<PAGE> 1
As filed with the Securities and Exchange Commission on December 28, 2000
Registration Nos. 811-8437 and 333-37711
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ___ [ ]
Post-Effective Amendment No. 9 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 11
(Check appropriate box or boxes)
UNDISCOVERED MANAGERS FUNDS
(Exact Name of Registrant as Specified in Charter)
Plaza of the Americas
700 North Pearl Street
Dallas, Texas 75201
(Address of Principal Executive Offices)(Zip Code)
Registrant's Telephone Number, including Area Code: (214) 999-7200
Mark P. Hurley
Undiscovered Managers, LLC
Plaza of the Americas
700 North Pearl Street
Dallas, Texas 75201
(Name and Address of Agent for Service)
Copy to:
John M. Loder, Esq.
Ropes & Gray
One International Place
Boston, MA 02110
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Amendment.
It is proposed that this filing will become effective (check appropriate box)
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
This post-effective amendment relates to the updating of the Registrant's
financial highlights and certain other information in certain of its
prospectuses and statements of additional information. This post-effective
amendment does not relate to the Registrant's prospectus and statement of
additional information dated as of October 2, 2000 relating to UM Small Cap
Growth Fund, a series of the Registrant, and it is not intended that such
prospectus or statement of additional information be amended or superseded
hereby.
<PAGE> 2
[LOGO] undiscovered managers (TM)
UNDISCOVERED MANAGERS FUNDS
PROSPECTUS
December 28, 2000
Institutional Class shares of:
Undiscovered Managers Behavioral Growth Fund
Undiscovered Managers Behavioral Value Fund
Undiscovered Managers Behavioral Long/Short Fund
Undiscovered Managers Special Small Cap Fund
Undiscovered Managers REIT Fund
Undiscovered Managers Small Cap Value Fund
Undiscovered Managers Hidden Value Fund
Undiscovered Managers Core Equity Fund
UM Small Cap Growth Fund
UM International Equity Fund
UM International Small Cap Equity Fund
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Funds.........................................................................................................3
WHAT YOU SHOULD KNOW ABOUT EACH FUND'S INVESTMENT
STRATEGIES, RISKS, PERFORMANCE, EXPENSES AND MANAGEMENT
Undiscovered Managers Behavioral Growth Fund......................................................................3
Undiscovered Managers Behavioral Value Fund.......................................................................5
Undiscovered Managers Behavioral Long/Short Fund..................................................................7
Undiscovered Managers Special Small Cap Fund......................................................................9
Undiscovered Managers REIT Fund..................................................................................11
Undiscovered Managers Small Cap Value Fund.......................................................................13
Undiscovered Managers Hidden Value Fund .........................................................................15
Undiscovered Managers Core Equity Fund ..........................................................................17
UM Small Cap Growth Fund.........................................................................................19
UM International Equity Fund.....................................................................................21
UM International Small Cap Equity Fund ..........................................................................23
The Funds' Fees and Expenses.....................................................................................25
Other Policies and Additional Disclosure on Risks................................................................29
The Funds' Management............................................................................................32
Your Investment..................................................................................................37
OPENING AND MAINTAINING YOUR UNDISCOVERED
MANAGERS ACCOUNT
Institutional Class Shares.......................................................................................37
How Shares are Priced............................................................................................37
Buying Shares....................................................................................................37
General Shareholder Services.....................................................................................39
Selling Shares...................................................................................................39
Dividends, Distributions and Taxes...............................................................................41
Additional Information...........................................................................................42
Financial Highlights.............................................................................................43
Where to get More Information about the Funds............................................................Back Cover
</TABLE>
<PAGE> 4
The Funds
Undiscovered Managers Funds has twelve investment portfolios. This Prospectus
offers Institutional Class shares of eleven of the portfolios (each a "Fund,"
and collectively, the "Funds").
UNDISCOVERED MANAGERS BEHAVIORAL GROWTH FUND
(THE "BEHAVIORAL GROWTH FUND")
Investment Objective
Growth of capital
Principal Investment Strategies
The Behavioral Growth Fund seeks to achieve its objective by investing primarily
in common stocks of U.S. companies that the Fund's sub-adviser, Fuller & Thaler
Asset Management, Inc. ("Fuller & Thaler"), believes have growth
characteristics.
In selecting stocks for the Behavioral Growth Fund, Fuller & Thaler applies
principles based on behavioral studies. Fuller & Thaler believes that behavioral
biases on the part of investors may cause the market to underreact to new,
positive information concerning a company. Fuller & Thaler analyzes companies
that have recently announced higher than expected earnings, and seeks to
determine whether the market value of a company's stock fully reflects Fuller &
Thaler's expectations as to the company's future earnings and growth prospects.
