................................... 26,379 28,918 25,916
Organization costs (Note 2) ................................ 30,793 30,776 30,811
Offering Costs (Note 2) .................................... 14,990 14,941 15,039
Insurance fees (Note 2) .................................... 2,781 2,773 2,791
---------- ---------- ----------
Total Assets ............................................. 1,696,707 1,245,643 1,221,041
---------- ---------- ----------
LIABILITIES:
Payables:
Investments purchased ...................................... 30,726 32,878 --
Fund shares repurchased .................................... -- -- --
Due to custodian ........................................... -- -- --
Administration fee (Note 3) ................................ 222 450 198
Sub-Adminstration and Transfer Agent fees (Note 3) ......... 10,007 10,223 9,839
Organization costs (Note 2) ................................ 31,839 31,840 31,840
Offering costs (Note 2) .................................... 17,939 17,939 17,939
Insurance fees (Note 2) .................................... 3,329 3,329 3,329
Directors' fees (Note 5) ................................... 2,252 2,652 2,206
Accrued expenses and other payables ........................ 10,510 13,987 10,317
---------- ---------- ----------
Total Liabilities ........................................ 106,824 113,298 75,668
---------- ---------- ----------
NET ASSETS ....................................................... $1,589,883 $1,132,345 $1,145,373
========== ========== ==========
NET ASSETS consist of
Paid-in capital .............................................. $1,521,002 $1,088,291 $1,157,803
Undistributed (distribution in excess of) net investment
income (loss) .............................................. 809 (819) 1,563
Accumulated net realized gain (loss) on investments sold ..... (8,717) 6,829 6,921
Net unrealized appreciation (depreciation) of investments .... 76,789 38,044 (20,914)
---------- ---------- ----------
TOTAL NET ASSETS ................................................. $1,589,883 $1,132,345 $1,145,373
========== ========== ==========
Shares of beneficial interest outstanding ........................ 113,144 87,032 94,422
NET ASSET VALUE,
Offering and redemption price per share
(Net Assets/Shares Outstanding) .............................. $ 14.05 $ 13.01 $ 12.13
========== ========== ==========
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
undiscovered
managers(TM)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Small Cap Hidden Core All Cap
Value Fund Value Fund Equity Fund Value Fund
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 121,434 $ 180,398 $ 96,751 $ 100,141
7,266 8,521 7,993 8,484
--------- ---------- --------- ----------
128,700 188,919 104,744 108,625
9,510 34,268 3,445 --
-- -- -- 7,282
-- -- -- 98
42 300 221 260
21,625 21,611 21,419 21,435
30,776 30,794 30,793 30,792
14,941 14,990 14,990 14,989
2,773 2,781 2,781 2,781
--------- ---------- --------- ----------
208,367 293,663 178,393 186,262
--------- ---------- --------- ----------
-- 19,073 -- 2,590
-- 31 -- --
-- -- -- 4,237
45 51 42 42
10,126 9,966 9,964 9,964
31,840 31,840 31,839 31,839
17,939 17,939 17,939 17,938
3,329 3,329 3,328 3,328
277 359 252 253
6,811 6,956 6,786 6,800
--------- ---------- --------- ----------
70,367 89,544 70,150 76,991
--------- ---------- --------- ----------
$ 138,000 $ 204,119 $ 108,243 $ 109,271
========= ========== ========= ==========
$ 130,000 $ 194,969 $ 100,000 $ 100,098
65 197 250 295
669 432 -- 394
7,266 8,521 7,993 8,484
--------- ---------- --------- ----------
$ 138,000 $ 204,119 $ 108,243 $ 109,271
========= ========== ========= ==========
10,285 15,270 8,000 8,000
$ 13.42 $ 13.37 $ 13.53 $ 13.66
========= ========== ========= ==========
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
undiscovered
managers(TM)
STATEMENTS OF OPERATIONS o For period ended February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Behavioral Special Small REIT
Growth Fund(1) Cap Fund(1) Fund(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends (Note 2) ............................................ $ 657 $ 1,753 $ 2,375
Interest (Note 2) ............................................. 1,308 489 299
--------- -------- ---------
Total investment income .................................... 1,965 2,242 2,674
--------- -------- ---------
EXPENSES
Investment advisory fees (Note 3) ............................. 844 2,071 833
Administration fees (Note 3) .................................. 222 450 198
Custodian fees (Note 3) ....................................... 1,331 1,085 1,130
Sub-Administration fees (Note 3) .............................. 5,135 5,269 5,048
Legal fees .................................................... 2,123 5,562 1,767
Transfer Agent fee ............................................ 4,873 4,954 4,792
Audit fees .................................................... 1,967 2,000 1,934
Trustees' fees (Note 5) ....................................... 2,252 2,652 2,206
Reports to shareholders ....................................... 1,700 2,007 1,661
Amortization of organization costs (Note 2) ................... 1,047 1,064 1,029
Amortization of offering costs (Note 2) ....................... 2,949 2,998 2,900
