<PAGE>
[COVER OF UNDISCOVERED MANAGERS FUNDS ANNUAL REPORT DATED AUGUST 31, 1999]
Annual Report
August 31, 1999
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Undiscovered Managers Funds
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Undiscovered Managers
Behavioral Growth Fund
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Undiscovered Managers
Behavioral Value Fund
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Undiscovered Managers
Behavioral Long/Short Fund
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Undiscovered Managers
REIT Fund
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Undiscovered Managers
Special Small Cap Fund
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Undiscovered Managers
Small Cap Value Fund
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Undiscovered Managers
Hidden Value Fund
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Undiscovered Managers
All Cap Value Fund
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Undiscovered Managers
Core Equity Fund
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UM International Small Cap Equity Fund
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UM International Equity Fund
<PAGE>
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Investment Adviser
Undiscovered Managers, LLC
700 North Pearl Street, Suite 1700
Dallas, Texas 75201
Distributor
First Data Distributors, Inc.
4400 Computer Drive
Westborough, Massachusetts 01581
Legal Counsel
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Transfer Agent
First Data Investor Services Group, Inc.
4400 Computer Drive
Westborough, Massachusetts 01581
Independent Auditors
Deloitte & Touche LLP
116-300 Village Boulevard
Princeton, New Jersey 08540
Custodians
The Bank of New York
48 Wall Street
New York, New York 10286
Custodial Trust Company
101 Carnegie Center
Princeton, New Jersey 08540
The report and the financial statements contained herein
are submitted for the general information of the share-
holders of Undiscovered Managers Funds. The report is not
authorized for distribution to prospective investors in
Undiscovered Managers Funds unless preceded or accompa-
nied by the current prospectus.
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<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
To Our Shareholders:
It has been a very successful year for Undiscovered Managers Funds. We sur-
passed $200 million in mutual fund sales after 21 months in operation. We have
also had growing recognition of the Undiscovered Managers family of funds, be-
ing featured in such publications as The Wall Street Journal, U.S. News and
World Report and Barron's.
Our success is due in large part to the performance of our Funds. Our seven
original funds are establishing sound track records and five of the seven have
outperformed their benchmarks since inception for the period ending August 31,
1999. Undiscovered Managers Behavioral Growth Fund has generated strong re-
turns, outperforming its benchmark, the Russell 2500 Growth Index, by 55.53%
for this period. The Behavioral Growth Fund also outperformed most broad mar-
ket indices including the S&P 500 Index for the same period.
We have been equally pleased with the performance of our four new funds. The
International Equity Fund has performed exceptionally well, posting a 13.04%
return year to date through August 31, 1999, compared to a 8.16% return for
its benchmark, the MSCI EAFE Index. With the addition of two new Behavioral
Finance-based funds, many of our clients have been helped by our Behavioral
Finance Research Library. Available on our website,
www.undiscoveredmanagers.com, it contains research from leading scholars in
the field of Behavioral Finance.
Please take time to look over the latest annual report. It provides informa-
tion on the financial and operational activities of the Funds during the past
year and includes a listing of the securities owned in each of the Funds'
portfolios as of August 31, 1999. In addition, you will find commentaries on
the Funds by each of their respective sub-advisors, as well as an opinion from
the Funds' auditors, Deloitte & Touche LLP.
Our accomplishments this year can be attributed to our great partnerships with
our sub-advisors and especially our shareholders. Thank you for your continued
confidence in Undiscovered Managers Funds.
Sincerely,
/s/ Mark P. Hurley
Mark P. Hurley
President and Chief Executive Officer
Undiscovered Managers, LLC
Past performance is no guarantee of future results. All indices above are un-
managed indices. An individual cannot invest in an index. The Russell 2500
Growth Index is comprised of those companies within the 2500 smallest of the
3000 largest U.S.-domiciled corporations with higher price-to-book ratios and
higher forecasted growth values. The S&P 500 Index includes 500 widely traded
common stocks and is commonly used to measure U.S. stock market performance.
The MSCI EAFE Index is comprised of over 1000 companies representing the stock
markets of Europe, Australia, New Zealand and the Far East.
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
Behavioral Growth Fund
[GRAPH]
Behavioral Growth
Date Institutional Class Russell 2500 Growth Index
- ---- ------------------- ------------------------
- -
12/97 $10,000 $10,000
2/98 11,240 11,063
5/98 11,384 10,834
8/98 9,488 7,806
11/98 11,984 9,708
2/99 12,808 10,062
5/99 14,120 11,489
8/99 17,104 11,789
Past performance is not predictive of future performance.
Average Annual Total Return For Period Ended 8/31/99
<TABLE>
<CAPTION>
C Class
(with 2.00% Russell
maximum 2500
Institutional Investor sales Growth
Class Class C Class loads)(/4/) Index
------------- -------- ------- ----------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
One Year 80.27% 79.83% -- -- 51.03% -- --
Since Inception 37.87%(/1/) 40.34%(/2/) 9.52%(/3/) 7.34%(/3/) 9.03%(/1/) 12.87%(/2/) (0.03)%(/3/)
</TABLE>
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(/1/) Based on Institutional Class inception of 12/31/97.
(/2/) Based on Investor Class inception of 7/31/98.
(/3/) Based on C Class inception of 6/21/99.
(/4/) Includes 1.00% front-end load and 1.00% contingent deferred sales charge
for shares sold in less than 18 months.
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1. Investment return and principal value of mutual funds will vary with market
conditions, so that shares, when redeemed, may be worth more or less than
their original cost. Return figures reflect fee waivers. If fee waivers
were not in effect, the Fund's returns would have been lower.
2. The Russell 2500 Growth Index is an unmanaged index. An individual cannot
invest directly in any index.
The illustration above compares a $10,000 investment made in Institutional
Class shares of a Fund on the date of the commencement of investment
operations of such Fund to a $10,000 investment made in a benchmark securities
index on such date. All index and Fund performance assumes reinvestment of
distributions. Total return information provided for the period beginning with
the commencement of investment operations of a Fund through 8/31/99. Past
performance cannot predict future results. Performance results reflect any
voluntary limitations and waivers of Fund expenses by Undiscovered Managers.
Absent these expense limitations and waivers, performance results would have
been lower. Each index's performance has not been adjusted for ongoing
management, distribution and operating expenses and sales charges applicable
to mutual fund investments. It is not possible to invest directly in an index.
2
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
Behavioral Growth Fund
Portfolio Commentary
Undiscovered Managers Behavioral Growth Fund has performed very well since its
inception. During 1998 (1/1/98-12/31/98), the Fund was up more than 33%, and
during the fiscal year that ended August 31, 1999, the Fund was up more than
80% (nearly 30% greater than its benchmark, the Russell 2500 Growth). The Fund
achieved its performance without the benefit of a large helping of Internet
stocks, which its philosophy generally prohibits it from owning since most
don't have positive earnings.
The Fund exploits behavioral biases, which cause investors to underreact to
new positive information on a particular company and as a result underprice
its securities. Forecasts with regard to the economy and the market are not
applicable to the investment philosophy and process of the Fund.
Purchases
AVX Corporation - This producer of passive electronic components recently had
an earnings surprise in its fiscal year second quarter. The company is per-
forming better than analysts' expectations due to strengthening Asian econo-
mies and the stabilization of prices.
Cummins Engine Company, Inc. - This recent purchase surprised analysts with
its strength in margins. Cummins has revamped its product line and is commit-
ted to reducing costs throughout the company.
hi/fn Inc - Another new purchase in the last quarter, this company sells
compression/encryption devices and software for use in networking equipment
and storage systems. The company is seeing stronger than expected results due
to the demand for virtual private networks or VPNs.
Sales
CNET Inc. - This stock was sold after the company indicated that it would
spend $100 million on advertising, making the company unprofitable. This re-
duced analysts' estimates and made anchoring a very difficult task.
Galileo International Inc. - This stock was sold when the company reported
earnings that were in-line with Wall Street estimates.
Mandalay Resort Group - This stock was sold after one quarter when there was
no surprise in the last earnings report.
Micro Warehouse Inc. - This stock was sold when management announced lower
earnings to Wall Street.
3
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
Behavioral Value Fund
[GRAPH]
Behavioral Value
Date Institutional Class Russell 2000 Value Index
- ---- ------------------- ------------------------
- -
12/28/98 $10,000 $10,000
2/28/99 9,776 9,408
5/31/99 11,968 10,495
8/31/99 12,088 10,229
Past performance is not predictive of future performance.
Average Annual Total Return for Period Ended 8/31/99
<TABLE>
<CAPTION>
Russell
Institutional Class 2000
Institutional (with 1.00% Value
Class redemption fee)(/2/) Index
------------- -------------------- -------
<S> <C> <C> <C>
One Year -- -- --
Since Inception 20.88%(/1/) 19.67%(/1/) 2.50%(/1/)
</TABLE>
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(/1/) Based on Institutional Class inception of 12/28/98.
(/2/) Includes 1.00% redemption fee for shares sold in less than one year.
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1. Investment return and principal value of mutual funds will vary with market
conditions, so that shares, when redeemed, may be worth more or less than
their original cost. Return figures reflect fee waivers. If fee waivers
were not in effect, the Fund's returns would have been lower.
2. The Russell 2000 Value Index is an unmanaged index. An individual cannot
invest directly in any index.
The illustration above compares a $10,000 investment made in Institutional
Class shares of a Fund on the date of the commencement of investment
operations of such Fund to a $10,000 investment made in a benchmark securities
index on such date. All index and Fund performance assumes reinvestment of
distributions. Total return information provided for the period beginning with
the commencement of investment operations of a Fund through 8/31/99. Past
performance cannot predict future results. Performance results reflect any
voluntary limitations and waivers of Fund expenses by Undiscovered Managers.
Absent these expense limitations and waivers, performance results would have
been lower. Each index's performance has not been adjusted for ongoing
management, distribution and operating expenses and sales charges applicable
to mutual fund investments. It is not possible to invest directly in an index.
4
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
Behavioral Value Fund
Portfolio Commentary
The fiscal year ended on a difficult note for most stock portfolios, with in-
dices declining across both value and growth styles as well as large and small
market caps. This environment was particularly difficult for small cap value
strategies, with the Russell 2000 Value Index down -2.54% for the fiscal quar-
ter that ended August 31. For the stocks comprising this index, only those in
communication services, energy, and technology sectors had positive returns
for the quarter.
The Behavioral Value Fund was up 1.00% for the quarter, outperforming the Rus-
sell 2000 Value Index by 3.54%. Relative to the index, the Behavioral Value
Fund benefited from an underweighting in financials, and was hurt by an
overweighting in consumer cyclicals. These differences in industry weights are
not driven by macro views about the prospects of one sector versus another.
Rather, they are a reflection of where we happen to find stocks that best meet
our value criteria.
The fiscal quarter performance of the Behavioral Value Fund was helped by a
number of positions in stocks that have become takeover candidates. Current
takeover candidates in the portfolio include Standard Products, Asarco, Corpo-
rate Express, HCIA, and Foamex. Each of the stocks is subject to being ac-
quired at a significant premium to the market price before the acquisition was
announced. Additionally, the managements of a few other stocks in the portfo-
lio are pursuing "strategic alternatives" for their respective companies.
These events illustrate that sometimes other investors realize the value in
our stocks before the market does, and take advantage of this by acquiring
these companies.
The Fund exploits behavioral biases, which cause investors to overreact to
old, negative information and underreact to new, positive information on a
particular company and as a result underprice its securities. Forecasts with
regard to the economy and the market are not applicable to the investment phi-
losophy and process of the Fund.
Purchases
Seagate Technology Inc. - We recently bought the stock of this company, which
is the largest manufacturer of disk drives. The stock price had been driven
down on concerns over margin erosion and a vertically integrated strategy that
was expensive to implement.
Republic Bancorp Inc. - We recently bought this Michigan-based bank. The com-
pany has a substantial presence in the mortgage origination market and has
just completed a merger with D&N Financial to add to its traditional banking
product offerings. Higher interest rates and arbitrage activity connected with
the merger led to a decline in share price making the bank attractively val-
ued, and, in addition, management has been purchasing shares for their own ac-
counts. The merger increases the attractiveness of the bank as an acquisition
target for larger financial companies.
Standard Products Company - This company manufactures plastic and rubber parts
for automotive original equipment manufacturers. The stock was cheap after
having declined sharply last year as economic conditions in Brazil slowed and
pricing pressures in Europe increased. The company responded to the stock de-
cline with aggressive cost cutting measures and a repurchase program.
Sales
Rex Stores Corporation - We recently sold this retailer of appliances. The
stock had more than doubled in the four months following the company's an-
nouncement that it would begin selling over the Internet. Insiders also began
to sell the stock as its valuation moved sharply higher. We sold the stock,
taking advantage of higher than normal liquidity that was generated by a news
article about the company.
Great Lakes Chemical Corporation - This sale was made after the company ceased
repurchasing stock for several quarters and as the company's valuation drifted
upward over the period that we owned the stock.
Mosaix Inc. - This stock was sold after it was announced that it would be ac-
quired by Lucent.
TRG Holding Corporation - This stock was tendered in an acquisition by Fairfax
Holdings.
Fingerhut Companies, Inc. - This stock was tendered in an acquisition by Fed-
erated Stores.
5
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
Behavioral Long/Short Fund
[GRAPH]
Behavioral Long/Short U.S. Treasury Bill
Date Institutional Class 90-Day Index
- ---- ------------------- ------------------
12/28/98 $10,000 $10,000
2/28/99 9,080 10,072
5/31/99 9,480 10,186
8/31/99 10,160 10,305
Past performance is not predictive of future performance.
Average Annual Total Return for Period Ended 8/31/99
<TABLE>
<CAPTION>
U.S.
Institutional Class Treasury
Institutional (with 1.00% Bill 90-
Class redemption fee)(/2/) Day Index
------------- -------------------- ---------
<S> <C> <C> <C>
One Year -- -- --
Since Inception 1.60%(/1/) 0.58%(/1/) 3.10%(/1/)
</TABLE>
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(/1/) Based on Institutional Class inception of 12/28/98.
(/2/) Includes 1.00% redemption fee for shares sold in less than one year.
- -------------------------------------------------------------------------------
1. Investment return and principal value of mutual funds will vary with market
conditions, so that shares, when redeemed, may be worth more or less than
their original cost. Return figures reflect fee waivers. If fee waivers
were not in effect, the Fund's returns would have been lower.
2. The U.S. Treasury Bill 90-Day Index is an unmanaged index. An individual
cannot invest directly in any index.
The illustration above compares a $10,000 investment made in Institutional
Class shares of a Fund on the date of the commencement of investment
operations of such Fund to a $10,000 investment made in a benchmark securities
index on such date. All index and Fund performance assumes reinvestment of
distributions. Total return information provided for the period beginning with
the commencement of investment operations of a Fund through 8/31/99. Past
performance cannot predict future results. Performance results reflect any
voluntary limitations and waivers of Fund expenses by Undiscovered Managers.
Absent these expense limitations and waivers, performance results would have
been lower. Each index's performance has not been adjusted for ongoing
management, distribution and operating expenses and sales charges applicable
to mutual fund investments. It is not possible to invest directly in an index.
6
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
Behavioral Long/Short Fund
Portfolio Commentary:
The Behavioral Long/Short Fund is designed to help insulate investors in down
markets. It was successful during the fiscal quarter that ended August 31, re-
turning 7.17% compared to 1.14% for its benchmark, the 90-day T-Bill, and neg-
ative returns for most of the major indices.
The Fund exploits behavioral biases, which cause investors to underreact to
new positive information on a particular company or overreact to old, negative
information and as a result misprice its securities. Forecasts with regard to
the economy and the market are not applicable to the investment philosophy and
process of the Fund.
Purchases
Seagate Technology Inc. - We recently bought the stock of this company which
is the largest manufacturer of disk drives. The stock price had been driven
down on concerns over margin erosion and a vertically integrated strategy that
was expensive to implement. The company has been repurchasing stock
opportunistically.
Hibernia Corporation - We recently bought this New Orleans-based bank. It has
had asset quality problems this year as a result of a spike in nonperforming
loans driven by bankruptcy filings in their syndicated lending portfolio lead-
ing to a sharp drop in its share price. In spite of this, management has been
accumulating shares and there is renewed pressure on management to fix the
bank's performance problems or sell to a larger player.
ESS Technologies Inc. - This stock was purchased after a large earnings sur-
prise in its fiscal year first quarter. The company is benefiting from im-
proved yields, better product mix and market share gains from competitors.
Labor Ready Inc. - With a 1500% earnings surprise in the company's fiscal year
first quarter we purchased the stock of this provider of temporary workers.
The company has lowered its operating expenses and increased its branch open-
ing growth rate faster than analysts had expected.
Cirrus Logic Inc. - This stock was purchased following a long period of poor
operating results for the semiconductor business generally and the divestiture
of two plants and multiple product lines by Cirrus in particular, as the com-
pany refocused on three core businesses. Stock purchases by Management and Di-
rectors began in the fall of 1998 and continued through the end of the year.
Lincoln Electric Holdings Inc. - This manufacturer of welding equipment was
selling cheaply on concerns about Asia and Latin America. The company re-
sponded by cutting costs, selling off a non-core electric motor business, and
repurchasing stock.
Sales
Mosaix Inc. - This stock was sold after it was announced that it would be ac-
quired by Lucent.
Ann Taylor Stores Corporation - This stock was sold after reported earnings
were in-line with analysts estimates.
Centex Corporation - This homebuilder was sold even after a large surprise be-
cause it has been surprising for over three years now with no price reaction
in the last year.
Rex Stores Corporation - We recently sold this retailer of appliances. The
stock had more than doubled in the four months following the company's an-
nouncement that it would begin selling over the Internet. Insiders also began
to sell the stock as its valuation moved sharply higher. We sold the stock,
taking advantage of higher than normal liquidity that was generated by a news
article about the company.
7
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
REIT Fund
[GRAPH]
REIT Fund
Date Institutional Class Morgan Stanley REIT Index
- ---- ------------------- ------------------------
- -
1/98 $10,000 $10,000
2/98 9,704 9,796
5/98 9,680 9,589
8/98 8,512 8,071
11/98 8,840 8,575
2/99 8,474 8,034
5/99 9,565 8,948
8/99 9,180 8,423
Past performance is not predictive of future performance.
The performance of the Fund's other classes would have been lower than the
Fund's Institutional Class performance shown since the Investor Class and the C
Class have higher expenses than the Institutional Class and the C Class is
subject to sales charges.
Average Annual Total Return For The Period Ended 8/31/99
<TABLE>
<CAPTION>
C Class
(with 2.00%
Institutional Investor maximum Morgan Stanley
Class Class C Class sales loads)(/4/) REIT Index
------------- -------- ------- ----------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
One Year 7.84 % -- -- -- 4.36 % -- --
Since Inception (4.99)%(/1/) 10.37%(/2/) (0.18)%(/3/) (2.17)%(/3/) (10.33)%(/1/) 8.15%(/2/) (0.54)%(/3/)
</TABLE>
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(/1/) Based on Institutional Class inception of 1/1/98.
(/2/) Based on Investor Class inception of 3/24/99.
(/3/) Based on C Class inception of 8/3/99.
(/4/) Includes 1.00% front-end load and 1.00% contingent deferred sales charge
for shares sold in less than 18 months.
- -------------------------------------------------------------------------------
1. Investment return and principal value of mutual funds will vary with market
conditions, so that shares, when redeemed, may be worth more or less than
their original cost. Return figures reflect fee waivers. If fee waivers
were not in effect, the Fund's returns would have been lower.
2. The Morgan Stanley REIT Index is an unmanaged index. An individual cannot
invest directly in any index.
The illustration above compares a $10,000 investment made in Institutional
Class shares of a Fund on the date of the commencement of investment
operations of such Fund to a $10,000 investment made in a benchmark securities
index on such date. All index and Fund performance assumes reinvestment of
distributions. Total return information provided for the period beginning with
the commencement of investment operations of a Fund through 8/31/99. Past
performance cannot predict future results. Performance results reflect any
voluntary limitations and waivers of Fund expenses by Undiscovered Managers.
Absent these expense limitations and waivers, performance results would have
been lower. Each index's performance has not been adjusted for ongoing
management, distribution and operating expenses and sales charges applicable
to mutual fund investments. It is not possible to invest directly in an index.
8
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
REIT Fund
Portfolio Commentary
During the past fiscal year (including the fiscal quarter ended August 31,
1999), the US economy has remained quite strong. This has enabled a rising
supply of real estate to become readily absorbed in most markets. Occupancy
rates remain high--and steady--for most sectors, and real estate owners have
been able to obtain healthy rental increases as expiring leases are renewed.
Real estate markets remain in equilibrium, which is helping to enable the
REITs in our portfolio to generate good internal cash flow growth. More re-
cently, interest rates have been rising. While this could reduce profit mar-
gins modestly, it is unlikely to have a material effect upon REITs, as they
have generally fixed the cost of most of their debt, directly or through in-
terest rate caps. Also, higher interest rates make it much more difficult and
expensive for competitors to finance new competing projects; this could reduce
new supply and thus boost growth rates over the next 18 to 24 months.
REIT stocks have, disappointingly, backed off from their impressive rally of
April and May, though there is no "fundamental" reason for this. Real estate
markets are maintaining a healthy supply/demand balance, and the REITs them-
selves continue to generate solid cash flow growth, in line with, and often
exceeding, expectations. The REIT Fund was able to outperform its benchmark by
183 basis points during the most recent fiscal quarter by maintaining substan-
tial positions in several high-quality apartment REITs which did relatively
well during that time period, and by maintaining minimal exposure to hotel
REITs.
Purchases
Essex Property Trust, Inc. - This apartment REIT is exclusively focused on
West Coast markets (its portfolio properties are located in the San Francisco
Bay Area, Southern California and the Pacific Northwest). Rental rates and
cash flow growth in these higher barrier-to-entry markets should be strong for
the foreseeable future. Further, management has substantial expertise in ac-
quiring and rehabilitating older properties in excellent locations.
Nationwide Health Properties, Inc. - The Fund acquired a 2% position in this
healthcare REIT specializing in the ownership of nursing homes, assisted liv-
ing facilities and related properties. While investors are justifiably con-
cerned regarding the impact of the new Prospective Payment System under Medi-
care upon nursing home operators, we believe that they have overreacted--and
that the long-term problems that will arise for owners such as NHP should be
minimal. The stock sells at just seven times estimated free cash flow for this
year, and yields 11.7% on a well-covered dividend.
Sales
Host Marriott Corporation - While it's been known for some time that there has
been an oversupply of rooms in the limited service sector, we've seen evidence
that this malaise has been creeping into the upscale and even luxury segments
of the market, and thus decided to substantially pare back our holdings in
this volatile sector.
LaSalle Hotel Properties - This position was sold for the same reason as Host
Marriott.
Starwood Hotels & Resorts Worldwide, Inc. - This position was sold for the
same reason as Host Marriott.
Crescent Real Estate Equities Company - It is now our opinion that it will
take substantially longer than we had expected for the company to resolve some
of its outstanding issues.
9
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
Special Small Cap Fund
[CHART]
Special Small Cap
Date Fund Institutional Class Russell 2000 Index
- ---- ------------------------ ------------------
12/97 $10,000 $10,000
2/98 10,408 10,827
5/98 10,784 10,726
8/98 8,320 7,960
11/98 9,520 9,401
2/99 8,960 9,296
5/99 9,952 9,562
8/99 10,264 9,783
Past performance is not predictive of future performance.
Average Annual Total Return For Period Ended 8/31/99
<TABLE>
<CAPTION>
Institutional Russell
Class 2000 Index
------------- ----------
<S> <C> <C>
One Year 23.37% 28.36%
Since Inception 1.57%(/1/) 1.30%(/1/)
</TABLE>
- ------------------------
(/1/) Based on Institutional Class inception of 12/30/97.
- -------------------------------------------------------------------------------
1. Investment return and principal value of mutual funds will vary with market
conditions, so that shares, when redeemed, may be worth more or less than
their original cost. Return figures reflect fee waivers. If fee waivers
were not in effect, the Fund's returns would have been lower.