Under normal market conditions, the Fund will invest substantially all of its
assets in common stocks.
Principal Risks
Investing in the Behavioral Growth Fund involves risks. The Fund may not perform
as well as other investments, and as with all mutual funds, there is the risk
that you could lose money on your investment in the Fund. Factors that could
harm the investment performance of the Fund include:
o A general decline in the U.S. stock markets,
o Poor performance of individual stocks held by the Fund,
o Potentially rapid price changes (volatility) of equity securities and
o The risks associated with investment in small capitalization companies
(such as more abrupt price movements, greater dependence on individual
personnel or products, limited markets and less liquidity than larger,
more established companies).
-3-
<PAGE> 5
Fund Performance
The bar chart below shows the annual total returns of the Institutional Class
shares of the Behavioral Growth Fund for the 1998 and 1999 calendar years. The
table following the bar chart compares the average annual total returns of the
Fund's Institutional Class shares to the returns of the Russell 2500 Growth
Index. This performance information gives some indication of the risks of
investing in the Fund by showing changes in the performance of the Fund's
Institutional Class shares from year to year and by showing how the average
annual returns of the Fund's Institutional Class shares compare with those of a
broad measure of market performance. How the Fund has performed in the past is
not necessarily an indication of how the Fund will perform in the future.
Annual Total Returns of the Fund's Institutional
Class Shares for the Calendar Years Ended 12/31/98 and 12/31/99*
[BAR CHART]
<TABLE>
<CAPTION>
1998 1999
<S> <C>
RETURN 33.20% 65.67%
</TABLE>
* The unannualized total return of the Fund's Institutional Class shares
for the first three quarters of 2000 was (4.33)%.
During the period shown in the bar chart above, the highest quarterly return of
the Fund's Institutional Class shares was 35.98% for the quarter ended December
31, 1999 and the lowest quarterly return of the Fund's Institutional Class
shares was (14.52)% for the quarter ended September 30, 1998.
Average Annual Total Returns of the Fund's
Institutional Class Shares (as of 12/31/99)
<TABLE>
<CAPTION>
Since Commencement of Investment
Past One Year Operations of the Fund (12/31/97)
------------- ---------------------------------
<S> <C> <C>
Behavioral Growth Fund 65.67% 50.68%
Russell 2500 Growth Index* 55.48% 27.29%
</TABLE>
* The Russell 2500 Growth Index consists of those companies within the
2500 smallest of the 3000 largest U.S.-domiciled companies, ranked by
market capitalization, with higher price-to-book ratios and higher
forecasted growth rates. An index is a list of stocks. It is not a
managed investment portfolio like the Fund. The returns of an index are
calculated without taking into account brokerage costs and the other
expenses associated with mutual funds and other managed investment
portfolios.
-4-
<PAGE> 6
UNDISCOVERED MANAGERS BEHAVIORAL VALUE FUND
(THE "BEHAVIORAL VALUE FUND")
Investment Objective
Capital appreciation
Principal Investment Strategies
The Behavioral Value Fund seeks to achieve its objective by investing primarily
in common stocks of U.S. companies that the Fund's sub-adviser, Fuller & Thaler,
believes have value characteristics.
In selecting stocks for the Behavioral Value Fund, Fuller & Thaler applies
principles based on behavioral studies. Fuller & Thaler believes that behavioral
biases on the part of investors may cause the market to overreact to old,
negative information and underreact to new, positive information concerning a
company. In an effort to take advantage of such behavioral biases, Fuller &
Thaler begins by looking at companies that have price-to-earnings ratios below
the median in their industry group or decreasing stock values on an absolute
basis. Within such universes of stocks, Fuller & Thaler selects investments for
the Fund based on such factors as recent under-performance of the company's
stock relative to the market, significant share purchases by company insiders or
stock repurchase activity by the company.
Under normal market conditions, the Fund will invest substantially all of its
assets in common stocks.
Principal Risks
Investing in the Behavioral Value Fund involves risks. The Fund may not perform
as well as other investments, and as with all mutual funds, there is the risk
that you could lose money on your investment in the Fund. Factors that could
harm the investment performance of the Fund include:
o A general decline in the U.S. stock markets,
o Poor performance of individual stocks held by the Fund,
o Potentially rapid price changes (volatility) of equity securities and
o The risks associated with investment in small capitalization companies
(such as more abrupt price movements, greater dependence on individual
personnel or products, limited markets and less liquidity than larger,
more established companies).
-5-
<PAGE> 7
Fund Performance
The bar chart below shows the annual total return of the Institutional Class
shares of the Behavioral Value Fund for the 1999 calendar year. The table
following the bar chart compares the average annual total returns of the Fund's
Institutional Class shares to the returns of the Russell 2000 Value Index. This
performance information gives some indication of the risks of an investment in
the Fund by comparing the performance of the Fund's Institutional Class shares
with a broad measure of market performance. How the Fund has performed in the
past is not necessarily an indication of how the Fund will perform in the
future.