Registration fee .............................................. 3,189 3,111 3,081
Other fees .................................................... 747 827 1,281
--------- -------- ---------
Total expenses before reimbursement ........................ 28,379 34,050 27,860
Less reimbursement (Note 3) ................................ (27,223) (30,989) (26,749)
--------- -------- ---------
Total expenses net of reimbursement ........................ 1,156 3,061 1,111
--------- -------- ---------
NET INVESTMENT INCOME (LOSS) ...................................... 809 (819) 1,563
--------- -------- ---------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Note 2):
Net realized gain (loss) on investments sold .................. (8,717) 6,829 6,921
Net change in unrealized appreciation (depreciation)
of investments .............................................. 76,789 38,044 (20,914)
--------- -------- ---------
NET GAIN (LOSS) ON INVESTMENTS .................................... 68,072 44,873 (13,993)
--------- -------- ---------
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ... $ 68,881 $ 44,054 $ (12,430)
========= ======== =========
</TABLE>
- -------------------------------------------------------------------------------
(1) Funds commenced operations on: Behavioral Growth Fund - December 29, 1997;
Special Small Cap Fund - December 29, 1997; REIT Fund - December 29, 1997;
Small Cap Value Fund - December 29, 1997; Hidden Value Fund - December 29,
1997; Core Equity Fund - December 29, 1997; and All Cap Value Fund -
December 29, 1997.
See Notes to Financial Statements.
12
<PAGE>
undiscovered
managers(TM)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Small Cap Hidden Core All Cap
Value Fund(1) Value Fund(1) Equity Fund(1) Value Fund(1)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 60 $ 270 $ 306 $ 305
257 190 111 157
-------- ---------- --------- --------
317 460 417 462
-------- ---------- --------- --------
189 193 125 125
45 51 42 42
1,052 1,136 1,149 1,146
5,172 5,092 5,091 5,091
554 588 518 517
4,954 4,873 4,873 4,873
2,000 1,967 1,967 1,967
277 359 252 253
210 271 190 191
1,064 1,046 1,046 1,046
2,998 2,949 2,949 2,949
2,778 2,797 2,769 2,769
773 745 740 758
-------- ---------- --------- --------
22,066 22,067 21,711 21,727
(21,814) (21,804) (21,544) (21,560)
-------- ---------- --------- --------
252 263 167 167
-------- ---------- --------- --------
65 197 250 295
-------- ---------- --------- --------
669 432 -- 394
7,266 8,521 7,993 8,484
-------- ---------- --------- --------
7,935 8,953 7,993 8,878
-------- ---------- --------- --------
$ 8,000 $ 9,150 $ 8,243 $ 9,173
======== ========== ========= ========
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
undiscovered
managers(TM)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Behavioral Growth Fund(1) Special Small Cap Fund(1) REIT Fund(1)
------------------------- ------------------------- ------------
Period ended Period ended Period ended
February 28, 1998 February 28, 1998 February 28, 1998
(unaudited) (unaudited) (unaudited)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSETS at beginning of period ...................... $ -- $ -- $ --
---------- ---------- ----------
Increase in net assets resulting from operations:
Net investment income (loss) ....................... 809 (819) 1,563
Net realized gain (loss) on investments sold ....... (8,717) 6,829 6,921
Net change in unrealized appreciation (depreciation)
of investments .................................. 76,789 38,044 (20,914)
---------- ---------- ----------
Net increase (decrease) in net assets resulting
from operations ................................. 68,881 44,054 (12,430)
---------- ---------- ----------
Capital share transactions:
Net proceeds from sales of shares .................. 1,583,498 1,088,291 1,157,803
Cost of shares repurchased ......................... (62,496) -- --
---------- ---------- ----------
Net increase from
capital share transactions .................. 1,521,002 1,088,291 1,157,803
---------- ---------- ----------
Total increase in net assets .................... 1,589,883 1,132,345 1,145,373
---------- ---------- ----------
NET ASSETS at end of period (including line A) ......... $1,589,883 $1,132,345 $1,145,373
========== ========== ==========
(A) Undistributed (distribution in excess of)
net investment income (loss) .................... $ 809 $ (819) $ 1,563
========== ========== ==========
OTHER INFORMATION:
Share transactions:
Sold ............................................... 117,669 87,032 94,422
Issued to shareholders in reinvestment of
distributions .................................... -- -- --
Repurchased ........................................ (4,525) -- --
---------- ---------- ----------
Net increase in shares outstanding .............. 113,144 87,032 94,422
========== ========== ==========
</TABLE>
- --------------------------------------------------------------------------------
(1) Funds commenced operations on: Behavioral Growth Fund - December 29, 1997;
Special Small Cap Fund - December 29, 1997; REIT Fund - December 29, 1997;
Small Cap Value Fund - December 29, 1997; Hidden Value Fund - December 29,
1997; Core Equity Fund - December 29, 1997; and All Cap Value Fund -
December 29, 1997.