2. The Russell 2000 Index is an unmanaged index. An individual cannot invest
directly in any index.
The illustration above compares a $10,000 investment made in Institutional
Class shares of a Fund on the date of the commencement of investment
operations of such Fund to a $10,000 investment made in a benchmark securities
index on such date. All index and Fund performance assumes reinvestment of
distributions. Total return information provided for the period beginning with
the commencement of investment operations of a Fund through 8/31/99. Past
performance cannot predict future results. Performance results reflect any
voluntary limitations and waivers of Fund expenses by Undiscovered Managers.
Absent these expense limitations and waivers, performance results would have
been lower. Each index's performance has not been adjusted for ongoing
management, distribution and operating expenses and sales charges applicable
to mutual fund investments. It is not possible to invest directly in an index.
10
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
Special Small Cap Fund
Portfolio Commentary
The Special Small Cap Fund finished the fiscal year with a strong quarter, re-
turning 3.1% versus -2.1% for the Russell 2000 Index. Our gain was in spite of
a continued difficult environment for our small-capitalization value universe.
We have not yet seen many indications that stock market interest is broadening
beyond the narrow group of large-capitalization companies and Internet new is-
sues that have dominated for the past year. The Special Small Cap Fund gained
23.4% for the fiscal year ended August 31, 1999, a respectable performance
against the technology-driven Russell 2000 Index gain of 28.4%. For the year,
the Russell 2000 Value Index performed 29 percentage points worse than the Rus-
sell 2000 Growth Index, the largest gap we can recall. We believe our portfolio
of undervalued buybacks and spin-offs remains well positioned to gain when
small-capitalization value stocks recover from their historically unprecedented
relative valuation levels.
One factor that makes our voluntary restructuring strategy work is that manage-
ments of the companies in which we invest are motivated to increase shareholder
value. If the stock market is unwilling to recognize this value, these manage-
ments will frequently look to outside acquirers. Four companies in our portfo-
lio either announced or closed their sale/merger in the past three months --
Illinova, Lawter International, Host Marriott Services and Stimsonite.
Purchases
Horace Mann Educators - This company specializes in selling annuities and
property/casualty insurance to teachers. Recent results have been depressed by
abnormal catastrophe losses, but management has been aggressively repurchasing
shares. The company CEO is approaching retirement age with no obvious successor
in place. As the insurance industry consolidates, we feel there is a strong
possibility HMN will wind up as part of a larger company.
United Stationers - We bought this company in part because it has repurchased a
substantial amount of its outstanding shares in 1999.
11
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
Small Cap Value Fund
[GRAPH]
Small Cap Value
Date Fund Institutional Class Russell 2000 Index
- ---- ------------------------ ------------------
12/97 $10,000 $10,000
2/98 10,736 10,827
5/98 11,672 10,726
8/98 8,720 7,960
11/98 9,952 9,401
2/99 9,676 9,296
5/99 10,786 9,562
8/99 10,890 9,783
Past performance is not predictive of future performance.
Average Annual Total Return For Period Ending 8/31/99
<TABLE>
<CAPTION>
C Class
(with 2.00% Russell
Institutional Investor maximum 2000
Class Class C Class sales loads)(/4/) Index
------------- -------- ------- ----------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
One Year 24.89% 24.51% -- -- 28.36% -- --
Since Inception 5.24%(/1/) 0.91%(/2/) (2.53)%(/3/) (4.47)%(/3/) 1.30%(/1/) 1.04%(/2/) (3.57)%(/3/)
</TABLE>
- ------------------------
(/1/) Based on Institutional Class inception of 12/30/97.
(/2/) Based on Investor Class inception of 7/31/98.
(/3/) Based on C Class inception of 6/21/99.
(/4/) Includes 1.00% front-end load and 1.00% contingent deferred sales charge
for shares sold in less than 18 months.
- -------------------------------------------------------------------------------
1. Investment return and principal value of mutual funds will vary with market
conditions, so that shares, when redeemed, may be worth more or less than
their original cost. Return figures reflect fee waivers. If fee waivers
were not in effect, the Fund's returns would have been lower.
2. The Russell 2000 Index is an unmanaged index. An individual cannot invest
directly in any index.
The illustration above compares a $10,000 investment made in Institutional
Class shares of a Fund on the date of the commencement of investment
operations of such Fund to a $10,000 investment made in a benchmark securities
index on such date. All index and Fund performance assumes reinvestment of
distributions. Total return information provided for the period beginning with
the commencement of investment operations of a Fund through 8/31/99. Past
performance cannot predict future results. Performance results reflect any
voluntary limitations and waivers of Fund expenses by Undiscovered Managers.
Absent these expense limitations and waivers, performance results would have
been lower. Each index's performance has not been adjusted for ongoing
management, distribution and operating expenses and sales charges applicable
to mutual fund investments. It is not possible to invest directly in an index.
12
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
Small Cap Value Fund
Portfolio Commentary
The past fiscal quarter that ended August 31 was difficult for most stockhold-
ers--particularly value investors who lost almost twice as much in the quarter
as their growth stock counterparts. Though fiscal year returns were generally
positive for value investors, they still lagged considerably behind growth in-
vestors. The Russell 2000 Growth Index, for example, returned 43.31% for the
fiscal year, while the Russell 2000 Value Index returned 14.08%. Growth indices
have been supported primarily by the stunning performance of internet-related
issues. Investors should be buoyed, however, by the fact that small-cap value-
oriented companies during the last quarter have been aggressively buying their
own shares at twice the historical rate. Flows into small cap equity funds have
turned positive lately after two years of net withdrawals.
Performance for the Small Cap Value Fund was boosted by the rise in oil prices
as the Fund's energy holdings such as Vintage Petroleum rose 20% on average
this past quarter. The Fund was also helped by a handful of takeovers,
including US Trust in the banking sector and Marshall Industries in the tech-
nology sector.
Purchases
Airborne Freight Corporation - We saw Airborne Freight as undervalued, selling
far below its competitors in the parcel delivery industry. It has demonstrated
strong earnings growth over time and we expect that strength to continue.
Hon Industries Inc. - This company makes above average quality office equipment
and furniture. Selling at 12 times forecasted earnings, we expect Hon to con-
tinue gaining market share in the commercial office industry.
Sales
Paxar Corporation - This company was sold due to a deterioration in its funda-
mentals, such as sales and earnings. Paxar is a maker of labels, primarily for
the textile industry.
13
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
Hidden Value Fund
[CHART OF FIRST DATA INVESTORS]
Hidden Value Russell
Date Fund Institutional Class Midcap Value Index
- ---- ------------------------ ------------------
12/97 $10,000 $10,000
2/98 10,696 10,685
5/98 10,680 10,912
8/98 7,808 8,930
11/98 9,136 10,417
2/99 9,092 10,253
5/99 10,688 11,432
8/99 10,159 10,883
Past performance is not predictive of future performance.
The performance of the Fund's Investor Class would have been lower than the
Fund's Institutional Class performance shown since the Investor Class has higher
expenses than the Institutional Class.
Average Annual Total Return for Period Ended 8/31/99
<TABLE>
<CAPTION>
Russell
Midcap
Institutional Investor Value Russell
Class Class Index Midcap Index
------------- -------- ---------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
One Year 30.11% 29.90% 21.87% -- 29.73% --
Since Inception 0.95%(/1/) 4.46%(/2/) 4.29%(/1/) 3.01%(/2/) 9.29%(/1/) 8.11%(/2/)
</TABLE>
- ------------------------
(/1/) Based on Institutional Class inception of 12/31/97.
(/2/) Based on Investor Class inception of 7/31/98.
- -------------------------------------------------------------------------------
1. Investment return and principal value of mutual funds will vary with market
conditions, so that shares, when redeemed, may be worth more or less than
their original cost. Return figures reflect fee waivers. If fee waivers
were not in effect, the Fund's returns would have been lower.
2. The Russell Midcap Value and Russell Midcap Indices are unmanaged indices.
An individual cannot invest directly in any index. The Fund changed its
benchmark from the Russell Midcap Index to the Russell Midcap Value Index
because it better represents the Fund's investment holdings.
The illustration above compares a $10,000 investment made in Institutional
Class shares of a Fund on the date of the commencement of investment
operations of such Fund to a $10,000 investment made in a benchmark securities
index on such date. All index and Fund performance assumes reinvestment of
distributions. Total return information provided for the period beginning with
the commencement of investment operations of a Fund through 8/31/99. Past
performance cannot predict future results. Performance results reflect any
voluntary limitations and waivers of Fund expenses by Undiscovered Managers.
Absent these expense limitations and waivers, performance results would have
been lower. Each Index's performance has not been adjusted for ongoing
management, distribution and operating expenses and sales charges applicable
to mutual fund investments. It is not possible to invest directly in an Index.
14
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
Hidden Value Fund
Portfolio Commentary
The past fiscal quarter that ended August 31 was difficult for most stockhold-
ers -- particularly value investors who lost almost twice as much in the quar-
ter as their growth stock counterparts. Though fiscal year returns were gener-
ally positive for value investors, they still lagged considerably behind growth
investors. The Russell Midcap Growth Index, for example, returned 48.84% for
the fiscal year, while the Russell Midcap Value Index returned 21.87%. Growth
indices have been supported primarily by the stunning performance of Internet-
related issues. Midcap value companies have stepped up the purchases of their
own shares, albeit not as aggressively as small cap companies, which is indica-
tive of depressed valuations.
Undiscovered Managers Hidden Value Fund had a very good year, outperforming its
benchmark, the Russell Midcap Value Index, by over 8%. The Fund was hurt by
poor performance in financial services stocks due to inflationary fears and the
rise in interest rates. Additionally, cyclical stocks which performed strongly
the third fiscal quarter, gave back some of their hard-fought gains in the last
fiscal quarter and negatively affected performance.
Purchases
Suiza Foods Corporation - This company produces dairy products and beverages
and distributes frozen foods. The company has a strong record of making
accretive acquisitions in a very fragmented industry and continues to post
strong earnings.
B.F. Goodrich Company - We believe this company should benefit from strong de-
mand in its two major businesses -- commercial aircraft landing gear and air-
craft instrumentation technologies, and specialty chemicals. Like Suiza Foods,
Goodrich has made acquisitions to strengthen its position in the industries
that it serves.
Sales
US Airways Group, Inc. - We sold this company because it was experiencing dete-
riorating fundamentals.
15
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
All Cap Value Fund
[GRAPH]
All Cap Value
Date Institutional Class Russell 1000 Index S&P 500 Index
- ---- ------------------- ------------------ -------------
12/97 $10,000 $10,000 $10,000
2/98 10,928 10,699 11,034
5/98 11,520 11,260 11,515
8/98 9,224 9,535 10,143
11/98 11,128 11,370 10,773
2/99 11,943 11,684 13,118
5/99 12,700 12,896 13,791
8/99 12,391 12,404 13,987
Past performance is not predictive of future performance.
Average Annual Total Return for Period Ended 8/31/99
<TABLE>
<CAPTION>
C Class
(with 2.00% Russell
maximum 1000
Institutional Investor sales Value
Class Class C Class loads)(/4/) Index
------------- -------- ------- ----------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
One Year 34.33% 34.45% -- -- 30.08% -- --
Since Inception 13.69%(/1/) 8.45%(/2/) (1.75)%(/3/) (3.71)%(/3/) 12.76%(/1/) 8.43%(/2/) (4.60)%(/3/)
<CAPTION>
S&P
500
Index
----------------------------------
<S> <C> <C> <C>
One Year 37.90% -- --
Since Inception 20.24%(/1/) 14.19%(/2/) 1.20%(/3/)
</TABLE>
- ------------------------
(/1/) Based on Institutional Class inception of 12/31/97.
(/2/) Based on Investor Class inception of 7/31/98.
(/3/) Based on C Class inception of 5/27/99.
(/4/) Includes 1.00% front-end load and 1.00% contingent deferred sales charge
for shares sold in less than 18 months.
- -------------------------------------------------------------------------------
1. Investment return and principal value of mutual funds will vary with market
conditions, so that shares, when redeemed, may be worth more or less than
their original cost. Return figures reflect fee waivers. If fee waivers
were not in effect, the Fund's returns would have been lower.
2. The Russell 1000 Value Index and S&P 500 Index are unmanaged indices. An
individual cannot invest directly in any index. The Fund changed its
benchmark from the S&P 500 Index to the Russell 1000 Value Index because it
better represents the Fund's investment holdings.
The illustration above compares a $10,000 investment made in Institutional
Class shares of a Fund on the date of the commencement of investment
operations of such Fund to a $10,000 investment made in a benchmark securities
index on such date. All index and Fund performance assumes reinvestment of
distributions. Total return information provided for the period beginning with
the commencement of investment operations of a Fund through 8/31/99. Past
performance cannot predict future results. Performance results reflect any
voluntary limitations and waivers of Fund expenses by Undiscovered Managers.
Absent these expense limitations and waivers, performance results would have
been lower. Each index's performance has not been adjusted for ongoing
management, distribution and operating expenses and sales charges applicable
to mutual fund investments. It is not possible to invest directly in an index.
16
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
All Cap Value Fund
Portfolio Commentary
The battle between growth and value continues. Style rotation and individual
stock volatility have reached remarkably high levels, with the market making
virtually no progress. Starting with its remarkable comeback in April, the
Russell 1000 Value Index continued to outpace growth through the market's rise
to the end of June. Value held up well in the market's July decline, but the
Fed's interest rate increase in August quickly took the wind out of the Value
Index's sails.
In spite of decent retail sales reports, retail profitability continues to be
weak, belying both the fear of inflation and strong employment reports. We
continue to believe the underlying trend is deflation, driven by increasing
competition. Those companies which are increasing returns on capital by ag-
gressively deploying cash flow will thrive. This bodes well for the All Cap
Value Fund's fundamental investment approach.
We continue to focus on stock selection. During the fiscal quarter that ended
August 31, three stocks performed extremely well. Honeywell gained 40% due to
the merger with Allied Signal, which was announced early in June. Sun
Microsystems gained 33% in a strong tech sector. Unisys, a large holding, con-
tinued to grind out evidence of its evolving business model and turned in a
13% return. We were also underweighted in the financial services, relative to
the Russell 1000 Value Index, and our picks in that sector held up very well
(down 1.2% for the period) in a challenging interest rate environment.
Purchases
Paine Webber Group Inc. - Paine Webber follows the simple, but credible,
strategy of focusing almost entirely on the high net worth client market in
order to build recurring fee revenues. This market is growing rapidly; invest-
ors with $100,000 in income or $500,000 in net worth grew by 9% in 1998. As of
the first quarter of 1999, Paine Webber's recurring fee income grew to an
annualized run rate of just over $1 billion, an increase of 65% over the first
quarter of 1997. At our purchase in early June, Paine Webber was trading at
approximately a 50% discount to the market multiple. Paine Webber typically
trades at a discount to its more diversified, "sexier" competitors, but that
gap had widened enough to attract our interest. Furthermore, there has always
been speculation about Paine Webber's viability as an independent company par-
ticularly after Don Marron's retirement. Marron is currently past retirement
age, and although he has not expressed any intention to give up the reins,
that day may be approaching.
Sales
Federal Signal Corporation - Shortly after our purchase of Federal Signal in
early 1998, the company began reporting a series of "one-time" problems that
produced a string of disappointing earnings. As a result, the stock lan-
guished. During 1998, the primary difficulty was a supply constraint in chas-
sis for the fire engine business. Because Federal Signal had a huge order
backlog and showed no evidence of losing those orders to competitors, we hung
on through the supply constraint problem. However, in the most recent fiscal
quarter, the chassis issue eased, only to be replaced by a new problem, poor
implementation of an inventory control system. Unlike the 1998 problem, which
was external, we consider this type of problem to be evidence that management
is not adequately focused on basic business execution, and we opted to sell
the stock at a small loss.
17
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
Core Equity Fund
[CHART]
Core Equity
Date Institutional Class Russell 1000 Index S&P 500 Index
- ---- ------------------- ------------------ -------------
12/97 $10,000 $10,000 $10,000
2/98 10,824 10,998 11,034
5/98 11,296 11,419 11,515
8/98 10,200 9,950 10,143
11/98 11,784 12,169 10,773
2/99 12,221 12,980 13,118
5/99 12,575 13,738 13,791
8/99 12,334 13,866 13,987
Past performance is not predictive of future performance.
Average Annual Total Return For Period Ended 8/31/99
<TABLE>
<CAPTION>
C Class
(with 2.00%
Institutional Investor maximum Russell
Class Class C Class sales loads)(/4/) 1000 Index
------------- -------- ------- ----------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
One Year 20.92% 20.76% -- -- 39.35% -- --
Since Inception 13.37%(/1/) 4.03%(/2/) (0.65)%(/3/) (2.65)%(/3/) 20.35%(/1/) 14.93%(/2/) (0.26)%(/3/)
<CAPTION>
S&P
500
Index
------------------------------------
<S> <C> <C> <C>
One Year 37.90% -- --
Since Inception 20.24%(/1/) 14.19%(/2/) (0.27)%(/3/)
</TABLE>
- ------------------------
(/1/) Based on Institutional Class inception of 12/31/97.
(/2/) Based on Investor Class inception of 7/31/98.
(/3/) Based on C Class inception of 8/31/99.
(/4/) Includes 1.00% front-end load and 1.00% contingent deferred sales charge
for shares sold in less than 18 months.
- -------------------------------------------------------------------------------
1. Investment return and principal value of mutual funds will vary with market
conditions, so that shares, when redeemed, may be worth more or less than
their original cost. Return figures reflect fee waivers. If fee waivers
were not in effect, the Fund's returns would have been lower.
2. The Russell 1000 Index and the S&P 500 Index are unmanaged indices. An
individual cannot invest directly in any index. The Fund changed its
benchmark from the S&P 500 Index to the Russell 1000 Index because it
better represents the Fund's investment holdings.
The illustration above compares a $10,000 investment made in Institutional
Class shares of a Fund on the date of the commencement of investment
operations of such Fund to a $10,000 investment made in a benchmark securities
index on such date. All index and Fund performance assumes reinvestment of
distributions. Total return information provided for the period beginning with
the commencement of investment operations of a Fund through 8/31/99. Past
performance cannot predict future results. Performance results reflect any
voluntary limitations and waivers of Fund expenses by Undiscovered Managers.
Absent these expense limitations and waivers, performance results would have
been lower. Each index's performance has not been adjusted for ongoing
management, distribution and operating expenses and sales charges applicable
to mutual fund investments. It is not possible to invest directly in an index.
18
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
Core Equity Fund
Portfolio Commentary
Stronger economic growth abroad with the attendant lifting of commodity prices
has kept the Fed "off balance" this year. With two increases in short-term
rates by the Fed already this year and a third increase a possibility by year-
end, long rates have risen by approximately 100 basis points this year al-
ready. As a result, financial stocks have become the market's most oversold
sector. Our positive stand in this sector rests on the continuation of the
secular disinflationary trend which will be positively impacted by a more sta-
ble bond market.
The technology sector continued its uptrend in the fiscal fourth quarter as it
has throughout the year. Although our stock selections in this sector per-
formed above average for the quarter, the fact that we practice a value ap-
proach to stock selection, we are under represented in this particular eco-
nomic sector. Our technology weighting is low and has contributed to the ma-
jority of our underperformance both for the quarter as well as the fiscal
year.
American Home Products has been the second largest contributor to our
underperformance during the most recent fiscal quarter. The stock has reacted
negatively to a recent jury award in Texas related to the "fen-phen" diet drug
combination. We continue to believe that this litigation is manageable finan-
cially for AHP, and consider this a buying opportunity with AHP selling at a
14% discount on a P/E basis with a better than 30% premium return on equity
versus the S&P 500 Index.
For the year, our overweight position in the financial sector has had a nega-
tive impact on performance. While our financial stocks have kept pace with
their respective sector, financials as a whole have not performed as well as
other economic sectors from the lows of September, 1998. This has been due to
the recent fear of increased inflation and interest rates. As discussed, we
believe that this is a cyclical rise in a secular disinflation environment and
continue to look for rates to trend lower by the end of the 1999 year.
Purchases
Whirlpool Corporation and Kimberly Clark Corporation - Selected financial data
on these two companies is summarized below.
<TABLE>
<CAPTION>
CAGR Relative Relative
'97-'00E P/E Ratio ROE
Issue EPS ('00 Est EPS) ('00 Est)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Kimberly-Clark 9.5% 0.74 1.99
Whirlpool 17.8% 0.57 0.98
S&P 500 7.0% 1.00 1.00
</TABLE>
Sales
Pepsico Inc. - This company was sold in part because it had one of the highest
price-to-earnings ratios in the portfolio.
The Procter & Gamble Company - This company was also sold in part because it
had one of the highest price-to-earnings ratios in the portfolio.
19
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
International Small Cap Equity Fund
[CHART]
International Small Cap MSCI EAFE
Date Equity Institutional Class Small Cap Index
- ---- -------------------------- ---------------
12/98 $10,000 $10,000
2/99 10,376 9,938
5/99 10,472 11,448
8/99 12,104 12,131
Past performance is not predictive of future performance.
Average Annual Total Return for Period Ended 8/31/99
<TABLE>
<CAPTION>
Institutional Class MSCI EAFE
Institutional (with 1.00% Small Cap
Class redemption fee)(/2/) Index
------------- -------------------- ---------
<S> <C> <C> <C>
One Year -- -- --
Since Inception 21.04%(/1/) 19.83%(/1/) 19.45%(/1/)
</TABLE>
- ------------------------
(/1/) Based on Institutional Class inception of 12/30/98.
(/2/) Includes 1.00% redemption fee for shares sold in less than one year.
- -------------------------------------------------------------------------------
1. Investment return and principal value of mutual funds will vary with market
conditions, so that shares, when redeemed, may be worth more or less than
their original cost. Return figures reflect fee waivers. If fee waivers
were not in effect, the Fund's returns would have been lower.
2. The MSCI EAFE Small Cap Index is an unmanaged index. An individual cannot
invest directly in any index.
The illustration above compares a $10,000 investment made in Institutional
Class shares of a Fund on the date of the commencement of investment
operations of such Fund to a $10,000 investment made in a benchmark securities
index on such date. All index and Fund performance assumes reinvestment of
distributions. Total return information provided for the period beginning with
the commencement of investment operations of a Fund through 8/31/99. Past
performance cannot predict future results. Performance results reflect any
voluntary limitations and waivers of Fund expenses by Undiscovered Managers.
Absent these expense limitations and waivers, performance results would have
been lower. Each index's performance has not been adjusted for ongoing
management, distribution and operating expenses and sales charges applicable
to mutual fund investments. It is not possible to invest directly in an index.
20
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
International Small Cap Equity Fund
Portfolio Commentary
In Europe it was clear, over the most recent quarter as well as most of the
year, that it was developments in the United States that were setting the
agenda and the European markets were without a clear independent trend in the
short term. The economic numbers out of Europe are indicating that the eco-
nomic developments in Europe have become more robust over the summer. After
initially having been export driven, now the economies of Europe are becoming
more domestic demand driven.
In Japan, the picture of an economy that is stabilizing is intact, but the
strengthening of the Yen over the last quarter can become a serious obstacle
for a continuation of the positive developments in the Japanese economy as
well as the stock market.
In other Asian markets the interest rate hike in the US was priced into the
markets and the strengthening of the Yen and dramatic price rises in DRAMs and
other electronic components over the summer had a positive influence on the
markets in the region as a whole.
Structural changes continue
Structural changes in the form of increased globalisation, coupled with the
technological and demographic development continued unabated during the fiscal
year. These structural changes will lead to a widening gap in price perfor-
mance of sectors and individual companies; a development likely to accelerate
in the coming years. This increases the importance of focusing investments on
companies that should benefit from the structural changes. This goal is
achieved by identifying investment themes. Six of Unibank Investment Manage-
ment's 13 themes are described in brief below.