See Notes to Financial Statements.
14
<PAGE>
undiscovered
managers(TM)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Small Cap Value Fund(1) Hidden Value Fund(1) Core Equity Fund(1) All Cap Value Fund(1)
----------------------- -------------------- ------------------- ---------------------
Period ended Period ended Period ended Period ended
February 28, 1998 February 28, 1998 February 28, 1998 February 28, 1998
(unaudited) (unaudited) (unaudited) (unaudited)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ -- $ -- $ -- $ --
--------- --------- --------- ---------
65 197 250 295
669 432 -- 394
7,266 8,521 7,993 8,484
--------- --------- --------- ---------
8,000 9,150 8,243 9,173
--------- --------- --------- ---------
130,000 195,000 100,000 100,098
-- (31) -- --
--------- --------- --------- ---------
130,000 194,969 100,000 100,098
--------- --------- --------- ---------
138,000 204,119 108,243 109,271
--------- --------- --------- ---------
$ 138,000 $ 204,119 $ 108,243 $ 109,271
========= ========= ========= =========
$ 65 $ 197 $ 250 $ 295
========= ========= ========= =========
10,285 15,272 8,000 8,000
-- -- -- --
-- (2) -- --
--------- --------- --------- ---------
10,285 15,270 8,000 8,000
========= ========= ========= =========
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
undiscovered
managers(TM)
FINANCIAL HIGHLIGHTS - For a Share outstanding throughout the period (unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Behavioral Growth Fund(1) Special Small Cap Fund(1) REIT Fund(1)
------------------------- ------------------------- ------------
Period ended Period ended Period ended
February 28, 1998 February 28, 1998 February 28, 1998
(unaudited) (unaudited) (unaudited)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, beginning of period .............. $ 12.50 $ 12.50 $ 12.50
Income from Investment Operations:
Net investment income (2) ...................... 0.01 (0.01) 0.02
Net realized and unrealized gain (loss)
on investments .............................. 1.54 0.52 (0.39)
----------- ------------- -----------
Total from Investment Operations ............ 1.55 0.51 (0.37)
----------- ------------- -----------
Net increase (decrease) in net asset value ........ 1.55 0.51 (0.37)
----------- ------------- -----------
Net Asset Value, end of period .................... $ 14.05 $ 13.01 $ 12.13
=========== ============= ===========
Total Return ...................................... 12.40%** 4.08%** (2.96)%**
Ratios / Supplemental Data:
Net Assets, end of period (in 000's) .............. $ 1,590 $ 1,132 $ 1,145
Ratios to average net assets:
Net investment income including reimbursement .. 0.91%* (0.45)%* 1.97%*
Operating expenses including reimbursement ..... 1.30%* 1.70%* 1.40%*
Operating expenses excluding reimbursement ..... 31.93%* 18.91%* 35.11%*
Portfolio Turnover Rate 12%** 10%** 91%**
Average Commission Rate Paid ...................... $ 0.0447 $ 0.0677 $ 0.0600
</TABLE>
- --------------------------------------------------------------------------------
* Annualized
** Not Annualized
(1) Funds commenced operations on: Behavioral Growth Fund - December 29, 1997;
Special Small Cap Fund - December 29, 1997; REIT Fund - December 29, 1997;
Small Cap Value Fund - December 29, 1997; Hidden Value Fund - December 29,
1997; Core Equity Fund - December 29, 1997; and All Cap Value Fund -
December 29, 1997.
(2) Net investment income per share before reimbursement/waiver of fees by
Undiscovered Managers, LLC for the period ended February 28, 1998 were
$(0.33) Behavioral Growth Fund; $(0.39) Special Small Cap Fund; $(0.33)
REIT Fund; $(3.34) Small Cap Value Fund; $(1.10) Hidden Value Fund; $(2.56)
Core Equity Fund; and $(2.89) All Cap Value Fund.
See Notes to Financial Statements.
16
<PAGE>
undiscovered
managers(TM)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Small Cap Value Fund(1) Hidden Value Fund(1) Core Equity Fund(1) All Cap Value Fund(1)
----------------------- -------------------- ------------------- ---------------------
Period ended Period ended Period ended Period ended
February 28, 1998 February 28, 1998 February 28, 1998 February 28, 1998
(unaudited) (unaudited) (unaudited) (unaudited)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 12.50 $ 12.50 $ 12.50 $ 12.50
0.01 0.01 0.03 0.04
0.91 0.86 1.00 1.12
----------- ----------- ------------ -----------
0.92 0.87 1.03 1.16
----------- ----------- ------------ -----------
0.92 0.87 1.03 1.16
----------- ----------- ------------ -----------
$ 13.42 $ 13.37 $ 13.53 $ 13.66
=========== =========== ============ ===========
7.36%** 6.96%** 8.24%** 9.28%**
$ 138 $ 204 $ 108 $ 109
0.36%* 0.97%* 1.48%* 1.75%*
1.40%* 1.30%* 0.99%* 0.99%*
122.58%* 108.64%* 128.80%* 128.88%*
5%** 4%** 0%** 17%**
$ 0.0610 $ 0.0600 $ 0.0500 $ 0.0592
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
undiscovered
managers(TM)
NOTES TO FINANCIAL STATEMENTS (unaudited)
1. Organization
Undiscovered Managers Funds (the "Trust") is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The Trust currently consists of seven separate managed portfolios. The
accompanying financial statements and financial highlights are those of the
Undiscovered Managers Behavioral Growth Fund (the "Behavioral Growth Fund"), the
Undiscovered Managers Special Small Cap Fund (the "Special Small Cap Fund"), the
Undiscovered Managers REIT Fund (the "REIT Fund"), the Undiscovered Managers
Small Cap Value Fund (the "Small Cap Value Fund"), the Undiscovered Managers
Hidden Value Fund (the "Hidden Value Fund"), the Undiscovered Managers Core
Equity Fund (the "Core Equity Fund"), and the Undiscovered Managers All Cap
Value Fund (the "All Cap Value Fund"), each commencing operations on December
29, 1997, (each a "Fund", and collectively, the "Funds").
2. Significant Accounting Policies
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of the
significant accounting policies consistently followed by each Fund in the
preparation of its financial statements. These policies are in conformity with
generally accepted accounting principles.
Portfolio Valuation: Investments in securities which are traded on a recognized
stock 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, or in the case of over-the-counter securities not
so listed, at the last bid price. Short-term obligations that mature in sixty
days or less are valued at amortized cost, which approximates market value. All
other securities for which market quotations are not readily available
(including restricted securities, if any) and all other assets are appraised at
their 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.
Security Transactions and Investment Income: Security transactions are accounted
for on a trade date basis. Net realized gains or losses on sales of securities
are determined by the identified cost method. Interest income is recorded on the
accrual basis. Dividend income is recorded on the ex-dividend date.
Federal Income Taxes: The Funds intend to elect to be treated as "regulated
investment companies" under Sub-chapter M of the Internal Revenue Code and to
distribute substantially all of their respective net taxable income.
Accordingly, no provisions for federal income taxes have been made in the
accompanying financial statements. The Funds intend to utilize provisions of the
federal income tax laws which allow them to carry a realized capital loss
forward for eight years following the year of the loss and offset such losses
against any future realized capital gains.
Expenses: The Trust accounts separately for the assets, liabilities and
operations of each Fund. Expenses directly attributable to a Fund are charged to
the Fund, while expenses which are attributable to more than one Fund are
allocated based upon the relative net assets of each Fund.
Organization and Offering Costs: The Funds will reimburse Undiscovered Managers,
LLC (the "Adviser") for certain costs incurred in connection with the Funds'
organization and offering. These organization and offering costs are being
amortized on a straight-line basis over five years and one year, respectively.