Recurring investment themes
"Convergence of Media and Communication" - The transformation of communica-
tions networks and media from analog to digital form will provide the basis
for a whole new generation of products and services, where content, communica-
tion and software merge into integrated products.
Content in the form of films, news, sports etc. will become vitally important
for network providers (telecommunications, internet companies, TV stations) in
their attempts to attract traffic to their networks. At the same time the net-
work providers will be an important distribution network for the media compa-
nies. Companies with the ability to successfully complete this integration
should be very well positioned to potentially benefit from the growth in e-
commerce as well as the potential increase in on-line advertising.
"Branding and Promotion" - The intensified competitive environment driven by
globalization places greater demands on companies to defend their market share
and profit margins. Companies with strong global brands should benefit from
this trend at the expense of companies with weak and local brands. This trend
in combination with deregulation should also lead to increased marketing ex-
penditure globally.
"Outsourcing and Productivity" - Intensifying competition following from de-
regulation and globalization is still deemed to benefit companies well poised
for strong international competition and companies offering services and prod-
ucts (within for example outsourcing and IT) which should enhance productivity
and competitiveness. Stock selection should in particular focus on companies
with high penetration barriers due to technology leadership, strong brands and
efficient distribution systems.
"Global Data Traffic" - The rapid growth in the use of the Internet and more
widespread use of corporate intranets sharply increased data traffic over
telecommunications and computer networks. Data traffic today accounts for
around 50% of telephone network traffic and should see explosive growth.
Hence, data traffic is expected to be 20 times heavier than the traditional
call traffic in 2005. This trend should favor companies producing telecommuni-
cations and network equipment and help provide a growing source of income for
both traditional and specialized telephone companies.
Another key trend within telecommunications is the increasing penetration of
mobile telephony. With the introduction of high-speed digital mobile networks
and falling call charges, growing traffic volumes will be switched to mobile
networks from fixed-line networks. The share of mobile telephony should grow
from currently 3%-4% to some 25% of the call traffic in 2005. Add the expected
markedly higher quality of mobile telephony, allowing high-speed data trans-
missions within a few years. This development should significantly benefit mo-
bile operators through a sharp increase in volume and higher returns on the
companies' infrastructure investments. Equity investments should thus be con-
centrated on suppliers of infrastructure and operators with
21
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
International Small Cap Equity Fund
significant exposure to data traffic and mobile telephony. Operators with con-
siderable exposure to fixed-line network traffic, where strong price pressures
are expected, should be avoided.
"Saving for Retirement" - Given the demographic development and the unfunded
pension obligations in a number of European countries and Japan, the demand
for pension-related products and services will expand, with a positive
spillover effect on companies within life assurance and asset management.
"Cross-Selling" - Increased use of IT by companies and consumers alike will
imply significant changes in the competitive conditions of a broad range of
sectors and companies. Companies likely to benefit from this trend are typi-
cally characterized by efficient distribution and logistics, price competi-
tiveness through low-cost structures, electronic access to a major customer
base as well as a management and strategy focused on the use of IT and its po-
tential. These companies should be able to exploit increased growth opportuni-
ties by cross-selling products to their existing customer base.
Performance
Positive contribution to performance over the most recent quarter came from
stock selection in Japan, despite the continued strength in the Yen versus the
US Dollar. The price rises in electronic components such as DRAMs prompted
good performance in stocks like Shin-Etsu Chemical. Matsushita Communication
performed well on expectations for the company in the third generation of mo-
bile communication that will start in Japan in two years time. Benesse Corpo-
ration and Bellsystem24 Inc. performed well as both companies continue to en-
joy improvements in the underlying businesses.
Another contribution to outperformance derives from stock selection in the Eu-
ropean part of the portfolio. Several of the companies exposed to the Global
Data Traffic theme were strong, including Sonera Group which announced inter-
esting news on their product line, especially the Short Message Service (SMS)
which shows great promise. The results announced by both Skandia Insurance and
Cap Gemini were more than satisfying. Branding and Promotion was also a sig-
nificant contributing theme. For WPP Group the fundamental story seems intact
and expansion plans are on track, leading to a nice surge.
Purchases
Asatsu DK Inc. - This company is among the largest advertisers in Japan and is
the largest listed advertising company. Asatsu is holding a large pool of cash
and is ready to utilize the funds for M&A activity in the sector and region.
WPP of the UK holds a large position in Asatsu and the two companies are seek-
ing ways to optimize this relationship by cross selling services.
Autonomy Corporation - The British company is an early entrant into one of the
fastest growing, core niche markets within the software space -- making cate-
gorization and personalization of data a reality. We believe they will benefit
from the rapid growth of unstructured information, both on the Internet.
Filtronic PLC - This British company, which builds and designs microwave sys-
tems and components such as filters and linear power amplifiers in the UK,
Australia and US, is a play on the expansion of digital mobile networks.
SEZ Holding AG - This Swiss company is a semiconductor equipment manufacturer
which has revolutionized traditional wet etching processes through its propri-
etary spin etch technology, which enables chip manufacturers to increase pro-
duction yields considerably.
Aucnet Inc. - A Japanese company that operates online auctions of used cars
and other goods in Japan. In the used car segment the company is an industry
leader in classifying cars, setting a defacto standard for the country's used
car auction business.
Informatics Holding - This Singapore-based company was purchased under the Ed-
ucation theme and is a regional IT-training and education company that has ex-
panded globally by acquisitions in the UK and Sweden. The company expects to
increase margins on these assets significantly. Furthermore, they have promis-
ing business exposure to Internet-based training and education through their
Thames Business School which co-operates with various UK universities on on-
line MBA programs.
Sales
Crisplant Industries a/s - This Danish company was sold as a result of it be-
ing taken over for a very small premium. The company was handling and produc-
ing logistic systems for warehouses, where they were at the forefront of lo-
gistical services to Internet companies like Amazon.com.
22
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
International Equity Fund
[CHART]
International Equity
Date Fund Institutional Class MSCI EAFE Index
- ---- ------------------------ ---------------
12/98 $10,000 $10,000
2/99 9,944 9,797
5/99 10,008 10,458
8/99 11,304 10,899
Past performance is not predictive of future performance.
Average Annual Total Return for Period Ended 8/31/99
<TABLE>
<CAPTION>
Institutional Class
Institutional (with 1.00% MSCI EAFE
Class redemption fee)(/2/) Index
------------- -------------------- ---------
<S> <C> <C> <C>
One Year -- -- --
Since Inception 13.04%(/1/) 11.91%(/1/) 6.38%(/1/)
</TABLE>
- ------------------------
(/1/) Based on Institutional Class inception of 12/30/98.
(/2/) Includes 1.00% redemption fee for shares sold in less than one year.
- -------------------------------------------------------------------------------
1. Investment return and principal value of mutual funds will vary with market
conditions, so that shares, when redeemed, may be worth more or less than
their original cost. Return figures reflect fee waivers. If fee waivers
were not in effect, the Fund's returns would have been lower.
2. The MSCI EAFE Index is an unmanaged index. An individual cannot invest
directly in any index.
The illustration above compares a $10,000 investment made in Institutional
Class shares of a Fund on the date of the commencement of investment
operations of such Fund to a $10,000 investment made in a benchmark securities
index on such date. All index and Fund performance assumes reinvestment of
distributions. Total return information provided for the period beginning with
the commencement of investment operations of a Fund through 8/31/99. Past
performance cannot predict future results. Performance results reflect any
voluntary limitations and waivers of Fund expenses by Undiscovered Managers.
Absent these expense limitations and waivers, performance results would have
been lower. Each index's performance has not been adjusted for ongoing
management, distribution and operating expenses and sales charges applicable
to mutual fund investments. It is not possible to invest directly in an index.
23
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
International Equity Fund
Portfolio Commentary
In Europe it was clear, over the most recent quarter as well as most of the
year, that it was developments in the United States that were setting the
agenda and the European markets were without a clear independent trend in the
short term. The economic numbers out of Europe are indicating that the eco-
nomic developments in Europe have become more robust over the summer. After
initially having been export driven, now the economies of Europe are becoming
more domestic demand driven.
In Japan, the picture of an economy that is stabilizing is intact, but the
strengthening of the Yen over the last quarter can become a serious obstacle
for a continuation of the positive developments in the Japanese economy as
well as the stock market.
In other Asian markets the interest rate hike in the US priced into the mar-
kets and the strengthening of the Yen and dramatic price rises in DRAMs and
other electronic components over the summer had a positive influence on the
markets in the region as a whole.
Structural changes continue
Structural changes in the form of increased globalization, coupled with the
technological and demographic development continued unabated during the fiscal
year. These structural changes will lead to a widening gap in price perfor-
mance of sectors and individual companies; a development likely to accelerate
in the coming years. This increases the importance of focusing investments on
companies that should benefit from the structural changes. This goal is
achieved by identifying investment themes. Six of Unibank Investment Manage-
ment's 13 themes are described in brief below.
Recurring investment themes
"Convergence of Media and Communication"
The transformation of communications networks and media from analogue to digi-
tal form will provide the basis for a whole new generation of products and
services, where content, communication and software merge into integrated
products. Content in the form of films, news, sports etc. will become vitally
important for network providers (telecommunications, internet companies, TV
stations) in their attempts to attract traffic to their networks. At the same
time the network providers will be an important distribution network for the
media companies. Companies with the ability to successfully complete this in-
tegration should be very well positioned to potentially benefit from the
growth in e-commerce as well as the potential increase in on-line advertising.
"Branding and Promotion"
The intensified competitive environment driven by globalization places greater
demands on companies to defend their market share and profit margins. Compa-
nies with strong global brands should benefit from this trend at the expense
of companies with weak and local brands. This trend in combination with dereg-
ulation should also lead to increased marketing expenditure globally.
"Outsourcing and Productivity"
Intensifying competition following from deregulation and globalization is
still deemed to benefit companies well poised for strong international compe-
tition and companies offering services and products (within for example
outsourcing and IT) which should enhance productivity and competitiveness.
Stock selection should in particular focus on companies with high penetration
barriers due to technology leadership, strong brands and efficient distribu-
tion systems.
"Global Data Traffic"
The rapid growth in the use of the Internet and more widespread use of corpo-
rate intranets sharply increased data traffic over telecommunications and com-
puter networks. Data traffic today accounts for around 50% of telephone net-
work traffic and should see explosive growth. Hence, data traffic is expected
to be 20 times heavier than the traditional call traffic in 2005. This trend
should favour companies producing telecommunications and network equipment and
help provide a growing source of income for both traditional and specialized
telephone companies.
Another key trend within telecommunications is the increasing penetration of
mobile telephony. With the introduction of high-speed digital mobile networks
and falling call charges, growing traffic volumes will be switched to mobile
networks from fixed-line networks. The share of mobile telephony should grow
from currently 3%-4% to some 25% of the call traffic in 2005. Add the expected
markedly higher quality of mobile telephony, allowing high-speed data trans-
missions within a few years. This development should significantly benefit mo-
bile operators through a sharp increase in volume and higher returns on the
companies' infrastructure investments. Equity investments should thus be con-
centrated on suppliers of infrastructure and operators with
24
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
International Equity Fund
significant exposure to data traffic and mobile telephony. Operators with con-
siderable exposure to fixed-line network traffic, where strong price pressures
are expected, should be avoided.
"Saving for Retirement"
Given the demographic development and the unfunded pension obligations in a
number of European countries and Japan, the demand for pension-related prod-
ucts and services will expand, with a positive spillover effect on companies
within life assurance and asset management.
"Cross-Selling"
Increased use of IT by companies and consumers alike will imply significant
changes in the competitive conditions of a broad range of sectors and compa-
nies. Companies likely to benefit from this trend are typically characterised
by efficient distribution and logistics, price competitiveness through low-
cost structures, electronic access to a major customer base as well as a man-
agement and strategy focused on the use of IT and its potential. These compa-
nies should be able to exploit increased growth opportunities by cross-selling
products to their existing customer base.
Performance
Postive contribution to performance over the most recent quarter came from
stock selection in Japan, despite the continued strength in the Yen versus the
US Dollar. The price rises in electronic components such as DRAMs prompted
good performance in stocks like Shin-Etsu Chemical. Matsushita Communication
performed well on expectations for the company in the third generation of mo-
bile communication that will start in Japan in two years' time. Benesse Corpo-
ration and Bellsystem24 Inc. performed well as both companies continue to en-
joy improvements in their underlying businesses.
Another contribution to outperformance derives from stock selection in the Eu-
ropean part of the portfolio. Several of the companies exposed to the Global
Data Traffic theme were strong, including Sonera Group which announced inter-
esting news on their product line, especially the Short Message Service (SMS)
which shows great promise. The results announced by both by Skandia Insurance
and Cap Gemini were more than satisfying. "Branding and Promotion" was also a
significant contributing theme. For WPP Group the fundamental story seems in-
tact and expansion plans are on track, leading to a nice surge.
Purchases
Asatsu DK Inc. - This company is among the largest advertisers in Japan and
the largest listed advertising company. Asatsu is holding a large pool of cash
and is ready to utilize the funds for M&A activity in the sector and region.
WPP of the UK holds a large position in Asatsu and the two companies are seek-
ing ways to optimize this relationship by cross selling services.
25
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
BEHAVIORAL GROWTH FUND
Portfolio of Investments -- August 31, 1999
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<C> <S> <C>
COMMON STOCKS - 92.98%
Apparel - 1.16%
66,400 Quiksilver, Inc. *..................................... $ 1,145,400
------------
Building and Construction - 2.31%
55,600 American Standard Companies, Inc. *.................... 2,279,600
------------
Computer Hardware & Software - 16.14%
50,700 Adaptec, Inc. *........................................ 1,977,300
46,000 Bell & Howell Co. *.................................... 1,541,000
27,100 Bottomline Technologies, Inc. *........................ 752,025
53,300 Lexmark International Group, Inc. - Class A *.......... 4,197,375
65,950 Progress Software Corp. *.............................. 2,019,719
40,400 Project Software, Inc. *............................... 1,775,075
161,200 Sybase, Inc. *......................................... 2,015,000
42,100 Xircom, Inc. *......................................... 1,676,106
------------
15,953,600
------------
Consumer Products - 7.53%
39,500 Church & Dwight Co., Inc............................... 1,836,750
89,475 Fossil, Inc. *......................................... 2,790,502
39,900 Whirlpool Corp......................................... 2,820,431
------------
7,447,683
------------
Containers/Packaging - 1.73%
38,000 Ball Corp. ............................................ 1,707,625
------------
Electronics - 24.27%
61,700 AVX Corp............................................... 1,847,144
67,800 Conexant Systems, Inc. *............................... 4,873,125
18,600 hi/fn, inc. *.......................................... 2,244,787
43,900 Millipore Corp......................................... 1,657,225
56,700 Optical Coating Laboratory, Inc........................ 4,351,725
129,800 RF Micro Devices, Inc. *............................... 5,703,087
47,300 Semtech Corp. *........................................ 3,313,956
------------
23,991,049
------------
Engines - 1.75%
29,200 Cummins Engine Co., Inc................................ 1,730,100
------------
Hotels/Casinos - 1.11%
22,304 MGM Grand, Inc. *...................................... 1,095,684
------------
Human Resources - 0.98%
60,550 Labor Ready, Inc. *.................................... 972,584
------------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<C> <S> <C>
Leisure - 1.04%
134,600 Players International, Inc. *............................ $ 1,022,119
------------
Medical Products - 3.44%
34,000 Allergan, Inc. .......................................... 3,395,750
------------
Pharmaceuticals - 4.01%
31,200 IDEC Pharmaceuticals Corp. *............................. 3,964,350
------------
Retail - 8.23%
53,300 Best Buy Co., Inc. *..................................... 3,744,325
88,200 TJX Companies, Inc....................................... 2,546,775
53,200 Zale Corp. *............................................. 1,845,375
------------
8,136,475
------------
Semiconductors - 9.45%
147,100 ESS Technology, Inc. *................................... 1,857,138
69,000 QLogic Corp. *........................................... 6,007,313
147,700 S3, Inc. *............................................... 1,477,000
------------
9,341,451
------------
Telecommunications - 9.83%
37,300 Carrier Access Corp. *................................... 1,809,050
16,000 Copper Mountain Networks, Inc. *......................... 1,872,000
74,300 General Instrument Corp. *............................... 3,654,631
46,600 Scientific-Atlanta, Inc.................................. 2,388,250
------------
9,723,931
------------
Total Common Stocks...................................... 91,907,401
------------
(Cost $68,254,702)
Total Investments - 92.98%........................................ 91,907,401
------------
(Cost $68,254,702)
Net Other Assets and Liabilities - 7.02%.......................... 6,942,338
------------
Net Assets - 100.00%.............................................. $ 98,849,739
============
</TABLE>
- ------------------------
* Non-income producing security
See Notes to Financial Statements.
26
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
BEHAVIORAL VALUE FUND
Portfolio of Investments -- August 31, 1999
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<C> <S> <C>
COMMON STOCKS - 95.42%
Advertising - 1.93%
3,600 ADVO, Inc.................................................. $ 70,650
-----------
Aerospace & Defense - 3.67%
3,900 BE Aerospace, Inc. *....................................... 67,519
9,700 Mesa Air Group, Inc. *..................................... 66,687
-----------
134,206
-----------
Airlines - 2.14%
4,000 America West Holdings Corp. *.............................. 78,000
-----------
Automobile - 5.35%
3,700 Standard Products Co....................................... 128,112
2,400 Superior Industries International, Inc..................... 67,200
-----------
195,312
-----------
Building & Construction - 1.82%
1,600 Rayonier, Inc.............................................. 66,400
-----------
Business Services - 4.90%
3,700 Corporate Express, Inc. *.................................. 32,953
4,100 John H. Harland Company.................................... 81,488
7,300 Precision Response Corp. *................................. 64,331
-----------
178,772
-----------
Chemicals - 1.97%
3,600 Engelhard Corp............................................. 71,775
-----------
Computer - Hardware & Software - 6.81%
18,800 Concurrent Computer Corp. ................................. 135,713
500 Rational Software Corp. *.................................. 13,531
3,000 Seagate Technology, Inc. *................................. 99,562
-----------
248,806
-----------
Consumer Products - 3.66%
10,600 Acclaim Entertainment, Inc. *.............................. 74,863
2,600 Tupperware Corp. .......................................... 58,663
-----------
133,526
-----------
Electronics - 10.18%
7,900 Cirrus Logic, Inc. *....................................... 88,381
2,500 Digi International, Inc. *................................. 28,438
8,800 Integrated Device Technology,
Inc. *..................................................... 171,600
4,500 Three Five Systems, Inc. *................................. 83,250
-----------
371,669
-----------
Entertainment - 0.69%
19,300 Aldila, Inc. *............................................. 25,331
-----------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<C> <S> <C>
Finance - 10.20%
4,300 Doral Financial Corp. ..................................... $ 59,663
4,600 First American Financial Corp. ............................ 68,425
5,000 Hibernia Corp. ............................................ 64,688
3,700 Phoenix Investment Partners................................ 31,912
4,800 Republic Bancorp, Inc. .................................... 64,799
1,950 The PMI Group, Inc. ....................................... 82,875
-----------
372,362
-----------
Health Care - 1.97%
10,300 MedPartners, Inc. *........................................ 72,100
-----------
Leisure - 3.59%
6,200 Callaway Golf Co. ......................................... 61,613
5,300 Midway Games, Inc. *....................................... 69,562
-----------
131,175
-----------
Manufacturing - 5.79%
8,500 Burlington Industries, Inc. *.............................. 48,344
9,500 Foamex International, Inc. *............................... 78,078
3,600 Lincoln Electric Holdings, Inc. ........................... 72,900
800 Unova, Inc. *.............................................. 12,050
-----------
211,372
-----------
Medical Information Systems - 2.41%
8,700 HCIA, Inc. *............................................... 88,088
-----------
Oil, Gas & Petroleum - 2.82%
3,300 ASARCO, Inc. .............................................. 68,888
6,000 EEX Corp. ................................................. 28,500
2,300 OMI Corp. *................................................ 5,463
-----------
102,851
-----------
Printing - 2.12%
3,300 Banta Corp. ............................................... 77,550
-----------
Restaurants - 5.68%
9,900 Avado Brands, Inc. ........................................ 68,063
3,500 Darden Restaurants, Inc. .................................. 54,688
4,300 RARE Hospitality International,
Inc. *..................................................... 84,656
-----------
207,407
-----------
Retail - 14.44%
4,000 Enesco Group, Inc.......................................... 69,000
2,800 Footstar, Inc. *........................................... 91,000
7,600 Gadzooks, Inc. *........................................... 46,788
1,506 The Limited, Inc. ......................................... 57,040
</TABLE>
See Notes to Financial Statements.
27
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
BEHAVIORAL VALUE FUND
Portfolio of Investments (continued) -- August 31, 1999
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<C> <S> <C>
Retail (continued)
6,500 OfficeMax, Inc. *.......................................... $ 49,155
11,100 Paul Harris Stores, Inc. *................................. 54,805
12,500 Pier 1 Imports, Inc. ...................................... 67,968
2,000 Ross Stores, Inc........................................... 83,250
2,000 Successories, Inc. *....................................... 4,875
187 Too, Inc. ................................................. 3,277
-----------
527,158
-----------
Telecommunications - 3.28%
8,700 Intervoice, Inc. *......................................... 119,625
-----------
Total Common Stocks........................................ 3,484,135
-----------
(Cost $3,532,452)
Total Investments - 95.42%......................................... 3,484,135
-----------
(Cost $3,532,452)
Net Other Assets and Liabilities - 4.58%........................... 167,327
-----------
Net Assets - 100.00%............................................... $ 3,651,462
===========
</TABLE>
- ------------------------
* Non-income producing security
See Notes to Financial Statements.
28
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
BEHAVIORAL LONG/SHORT FUND
Portfolio of Investments -- August 31, 1999
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<C> <S> <C>
COMMON STOCKS - 99.70%
Aerospace and Defense - 0.87%
3,000 BE Aerospace, Inc. *....................................... $ 51,937
-----------
Automobile - 2.78%
3,400 Standard Products Co....................................... 117,725
1,700 Superior Industries International, Inc. ................... 47,600
-----------
165,325
-----------
Building and Construction - 1.78%
1,100 American Standard Companies, Inc. *........................ 45,100
2,000 Cameron Ashley Building Products, Inc. .................... 19,375
1,000 Rayonier, Inc.............................................. 41,500
-----------
105,975
-----------
Business Machines - 2.25%
1,700 Lexmark International Group, Class A....................... 133,875
-----------
Business Services - 1.67%
3,000 John H. Harland Co......................................... 59,625
4,500 Precision Response Corp.................................... 39,656
-----------
99,281
-----------
Chemicals - 0.84%
2,500 Engelhard Corp............................................. 49,844
-----------
Computers - Hardware & Software - 9.50%
1,800 Adaptec, Inc. *............................................ 70,200
1,500 Bell & Howell Co. *........................................ 50,250
700 Bottomline Technologies, Inc. *............................ 19,425
3,000 Progress Software Corp. *.................................. 91,875
1,700 Project Software & Development............................. 74,694
2,300 Seagate Technology, Inc. *................................. 76,331
5,700 Sybase, Inc. *............................................. 71,250
2,300 Three-Five Systems, Inc. *................................. 42,550
1,700 Xircom *................................................... 67,681
-----------
564,256
-----------
Consumer Products - 6.39%
8,100 Acclaim Entertainment, Inc................................. 57,206
1,400 Church & Dwight Co., Inc................................... 65,100
3,900 Fossil, Inc. *............................................. 121,631
2,250 Quiksilver, Inc............................................ 38,812
2,100 Tupperware Corp............................................ 47,381
700 Whirlpool Corp............................................. 49,481
-----------
379,611
-----------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<C> <S> <C>
Containers/Packaging - 1.06%
1,400 Ball Corp.......................................... $ 62,912
-----------
Electronics - 13.34%
1,800 AVX Corp........................................... 53,888
2,400 Conexant Systems, Inc. *........................... 172,500
4,800 Digi International, Inc............................ 54,600
700 hi/fn, Inc......................................... 84,481
1,600 Optical Coating Laboratory, Inc.................... 122,800
3,900 RF Micro Devices, Inc. *........................... 171,356
1,900 Semtech Corp....................................... 133,119
-----------
792,744
-----------
Financial Services - 3.60%
3,200 Doral Financial Corp............................... 44,400
4,000 Hibernia Corp...................................... 51,750
1,350 The PMI Group, Inc................................. 57,375
4,500 Republic Bancorp, Inc.............................. 60,750
-----------
214,275
-----------
Hotels/Casinos - 0.91%
1,104 MGM Grand, Inc..................................... 54,234
-----------
Human Resources - 0.58%
2,150 Labor Ready, Inc. *................................ 34,534
-----------
Leisure - 1.35%
4,100 Callaway Golf Co................................... 40,744
3,000 Midway Games, Inc.................................. 39,375
-----------
80,119
-----------
Machinery - 0.75%
2,200 Lincoln Electric Holdings, Inc. ................... 44,550
-----------
Manufacturing - 3.83%
1,800 Asarco, Inc. ...................................... 37,575
4,300 Burlington Industries, Inc. ....................... 24,456
900 Cummins Engine Company, Inc. ...................... 53,325
7,200 Foamex International, Inc. ........................ 59,175
1,400 Millipore Corp. ................................... 52,850
-----------
227,381
-----------
Marketing - 0.86%
2,600 ADVO, Inc. ........................................ 51,025
-----------
Medical Information Systems - 3.57%
6,000 Cerner Corp. *..................................... 99,750
4,600 HCIA, Inc. *....................................... 46,575
9,400 MedPartners, Inc. ................................. 65,800
-----------
212,125
-----------
</TABLE>
See Notes to Financial Statements.