Repurchase Agreements: Each Fund may engage in repurchase agreement
transactions. 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. Each
repurchase agreement transaction is recorded at cost plus accrued interest. Each
Fund requires that the securities purchased in a repurchase agreement
transaction be transferred to the Trust's custodian in a manner that is intended
to enable the Fund to obtain those securities in the event of a counterparty
default. The value of the collateral securities, including accrued interest, is
monitored daily to ensure that the value of the collateral
18
<PAGE>
undiscovered
managers(TM)
NOTES TO FINANCIAL STATEMENTS (continued) (unaudited)
securities equals or exceeds the repurchase price, including accrued interest.
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.
3. Investment Advisory, Sub-Advisory, Administration and Other Fees
The Trust and the Adviser are parties to an investment advisory agreement with
respect to each Fund under which the Adviser provides services for a fee,
computed daily and paid monthly, at the following annual percentage rates based
on the average daily net assets of each Fund: 0.95% for the Behavioral Growth
Fund, 0.65% to 1.65% (depending on the investment performance of the Fund) for
the Special Small Cap Fund, 1.05% for the REIT Fund, 1.05% for the Small Cap
Value Fund, 0.95% for the Hidden Value Fund, 0.74% for the Core Equity Fund, and
0.74% for the All Cap Value Fund. Until the end of the first calendar quarter
ending on or after the 365th day following the commencement of the Special Small
Cap Fund's operations, the annual advisory fee rate shall be 1.15%. The Adviser
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 each Fund, subject to the obligation of the Fund to repay the Adviser
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 each Fund is not obligated to repay any such
expenses more than two years after the end of the fiscal year in which they were
incurred: 1.30% for the Behavioral Growth Fund, the sum of 0.55% plus the
advisory fee rate for the Special Small Cap Fund, 1.40% for the REIT Fund, 1.40%
for the Small Cap Value Fund, 1.30% for the Hidden Value Fund, 0.99% for the
Core Equity Fund, and 0.99% for the All Cap Value Fund. For the semi-annual
period ended February 28, 1998, the Adviser agreed to reimburse expenses of
$27,223, $30,989, $26,749, $21,814, $21,804, $21,544, and $21,560, respectively.
The Adviser has entered into various sub-advisory agreements pursuant to which
the Adviser shall pay each sub-adviser an annual fee at the following rates:
<TABLE>
<CAPTION>
Fee Rate as % of Fund's
Fund Sub-Adviser Average Daily Net Assets
- ---- ----------- ------------------------
<S> <C> <C>
Behavioral Growth Fund RJF Asset Management, Inc. 0.60% of the first $200 million
0.55% of the next $100 million
0.50% of assets in excess of $300
million
Special Small Cap Fund Kestrel Investment Management Corporation 0.30% - of all assets
1.30% *
REIT Fund Bay Isle Financial Corporation 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 J.L. Kaplan Associates, LLC 0.70% of the first $200 million
0.65% of the next $100 million
0.60% of assets in excess of $300
million
Hidden Value Fund J.L. Kaplan Associates, LLC 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 & Associates, LLC 0.40% of the first $200 million
0.35% of the next $100 million
0.30% of assets in excess of $300
million
See Notes to Financial Statements.
</TABLE>
19
<PAGE>
undiscovered
managers(TM)
NOTES TO FINANCIAL STATEMENTS (continued) (unaudited)
<TABLE>
<CAPTION>
Fee Rate as % of Fund's
Fund Sub-Adviser Average Daily Net Assets
- ---- ----------- ------------------------
<S> <C> <C>
All Cap Value Fund E.R. Taylor Investments, Inc. 0.40% of the first $200 million
0.35% of the next $100 million
0.30% of assets in excess of $300
million
</TABLE>
*The sub-advisory fee rate for the Special Small Cap Fund will vary depending on
the investment performance of the Fund. Until the end of the first calendar
quarter ending on or after the 365th day following the commencement of the
Fund's operation, the annual fee rate shall be 0.80%.
The Trust and the Adviser have entered into an Administrative Services
Agreement, pursuant to which the Adviser has agreed to provide each Fund all
administrative services for the Funds. Under the Administrative Services
Agreement the Adviser is entitled to receive a fee computed and paid monthly at
the annual rate of 0.25% of the average net asset value of the Trust.