29
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
BEHAVIORAL LONG/SHORT FUND
Portfolio of Investments (continued) -- August 31, 1999
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<C> <S> <C>
Oil, Gas and Petroleum - 0.30%
3,800 EEX Corp. ................................................. $ 18,050
-----------
Pharmaceuticals - 4.54%
1,300 Allergan, Inc. ............................................ 129,838
1,100 IDEC Pharmaceuticals Corp. *............................... 139,769
-----------
269,607
-----------
Printing/Publishing - 0.95%
2,400 Banta Corp. ............................................... 56,400
-----------
Recreation - 0.37%
17,000 Aldila, Inc. *............................................. 22,313
-----------
Restaurants - 1.94%
6,200 Avado Brands, Inc. ........................................ 42,625
2,500 Darden Restaurants, Inc. .................................. 39,063
1,700 RARE Hospitality International, Inc. ...................... 33,469
-----------
115,157
-----------
Retail - 12.61%
1,700 Best Buy Co., Inc. *....................................... 119,425
5,200 Corporate Express, Inc. *.................................. 46,313
2,700 Enesco Group, Inc.......................................... 46,575
1,700 Footstar, Inc.............................................. 55,250
6,300 Gadzooks, Inc. *........................................... 38,784
1,568 The Limited, Inc........................................... 59,388
5,000 OfficeMax, Inc. *.......................................... 37,813
8,500 Paul Harris Stores, Inc.................................... 41,969
9,900 Pier 1 Imports, Inc........................................ 53,831
1,200 Ross Stores................................................ 49,950
2,400 TJX Companies, Inc......................................... 69,300
224 Too, Inc. *................................................ 3,934
4,900 Toys "R' Us, Inc........................................... 67,681
1,700 Zale Corp.................................................. 58,969
-----------
749,182
-----------
Semiconductors - 7.97%
6,000 Cirrus Logic, Inc. *....................................... 67,125
5,200 ESS Technology, Inc........................................ 65,650
5,200 Integrated Device Technology............................... 101,400
2,200 Qlogic Corp. *............................................. 191,538
4,800 S3, Inc. *................................................. 48,000
-----------
473,713
-----------
Technology - 1.96%
16,100 Concurrent Computer Corp................................... 116,222
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares/ Value
Par (Note 2)
------- --------
<C> <S> <C>
Telecommunications - 7.55%
1,200 Carrier Access Corp. *................................. $ 58,200
600 Copper Mountain Networks, Inc. *....................... 70,200
2,400 General Instrument Corp. *............................. 118,050
9,100 Intervoice, Inc........................................ 125,125
1,500 Scientific-Atlanta, Inc................................ 76,875
-----------
448,450
-----------
Airlines/Transportation - 0.92%
2,800 America West Holdings Corp. *.......................... 54,600
-----------
Total Common Stocks.................................... 5,647,697
-----------
(Cost $4,915,138)
REPURCHASE AGREEMENTS - 4.66%
$ 276,827 Bear Stearns 5.43%, due 09/01/99+
(Cost $276,827)........................................ 276,827
-----------
Total Investments - 99.70%......................................... 5,924,524
-----------
(Cost $5,191,965)
Total Securities Sold Short - (93.96%)--See Schedule below......... (5,583,682)
(Proceeds $5,530,352)
Net Other Assets and Liabilities - 94.26%......................... 5,601,508
-----------
Net Assets - 100.00%............................................... $ 5,942,350
===========
</TABLE>
- ------------------------
All investments in common stocks are held in a segregated account with the
broker as collateral for securities sold short.
* Non-income producing security
+ Collateralized by $225,000 par value, 8.00%, due 11/15/22, value $283,187
Federal Agency Obligations.
<TABLE>
<C> <S> <C>
SECURITIES SOLD SHORT
Value
Shares (Note 2)
------- --------
Common Stocks
(3,100) Altera Corp. ........................................... $ (130,587)
(2,700) Action Performance Cos., Inc............................ (66,656)
(2,550) Advent Software Inc. ................................... (125,269)
(1,200) Amazon.com, Inc. ....................................... (149,250)
(4,400) Bally's Total Fitness Holding Corp. .................... (141,075)
(3,300) Beringer Wine Estate Holdings, Inc. .................... (137,362)
(2,000) CareInsite, Inc. ....................................... (95,500)
</TABLE>
See Notes to Financial Statements.
30
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
BEHAVIORAL LONG/SHORT FUND
Portfolio of Investments (continued) -- August 31, 1999
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<C> <S> <C>
Common Stocks (continued)
(2,000) Charles Schwab Corp. .................................. $ (79,000)
(4,000) Ciena Corp. ........................................... (140,500)
(1,200) CMGI, Inc. ............................................ (100,725)
(3,600) Concord EFS, Inc. ..................................... (133,650)
(5,600) Coulter Pharmaceuticals, Inc. ......................... (111,650)
(2,800) Cree Research, Inc. ................................... (94,675)
(3,100) Digital River, Inc. ................................... (74,594)
(1,000) e-Bay Inc. ............................................ (125,562)
(1,600) eToys, Inc. ........................................... (69,600)
(2,800) E-Trade Group, Inc. ................................... (70,000)
(1,600) Exodus Communications, Inc. ........................... (128,600)
(8,800) Horizon Organic Hldg. ................................. (105,050)
(800) Inktomi Corp. ......................................... (90,700)
(2,200) Intimate Brands, Inc. ................................. (84,838)
(2,300) Jabil Circuit, Inc. ................................... (103,069)
(1,700) Kohl's Corp. .......................................... (121,125)
(2,400) Lason, Inc. ........................................... (108,450)
(3,400) Maximus, Inc. ......................................... (117,725)
(2,800) 24/7 Media, Inc. ...................................... (95,900)
(3,700) Metris Companies, Inc. ................................ (101,981)
(2,000) MindSpring Enterprises, Inc. .......................... (58,375)
(3,600) Navigant Consulting, Inc. ............................. (157,950)
(2,800) NCO Group, Inc. ....................................... (127,400)
(1,400) Network Solutions, Inc. ............................... (80,675)
(3,000) Outback Steakhouse, Inc. .............................. (88,875)
(6,400) Peregrine Systems, Inc. ............................... (211,200)
(4,300) Polycom, Inc. ......................................... (157,219)
(3,100) Premier Parks, Inc. ................................... (101,525)
(5,400) Profit Recovery Group International, Inc. ............. (205,538)
(4,400) Quintiles Transnational Corp. ......................... (157,575)
(1,300) Rambus, Inc. .......................................... (126,100)
(2,400) Siebel Systems, Inc. .................................. (164,850)
(3,850) Staples, Inc. ......................................... (83,738)
(3,600) Starbucks Corp. ....................................... (82,350)
(2,800) Sunrise Assisted Living, Inc. ......................... (69,825)
(6,100) Sylvan Learning Systems, Inc........................... (121,237)
(3,300) Tech Data Corp. ....................................... (122,306)
(5,800) Tower Automotive, Inc. ................................ (116,000)
(1,200) Verisign, Inc. ........................................ (129,975)
(2,000) Vitesse Semiconductor Corp. ........................... (136,000)
(5,000) Wild Oats Market, Inc. ................................ (181,876)
-------------
Total Securities Sold Short............................ $ (5,583,682)
=============
(Proceeds $5,530,352)
</TABLE>
See Notes to Financial Statements.
31
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
REIT FUND
Portfolio of Investments -- August 31, 1999
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<C> <S> <C>
COMMON STOCKS - 99.06%
Apartments - 22.45%
42,600 Archstone Communities Trust............................. $ 910,575
35,100 Avalonbay Communities, Inc.............................. 1,237,275
18,100 Essex Property Trust, Inc............................... 635,763
25,200 Home Properties of New York, Inc........................ 680,400
21,400 Post Properties, Inc.................................... 874,725
23,300 Smith (Charles E.) Residential Realty, Inc.............. 799,481
------------
5,138,219
------------
Diversified - 7.55%
26,400 Duke-Weeks Realty Corp.................................. 592,350
29,700 Spieker Properties, Inc................................. 1,136,025
------------
1,728,375
------------
Health Care - 2.01%
29,600 Nationwide Health Properties, Inc....................... 460,650
------------
Hotels, Lodging, and Restaurants - 0.70%
17,700 Innkeepers USA Trust.................................... 160,406
------------
Industrial - 14.25%
29,500 AMB Property Corp....................................... 634,250
35,200 Prentiss Properties Trust............................... 798,600
56,700 ProLogis Trust.......................................... 1,112,738
31,800 PS Business Parks, Inc.................................. 715,500
------------
3,261,088
------------
Manufactured Homes - 8.40%
31,700 Manufactured Home Communities, Inc...................... 772,687
32,100 Sun Communities, Inc.................................... 1,147,575
------------
1,920,262
------------
Neighborhood Shopping Centers - 9.75%
62,000 Burnham Pacific Properties, Inc......................... 709,125
11,800 Kimco Realty Corp....................................... 439,550
27,000 Regency Realty Corp..................................... 567,000
15,100 Vornado Realty Trust.................................... 515,287
------------
2,230,962
------------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<C> <S> <C>
Office Properties - 18.57%
13,500 Boston Properties, Inc.................................... 449,719
24,400 CarrAmerica Realty Corp................................... 561,200
31,300 Cousins Properties, Inc................................... 1,122,888
29,200 Equity Office Properties Trust............................ 746,425
40,400 Kilroy Realty Corp........................................ 926,675
------------
4,249,844
------------
Outlet Centers - 1.59%
10,700 Chelsea GCA Realty, Inc................................... 363,800
------------
Regional Malls - 9.14%
29,000 Macerich Co............................................... 726,813
52,300 Taubman Centers, Inc...................................... 666,825
22,700 Urban Shopping Centers, Inc............................... 696,606
------------
2,090,244
------------
Storage - 4.65%
36,800 Storage USA, Inc.......................................... 1,064,900
------------
Total Common Stocks ...................................... 22,668,750
------------
(Cost $22,477,103)
Total Investments - 99.06%........................................ 22,668,750
------------
(Cost $22,477,103)
Net Other Assets and Liabilities - 0.94%.......................... 215,544
------------
Net Assets - 100.00%.............................................. $ 22,884,294
============
</TABLE>
- ------------------------
REIT Real Estate Investment Trust
See Notes to Financial Statements.
32
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
SPECIAL SMALL CAP FUND
Portfolio of Investments -- August 31, 1999
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<C> <S> <C>
COMMON STOCKS - 94.79%
Automobile - 7.15%
33,600 Midas, Inc................................................ $ 793,800
800 Strattec Security Corp. *................................. 27,950
45,700 TBC Corp. *............................................... 328,469
------------
1,150,219
------------
Building Materials - 2.06%
1,000 Congoleum Corp., Class A *................................ 5,250
22,800 Justin Industries, Inc.................................... 325,612
------------
330,862
------------
Building Services - 3.74%
18,200 Jacobs Engineering Group, Inc. *.......................... 600,600
------------
Capital Goods - 7.24%
7,000 Alltrista Corp. *......................................... 175,000
10,600 Hardinge, Inc............................................. 161,650
17,100 Lawson Products, Inc...................................... 393,300
31,900 Royal Appliance Manufacturing Co. *....................... 191,400
15,000 U.S. Industries, Inc...................................... 241,875
------------
1,163,225
------------
Chemicals - 11.18%
92,200 Ethyl Corp................................................ 489,812
28,400 Georgia Gulf Corp......................................... 516,525
7,600 NCH Corp.................................................. 338,200
39,700 Octel Corp. *............................................. 451,588
------------
1,796,125
------------
Consumer Products - 3.13%
1,400 Garden Ridge Corp. *...................................... 9,275
43,600 Wolverine World Wide, Inc................................. 493,225
------------
502,500
------------
Data Processing - 1.39%
20,500 Information Resources, Inc. *............................. 222,938
------------
Distribution - 2.43%
17,300 United Stationers, Inc. *................................. 391,412
------------
Electronics - 16.44%
43,600 CommScope, Inc. *......................................... 1,501,475
19,300 ESCO Electronics Corp. *.................................. 240,044
3,400 Franklin Electric Co., Inc................................ 239,700
38,800 MagneTek, Inc. *.......................................... 358,900
19,100 Varian, Inc............................................... 303,213
------------
2,643,332
------------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<C> <S> <C>
Energy and Utilities - 0.89%
8,500 Castle Energy Corp. ...................................... $ 142,906
------------
Financial Services - 10.38%
37,418 ADVANTA Corp., Class A.................................... 736,667
7,800 Echelon International Corp., Inc.*........................ 162,825
26,900 PFF Bancorp, Inc. *....................................... 534,638
8,544 Queens County Bancorp, Inc................................ 234,960
------------
1,669,090
------------
Health Care Services - 1.87%
14,200 CorVel Corp. *............................................ 300,862
------------
Insurance - 6.87%
16,800 Horace Mann Educators Corp................................ 506,100
16,200 Penn-America Group, Inc................................... 151,875
11,100 Presidential Life Corp. .................................. 199,800
1,900 White Mountains Insurance Group, Inc...................... 247,475
------------
1,105,250
------------
Leisure - 5.40%
55,100 Handleman Co. *........................................... 730,075
6,800 Scientific Games Holdings Corp.*.......................... 138,125
------------
868,200
------------
Medical Products - 5.54%
20,800 Invacare Corp. ........................................... 388,700
8,900 Respironics, Inc. *....................................... 88,444
19,100 Varian Medical Systems, Inc. ............................. 413,037
------------
890,181
------------
Real Estate Development - 0.50%
4,000 Avatar Holdings, Inc. *................................... 81,000
------------
Textiles - 2.40%
40,900 Guilford Mills, Inc. ..................................... 385,994
------------
Transportation - 6.19%
29,100 Arnold Industries, Inc. .................................. 414,675
15,700 Landstar System, Inc. *................................... 580,900
------------
995,575
------------
Total Common Stocks....................................... 15,240,271
------------
(Cost $14,847,501)
Total Investments - 94.79%........................................ 15,240,271
------------
(Cost $14,847,501)
Net Other Assets and Liabilities - 5.21%.......................... 837,309
------------
Net Assets - 100.00%.............................................. $ 16,077,580
============
</TABLE>
- ------------------------
* Non-income producing security
See Notes to Financial Statements.
33
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
SMALL CAP VALUE FUND
Portfolio of Investments -- August 31, 1999
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<C> <S> <C>
COMMON STOCKS - 87.30%
Advertising - 1.93%
1,100 Grey Advertising, Inc. ................................... $ 408,100
------------
Aerospace and Defense - 1.47%
10,000 Aviation Sales Co. *...................................... 310,000
------------
Automobile - 1.53%
18,000 Wynn's International, Inc. ............................... 324,000
------------
Basic Materials - 7.20%
17,000 AptarGroup, Inc. ......................................... 437,750
30,000 Intermet Corp. ........................................... 345,938
11,600 Reliance Steel & Aluminum Co. ............................ 384,250
20,000 Timken Co. ............................................... 351,250
------------
1,519,188
------------
Building and Construction - 2.00%
23,000 NCI Building Systems, Inc. *.............................. 421,188
------------
Capital Goods - 7.52%
45,000 GP Strategies Corp. *..................................... 351,562
7,000 Graco, Inc. .............................................. 235,812
16,000 Instron Corp. ............................................ 324,000
30,000 MTS Systems Corp. ........................................ 330,000
11,000 Oak Industries, Inc. *.................................... 345,125
------------
1,586,499
------------
Chemicals 2.16%
16,300 Cambrex Corp. ............................................ 438,062
700 Stepan Co. ............................................... 17,325
------------
455,387
------------
Conglomerates - 4.08%
39,000 Stewart & Stevenson Services, Inc. ....................... 463,125
17,000 United Dominion Industries, Ltd. ......................... 397,375
------------
860,500
------------
Electronics - 11.82%
16,200 C & D Technologies, Inc. ................................. 510,300
10,000 Dallas Semiconductor Corp. ............................... 505,000
26,000 Innovex, Inc. ............................................ 360,750
24,000 Kollmorgen Corp. ......................................... 273,000
33,000 Quixote Corp. ............................................ 490,875
30,000 Silicon Valley Group, Inc. *.............................. 356,250
------------
2,496,175
------------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<C> <S> <C>
Financial Services - 8.17%
9,000 Centura Banks, Inc. ...................................... $ 416,812
9,500 CNB Bancshares, Inc. ..................................... 542,687
22,000 Prosperity Bancshares, Inc. .............................. 335,500
31,850 Republic Bancorp, Inc. ................................... 429,975
------------
1,724,974
------------
Food and Beverage - 4.13%
26,000 Ralcorp Holdings, Inc. *.................................. 425,750
14,000 Suiza Foods Corp. *....................................... 446,250
------------
872,000
------------
Furniture - 4.53%
15,000 Chromcraft Revington, Inc. *.............................. 189,375
15,000 Ethan Allen Interiors, Inc. .............................. 437,812
14,000 Hon Industries, Inc. ..................................... 329,875
------------
957,062
------------
Insurance - 3.80%
29,000 Frontier Insurance Group, Inc. ........................... 351,625
12,500 Renaissance Re Holdings, Ltd. ............................ 451,563
------------
803,188
------------
Leisure - 1.65%
22,000 Coachmen Industries, Inc. ................................ 347,875
------------
Oil, Gas, and Petroleum - 5.18%
36,000 Key Production Co., Inc. *................................ 360,000
38,000 Trico Marine Services, Inc. *............................. 304,000
30,000 Vintage Petroleum, Inc. .................................. 429,375
------------
1,093,375
------------
Real Estate Investment Trust - 2.02%
19,500 Pacific Gulf Properties, Inc. ............................ 426,563
------------
Restaurants - 2.35%
16,000 Applebee's International, Inc. ........................... 497,000
------------
Retail - 7.97%
27,500 Dress Barn, Inc. *........................................ 414,219
18,000 Group 1 Automotive, Inc. *................................ 333,000
80,000 HomeBase, Inc. *.......................................... 350,000
32,000 Maxwell Shoe Co., Inc. *.................................. 274,000
32,000 Sport Supply Group, Inc. *................................ 312,000
------------
1,683,219
------------
</TABLE>
See Notes to Financial Statements.
34
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
SMALL CAP VALUE FUND
Portfolio of Investments (continued) -- August 31, 1999
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<C> <S> <C>
Technology - 5.52%
26,000 II-VI, Inc. *............................................ $ 320,125
30,000 MAPICS, Inc. *........................................... 258,750
16,000 Marshall Industries *.................................... 587,000
------------
1,165,875
------------
Transportation - 2.27%
19,000 Airborne Freight Corp.................................... 478,563
------------
Total Common Stocks...................................... 18,430,731
------------
(Cost $19,473,579)
Total Investments - 87.30%....................................... 18,430,731
------------
(Cost $19,473,579)
Net Other Assets and Liabilities - 12.70% 2,680,440
------------
Net Assets - 100.00%............................................. $ 21,111,171
============
</TABLE>
- ------------------------
* Non-income producing security.
See Notes to Financial Statements.
35
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
HIDDEN VALUE FUND
Portfolio of Investments -- August 31, 1999
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<C> <S> <C>
COMMON STOCKS - 92.66%
Advertising - 1.76%
1,300 Young & Rubicam, Inc. *.................................... $ 58,013
-----------
Aerospace/Defense - 1.68%
1,500 Goodrich (B.F.) Co......................................... 55,406
-----------
Airlines/Air Transportation - 4.45%
3,200 Airborne Freight Corp...................................... 80,600
1,300 Delta Air Lines, Inc....................................... 66,056
-----------
146,656
-----------
Automobile - 2.64%
2,000 Dana Corp. ................................................ 87,125
-----------
Banks - 3.99%
2,600 Cullen/Frost Bankers, Inc.................................. 67,925
3,500 North Fork Bancorporation, Inc............................. 63,438
-----------
131,363
-----------
Basic Materials - 7.03%
2,000 Carpenter Technology Corp.................................. 45,750
1,100 PPG Industries, Inc........................................ 66,069
2,000 Timken Co.................................................. 35,125
2,700 Trinity Industries, Inc.................................... 84,712
-----------
231,656
-----------
Building & Construction - 1.26%
4,900 Champion Enterprises, Inc. *............................... 41,650
-----------
Business Services - 2.13%
3,200 Reynolds & Reynolds Co., Class A........................... 70,000
-----------
Capital Goods - 8.44%
2,000 Case Corp. ................................................ 98,750
3,000 Crane Co................................................... 72,187
4,200 Flowserve Corp. ........................................... 66,413
1,300 Oak Industries, Inc. *..................................... 40,788
-----------
278,138
-----------
Chemicals & Allied Products - 3.29%
3,300 Cabot Corp................................................. 76,106
1,200 Cambrex Corp............................................... 32,250
-----------
108,356
-----------
Computer Hardware/Software - 3.98%
3,000 Keane, Inc. *.............................................. 64,875
2,000 Seagate Technology, Inc. *................................. 66,375
-----------
131,250
-----------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<C> <S> <C>
Conglomerates - 9.71%
3,500 Federal Signal Corp........................................ $ 73,281
3,000 Lancaster Colony Corp...................................... 98,625
1,600 TRW, Inc................................................... 87,200
2,600 United Dominion Industries, Ltd............................ 60,775
-----------
319,881
-----------
Electronics - 5.56%
3,600 Arrow Electronics, Inc. *.................................. 71,550
3,900 Esterline Technologies Corp. *............................. 63,863
3,000 Varian, Inc. *............................................. 47,625
-----------
183,038
-----------
Financial Services - 3.08%
2,800 Charter One Financial, Inc................................. 65,537
900 Fleet Financial Group, Inc................................. 35,831
-----------
101,368
-----------
Food - 2.03%
2,100 Suiza Foods Corp. *........................................ 66,937
-----------
Insurance - 3.51%
4,000 Ohio Casualty Corp. ....................................... 61,500
3,500 Old Republic International Corp. .......................... 54,250
-----------
115,750
-----------
Machinery - 3.77%
3,000 AptarGroup, Inc. .......................................... 77,250
2,000 Robbins & Myers, Inc. ..................................... 47,000
-----------
124,250
-----------
Medical Products - 5.30%
2,700 DENTSPLY International, Inc. .............................. 66,994
3,100 Lincare Holdings, Inc. *................................... 81,763
1,200 Varian Medical Systems, Inc. .............................. 25,950
-----------
174,707
-----------
Multimedia - 1.69%
2,000 The Walt Disney Co. ....................................... 55,500
-----------
Oil, Gas & Petroleum - 5.15%
2,500 Tidewater, Inc. ........................................... 81,250
1,500 Unocal Corp................................................ 62,812
1,800 Vintage Petroleum, Inc..................................... 25,762
-----------
169,824
-----------
</TABLE>
See Notes to Financial Statements.
36
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
HIDDEN VALUE FUND
Portfolio of Investments (continued) -- August 31, 1999
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<C> <S> <C>
Publishing - 4.18%
600 Gannett Co., Inc......................................... $ 40,763
1,800 Knight-Ridder, Inc. ..................................... 97,088
-----------
137,851
-----------
Real Estate Investment Trust - 1.72%
2,000 Mack-Cali Realty Corp.................................... 56,750
-----------
Retail - 3.65%
1,600 BJ's Wholesale Club, Inc. *.............................. 45,200
1,800 Ross Stores, Inc......................................... 74,925
-----------
120,125
-----------
Telecommunications - 2.66%
5,000 Andrew Corp. *........................................... 87,500
-----------
Total Common Stocks...................................... 3,053,094
-----------
(Cost $3,124,194)
Total Investments - 92.66%....................................... 3,053,094
-----------
(Cost $3,124,194)
Net Other Assets and Liabilities - 7.34%......................... 241,829
-----------
Net Assets - 100.00%............................................. $ 3,294,923
===========
</TABLE>
- ------------------------
* Non-income producing security
See Notes to Financial Statements.
37
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
ALL CAP VALUE FUND
Portfolio of Investments -- August 31, 1999
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<C> <S> <C>
COMMON STOCKS - 84.84%
Aerospace/Defense - 5.76%
450 AlliedSignal, Inc. ..................................... $ 27,562
489 United Technologies Corp. .............................. 32,335
------------
59,897
------------
Automobile - 4.01%
800 Ford Motor Company...................................... 41,700
------------
Banks - 7.03%
350 Chase Manhattan Corp. .................................. 29,290
1,100 Fleet Financial Group, Inc. ............................ 43,794
------------
73,084
------------
Chemicals and Allied Products - 4.98%
400 Eastman Kodak Co. ...................................... 29,375
600 Rohm and Haas Co. ...................................... 22,425
------------
51,800
------------
Computer Hardware & Software - 13.21%
210 International Business Machines Corp. .................. 26,158
750 NCR Corp. *............................................. 32,812
390 Sun Microsystems, Inc. *................................ 31,005
1,100 Unisys Corp. *.......................................... 47,300
------------
137,275
------------
Consumer Products - 5.01%
800 PepsiCo, Inc. .......................................... 27,300
350 Whirlpool Corp. ........................................ 24,741
------------
52,041
------------
Entertainment - 2.35%
1,000 Hasbro, Inc. ........................................... 24,438
------------
Financial Services - 11.98%
200 American Express Co. ................................... 27,500
650 Citigroup, Inc. ........................................ 28,884
500 Freddie Mac............................................. 25,750
200 Merrill Lynch & Co., Inc. .............................. 14,925
700 Paine Webber Group, Inc. ............................... 27,475
------------
124,534
------------
Food - 2.70%
600 Heinz (H.J.) Co. ....................................... 28,013
------------
Health Care Services - 10.85%
700 Abbott Laboratories..................................... 30,363
600 American Home Products Corp. ........................... 24,900
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<C> <S> <C>
Health Care Services - (continued)
1,050 Becton, Dickinson & Co. ..................... $ 29,531
900 McKesson HBOC, Inc. ......................... 28,013
-----------
112,807
-----------
Hotels and Restaurants - 4.61%
600 Promus Hotel Corp. *......................... 17,437
750 Tricon Global Restaurants, Inc. *............ 30,469
-----------
47,906
-----------
Oil, Gas and Petroleum - 4.78%
190 BP Amoco PLC, ADR............................ 21,304
425 Schlumberger, Ltd. .......................... 28,369
-----------
49,673
-----------
Office Products - 2.75%
600 Xerox Corp. ................................. 28,650
-----------
Publishing - 4.82%
300 Gannett Co., Inc. ........................... 20,381
550 Knight-Ridder, Inc. ......................... 29,666
-----------
50,047
-----------
Total Common Stocks.......................... 881,865
-----------
(Cost $822,430)
Total Investments - 84.84%........................... 881,865
-----------
(Cost $822,430)
Net Other Assets and Liabilities - 15.16%............ 157,567
-----------
Net Assets - 100.00%................................. $ 1,039,432
===========
</TABLE>
- ------------------------
*Non-income producing security
ADRAmerican Depository Receipt
See Notes to Financial Statements.
38
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
CORE EQUITY FUND
Portfolio of Investments -- August 31, 1999
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ -----------
<C> <S> <C>
COMMON STOCKS - 96.21%
Airlines/Transportation - 0.99%
1,000 Delta Air Lines, Inc. ..................................... $ 50,812
-----------
Automobile - 3.39%
1,537 Delphi Automotive Systems Corp. ........................... 28,819
2,200 General Motors Corp. ...................................... 145,475
-----------
174,294
-----------
Banks - 14.16%
3,400 Bank of America Corp. ..................................... 205,700
6,400 Bank of New York Co., Inc. ................................ 228,800
5,800 U.S. Bancorp............................................... 179,075
2,900 Wells Fargo Co. ........................................... 115,456
-----------
729,031
-----------
Consumer Products - 7.05%
1,500 Hershey Foods Corp. ....................................... 80,344
3,100 Kimberly-Clark Corp. ...................................... 176,506
1,500 Whirlpool Corp. ........................................... 106,031
-----------
362,881
-----------
Diversified - 7.23%
1,600 American General Corp. .................................... 113,600
2,300 General Electric Co. ...................................... 258,319
-----------
371,919
-----------
Financial Services - 3.86%
3,200 Fannie Mae................................................. 198,800
-----------
Health Care Products - 3.63%
4,500 American Home Products Corp. .............................. 186,750
-----------
Insurance - 7.73%
2,875 American International Group, Inc. ........................ 266,477
2,300 Chubb Corp. ............................................... 131,531
-----------
398,008
-----------
Machinery - 3.34%
2,700 Ingersoll-Rand Co. ........................................ 171,787
-----------
Manufacturing - 3.54%
1,700 Caterpillar, Inc. ......................................... 96,263
1,100 Illinois Tool Works, Inc. ................................. 85,731
-----------
181,994
-----------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ -----------
<C> <S> <C>
Office Products - 6.15%
2,200 Avery Dennison Corp. ...................................... $ 120,725
4,100 Xerox Corp. ............................................... 195,775
-----------
316,500
-----------
Oil, Gas & Petroleum - 4.97%
2,500 Mobil Corp. ............................................... 255,938
-----------
Retail - 13.41%
3,100 Costco Wholesale Corp. *................................... 231,725
4,000 Dayton Hudson Corp. ....................................... 232,000
5,800 May Department Stores Co. ................................. 226,563
-----------
690,288
-----------
Semiconductors - 6.55%
4,100 Intel Corp. ............................................... 336,969
-----------
Telecommunications - 6.63%
2,000 AT & T Corp. .............................................. 90,000
4,100 Bell Atlantic Corp. ....................................... 251,125
-----------
341,125
-----------
Utilities - 3.59%
1,700 FPL Group, Inc. ........................................... 91,800
2,300 Texas Utilities Co. ....................................... 93,006
-----------
184,806
-----------
Total Common Stocks........................................ 4,951,902
-----------
(Cost $4,630,884)
Total Investments - 96.21%......................................... 4,951,902
-----------
(Cost $4,630,884)
Net Other Assets and Liabilities - 3.79%........................... 195,084
-----------
Net Assets - 100.00%............................................... $ 5,146,986
===========
</TABLE>
- ------------------------
* Non-income producing security
See Notes to Financial Statements.
39
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
INTERNATIONAL SMALL CAP EQUITY FUND
Portfolio of Investments -- August 31, 1999
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<C> <S> <C>
COMMON STOCKS - 100.00%
Austria - 5.70%
215 IT-Informationstechnologie................................. $ 45,498
12,000 Uproar Ltd. ............................................... 241,247
530 BWT AG..................................................... 98,980
-----------
385,725
-----------
Belgium - 2.92%
3,250 Creyf's N.V. .............................................. 85,971
10,000 Internoc Holding NV........................................ 29,627
3,900 Xeikon N.V. ADR............................................ 81,900
-----------
197,498
-----------
Czech Republic - 1.62%
3,000 Ceske Radiokomunikace *.................................... 109,500
-----------
France - 4.70%
858 Infogrames Entertainment SA................................ 63,095
800 Jet Multimedia............................................. 139,754
5,200 Pharming Group N.V. *...................................... 45,117
1,150 Fraikin.................................................... 69,906
-----------
317,872
-----------
Germany - 9.61%
8,600 Scala Business Solutions NV *.............................. 61,878
2,320 Boewe Systec AG............................................ 69,471
3,480 Vossloh AG................................................. 77,326
3,000 QIAGEN N.V. *.............................................. 124,274
1,000 Rhoen-Klinikum AG.......................................... 117,449
6,000 Ideal Group SA*............................................ 200,389
-----------
650,787
-----------
Hong Kong - 1.38%
28,000 SmarTone Telecommunications Holdings Ltd. ................. 93,395
-----------
Israel - 0.46%
7,870 Supercom Ltd. ............................................. 31,480
-----------
Italy - 3.27%
6,000 Brembo Spa................................................. 73,326
3,600 Banca Popolare Santa Venera................................ 86,734
13,500 Carraro Spa................................................ 61,280
-----------
221,340
-----------
Japan - 25.58%
4,400 Asatsu-DK, Inc. ........................................... 157,013
600 Publicis SA................................................ 124,432
1,000 Aucnet, Inc. .............................................. 79,605
350 Bellsystem 24, Inc. ....................................... 176,137
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<C> <S> <C>
Japan (continued)
700 Benesse Corp. ........................................... $ 121,694
5,000 Diamond Computer Service Co., Ltd. ...................... 106,826
2,000 Meitec Corp. ............................................ 71,370
6,000 Woodland Corp. .......................................... 175,130
7,000 Mimasu Semiconductor Industry Co., Ltd. ................. 138,988
1,100 Doutor Coffee Co., Ltd. ................................. 80,016
6,000 Ushio, Inc. ............................................. 77,409
6,000 Asia Securities Printing Co., Ltd. ...................... 200,384
2,700 Paris Miki, Inc. ........................................ 222,344
------------
1,731,348
------------
Netherlands - 7.06%
4,000 Landis Group NV *........................................ 101,154
2,000 Fugro N.V. .............................................. 66,343
1,700 Prolion Holding N.V.*.................................... 191,569
4,000 Koninklijke Frans........................................ 118,507
------------
477,573
------------
Poland - 1.28%
6,200 Prokom Software.......................................... 86,490
------------
Singapore - 2.03%
245,000 Informatics Holdings, Ltd. .............................. 137,526
------------
Spain - 4.87%
9,820 Prosegur, CIA de Seguridad SA *.......................... 97,048
3,700 Mapfre Vida Seguros...................................... 103,355
5,200 Funespana SA *........................................... 128,970
------------
329,373
------------
Sweden - 2.32%
11,000 Semcon AB................................................ 86,846
3,800 IBS AB *................................................. 70,157
------------
157,003
------------
Switzerland - 14.35%
270 PubliGroupe SA .......................................... 202,712
350 Gretag-Macbeth Holding AG................................ 94,460
800 SEZ Holding AG *......................................... 252,423
440 Selecta Group............................................ 194,715
900 TAG Heuer International SA............................... 98,082
1,000 Swisslog Holding AG...................................... 129,155
------------
971,547
------------
</TABLE>
See Notes to Financial Statements.
40
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
INTERNATIONAL SMALL CAP EQUITY FUND
Portfolio of Investments (continued) -- August 31, 1999
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<C> <S> <C>
United Kingdom - 12.85%
56,000 Cordiant Communications Group Plc......................... $ 174,330
36,000 Saatchi & Saatchi Plc..................................... 133,788
51,700 Corporate Services........................................ 88,997
10,000 Autonomy Corp. Plc *...................................... 85,500
5,200 Memory Corp. Plc *........................................ 114,140
4,000 Psion Plc................................................. 61,778
970 Belvedere SA *............................................ 76,977
4,000 Filtronic Plc............................................. 53,283
70,000 Scoot.com Plc............................................. 53,493
7,700 Granger Telecom Plc *..................................... 27,336
-----------
869,622
-----------
Total Common Stocks....................................... 6,768,079
-----------
(Cost $5,903,087)
Total Investments - 100.00%....................................... 6,768,079
-----------
(Cost $5,903,087)
Net Other Assets and Liabilities - 0.00%.......................... (4)
-----------
Net Assets - 100.00%.............................................. $ 6,768,075
===========
</TABLE>
- ------------------------
*Non-income producing security
ADRAmerican Depository Receipt
See Notes to Financial Statements.
41
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
INTERNATIONAL EQUITY FUND
Portfolio of Investments -- August 31, 1999
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<C> <S> <C>
COMMON STOCKS - 99.54%
Australia - 0.43%
3,000 Smith (Howard) Limited..................................... $ 23,940
-----------
Belgium - 1.24%
2,000 Fortis Bank Nederland *.................................... 68,776
-----------
Brazil - 0.62%
1,500 Telesp Celular Participacoes SA ADR........................ 34,688
-----------
Finland - 6.54%
3,480 Nokia Oyj *................................................ 290,893
3,000 Sonera Group Oyj........................................... 72,850
-----------
363,743
-----------
France - 16.89%
600 Alcatel.................................................... 92,055
700 CAP Gemini SA.............................................. 120,359
3,650 CNP Assurances *........................................... 96,358
500 Compagnie De Saint Gobain.................................. 96,816
340 Elf Aquitaine SA........................................... 59,719
120 Essilor International SA................................... 40,123
3,000 Rhone-Poulenc.............................................. 145,763
1,000 Sidel SA................................................... 110,782
2,304 Vivendi.................................................... 178,208
-----------
940,183
-----------
Germany - 9.81%
500 AXA Colonia Konzern AG..................................... 48,673
2,500 Deutsche Telekom AG........................................ 110,836
850 Douglas Holding AG......................................... 36,875
150 Karstadt AG................................................ 71,104
1,040 Mannesmann AG.............................................. 159,782
1,000 Siemens AG................................................. 84,225
1,000 Volkswagen AG.............................................. 34,600
-----------
546,095
-----------
Hong Kong - 0.70%
4,000 Hutchison Whampoa, Ltd. ................................... 39,022
-----------
Italy - 3.81%
70,000 Seat-Pagine Gialle Spa..................................... 96,657
14,000 Credito Italiano........................................... 64,735
3,750 San Paolo-IMI Spa.......................................... 50,432
-----------
211,824
-----------
Japan - 22.87%
1,200 Asatsu-DK, Inc............................................. 42,822
300 Bellsystem 24, Inc......................................... 150,974
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<C> <S> <C>
Japan (continued)
500 Benesse Corp. ............................................. $ 86,925
2,000 Honda Motor Co., Ltd....................................... 80,520
1,000 Matsushita Communication Industrial Co..................... 85,186
900 NIDEC Corp. ............................................... 177,793
2 NTT Mobile Communications.................................. 33,306
8 NTT Mobile Communications-New *............................ 132,492
400 Promise Co., Ltd........................................... 33,306
4,000 Sanwa Bank, Ltd............................................ 54,900
1,000 Secom Co., Ltd. ........................................... 136,792
1,000 Shin-Etsu Chemical Co., Ltd................................ 40,809
100 Shohkoh Fund & Co., Ltd.................................... 72,559
700 Sony Corp.................................................. 90,823
3,000 Sumitomo Bank, Ltd......................................... 41,175
1,000 Ushio, Inc. ............................................... 12,901
-----------
1,273,283
-----------
Netherlands - 2.35%
460 Koninklijke (Royal) Philips Electronics N.V................ 47,480
1,517 ING Groep N.V. ............................................ 83,307
-----------
130,787
-----------
Portugal - 2.11%
1,500 Banco Commercial........................................... 39,901
600 Telecel Communicaacaoes Pessoais SA *...................... 77,580
-----------
117,481
-----------
Singapore - 0.75%
2,500 Singapore Press Holdings................................... 41,728
-----------
Sweden - 3.04%
8,300 Skandia Forksakrings....................................... 169,367
-----------
Switzerland - 10.96%
52 Nestle SA.................................................. 102,848
102 Novartis AG................................................ 147,088
10 Roche Holding AG........................................... 115,892
200 Selecta Group.............................................. 88,507
550 UBS AG..................................................... 155,532
-----------
609,867
-----------
United Kingdom - 17.42%
6,700 British Sky Broadcasting Group Plc......................... 63,596
8,000 British Telecom Plc........................................ 124,972
15,000 Invensys Plc............................................... 76,860
</TABLE>
See Notes to Financial Statements.
42
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
INTERNATIONAL EQUITY FUND
Portfolio of Investments (continued) -- August 31, 1999
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<C> <S> <C>
COMMON STOCKS - 99.54%
United Kingdom (continued)
2,000 Cadbury Schweppes Plc...................................... $ 12,645
5,440 Compass Group Plc.......................................... 51,023
11,350 Lloyds TSB Group Plc....................................... 157,674
11,600 Mediaset Spa............................................... 102,610
13,100 National Grid Group........................................ 87,779
8,000 SmithKline Beecham......................................... 104,315
20,000 WPP Group Plc.............................................. 188,069
-----------
969,543
-----------
Total Common Stocks ....................................... 5,540,327
-----------
(Cost $5,042,206)
Total Investments - 99.54%......................................... 5,540,327
-----------
(Cost $5,042,206)
Net Other Assets and Liabilities - 0.46%........................... 25,328
-----------
Net Assets - 100.00%............................................... $ 5,565,655
===========
</TABLE>
- ------------------------
*Non-income producing security
ADRAmerican Depository Receipt
See Notes to Financial Statements.
43
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
STATEMENTS OF ASSETS AND LIABILITIES . August 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Behavioral
Behavioral Behavioral Long/Short REIT
Growth Fund Value Fund Fund Fund
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments (Note 2):
Investments at cost...... $68,254,702 $3,532,452 $5,191,965 $22,477,103
Net unrealized
appreciation
(depreciation).......... 23,652,699 (48,317) 732,559 191,647
----------- ---------- ---------- -----------
Total investments at
value................... 91,907,401 3,484,135 5,924,524 22,668,750
Cash (Note 2)............. 5,791,473 643,110 -- 400,242
Deposit with broker for
securities sold short
(Note 2)................. -- -- 5,450,787 --
Foreign currencies, at
value(/1/) (Note 2)...... -- -- -- --
Receivables:
Investments sold......... 1,095,773 -- 245,158 --
Fund shares sold......... 493,934 9,964 -- 37,889
Dividends and interest... 56,535 2,490 10,110 53,654
Organization costs (Note
2)....................... 21,270 -- -- 21,287
Prepaid expenses and other
assets................... 11,431 201 1,362 6,441
----------- ---------- ---------- -----------
Total Assets............. 99,377,817 4,139,900 11,631,941 23,188,263
----------- ---------- ---------- -----------
LIABILITIES:
Payables:
Investments purchased.... 311,446 466,572 55,798 223,827
Fund shares redeemed..... 7,000 -- -- 5,036
Securities sold short, at
value (Proceeds
$5,530,352) (Note 2).... -- -- 5,583,682 --
Investment advisory
fees--net (Note 3)...... 75,118 3,023 7,915 20,195
Service and distribution
fees (Note 3)........... 3,619 -- -- 314
Administration fees (Note
3)...................... 19,768 720 1,277 4,808
Accrued expenses and
other payables (Note
5)...................... 111,127 18,123 40,919 49,789
----------- ---------- ---------- -----------
Total Liabilities........ 528,078 488,438 5,689,591 303,969
----------- ---------- ---------- -----------
NET ASSETS................. $98,849,739 $3,651,462 $5,942,350 $22,884,294
=========== ========== ========== ===========
NET ASSETS consist of (Note
4):
Paid-in capital (no par
value)................... $78,211,476 $3,603,499 $5,636,809 $23,399,781
Undistributed net
investment income
(loss)................... -- 17,026 103,494 547,016
Accumulated net realized
gain (loss) on
investments.............. (3,014,436) 79,254 (477,182) (1,254,150)
Net unrealized
appreciation
(depreciation) on
investments.............. 23,652,699 (48,317) 679,229 191,647
----------- ---------- ---------- -----------
TOTAL NET ASSETS........... $98,849,739 $3,651,462 $5,942,350 $22,884,294
=========== ========== ========== ===========
SHARES OF BENEFICIAL
INTEREST
Institutional Class:
Net Assets................ $94,075,264 $3,651,462 $5,942,350 $22,355,488
Shares of beneficial
interest outstanding
(unlimited shares
authorized, no par
value)................... 4,400,826 241,656 467,967 1,997,361
----------- ---------- ---------- -----------
Net Asset Value, Offering
and Redemption Price Per
Share.................... $ 21.38 $ 15.11 $ 12.70 $ 11.19
=========== ========== ========== ===========
Investor Class:
Net Assets................ $ 4,589,591 N/A N/A $ 508,835
Shares of beneficial
interest outstanding
(unlimited shares
authorized, no par
value)................... 215,343 N/A N/A 45,530
----------- ---------- ---------- -----------
Net Asset Value, Offering
and Redemption Price Per
Share.................... $ 21.31 N/A N/A $ 11.18
=========== ========== ========== ===========
C Class:
Net Assets................ $ 184,884 N/A N/A $ 19,971
Shares of beneficial
interest outstanding
(unlimited shares
authorized, no par
value)................... 8,687 N/A N/A 1,788
----------- ---------- ---------- -----------
Net Asset Value,
Redemption Price Per
Share.................... $ 21.28 N/A N/A $ 11.17
=========== ========== ========== ===========
Maximum Offering Price Per
Share (NAV/99%).......... $ 21.49 N/A N/A $ 11.28
=========== ========== ========== ===========
</TABLE>
- ----------------------
(1) Cost of foreign currencies for International Small Cap Equity Fund and In-
ternational Equity Fund is $45,021 and $713, respectively.
(2) Does not recalculate due to rounding.
See Notes to Financial Statements.