The Adviser has entered into a sub-administration agreement with First Data
Investor Services Group, Inc. ("Investor Services Group"), a wholly-owned
subsidiary of First Data Corporation, to provide certain administrative services
at the following fee rates:
<TABLE>
<CAPTION>
Administration Fee Schedule Fund Accounting Fee Schedule
Complex Net Assets Annual Fee Portfolio Net Assets Annual Fee
- ------------------ ---------- -------------------- ----------
<S> <C> <C> <C>
First $500 million 0.060% Less than $50 million $30,000.00
Next $500 million 0.050% $50 to $200 million $35,000.00
Next $1.5 billion 0.045% $200 to $500 million $50,000.00
$2.5 billion and over 0.035% $500 million to $1 billion $85,000.00
Each additional class per fund $2,500.00 $1 billion and over $125,000.00
Each additional class per fund $2,500.00
</TABLE>
The Bank of New York is the custodian for the Funds and First Data Distributors,
Inc., a wholly-owned subsidiary of Investor Services Group and an indirect
wholly-owned subsidiary of First Data Corporation, acts as the distributor for
the Funds.
4. Dividends from Net Investment Income and Distributions of Capital Gains
With respect to all funds, dividends from net investment income are distributed
annually and net realized gains from investment transactions, if any, are
normally distributed to shareholders annually, but may, to the extent permitted
by law, be made more frequently as deemed advisable by the Trustees of the
Trust. Dividends and capital gain distributions are determined in accordance
with income tax requirements which may differ from generally accepted accounting
principles.
Distributions from net realized gains for book purposes may include short-term
capital gains, which are taxed as ordinary income.
5. Trustees' Compensation
Certain officers and trustees of the Funds are also officers and directors of
the Adviser. The Trust does not compensate its officers or affiliated trustees.
Effective December 30, 1997, the Trust pays each unaffiliated trustee an annual
retainer of $10,000. Each Trustee is eligible to participate in the Trust's
Deferred Compensation Plan (the "Plan"), an unfunded, non-qualified deferred
compensation plan. The Plan allows each Trustee to defer receipt of all or a
percentage of fees which otherwise would be payable for services performed.
6. Shares of Beneficial Interest
Each Fund is authorized to issue an unlimited number of shares of beneficial
interest with no par value. Each Fund currently offers one class of shares, the
Institutional Class. At February 28, 1998, Undiscovered Managers, LLC owned
8,000 shares of each Fund.
20
<PAGE>
undiscovered
managers(TM)
NOTES TO FINANCIAL STATEMENTS (continued) (unaudited)
7. Investment Transactions
Aggregate purchases and proceeds from sales of investment securities (other than
short-term investments) for the period ended February 28, 1998 were:
<TABLE>
<CAPTION>
Aggregate Proceeds from
Fund Purchases Sales
---- --------- -------------
<S> <C> <C>
Behavioral Growth Fund $ 1,486,598 $ 71,988
Special Small Cap Fund 1,125,452 100,379
REIT Fund 1,594,019 524,554
Small Cap Value Fund 125,928 5,163
Hidden Value Fund 184,897 4,931
Core Equity Fund 96,751 --
All Cap Value Fund 112,031 12,284
</TABLE>
The aggregate gross unrealized appreciation and depreciation and net unrealized
appreciation (depreciation) for all securities as computed on a federal income
tax basis, at February 28, 1998 for each Fund is as follows:
<TABLE>
<CAPTION>
Fund Appreciation (Depreciation) Net
---- ------------ -------------- ---
<S> <C> <C> <C>
Behavioral Growth Fund $ 97,584 $ (20,795) $ 76,789
Special Small Cap Fund 68,454 (30,410) 38,044
REIT Fund 4,391 (25,305) (20,914)
Small Cap Value Fund 10,261 (2,995) 7,266
Hidden Value Fund 11,010 (2,489) 8,521
Core Equity Fund 8,209 (216) 7,993
All Cap Value Fund 9,048 (564) 8,484
</TABLE>
21
<PAGE>
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<PAGE>
- -------------------------------------------------------------------------------
HOW TO REACH
undiscovered
managers(TM)
BY PHONE
INSTITUTIONAL CLIENT SERVICES .......... 888 202-3981 (TOLL-FREE)
GENERAL INFORMATION OR
TO OBTAIN A PROSPECTUS ................. 888 242-3514 (TOLL-FREE)
A REGISTERED REPRESENTATIVE OF UNDISCOVERED MANAGERS CAN BE
REACHED FROM 7:30 AM - 7:00 PM CST
BY FAX ............................................. 214 999-7201
BY MAIL .............................. 700 NORTH PEARL, SUITE 1700
DALLAS, TX 75201
BY E-MAIL ........................ [email protected]
WWW.UNDISCOVEREDMANAGERS.COM
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