44
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
International International
Secial Smallp Small Cap Hidden All Cap Core Small Cap Equity
Cap Fund Value Fund Value Fund Value Fund Equity Fund Equity Fund Fund
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$14,847,501 $19,473,579 $3,124,194 $ 822,430 $4,630,884 $5,903,087 $5,042,206
392,770 (1,042,848) (71,100) 59,435 321,018 864,992 498,121
----------- ----------- ---------- ---------- ---------- ---------- ----------
15,240,271 18,430,731 3,053,094 881,865 4,951,902 6,768,079 5,540,327
1,054,774 2,775,774 116,635 116,001 185,097 23,127 11,979
-- -- -- -- -- -- --
-- -- -- -- -- 45,498 710
24,540 -- 127,126 19,306 -- -- 25,641
6,000 212,570 136,108 16,125 5,000 -- --
12,314 26,204 5,760 1,490 11,104 6,079 13,899
21,252 21,252 21,269 21,270 21,270 -- --
6,248 6,937 819 527 2,426 2,157 1,382
----------- ----------- ---------- ---------- ---------- ---------- ----------
16,365,399 21,473,468 3,460,811 1,056,584 5,176,799 6,844,940 5,593,938
----------- ----------- ---------- ---------- ---------- ---------- ----------
165,300 283,456 135,534 -- -- 45,498 --
37,000 6,243 256 -- -- -- --
-- -- -- -- -- -- --
17,871 18,240 2,610 632 3,293 6,255 4,375
-- 918 1,463 217 580 -- --
6,873 4,343 687 213 1,113 1,360 1,151
60,775 49,097 25,338 16,090 24,827 23,752 22,757
----------- ----------- ---------- ---------- ---------- ---------- ----------
287,819 362,297 165,888 17,152 29,813 76,865 28,283
----------- ----------- ---------- ---------- ---------- ---------- ----------
$16,077,580 $21,111,171 $3,294,923 $1,039,432 $5,146,986 $6,768,075 $5,565,655
=========== =========== ========== ========== ========== ========== ==========
$16,275,209 $22,140,531 $3,260,315 $ 988,315 $4,827,548 $5,912,729 $5,038,721
-- (415) 8,896 5,897 30,776 (10,574) 43,419
(590,399) 13,903 96,812 (14,215) (32,356) 871 (14,700)
392,770 (1,042,848) (71,100) 59,435 321,018 865,049 498,215
----------- ----------- ---------- ---------- ---------- ---------- ----------
$16,077,580 $21,111,171 $3,294,923 $1,039,432 $5,146,986 $6,768,075 $5,565,655
=========== =========== ========== ========== ========== ========== ==========
$16,077,580 $20,037,772 $1,627,584 $ 951,906 $4,562,460 $6,768,075 $5,565,655
1,252,742 1,479,626 130,459 62,539 297,699 447,251 393,990
----------- ----------- ---------- ---------- ---------- ---------- ----------
$ 12.83 $ 13.54 $ 12.48 $ 15.22 $ 15.33 $ 15.13 $ 14.13
=========== =========== ========== ========== ========== ========== ==========
N/A $ 956,521 $1,667,339 $ 54,603 $ 579,544 N/A N/A
N/A 70,754 133,857 3,588 37,858 N/A N/A
----------- ----------- ---------- ---------- ---------- ---------- ----------
N/A $ 13.52 $ 12.46 $ 15.22 $ 15.31 N/A N/A
=========== =========== ========== ========== ========== ========== ==========
N/A $ 116,878 N/A $ 32,923 $ 4,982 N/A N/A
N/A 8,652 N/A 2,169 328 N/A N/A
----------- ----------- ---------- ---------- ---------- ---------- ----------
N/A $ 13.51 N/A $ 15.18 $ 15.21(/2/) N/A N/A
=========== =========== ========== ========== ========== ========== ==========
N/A $ 13.65 N/A $ 15.33 $ 15.36 N/A N/A
=========== =========== ========== ========== ========== ========== ==========
</TABLE>
See Notes to Financial Statements.
45
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
STATEMENTS OF OPERATIONS . For the periods ended August 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Behavioral
Behavioral Behavioral Long/Short REIT
Growth Fund(/1/)(/7/)(/8/) Value Fund(/2/) Fund(/2/) Fund(/3/)(/4/)(/9/)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends (Note 2)...... $ 90,966 $ 6,380 $ 11,553 $1,060,952
Foreign taxes withheld
on dividend income
(Note 2)............... -- -- -- --
Interest (Note 2)....... 137,837 3,685 136,519 25,164
----------- --------- --------- ----------
Total investment
income................ 228,803 10,065 148,072 1,086,116
----------- --------- --------- ----------
EXPENSES:
Investment advisory fees
(Note 3)............... 376,813 10,202 50,272 182,364
Administration fees
(Note 3)............... 99,161 2,429 8,109 43,420
Custodian fees (Note
3)..................... 29,723 10,285 5,084 11,015
Professional fees....... 67,143 12,558 12,565 29,635
Transfer agent fees..... 73,401 16,775 18,330 44,542
Trustees' fees (Note
5)..................... 13,431 286 1,150 6,500
Reports to
shareholders........... 7,414 339 775 2,004
Amortization of
organization costs
(Note 2)............... 6,380 -- -- 6,380
Offering costs.......... 43,423 23,486 25,402 6,317
Service and distribution
fees - Investor Class
(Note 3)............... 6,158 -- -- 452
Service and distribution
fees - C Class (Note
3)..................... 177 -- -- 15
Other fees.............. 15,643 278 1,254 12,034
Dividends on securities
sold short (Note 2).... -- -- 208 --
----------- --------- --------- ----------
Total expenses before
waiver/reimbursement.. 738,867 76,638 123,149 344,678
Less:
Waiver/reimbursement
(Note 3).............. (218,521) (63,138) (58,110) (100,455)
Less: Service and
distribution fees
waiver (Note 3)....... (45) -- -- --
----------- --------- --------- ----------
Total expenses net of
waiver/reimbursement.. 520,301 13,500 65,039 244,223
----------- --------- --------- ----------
NET INVESTMENT INCOME
(LOSS).................. (291,498) (3,435) 83,033 841,893
----------- --------- --------- ----------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 2):
Net realized gain
(loss) on:
Investments sold....... (2,841,027) 79,254 29,102 (1,172,811)
Securities sold
short................. -- -- (506,284) --
Foreign currency
related
transactions.......... -- -- -- --
Net change in
unrealized
appreciation
(depreciation) on:
Investments............ 24,604,678 (48,317) 732,559 1,508,354
Securities sold
short................. -- -- (53,330) --
Foreign currency
related
transactions.......... -- -- -- --
----------- --------- --------- ----------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS 21,763,651 30,937 202,047 335,543
----------- --------- --------- ----------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS.............. $21,472,153 $ 27,502 $ 285,080 $1,177,436
=========== ========= ========= ==========
</TABLE>
- ------------------------------------------
(1) The Fund's Institutional Class commenced investment operations on December
31, 1997.
(2) The Fund commenced investment operations on December 28, 1998.
(3) The Fund's Investor Class commenced investment operations on March 24,
1999.
(4) The Fund's Institutional Class commenced investment operations on January
1, 1998.
(5) The Fund's Institutional Class commenced investment operations on December
30, 1997.
(6) The Fund commenced investment operations on December 30, 1998.
(7) The Fund's Investor Class commenced investment operations on July 31,
1998.
(8) The Fund's C Class commenced investment operations on June 21, 1999.
(9) The Fund's C Class commenced investment operations on August 3, 1999.
(10) The Fund's C Class commenced investment operations on May 27, 1999.
(11) The Fund's C Class commenced investment operations on August 31, 1999.
See Notes to Financial Statements.
46
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Special International
Small Small Cap Hidden All Cap Core Small Cap International
Cap Value Value Value Equity Equity Equity
Fund(/5/) Fund(/5/)(/7/)(/8/) Fund(/1/)(/7/) Fund(/1/)(/7/)(/10/) Fund(/1/)(/7/)(/11/) Fund(/6/) Fund(/6/)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 167,569 $ 183,689 $ 30,850 $ 8,254 $ 70,105 $ 45,155 $ 76,154
-- -- -- -- -- (6,516) (9,940)
13,645 40,562 5,984 1,675 13,313 8,129 8,468
---------- ---------- --------- --------- --------- --------- ---------
181,214 224,251 36,834 9,929 83,418 46,768 74,682
---------- ---------- --------- --------- --------- --------- ---------
155,906 183,573 19,851 4,879 32,670 38,928 28,069
39,702 43,708 5,224 1,648 11,037 8,463 7,387
8,295 9,750 7,960 7,750 8,035 17,228 10,605
27,839 31,086 14,056 12,424 15,653 13,428 12,928
29,291 63,160 49,510 54,002 50,543 17,912 17,689
6,147 6,822 694 229 1,638 1,285 1,119
5,563 1,081 777 312 36 871 760
6,380 6,380 6,381 6,380 6,380 -- --
3,378 18,398 17,840 19,909 18,612 26,685 26,467
-- 1,197 2,167 181 728 -- --
-- 139 -- 35 -- -- --
9,756 10,577 1,554 1,437 3,605 1,325 1,181
-- -- -- -- -- -- --
---------- ---------- --------- --------- --------- --------- ---------
292,257 375,871 126,014 109,186 148,937 126,125 106,205
(28,586) (130,092) (96,729) (102,453) (104,497) (71,972) (63,367)
-- (17) (102) (181) (108) -- --
---------- ---------- --------- --------- --------- --------- ---------
263,671 245,762 29,183 6,552 44,332 54,153 42,838
---------- ---------- --------- --------- --------- --------- ---------
(82,457) (21,511) 7,651 3,377 39,086 (7,385) 31,844
---------- ---------- --------- --------- --------- --------- ---------
(196,115) 47,095 104,786 (3,137) (29,336) 1,630 (14,700)
-- -- -- -- -- -- --
-- -- -- -- -- (27,315) (11,792)
3,226,443 3,182,571 309,551 119,489 501,435 864,992 498,121
-- -- -- -- -- -- --
-- -- -- -- -- 57 94
---------- ---------- --------- --------- --------- --------- ---------
3,030,328 3,229,666 414,337 116,352 472,099 839,364 471,723
---------- ---------- --------- --------- --------- --------- ---------
$2,947,871 $3,208,155 $ 421,988 $ 119,729 $ 511,185 $ 831,979 $ 503,567
========== ========== ========= ========= ========= ========= =========
</TABLE>
See Notes to Financial Statements.
47
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
STATEMENT OF CASH FLOWS . For the period ended August 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Behavioral Long/Short Fund
- -------------------------------------------------------------------------------
<S> <C> <C>
NET INCREASE IN CASH:
Cash flows from operating activities:
Interest and dividends received............... $ 138,170
Operating expenses paid....................... (14,928)
Purchases of long-term securities............. (7,677,742)
Net purchases of short-term securities........ (276,827)
Proceeds from sales of long-term securities... 2,783,417
------------
Net cash used in operating activities.......... $ (5,047,910)
Cash flows from financing activities:
Dividends on securities sold short............ (208)
Net shareholder subscriptions and
redemptions.................................. 5,657,270
Proceeds from securities sold short........... 7,828,563
Purchases of securities sold short............ (2,986,928)
Deposit with broker for securities sold
short........................................ (5,450,787)
------------
Net cash provided by financing activities...... 5,047,910
-------------
Net increase in cash........................... 0
Cash - beginning of period..................... 0
-------------
Cash - end of period........................... $ 0
=============
RECONCILIATION OF NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS TO NET CASH USED IN
OPERATING ACTIVITIES:
Net increase in net assets resulting from
operations.................................... $ 285,080
Increase in investments, net.................. (5,371,629)
Increase in dividends and interest
receivable................................... (10,110)
Increase in prepaid expenses and other
assets....................................... (1,362)
Increase in investment advisory fee payable... 7,915
Increase in administration fee payable........ 1,277
Increase in accrued expenses and other
payables..................................... 40,919
------------
Total adjustments............................ (5,332,990)
-------------
Net cash used in operating activities.......... $ (5,047,910)
=============
</TABLE>
See Notes to Financial Statements.
48
<PAGE>
This page intentionally left blank.
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Behavioral
Behavioral Growth Fund(/1/)(/7/)(/8/) Value Fund(/2/)
------------------------------------------ ---------------
Year Ended Period ended Period ended
August 31, 1999 August 31, 1998 August 31, 1999
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSETS at beginning of
period................... $ 5,294,388 $ -- $ --
Increase (decrease) in net
assets resulting from
operations:
Net investment income
(loss).................. (291,498) (8,228) (3,435)
Net realized gain (loss)
on investments.......... (2,841,027) (173,410) 79,254
Net change in unrealized
appreciation
(depreciation) on
investments............. 24,604,678 (951,978) (48,317)
------------------- ------------------ ----------
Net increase (decrease)
in net assets resulting
from operations......... 21,472,153 (1,133,616) 27,502
------------------- ------------------ ----------
Distributions to
shareholders (Note 4):
Institutional Class
Shares:
Net investment income... -- -- --
Net realized gains...... -- -- --
Investor Class Shares:
Net investment income... -- -- --
Net realized gains...... -- -- --
------------------- ------------------ ----------
Total distributions to
shareholders............ -- -- --
------------------- ------------------ ----------
Capital share
transactions:
Institutional Class
Shares:
Proceeds from Shares
issued................. 74,149,825 6,766,150 3,656,376
Issued to shareholders
in reinvestment of
distributions.......... -- -- --
Cost of Shares
redeemed............... (6,080,995) (388,146) (32,416)
------------------- ------------------ ----------
Increase in net assets
derived from
Institutional Class
Share transactions..... 68,068,830 6,378,004 3,623,960
------------------- ------------------ ----------
Investor Class Shares:
Proceeds from Shares
issued................. 4,233,947 50,000 N/A
Issued to shareholders
in reinvestment of
distributions.......... -- -- N/A
Cost of Shares
redeemed............... (397,454) -- N/A
------------------- ------------------ ----------
Increase in net assets
derived from Investor
Class Share
transactions........... 3,836,493 50,000 N/A
------------------- ------------------ ----------
C Class Shares:
Proceeds from Shares
issued................. 177,875 N/A N/A
Issued to shareholders
in reinvestment of
distributions.......... -- N/A N/A
Cost of Shares
redeemed............... -- N/A N/A
------------------- ------------------ ----------
Increase in net assets
derived from C Class
Share transactions..... 177,875 N/A N/A
------------------- ------------------ ----------
Increase in net assets
derived from capital
share transactions....... 72,083,198 6,428,004 3,623,960
------------------- ------------------ ----------
Total increase in net
assets................... 93,555,351 5,294,388 3,651,462
------------------- ------------------ ----------
NET ASSETS at end of
period .................. $ 98,849,739 $ 5,294,388 $3,651,462
=================== ================== ==========
Undistributed net
investment income
(loss)................... $ -- $ -- $ 17,026
------------------- ------------------ ----------
OTHER INFORMATION:
Share transactions:
Institutional Class
Shares:
Sold.................... 4,306,126 470,937 243,753
Issued to shareholders
in reinvestment of
distributions.......... -- -- --
Redeemed................ (348,452) (27,785) (2,097)
------------------- ------------------ ----------
Total Institutional
Class transactions..... 3,957,674 443,152 241,656
------------------- ------------------ ----------
Investor Class Shares:
Sold.................... 233,173 3,392 N/A
Issued to shareholders
in reinvestment of
distributions.......... -- -- N/A
Redeemed................ (21,222) -- N/A
------------------- ------------------ ----------
Total Investor Class
transactions........... 211,951 3,392 N/A
------------------- ------------------ ----------
C Class Shares:
Sold.................... 8,687 N/A N/A
Issued to shareholders
in reinvestment of
distributions.......... -- N/A N/A
Redeemed................ -- N/A N/A
------------------- ------------------ ----------
Total C Class
transactions........... 8,687 N/A N/A
------------------- ------------------ ----------
Net increase in capital
shares................... 4,178,312 446,544 241,656
=================== ================== ==========
</TABLE>
- ----------------------
(1) The Fund's Institutional Class commenced investment operations on December
31, 1997.
(2) The Fund commenced investment operations on December 28, 1998.
(3) The Fund's Investor Class commenced investment operations on March 24,
1999.
(4) The Fund's Institutional Class commenced investment operations on January
1, 1998.
(5) The Fund's Institutional Class commenced investment operations on December
30, 1997.
(6) The Fund commenced investment operations on December 30, 1998.
(7) The Fund's Investor Class commenced investment operations on July 31,
1998.
(8) The Fund's C Class commenced investment operations on June 21, 1999.
(9) The Fund's C Class commenced investment operations on August 3, 1999.
(10) The Fund's C Class commenced investment operations on May 27, 1999.
(11) The Fund's C Class commenced investment operations on August 31, 1999.
See Notes to Financial Statements.
50
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Behavioral
Long/Short
Fund(/2/) REIT Fund(/3/)(/4/)(/9/) Special Small Cap Fund(/5/) Small Cap Value Fund (/5/)(/7/)(/8/)
---------- --------------------------- ----------------------------- -----------------------------------------
Year Period
Ended Period ended ended Year Ended Period ended
August August 31, August 31, August 31, August 31, Year Ended Period ended
31, 1999 1999 1998 1999 1998 August 31, 1999 August 31, 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ -- $ 9,122,042 $ -- $ 11,286,389 $ -- $13,879,749 $ 100,000
83,033 841,893 168,577 (82,457) (27,446) (21,511) 4,458
(477,182) (1,172,811) (189,265) (196,115) (394,284) 47,095 71,166
679,229 1,508,354 (1,316,707) 3,226,443 (2,833,673) 3,182,571 (4,225,418)
---------- ------------ ----------- ------------- ------------- ------------------ ------------------
285,080 1,177,436 (1,337,395) 2,947,871 (3,255,403) 3,208,155 (4,149,794)
---------- ------------ ----------- ------------- ------------- ------------------ ------------------
-- (363,218) -- -- -- (23,442) --
-- -- -- -- -- (71,791) --
-- -- -- -- -- (30) --
-- -- -- -- -- (182) --
---------- ------------ ----------- ------------- ------------- ------------------ ------------------
-- (363,218) -- -- -- (95,445) --
---------- ------------ ----------- ------------- ------------- ------------------ ------------------
5,936,333 15,763,544 10,717,058 12,234,293 15,289,122 14,233,391 18,068,590
-- 362,073 -- -- -- 93,248 --
(279,063) (3,695,055) (257,621) (10,390,973) (747,330) (11,202,241) (177,415)
---------- ------------ ----------- ------------- ------------- ------------------ ------------------
5,657,270 12,430,562 10,459,437 1,843,320 14,541,792 3,124,398 17,891,175
---------- ------------ ----------- ------------- ------------- ------------------ ------------------
N/A 498,714 N/A N/A N/A 1,731,869 38,368
N/A -- N/A N/A N/A 211 --
N/A (1,253) N/A N/A N/A (858,334) --
---------- ------------ ----------- ------------- ------------- ------------------ ------------------
N/A 497,461 N/A N/A N/A 873,746 38,368
---------- ------------ ----------- ------------- ------------- ------------------ ------------------
N/A 20,011 N/A N/A N/A 120,568 N/A
N/A -- N/A N/A N/A -- N/A
N/A -- N/A N/A N/A -- N/A
---------- ------------ ----------- ------------- ------------- ------------------ ------------------
N/A 20,011 N/A N/A N/A 120,568 N/A
---------- ------------ ----------- ------------- ------------- ------------------ ------------------
5,657,270 12,948,034 10,459,437 1,843,320 14,541,792 4,118,712 17,929,543
---------- ------------ ----------- ------------- ------------- ------------------ ------------------
5,942,350 13,762,252 9,122,042 4,791,191 11,286,389 7,231,422 13,779,749
---------- ------------ ----------- ------------- ------------- ------------------ ------------------
$5,942,350 $ 22,884,294 $ 9,122,042 $ 16,077,580 $ 11,286,389 $ 21,111,171 $ 13,879,749
========== ============ =========== ============= ============= ================== ==================
$ 103,494 $ 547,016 $ 130,644 $ -- $ -- $ (415) $ 7,565
---------- ------------ ----------- ------------- ------------- ------------------ ------------------
492,681 1,440,463 878,904 1,068,414 1,143,447 1,109,410 1,263,238
-- 29,824 -- -- -- 5,981 --
(24,714) (330,562) (21,268) (900,945) (58,173) (906,129) (874)
---------- ------------ ----------- ------------- ------------- ------------------ ------------------
467,967 1,139,725 857,636 167,469 1,085,274 209,262 1,262,364
---------- ------------ ----------- ------------- ------------- ------------------ ------------------
N/A 45,642 N/A N/A N/A 131,580 2,854
N/A -- N/A N/A N/A 18 --
N/A (112) N/A N/A N/A (63,698) --
---------- ------------ ----------- ------------- ------------- ------------------ ------------------
N/A 45,530 N/A N/A N/A 67,900 2,854
---------- ------------ ----------- ------------- ------------- ------------------ ------------------
N/A 1,788 N/A N/A N/A 8,652 N/A
N/A -- N/A N/A N/A -- N/A
N/A -- N/A N/A N/A -- N/A
---------- ------------ ----------- ------------- ------------- ------------------ ------------------
N/A 1,788 N/A N/A N/A 8,652 N/A
---------- ------------ ----------- ------------- ------------- ------------------ ------------------
467,967 1,187,043 857,636 167,469 1,085,274 285,814 1,265,218
========== ============ =========== ============= ============= ================== ==================
</TABLE>
See Notes to Financial Statements.
51
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Hidden Value Fund (/1/)(/7/)
-------------------------------
Year Ended Period ended
August 31, 1999 August 31, 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS at beginning of period............ $ 964,979 $ --
Increase (decrease) in net assets resulting
from operations:
Net investment income (loss)................ 7,651 2,819
Net realized gain (loss) on investments .... 104,786 6,245
Net change in unrealized appreciation
(depreciation) on investments ............. 309,551 (380,651)
---------- ---------
Net increase (decrease) in net assets
resulting from operations.................. 421,988 (371,587)
---------- ---------
Distributions to shareholders (Note 4):
Institutional Class Shares:
Net investment income...................... (8,960) --
Net realized gains......................... (13,732) --
Investor Class Shares:
Net investment income...................... (318) --
Net realized gains......................... (488) --
---------- ---------
Total distributions to shareholders......... (23,498) --
---------- ---------
Capital share transactions:
Institutional Class Shares:
Proceeds from Shares issued................ 1,862,645 1,903,880
Issued to shareholders in reinvestment of
distributions............................. 22,692 --
Cost of Shares redeemed.................... (1,586,895) (617,314)
---------- ---------
Increase in net assets derived from
Institutional Class Share transactions.... 298,442 1,286,566
---------- ---------
Investor Class Shares:
Proceeds from Shares issued................ 3,396,388 50,000
Issued to shareholders in reinvestment of
distributions............................. 806 --
Cost of Shares redeemed.................... (1,764,182) --
---------- ---------
Increase in net assets derived from
Investor Class Share transactions......... 1,633,012 50,000
---------- ---------
C Class Shares:
Proceeds from Shares issued................ N/A N/A
Issued to shareholders in reinvestment of
distributions............................. N/A N/A
Cost of Shares redeemed.................... N/A N/A
---------- ---------
Increase in net assets derived from C Class
Share transactions........................ N/A N/A
---------- ---------
Increase in net assets derived from capital
share transactions.......................... 1,931,454 1,336,566
---------- ---------
Total increase in net assets................. 2,329,944 964,979
---------- ---------
NET ASSETS at end of period ................. $3,294,923 $ 964,979
========== =========
Undistributed net investment income (loss)... $ 8,896 $ 5,908
---------- ---------
OTHER INFORMATION:
Share transactions:
Institutional Class Shares:
Sold....................................... 162,951 140,327
Issued to shareholders in reinvestment of
distributions............................. 2,035 --
Redeemed................................... (129,289) (45,565)
---------- ---------
Total Institutional Class transactions..... 35,697 94,762
---------- ---------
Investor Class Shares:
Sold....................................... 269,258 4,136
Issued to shareholders in reinvestment of
distributions............................. 72 --
Redeemed................................... (139,609) --
---------- ---------
Total Investor Class transactions.......... 129,721 4,136
---------- ---------
C Class Shares:
Sold....................................... N/A N/A
Issued to shareholders in reinvestment of
distributions............................. N/A N/A
Redeemed................................... N/A N/A
---------- ---------
Total C Class transactions................. N/A N/A
---------- ---------
Net increase in capital shares............... 165,418 98,898
========== =========
</TABLE>
- ----------------------
(1) The Fund's Institutional Class commenced investment operations on December
31, 1997.
(2) The Fund commenced investment operations on December 28, 1998.
(3) The Fund's Investor Class commenced investment operations on March 24,
1999.
(4) The Fund's Institutional Class commenced investment operations on January
1, 1998.
(5) The Fund's Institutional Class commenced investment operations on December
30, 1997.
(6) The Fund commenced investment operations on December 30, 1998.
(7) The Fund's Investor Class commenced investment operations on July 31,
1998.
(8) The Fund's C Class commenced investment operations on June 21, 1999.
(9) The Fund's C Class commenced investment operations on August 3, 1999.
(10) The Fund's C Class commenced investment operations on May 27, 1999.
(11) The Fund's C Class commenced investment operations on August 31, 1999.
See Notes to Financial Statements.
52
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
All Cap Core Equity Int'l Small Cap International
Value Fund (/1/)(/7/)(/10/) Fund (/1/)(/7/)(/11/) Equity Fund (/6/) Equity Fund (/6/)
- -------------------------------- ------------------------------- ----------------- -----------------
Year ended Period Ended Year ended Period ended Period ended Period ended
August 31, 1999 August 31, 1998 August 31, 1999 August 31, 1998 August 31, 1999 August 31, 1999
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 329,619 $ -- $1,338,493 $ -- $ -- $ --
3,377 1,621 39,086 5,068 (7,385) 31,844
(3,137) (11,078) (29,336) (3,019) (25,685) (26,492)
119,489 (60,054) 501,435 (180,418) 865,049 498,215
---------- ---------- ---------- ---------- ---------- ----------
119,729 (69,511) 511,185 (178,369) 831,979 503,567
---------- ---------- ---------- ---------- ---------- ----------
(5,967) -- (20,802) -- -- --
-- -- -- -- -- --
(839) -- (281) -- -- --
-- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
(6,806) -- (21,083) -- -- --
---------- ---------- ---------- ---------- ---------- ----------
716,676 401,654 3,793,601 1,586,277 6,095,840 5,163,208
5,967 -- 20,801 -- -- --
(160,519) (52,524) (1,050,831) (119,415) (159,744) (101,120)
---------- ---------- ---------- ---------- ---------- ----------
562,124 349,130 2,763,571 1,466,862 5,936,096 5,062,088
---------- ---------- ---------- ---------- ---------- ----------
-- 50,000 611,946 50,000 N/A N/A
840 -- 281 -- N/A N/A
-- -- (62,423) -- N/A N/A
---------- ---------- ---------- ---------- ---------- ----------
840 50,000 549,804 50,000 N/A N/A
---------- ---------- ---------- ---------- ---------- ----------
33,926 N/A 5,016 N/A N/A N/A
-- N/A -- N/A N/A N/A
-- N/A -- N/A N/A N/A
---------- ---------- ---------- ---------- ---------- ----------
33,926 N/A 5,016 N/A N/A N/A
---------- ---------- ---------- ---------- ---------- ----------
596,890 399,130 3,318,391 1,516,862 5,936,096 5,062,088
---------- ---------- ---------- ---------- ---------- ----------
709,813 329,619 3,808,493 1,338,493 6,768,075 5,565,655
---------- ---------- ---------- ---------- ---------- ----------
$1,039,432 $ 329,619 $5,146,986 $1,338,493 $6,768,075 $5,565,655
========== ========== ========== ========== ========== ==========
$ 5,897 $ 4,710 $ 30,776 $ 8,157 $ (10,574) $ 43,419
---------- ---------- ---------- ---------- ---------- ----------
47,852 29,587 261,172 105,147 459,420 401,990
443 -- 1,431 -- -- --
(10,829) (4,514) (66,490) (3,562) (12,169) (8,000)
---------- ---------- ---------- ---------- ---------- ----------
37,466 25,073 196,113 101,585 447,251 393,990
---------- ---------- ---------- ---------- ---------- ----------
-- 3,526 38,348 3,390 N/A N/A
62 -- 19 -- N/A N/A
-- -- (3,899) -- N/A N/A
---------- ---------- ---------- ---------- ---------- ----------
62 3,526 34,468 3,390 N/A N/A
---------- ---------- ---------- ---------- ---------- ----------
2,170 N/A 328 N/A N/A N/A
-- N/A -- N/A N/A N/A
-- N/A -- N/A N/A N/A
---------- ---------- ---------- ---------- ---------- ----------
2,170 N/A 328 N/A N/A N/A
---------- ---------- ---------- ---------- ---------- ----------
39,698 28,599 230,909 104,975 447,251 393,990
========== ========== ========== ========== ========== ==========
</TABLE>
See Notes to Financial Statements.
53
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
FINANCIAL HIGHLIGHTS . For a Share outstanding throughout the periods
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Behavioral Growth Fund
-------------------------------------------------------------------------------
Institutional Class(/1/) Investor Class(/7/) C Class(/8/)
------------------------------- ------------------------------- ---------------
Year ended Period ended Year ended Period ended Period ended
August 31, 1999 August 31, 1998 August 31, 1999 August 31, 1998 August 31, 1999
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period.... $ 11.86 $ 12.50 $ 11.85 $ 14.74 $ 19.44
Income from Investment
Operations:
Net investment income
(loss) (+)............ (0.13) (0.02) (0.20) 0.00(A) (0.07)
Net realized and
unrealized gain (loss)
on investments........ 9.65 (0.62) 9.66 (2.89) 1.91
--------- --------- --------- --------- ---------
Total income (loss)
from Investment
Operations............ 9.52 (0.64) 9.46 (2.89) 1.84
Less Distributions:
Dividends from net
investment income..... 0.00 0.00 0.00 0.00 0.00
Distributions from
capital gains......... 0.00 0.00 0.00 0.00 0.00
--------- --------- --------- --------- ---------
Total distributions.... 0.00 0.00 0.00 0.00 0.00
--------- --------- --------- --------- ---------
Net increase (decrease)
in net asset value..... 9.52 (0.64) 9.46 (2.89) 1.84
--------- --------- --------- --------- ---------
Net Asset Value, end of
period................. $ 21.38 $ 11.86 $ 21.31 $ 11.85 $ 21.28
========= ========= ========= ========= =========
Total Return**.......... 80.27% (5.12)% 79.83% (19.61)% 9.52%
Ratios/Supplemental
Data:
Net Assets, end of
period (in 000s)....... $ 94,075 $ 5,254 $ 4,590 $ 40 $ 185
Ratios to average net
assets:
Net investment income
(loss) including
reimbursement......... (0.72)% (0.35)%* (1.09)% (0.35)%* (1.66)%*
Operating expenses
including
reimbursement......... 1.30% 1.30%* 1.65% 1.30%* 2.25%*
Portfolio turnover
rate**................. 72% 67% 72% 67% 72%
+ The operating expenses may reflect a reduction of the adviser fee, an alloca-
tion of expenses to the Investment Adviser, or both. Had such actions not
been taken, the ratios and net investment income (loss) per share would have
been as follows:
Net investment income
(loss)................ (1.26)% (5.08)%* (1.77)% (5.43)%* (2.62)%*
Operating Expenses..... 1.84% 6.03%* 2.33% 6.38%* 3.21%*
Net investment income
(loss) per share...... $ (0.23) $ (0.27) $ (0.32) $ (0.07) $ (0.11)
</TABLE>
- ----------------------
* Annualized
** For periods less than one year, percentages are not annualized.
(1) The Fund's Institutional Class commenced investment operations on December
31, 1997.
(2) The Fund commenced investment operations on December 28, 1998.
(3) The Fund's Investor Class commenced investment operations on March 24,
1999.
(4) The Fund's Institutional Class commenced investment operations on January
1, 1998.
(5) The Fund's Institutional Class commenced investment operations on December
30, 1997.
(6) The Fund commenced investment operations on December 30, 1998.
(7) The Fund's Investor Class commenced investment operations on July 31,
1998.
(8) The Fund's C Class commenced investment operations on June 21, 1999.
(9) The Fund's C Class commenced investment operations on August 3, 1999.
(10) The Fund's C Class commenced investment operations on May 27, 1999.
(11) The Fund's C Class commenced investment operations on August 31, 1999.
(A) Represents less than $0.005 per share.
Per share data is calculated based upon the average shares outstanding during
the period.
See Notes to Financial Statements.
54
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Behavioral Behavioral
Value Fund Long/Short Fund REIT Fund Special Small Cap Fund
- --------------- --------------- --------------------------------------------------------------- -------------------------------
Institutional Institutional Investor
Class(/2/) Class(/2/) Institutional Class (/4/) Class (/3/) C Class (/9/) Institutional Class (/5/)
- --------------- --------------- ------------------------------- --------------- --------------- -------------------------------
Period ended Period ended Year ended Period ended Period ended Period ended Year ended Period ended
August 31, 1999 August 31, 1999 August 31, 1999 August 31, 1998 August 31, 1999 August 31, 1999 August 31, 1999 August 31, 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 12.50 $ 12.50 $ 10.64 $ 12.50 $ 10.13 $ 11.19 $ 10.40 $ 12.50
(0.03) 0.20 0.53 0.20 0.20 0.04 (0.06) (0.03)
2.64 0.00(A) 0.30 (2.06) 0.85 (0.06) 2.49 (2.07)
---------- ---------- ------- ---------- ---------- ---------- ---------- ----------
2.61 0.20 0.83 (1.86) 1.05 (0.02) 2.43 (2.10)
0.00 0.00 (0.28) 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
---------- ---------- ------- ---------- ---------- ---------- ---------- ----------
0.00 0.00 (0.28) 0.00 0.00 0.00 0.00 0.00
---------- ---------- ------- ---------- ---------- ---------- ---------- ----------
2.61 0.20 0.55 (1.86) 1.05 (0.02) 2.43 (2.10)
---------- ---------- ------- ---------- ---------- ---------- ---------- ----------
$ 15.11 $ 12.70 $ 11.19 $ 10.64 $ 11.18 $ 11.17 $ 12.83 $ 10.40
========== ========== ======= ========== ========== ========== ========== ==========
20.88% 1.60% 7.84% (14.88)% 10.37% (0.18)% 23.37% (16.80)%
$ 3,651 $ 5,942 $22,355 $ 9,122 $ 509 $ 20 $ 16,078 $ 11,286
(0.35)%* 2.56%* 4.86% 4.85%* 3.97%* 4.57%* (0.52)% (0.51)%*
1.40%* 2.00%* 1.40% 1.40%* 1.75%* 2.21%* 1.66% 1.70%*
58% 128% 67% 52% 67% 67% 42% 9%
(6.84)%* 0.77%* 4.28% 1.63%* 3.26%* 3.68%* (0.70)% (3.13)%*
7.89%* 3.79%* 1.98% 4.62%* 2.46%* 3.10%* 1.84% 4.32%*
$ (0.68) $ 0.06 $ 0.47 $ 0.07 $ 0.16 $ 0.03 ($0.08) ($0.15)
</TABLE>
See Notes to Financial Statements.
55
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
FINANCIAL HIGHLIGHTS (continued) . For a Share outstanding throughout the
period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Small Cap Value Fund
-------------------------------------------------------------------------------
Institutional Class(/5/) Investor Class(/7/) C Class(/8/)
------------------------------- ------------------------------- ---------------
Year ended Period ended Year ended Period ended Period ended
August 31, 1999 August 31, 1998 August 31, 1999 August 31, 1998 August 31, 1999
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period.... $ 10.90 $ 12.50 $ 10.91 $ 13.45 $ 13.86
Income from Investment
Operations:
Net investment income
(loss) (+)............ (0.01) 0.00(A) (0.07) 0.00(A) (0.03)
Net realized and
unrealized gain (loss)
on investments........ 2.72 (1.60) 2.74 (2.54) (0.32)
--------- --------- --------- --------- ---------
Total income (loss)
from Investment
Operations............ 2.71 (1.60) 2.67 (2.54) (0.35)
--------- --------- --------- --------- ---------
Less Distributions:
Dividends from net
investment income..... (0.02) 0.00 (0.01) 0.00 0.00
Distributions from
capital gains......... (0.05) 0.00 (0.05) 0.00 0.00
--------- --------- --------- --------- ---------
Total distributions.... (0.07) 0.00 (0.06) 0.00 0.00
--------- --------- --------- --------- ---------
Net increase (decrease)
in net asset value .... 2.64 (1.60) 2.61 (2.54) (0.35)
--------- --------- --------- --------- ---------
Net Asset Value, end of
period................. $ 13.54 $ 10.90 $ 13.52 $ 10.91 $ 13.51
========= ========= ========= ========= =========
Total Return**.......... 24.89% (12.80)% 24.51% (18.88)% (2.53)%
Ratios / Supplemental
Data:
Net Assets, end of
period (in 000s)....... $ 20,038 $ 13,849 $ 957 $ 31 $ 117
Ratios to average net
assets:
Net investment income
(loss) including
reimbursement......... (0.11)% 0.15%* (0.50)% 0.15%* (0.97)%*
Operating expenses
including
reimbursement......... 1.40% 1.40%* 1.75% 1.40%* 2.31%*
Portfolio turnover
rate**................. 56% 10% 56% 10% 56%
+The operating expenses may reflect a reduction of the adviser fee, an alloca-
tion of expenses to the Investment Adviser, or both.
Had such actions not been taken, the ratios and net investment income (loss)
per share would have been as follows:
Net investment income
(loss)................ (0.85)% (3.32)%* (1.43)% (3.67)%* (2.19)%*
Operating Expenses..... 2.14% 4.87%* 2.68% 5.22%* 3.53%*
Net investment income
(loss) per share...... $ (0.11) $ (0.08) $ (0.19) $ (0.04) $ (0.06)
</TABLE>
- ---------------------------------
* Annualized
** For periods less than one year, percentages are not annualized.
(1) The Fund's Institutional Class commenced investment operations on December
31, 1997.
(2) The Fund commenced investment operations on December 28, 1998.
(3) The Fund's Investor Class commenced investment operations on March 24,
1999.
(4) The Fund's Institutional Class commenced investment operations on January
1, 1998.
(5) The Fund's Institutional Class commenced investment operations on December
30, 1997.
(6) The Fund commenced investment operations on December 30, 1998.
(7) The Fund's Investor Class commenced investment operations on July 31,
1998.
(8) The Fund's C Class commenced investment operations on June 21, 1999.
(9) The Fund's C Class commenced investment operations on August 3, 1999.
(10) The Fund's C Class commenced investment operations on May 27, 1999.
(11) The Fund's C Class commenced investment operations on August 31, 1999.
(A) Represents less than $0.005 per share.
Per share data is calculated based upon the average shares outstanding during
the period.
See Notes to Financial Statements.
56
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Hidden Value Fund
- ------------------------------------------------------------------------------------
Institutional Class(/1/) Investor Class(/7/)
- ------------------------------------ ---------------------------------------
Year ended Period ended Year ended Period ended
August 31, 1999 August 31, 1998 August 31, 1999 August 31, 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 9.76 $ 12.50 $ 9.76 $ 12.09
0.06 0.03 0.03 0.01
2.86 (2.77) 2.87 (2.34)
- ----------- ----------- ----------- -----------
2.92 (2.74) 2.90 (2.33)
- ----------- ----------- ----------- -----------
(0.08) 0.00 (0.08) 0.00
(0.12) 0.00 (0.12) 0.00
- ----------- ----------- ----------- -----------
(0.20) 0.00 (0.20) 0.00
- ----------- ----------- ----------- -----------
2.72 (2.74) 2.70 (2.33)
- ----------- ----------- ----------- -----------
$ 12.48 $ 9.76 $ 12.46 $ 9.76
=========== =========== =========== ===========
30.11% (21.92)% 29.90% (19.27)%
$ 1,628 $ 925 $ 1,667 $ 40
0.45% 0.58%* 0.18% 0.58%*
1.30% 1.30%* 1.63% 1.30%*
74% 74% 74% 74%
(4.18)% (15.16)%* (4.45)% (15.51)%*
5.93% 17.04%* 6.26% 17.39%*
$ (0.50) $ (0.77) $ (0.58) $ (0.15)
</TABLE>
See Notes to Financial Statements.
57
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
FINANCIAL HIGHLIGHTS (continued) . August 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
All Cap Value Fund
-------------------------------------------------------------------------------
Institutional Class(/1/) Investor Class(/7/) C Class(/10/)
------------------------------- ------------------------------- ---------------
Year ended Period ended Year ended Period ended Period ended
August 31, 1999 August 31, 1998 August 31, 1999 August 31, 1998 August 31, 1999
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period.... $ 11.53 $ 12.50 $ 11.52 $ 14.18 $ 15.45
Income from Investment
Operations:
Net investment income
(loss) (+)............ 0.08 0.06 0.08 0.01 0.00(A)
Net realized and
unrealized gain (loss)
on investments........ 3.85 (1.03) 3.86 (2.67) (0.27)
--------- --------- --------- --------- ---------
Total income (loss)
from Investment
Operations............ 3.93 (0.97) 3.94 (2.66) (0.27)
--------- --------- --------- --------- ---------
Less Distributions:
Dividends from net
investment income..... (0.24) 0.00 (0.24) 0.00 0.00
Distributions from
capital gains......... 0.00 0.00 0.00 0.00 0.00
--------- --------- --------- --------- ---------
Total distributions.... (0.24) 0.00 (0.24) 0.00 0.00
--------- --------- --------- --------- ---------
Net increase (decrease)
in net asset value.... 3.69 (0.97) 3.70 (2.66) (0.27)
--------- --------- --------- --------- ---------
Net Asset Value, end of
period................. $ 15.22 $ 11.53 $ 15.22 $ 11.52 $ 15.18
========= ========= ========= ========= =========
Total Return**.......... 34.33% (7.76)% 34.45% (18.76)% (1.75)%
Ratios / Supplemental
Data:
Net Assets, end of
period (in 000s)....... $ 952 $ 289 $ 55 $ 41 $ 33
Ratios to average net
assets:
Net investment income
(loss) including
reimbursement......... 0.51% 0.95%* 0.52% (0.95)%* 0.03%*
Operating expenses
including
reimbursement......... 0.99% 0.99%* 0.99% 0.99%* 1.88%*
Portfolio turnover
rate**................. 61% 36% 61% 36% 61%
+The operating expenses may reflect a reduction of the adviser fee, an alloca-
tion of expenses to the Investment Adviser, or both.
Had such actions not been taken, the ratios and net investment income (loss)
per share would have been as follows:
Net investment income
(loss)................ (15.02)% (41.18)%* (15.00)% (41.53)%* (30.36)%*
Operating Expenses..... 16.52% 43.12%* 16.51% 43.47%* 32.27%*
Net investment income
(loss) per share...... $ (2.24) $ (2.73) $ (2.19) $ (0.48) $ (1.15)
</TABLE>
- ------------------------
*Annualized
**For periods less than one year, percentages are not annualized.
(1) The Fund's Institutional Class commenced investment operations on December
31, 1997.
(2) The Fund commenced investment operations on December 28, 1998.
(3) The Fund's Investor Class commenced investment operations on March 24,
1999.
(4) The Fund's Institutional Class commenced investment operations on January
1, 1998.
(5) The Fund's Institutional Class commenced investment operations on December
30, 1997.
(6) The Fund commenced investment operations on December 30, 1998.
(7) The Fund's Investor Class commenced investment operations on July 31,
1998.
(8) The Fund's C Class commenced investment operations on June 21, 1999.
(9) The Fund's C Class commenced investment operations on August 3, 1999.
(10) The Fund's C Class commenced investment operations on May 27, 1999.
(11) The Fund's C Class commenced investment operations on August 31, 1999.
(A) Represents less than $0.005 per share.
Per share data is calculated based upon the average shares outstanding during
the period.
See Notes to Financial Statements.
58
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
International
Small Cap International
Equity Fund Equity Fund
Core Equity Fund --------------- ---------------
- -------------------------------------------------------------------------------- Institutional Institutional
Institutional Class(/1/) Investor Class(/7/) C Class(/11/) Class(/6/) Class(/6/)
- -------------------------------- ------------------------------- --------------- ------------- -------------
Year ended Period ended Year ended Period ended Period ended Period ended Period ended
August 31, 1999 August 31, 1998 August 31, 1999 August 31, 1998 August 31, 1999 August 31, 1999 August 31, 1999
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 12.75 $ 12.50 $ 12.75 $ 14.75 $ 15.31 $ 12.50 $ 12.50
0.14 0.05 0.08 0.01 0.00(A) (0.02) 0.09
2.52 0.20 2.56 (2.01) (0.10) 2.65 1.54
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
2.66 0.25 2.64 (2.00) (0.10) 2.63 1.63
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
(0.08) 0.00 (0.08) 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
(0.08) 0.00 (0.08) 0.00 0.00 0.00 0.00
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
2.58 0.25 2.56 (2.00) (0.10) 2.63 1.63
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 15.33 $ 12.75 $ 15.31 $ 12.75 $ 15.21 $ 15.13 $ 14.13
============ ============ ============ ============ ============ ============ ============
20.92% 2.00% 20.76% (13.56)% (0.65)% 21.04% 13.04%
$ 4,562 $ 1,295 $ 580 $ 43 $ 5 $ 6,768 $ 5,566
0.90% 1.18%* 0.53% 1.18%* (0.88)%* (0.22)%* 1.08%*
0.99% 0.99%* 1.28% 0.99%* 1.99%* 1.60%* 1.45%*
15% 46% 15% 46% 15% 52% 10%
(1.25)% (16.23)%* (6.22)% (16.58)%* (1.84)%* (2.35)%* (1.07)%*
3.14% 18.40%* 8.03% 18.75%* 2.95%* 3.73%* 3.60%*
$ (0.19) $ (0.68) $ (0.98) $ (0.21) $ 0.00(A) $ (0.24) $ (0.09)
</TABLE>
See Notes to Financial Statements.
59
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
NOTES TO FINANCIAL STATEMENTS August 31, 1999
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 eleven separately managed portfolios advised
by Undiscovered Managers, LLC (the "Adviser"). The accompanying financial
statements and financial highlights are those of Undiscovered Managers Behav-
ioral Growth Fund ("Behavioral Growth Fund"), Undiscovered Managers Behavioral
Value Fund ("Behavioral Value Fund"), Undiscovered Managers Behavioral
Long/Short Fund ("Behavioral Long/Short Fund"), Undiscovered Managers REIT
Fund ("REIT Fund"), Undiscovered Managers Special Small Cap Fund ("Special
Small Cap Fund"), Undiscovered Managers Small Cap Value Fund ("Small Cap Value
Fund"), Undiscovered Managers Hidden Value Fund ("Hidden Value Fund"), Undis-
covered Managers All Cap Value Fund ("All Cap Value Fund"), Undiscovered Man-
agers Core Equity Fund ("Core Equity Fund"), UM International Small Cap Equity
Fund ("International Small Cap Equity Fund") and UM International Equity Fund
("International Equity Fund"), each a "Fund", and collectively, the "Funds".
Each Fund is a diversified fund except for Special Small Cap Fund and REIT
Fund, which are non-diversified.
Behavioral Growth Fund, REIT Fund, Small Cap Value Fund, All Cap Value Fund
and Core Equity Fund are authorized to issue three classes of shares (Institu-
tional Class shares, Investor Class shares and Class C shares). Behavioral
Value Fund, Behavioral Long/Short Fund, Special Small Cap Fund and Interna-
tional Small Cap Equity Fund are authorized to issue only Institutional Class
shares. Hidden Value Fund offers only Institutional and Investor Class shares,
and International Equity Fund offers only Institutional Class and Class C
shares. Each share of a particular Fund represents an interest in the assets
of the relevant Fund and has identical dividend, liquidation and other rights
as the other shares of the Fund. Each share of a Fund has one vote, with frac-
tional shares voting proportionally. All Trust shares entitled to vote will
vote together irrespective of Fund or class when the right of a particular
Fund or class would be adversely affected by the vote, in which case a sepa-
rate vote of that Fund or class will be required to decide the question. Each
class of shares bears its own proportional share of fund level expenses with
the Investor Class and Class C shares bearing a service and distribution fee.
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 at the date of the
financial statements and the reported amounts of income and expenses during
the reporting periods. 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: Domestic and foreign 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 traded on a recognized stock exchange or on
the NASDAQ National Market System, at the last bid price. Short-term obliga-
tions 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.
Securities Sold Short: The Behavioral Long/Short Fund may enter into short
sales. A short sale involves selling a security which the Fund does not own.
This requires the borrowing of shares from a broker. The proceeds received for
short sales are recorded as liabilities and the Fund records an unrealized
gain or loss to the extent of the difference between the proceeds received and
the value of the open short position on the day of determination. The Fund
records a realized gain or loss when the short position is
60
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
NOTES TO FINANCIAL STATEMENTS (continued)
closed out. By entering into a short sale, the Fund bears the market risk of
an unfavorable change in the price of the security sold short. Dividends on
short sales are recorded as an expense by the Fund on the ex-dividend date.
The Fund is required to establish a margin account with the broker lending the
security short. While the short sale is outstanding, the broker retains the
proceeds of the short sale. This interest-bearing amount is shown as deposit
with the broker for securities sold short in the financial statements. As col-
lateral for the securities sold short, the Fund must maintain an account con-
sisting of cash and/or securities having a value at least equaling the current
market value of such securities sold short.
Foreign Currency Translation: The books and records of each Fund are main-
tained in United States (U.S.) dollars. Foreign currencies, investments and
other assets and liabilities for International Small Cap Equity Fund and In-
ternational Equity Fund are translated into U.S. dollars at the exchange rates
prevailing at the end of each business day, and purchases and sales of invest-
ment securities, income and expenses are translated at the exchange rate pre-
vailing on the respective dates of such transactions. Unrealized gains and
losses, which result from changes in foreign exchange rates and/or changes in
market prices of securities, have been included in net unrealized
appreciation/(depreciation) on investments. Net realized and unrealized for-
eign currency gains and losses resulting from changes in exchange rates in-
clude foreign currency gains and losses occurring between trade date and set-
tlement date on investment securities transactions, foreign currency transac-
tions and the difference between the amounts of interest and dividends re-
corded on the books of each Fund and the amounts actually received. The por-
tion of foreign currency gains and losses related to fluctuation in exchange
rates between the initial trade date and subsequent sale trade date is in-
cluded in realized gain (loss) on investments.
Forward Foreign Currency Exchange Contracts: International Small Cap Equity
Fund and International Equity Fund may participate in forward currency ex-
change contracts, but such participation will be limited to hedging involving
either specific transactions or portfolio positions. Transaction hedging in-
volves the purchase or sale of foreign currency with respect to specific re-
ceivables or payables of a Fund generally arising in connection with the pur-
chase or sale of its portfolio securities. Risk may arise upon entering into
these contracts from the potential inability of counterparties to meet the
terms of their contracts and is generally limited to the amount of unrealized
gain on the contracts, if any, at the date of the default. Risk may also arise
from unanticipated movements in the value of a foreign currency relative to
the U.S. dollar. Contracts are marked-to-market daily and the change in market
value is recorded as unrealized appreciation or depreciation. Realized gains
or losses arising from such transactions are included in net realized gains or
losses from foreign currency transactions.
Security Transactions and Investment Income: Security transactions are ac-
counted for on a trade date basis. Net realized gains or losses on sales of
securities are determined by the identified cost method on the date that secu-
rity is sold. Interest income is recorded on the accrual basis. Dividend in-
come is recorded on the ex-dividend date.
Federal Income Taxes: Each Fund intends to qualify each year as a "regulated
investment company" under Subchapter M of the Internal Revenue Code and to
distribute substantially all of its net investment income. Accordingly, no
provisions for federal income taxes have been made in the accompanying finan-
cial 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.
Classes: For each Fund, any class-specific expenses are borne by the relevant
class. Income, non-class specific expenses and realized and unrealized gains
(losses) are allocated to the respective classes on the basis of relative net
assets.
61
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
NOTES TO FINANCIAL STATEMENTS (continued)
Expenses: The Trust accounts separately for the assets, liabilities, and oper-
ations of each Fund. Expenses directly attributable to a Fund are charged to
that Fund, while expenses which are attributable to more than one Fund are al-
located based upon the relative net assets of each Fund.
Cash: The Funds' uninvested cash balances are swept daily into an interest-
bearing account at the custodial bank.
Organization Costs: Organization costs are being amortized on a straight-line
basis over five years for Behavioral Growth Fund, REIT Fund, Special Small Cap
Fund, Small Cap Value Fund, Hidden Value Fund, All Cap Value Fund and Core Eq-
uity Fund.
Repurchase Agreements: Each Fund may engage in repurchase agreement transac-
tions. Under the terms of a typical repurchase agreement, a Fund takes posses-
sion of an underlying debt obligation subject to an obligation of the seller
to repurchase, and the Fund to resell, the obligation at an agreed-upon price
and time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the collateral is
at least equal to 102%, to the total amount of the repurchase obligations, in-
cluding interest. In the event of counterparty default, the Fund has the right
to use the collateral to satisfy the terms of the repurchase agreement. Howev-
er, there could be potential loss to the Fund in the event the Fund is delayed
or prevented from exercising its right to dispose of the collateral securi-
ties, including the risk of a possible decline in the value of the collateral
securities during the period while the Fund seeks to assert its rights. The
value of the collateral is monitored daily.
3.Investment Advisory, Sub-Advisory, Administration and Other Fees
For each Fund, the Trust and the Adviser are parties to a management agreement
under which the Adviser provides services for a fee, computed daily and paid
at least quarterly, at the following annual percentage rates based on the av-
erage daily net assets of each Fund: 0.95% for the Behavioral Growth Fund,
1.05% for the Behavioral Value Fund, 1.55% for the Behavioral Long/Short Fund,
1.05% for the REIT Fund, 0.65% to 1.65% (depending on the investment perfor-
mance of the Fund) for the Special Small Cap Fund, 1.05% for the Small Cap
Value Fund, 0.95% for the Hidden Value Fund, 0.74% for the All Cap Value Fund,
0.74% for the Core Equity Fund, 1.15% for the International Small Cap Equity
Fund and 0.95% for the International Equity Fund; provided however, with re-
spect to the Special Small Cap Fund, prior to December 30, 1998, its annual
advisory fee rate was 1.15%.
After December 29, 1998, the advisory fee rate for the Special Small Cap Fund
will vary depending on the investment performance of the Fund. 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 (excluding
expenses) during the one-year period ending at the end of a quarter exceeds
(or falls short of) the total return of the Russell 2000 Index during the one-
year period ending at the end of such quarter. The advisory fee rate will not
exceed the annual rate of 1.65% nor be less than the annual rate of 0.65%.
The Adviser has voluntarily agreed, for an indefinite period, to reduce its
fees and pay the expenses of each Fund's Institutional Class, Investor Class
and C Class shares in order to limit such class's expenses (exclusive of
brokerage costs, interest, taxes, dividends payable with respect to securities
sold short, if any, and extraordinary expenses) to the following annual
percentage rates of the average daily net assets of such Fund's Institutional
Class, Investor Class and C Class shares, respectively, subject to the
obligation of each Fund to repay the Adviser in future years, if any, when the
relevant class's deferred fees and expenses (exclusive of brokerage costs,
interest, taxes, dividends payable with respect to securities sold short, if
any, and extraordinary expenses), fall below the stated percentage rate, but
only to the extent that such repayment would not cause such class's expenses
(exclusive of brokerage costs, interest, taxes, dividends payable with respect
to securities sold short, if any, and extraordinary
62
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
NOTES TO FINANCIAL STATEMENTS (continued)
expenses), to exceed the stated percentage rate, and provided that a Fund is
not obligated to repay any amounts more than two years after the end of the
fiscal year in which the expenses were incurred: 1.30%, 1.65% and 2.30% for
the Behavioral Growth Fund's Institutional Class, Investor Class and C Class
shares, respectively, 1.40% for the Behavioral Value Fund's Institutional
Class, 2.00% for the Behavioral Long/Short Fund's Institututional Class,
1.40%, 1.75% and 2.40% for the REIT Fund's Institutional Class, Investor Class
and C Class shares, respectively, the sum of 0.55% plus the advisory fee rate
for the Special Small Cap Fund's Institutional Class, 1.40%, 1.75% and 2.40%
for the Small Cap Value Fund's Institutional Class, Investor Class and C Class
shares, respectively, 1.30% and 1.65% for the Hidden Value Fund's
Institutional Class and Investor Class, respectively, 0.99%, 1.34%, and 1.99%
for the All Cap Value Fund's Institutional Class, Investor Class and C Class
shares, respectively, 0.99%, 1.34% and 1.99% for the Core Equity Fund's
Institutional Class, Investor Class and C Class shares, respectively, 1.60%
for the International Small Cap Equity Fund's Institutional Class and 1.45%
for the International Equity Fund's Institutional Class shares. Prior to
December 29, 1998, the Special Small Cap Fund's maximum stated percentage rate
was 1.70%.
For the period ended August 31, 1999, the Adviser reduced its fees and bore
expenses pursuant to this voluntary agreement in the aggregate amounts of
$218,521, $63,138, $58,110, $100,455, $28,586, $130,092, $96,729, $102,453,
$104,497, $71,972 and $63,367 for the Behavioral Growth Fund, the Behavioral
Value Fund, the Behavioral Long/Short Fund, the REIT Fund, the Special Small
Cap Fund, the Small Cap Value Fund, the Hidden Value Fund, the All Cap Value
Fund, the Core Equity Fund, the International Small Cap Equity Fund and the
International Equity Fund, respectively. All of such amounts are subject to
recoupment through the end of the Trust's fiscal year ending August 31, 2001.
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
---- ----------- ------------------------
<C> <S> <C>
Behavioral Growth Fund Fuller & Thaler Asset 0.60% of the first $200 million
Management, Inc. 0.55% of the next $100 million
0.50% in excess of $300 million
Behavioral Value Fund Fuller & Thaler Asset 0.70% of the first $200 million
Management, Inc. 0.65% of the next $100 million
0.60% in excess of $300 million
Behavioral Long/Short Fund Fuller & Thaler Asset 1.20% of the first $200 million
Management, Inc. 1.15% of the next $100 million
1.10% in excess of $300 million
REIT Fund Bay Isle Financial 0.70% of the first $200 million
Corporation
0.65% of the next $100 million
0.60% in excess of $300 million
Special Small Cap Fund Kestrel Investment 0.30% - 1.30%*
Management Corporation
Small Cap Value Fund J.L. Kaplan Associates, 0.70% of the first $200 million
LLC
0.65% of the next $100 million
0.60% in excess of $300 million
Hidden Value Fund J.L. Kaplan Associates, 0.60% of the first $200 million
LLC
0.55% of the next $100 million
0.50% in excess of $300 million
</TABLE>
* Sub-advisory fee rate for the Special Small Cap Fund varies depending on the
investment performance of the Fund. Prior to December 30, 1998, however, the
annual fee rate was 0.80%.
63
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
NOTES TO FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
Fee Rate as % of Fund's
Fund Sub-Adviser Average Daily Net Assets
---- ----------- ------------------------
<C> <S> <C>
All Cap Value Fund E.R. Taylor Investments, 0.40% of the first $200 million
Inc.
0.35% of the next $100 million
0.30% in excess of $300 million
Core Equity Fund Waite & Associates, 0.40% of the first $200 million
L.L.C.
0.35% of the next $100 million
0.30% in excess of $300 million
International Small Cap Unibank Securities, Inc. 0.80% of the first $200 million
Equity Fund 0.75% of the next $100 million
0.70% in excess of $300 million
International Equity Fund Unibank Securities, Inc. 0.60% of the first $200 million
0.55% of the next $100 million
0.50% in excess of $300 million
</TABLE>
The Trust and the Adviser have entered into an Administrative Services Agree-
ment, pursuant to which the Adviser has agreed to provide each Fund all admin-
istrative services. Under the Administrative Services Agreement, each Fund
pays the Adviser at the annual rate of 0.25% of the Fund's average net asset
value.
The Trust has adopted a Service and Distribution Plan with respect to its In-
vestor Class shares pursuant to Rule 12b-1 (the "Investor Class 12b-1 Plan")
under the Investment Company Act of 1940. Under the Investor Class 12b-1 Plan,
the Trust may pay fees as compensation for any or all of the following: (i)
engaging in activities or bearing expenses primarily intended to result in the
sale of Investor Class shares of the Trust, (ii) providing services relating
to the Investor Class shares of the Trust (which would be in addition to any
general services provided to a Fund as a whole) and (iii) providing additional
personal services to the Trust's Investor Class shareholders and/or for the
maintenance of Investor Class shareholder accounts. On an annual basis, the
aggregate amount of fees under the Investor Class 12b-1 Plan with respect to
each Fund authorized to issue Investor Class shares will not exceed 0.35% of
the Fund's average daily net assets attributable to its Investor Class shares.
The Investor Class 12b-1 Plan replaced the Shareholder Servicing Plan relating
to such shares previously adopted by the Trust.
The Trust has also adopted a Service and Distribution Plan with respect to its
C Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940
(the "C Class 12b-1 Plan"). Under the C Class 12b-1 Plan, the Trust may pay
fees as compensation for any or all of the following: (i) engaging in activi-
ties or bearing expenses primarily intended to result in the sale of C Class
shares of the Trust and (ii) providing additional personal services to the
Trust's C Class shareholders and/or for the maintenance of C Class shareholder
accounts. On an annual basis, the aggregate amount of fees under the C Class
12b-1 Plan with respect to each Fund authorized to issue C Class shares will
not exceed 1.00% of the Fund's average daily net assets attributable to its C
Class shares.
Prior to its implementation of the Investor Class 12b-1 Plan, each Fund autho-
rized to issue Investor Class shares, except the REIT Fund, had a Shareholder
Servicing Plan relating to such shares. Pursuant to the Shareholder Servicing
Plan, the Trust, on behalf of the Investor Class shares of each Fund, paid to
the Adviser, as the shareholder servicing agent of the Investor Class shares
of the Funds, or such other entity as from time to time act as the shareholder
servicing agent of such Investor Class shares (the "Servicing Agent"), a fee
(the "Shareholder Servicing Fee") for services rendered and expenses borne by
the Servicing Agent in connection with the provision of certain services pro-
vided to Investor Class shareholders, at an annual rate not to exceed 0.35% of
a Fund's average daily net assets attributable to such
64
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
NOTES TO FINANCIAL STATEMENTS (continued)
Fund's Investor Class shares. For the period ended August 31, 1999, the Ad-
viser voluntarily agreed to waive fees payable under the Shareholder Servicing
Plan of $45, $17, $102, $181 and $108 for the Behavioral Growth Fund, the
Small Cap Value Fund, the Hidden Value Fund, the All Cap Value Fund and the
Core Equity Fund, respectively, which constitutes all the Shareholder Servic-
ing Fees due to any Shareholder Servicing Agent during such period.
The Bank of New York is the custodian for all the Funds except for Behavioral
Long/Short Fund. The Behavioral Long/Short Fund's custodian is Custodial Trust
Company. First Data Distributors, Inc., a wholly-owned subsidiary of Investors
Services Group and an indirect wholly-owned subsidiary of First Data Corpora-
tion, acts as the distributor for the Funds.
For the year ended August 31, 1999, International Small Cap Equity Fund and
International Equity Fund executed portfolio transactions through an affiliate
of the Sub-Adviser to the Funds, however, no commissions were paid.
4.Dividends from Net Investment Income and Distributions of Capital Gains
With respect to all Funds, dividends from net investment income are distrib-
uted annually and net realized capital 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 distributions to shareholders are recorded on the
ex-dividend date. Dividends and capital gain distributions are determined in
accordance with income tax requirements which may differ from generally ac-
cepted accounting principles. To the extent the differences are permanent in
nature, such amounts are reclassified within the capital accounts based on
their federal tax-basis treatment. These reclassifications have no effect upon
net assets or net asset values.
For the period ended August 31, 1999, differences in book and tax accounting
have been reclassified to undistributed net investment income, accumulated re-
alized gain (loss) and paid-in capital as follows:
<TABLE>
<CAPTION>
Increase/ Increase/(Decrease) Increase/(Decrease)
(Decrease) Undistributed Net Accumulated
Fund Paid-In-Capital Investment Income Realized Gain (Loss)
- ---- --------------- ------------------- --------------------
<S> <C> <C> <C>
Behavioral Growth Fund $(291,498) $291,498 $ --
Behavioral Value Fund (20,461) 20,461 --
Behavioral Long/Short
Fund (20,461) 20,461 --
REIT Fund (35,051) (62,303) 97,354
Special Small Cap Fund (82,457) 82,457 --
Small Cap Value Fund (4,618) 37,003 (32,385)
Hidden Value Fund (4,616) 4,616 --
All Cap Value Fund (4,616) 4,616 --
Core Equity Fund (4,616) 4,616 --
International Small Cap
Equity Fund (23,367) (3,189) 26,556
International Equity
Fund (23,367) 11,575 11,792
</TABLE>
5.Trustees' Compensation
Certain officers of the Trust are also officers and directors of the Adviser.
The Trust does not compensate its officers or its trustees who are affiliated
with the Adviser. The Trust pays each unaffiliated trustee an annual retainer
of $10,000. Each unaffiliated Trustee may elect not to receive such fees on a
current basis but to receive in a subsequent period an amount equal to the
value that would have resulted had the fees been invested in one or more of
the Funds (selected in advance by the Trustee) on the normal
65
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
NOTES TO FINANCIAL STATEMENTS (continued)
payment date for such fees. The Trust did not compensate any officer of the
Trust during the Trust's fiscal year ended August 31, 1999.
6.Investment Transactions
Aggregate purchases and proceeds from sales of investment securities (other
than U.S. Government Obligations and short-term investments) for the period
ended August 31, 1999 were:
<TABLE>
<CAPTION>
Aggregate Proceeds from
Fund Purchases Sales
- ---- ----------- -------------
<S> <C> <C>
Behavioral Growth Fund $93,148,405 $27,527,664
Behavioral Value Fund 4,139,163 685,964
Behavioral Long/Short Fund 7,677,742 2,790,344
Behavioral Long/Short Fund--Short Sales 3,042,726 8,066,794
REIT Fund 25,217,723 11,342,503
Special Small Cap Fund 7,691,300 6,562,338
Small Cap Value Fund 12,295,172 9,222,154
Hidden Value Fund 3,105,228 1,413,277
All Cap Value Fund 827,546 368,774
Core Equity Fund 3,963,775 602,928
International Small Cap Equity Fund 8,257,393 2,354,561
International Equity Fund 5,462,760 403,848
</TABLE>
The aggregate gross unrealized appreciation and depreciation and net
unrealized appreciation (depreciation) for all securities, net of securities
sold short, as computed on a federal income tax basis, at August 31, 1999, for
each Fund were as follows:
<TABLE>
<CAPTION>
Fund Tax Cost Appreciation (Depreciation) Net App. (Dep.)
- ---- ----------- ------------ -------------- ---------------
<S> <C> <C> <C> <C>
Behavioral Growth Fund $68,362,796 $25,951,322 $ (2,406,717) $23,544,605
Behavioral Value Fund 3,532,452 272,472 (320,789) (48,317)
Behavioral Long/Short
Fund 10,731,219(/1/) 1,709,452 (1,039,125) 670,327
REIT Fund 22,419,225 867,786 (618,261) 249,525
Special Small Cap Fund 14,847,501 1,745,411 (1,352,641) 392,770
Small Cap Value Fund 19,469,299 1,131,674 (2,170,242) (1,038,568)
Hidden Value Fund 3,141,744 177,115 (265,765) (88,650)
All Cap Value Fund 823,536 102,342 (44,013) 58,329
Core Equity Fund 4,631,090 580,468 (259,656) 320,812
International Small Cap
Equity Fund 5,903,087 1,330,617 (465,625) 864,992
International Equity
Fund 5,090,027 788,989 (338,689) 450,300
</TABLE>
- ------------------------
(1) Includes securities cost basis of $5,200,867 and securities sold short
cost basis of $5,530,352.
66
<PAGE>
[LOGO OF UNDISCOVERED MANAGERS/TM/]
NOTES TO FINANCIAL STATEMENTS (continued)
7.Concentration of Risk
Small Companies: All of the Funds may invest in companies with relatively
small market capitalizations. Several of the Funds will invest primarily in
such companies. Investments in companies with relatively small market capital-
izations may involve greater risk than is usually associated with stocks of
larger companies. These securities may have limited marketability and may be
subject to more abrupt or erratic movements in price than securities of compa-
nies with larger capitalizations.
Real Estate Investment Trusts: REIT Fund invests primarily in shares of compa-
nies in the real estate sector. While the Fund will not invest in real estate
directly, the Fund may be subject to risks similar to those associated with
direct ownership of real estate. These risks may include, but are not limited
to, price movement as a result of interest rate fluctuations, general and lo-
cal economic conditions, and heavy cash flow dependency, in addition to secu-
rities market risks.
Foreign Securities: International Equity and International Small Cap Equity
Funds invest primarily in foreign securities. Investments in foreign securi-
ties present risks not typically associated with investments in comparable se-
curities of U.S. issuers. These risks include re-valuation of currencies, and
future adverse political and economic developments. These risks are heightened
for investments in emerging market countries. Additionally, there may be less
available information about a foreign corporate or government issuer, securi-
ties of many foreign companies, governments and their markets may be less liq-
uid and their prices more volatile than those of securities of comparable U.S.
companies and the U.S. government.
8.Capital Loss Carryforwards
For federal income tax purposes, the Funds indicated below have capital loss
carryforwards as of August 31, 1999, which are available to offset future cap-
ital gains, if any:
<TABLE>
<CAPTION>
Fund Losses Deferred Year of Expiration
- ---- --------------- ------------------
<S> <C> <C>
Behavioral Growth Fund $531,305 2007
REIT Fund 343,192 2007
Special Small Cap Fund 394,474 2007
All Cap Value Fund 11,129 2007
Core Equity Fund 7,491 2007
</TABLE>
9.Special Meeting of Shareholders (Unaudited)
A special meeting of Investor Class Shareholders of the following Funds was
held on January 29, 1999, to vote on the adoption of a 12b-1 Service and Dis-
tribution Plan, which replaced the existing Shareholder Servicing Plan relat-
ing to such shares. The results were as follows:
<TABLE>
<CAPTION>
Fund Votes For Votes Against
- ---- --------- -------------
<S> <C> <C>
Behavioral Growth Fund 51,603 0
Small Cap Value Fund 2,868 0
Hidden Value Fund 4,208 0
All Cap Value Fund 3,588 0
Core Equity Fund 3,409 0
</TABLE>
67
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholders of
Undiscovered Managers Funds:
We have audited the accompanying statements of assets and liabilities, includ-
ing the portfolios of investments, of Undiscovered Managers Behavioral Growth
Fund, Undiscovered Managers Behavioral Value Fund, Undiscovered Managers Be-
havioral Long/Short Fund, Undiscovered Managers REIT Fund, Undiscovered Manag-
ers Special Small Cap Fund, Undiscovered Managers Small Cap Value Fund, Undis-
covered Managers Hidden Value Fund, Undiscovered Managers All Cap Value Fund,
Undiscovered Managers Core Equity Fund, UM International Small Cap Equity
Fund, and UM International Equity Fund (the "Funds") of Undiscovered Managers
Funds (the "Trust"), as of August 31, 1999, and the related statements of op-
erations for the periods then ended, the statements of changes in net assets
and financial highlights for the periods ended August 31, 1999 and August 31,
1998, and the statement of cash flows for Undiscovered Managers Behavioral
Long/Short Fund for the period ended August 31, 1999. These financial state-
ments and financial highlights are the responsibility of the Trust's manage-
ment. Our responsibility is to express an opinion on these financial state-
ments and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of Au-
gust 31, 1999, by correspondence with the custodians and brokers; where re-
plies were not received, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Funds as of
August 31, 1999, the results of their operations, the changes in their net as-
sets, and their financial highlights for the respective stated periods, and
the cash flows of Undiscovered Managers Behavioral Long/Short Fund for the
stated period, in conformity with generally accepted accounting principles.
Deloitte & Touche llp
Princeton, New Jersey
October 19, 1999
<PAGE>
How to reach
[Logo of Undiscovered Managers/TM/]
By Phone
<TABLE>
<S> <C>
Client Services,
General Information or
to obtain a Prospectus.. (888) 242-3514 (toll-free)
</TABLE>
A Registered Representative of Undiscovered Managers can be reached from 7:30
am - 7:00 pm CT
By fax...................(214) 999-7201
By mail.....700 North Pearl, Suite 1700
Dallas, TX 75201
By e-
[email protected]
www.undiscoveredmanagers.com
<PAGE>
Undiscovered Managers Funds
700 North Pearl Street
Suite 1700
Dallas, Texas 75201
(888) 242-3514
www.undiscoveredmanagers.com