Annual Total Return of the Fund's Institutional
Class Shares for the Calendar Year Ended 12/31/99*
[BAR CHART]
<TABLE>
<CAPTION>
1999
<S> <C>
RETURN 33.11%
</TABLE>
* The unannualized total return of the Fund's Institutional Class shares
for the first three quarters of 2000 was 19.54%.
During the period shown in the bar chart above, the highest quarterly return of
the Fund's Institutional Class shares was 32.11% for the quarter ended June 30,
1999 and the lowest quarterly return of the Fund's Institutional Class shares
was (8.73)% for the quarter ended March 31, 1999.
Average Annual Total Returns of the Fund's
Institutional Class Shares (as of 12/31/99)
<TABLE>
<CAPTION>
Since Commencement of Investment
Past One Year Operations of the Fund (12/28/98)
------------- ---------------------------------
<S> <C> <C>
Behavioral Value Fund 33.11% 39.86%
Russell 2000 Value Index* (1.49)% (1.97)%
</TABLE>
* The Russell 2000 Value Index consists of those companies within the
2000 smallest of the 3000 largest U.S.-domiciled companies, ranked by
market capitalization, with lower price-to-book ratios and lower
forecasted growth rates. An index is a list of stocks. It is not a
managed investment portfolio like the Fund. The returns of an index are
calculated without taking into account brokerage costs and the other
expenses associated with mutual funds and other managed investment
portfolios.
-6-
<PAGE> 8
UNDISCOVERED MANAGERS BEHAVIORAL LONG/SHORT FUND
(THE "BEHAVIORAL LONG/SHORT FUND")
Investment Objective
Growth of capital
Principal Investment Strategies
The Behavioral Long/Short Fund seeks to achieve its objective by taking long
positions in stocks of U.S. companies that the Fund's sub-adviser, Fuller &
Thaler, believes are undervalued and short positions in stocks of other U.S.
companies that Fuller & Thaler believes are overvalued.
When taking long positions for the Behavioral Long/Short Fund, Fuller & Thaler
utilizes a combination of its growth and value strategies. A portion of the
Fund's long portfolio is selected using the strategies used for selecting stocks
for the Behavioral Growth Fund. The remainder of the long portfolio is selected
using the strategies used for selecting stocks for the Behavioral Value Fund.
For a description of such strategies, see Undiscovered Managers Behavioral
Growth Fund and Undiscovered Managers Behavioral Value Fund above. When taking
short positions, Fuller & Thaler begins with universes of stocks that have high
valuation ratios and then analyzes companies within such universes that have had
recent stock issuances or where there has been a significant divestiture of
company stock by management.
In constructing the Behavioral Long/Short Fund's long and short portfolios,
Fuller & Thaler does not actively seek to keep the value of the two portfolios
equal. In this respect, the Fund differs from so-called "market neutral" funds.
The dollar value of the Behavioral Long/Short Fund's long portfolio (including
cash) will at least equal the dollar value of its short portfolio, and, under
normal market conditions, the dollar value of the long portfolio (including
cash) could exceed that of the short portfolio by up to 30%. There may be
instances when Fuller & Thaler will have to terminate short positions at a time
when it would not otherwise do so in order to ensure that the market value of
all short positions does not exceed 100% of the value of the Fund's net assets.
Principal Risks
Investing in the Behavioral Long/Short Fund involves risks. The Fund may not
perform as well as other investments, and as with all mutual funds, there is the
risk that you could lose money on your investment in the Fund. Factors that
could harm the investment performance of the Fund include:
o A general decline in the U.S. stock markets,
o Poor performance of individual stocks held by the Fund,
o Potentially rapid price changes (volatility) of equity securities,
o The risks associated with investment in small capitalization companies
(such as more abrupt price movements, greater dependence on individual
personnel or products, limited markets and less liquidity than larger,
more established companies) and
o The risks associated with managing a long and a short portfolio. If
Fuller & Thaler takes long positions in stocks that underperform the
market and short positions in stocks that outperform the market, then
the losses of the Fund may exceed those of other stock mutual funds.
Furthermore, because Fuller & Thaler will manage both a long and a
short portfolio, an investment in the Fund will involve the risk that
Fuller & Thaler may make poor investment decisions more frequently than
a manager of a typical stock mutual fund with only a long portfolio.
The potential loss in managing a short portfolio is unlimited.
-7-
<PAGE> 9
Fund Performance
The bar chart below shows the annual total return of the Institutional Class
shares of the Behavioral Long/Short Fund for the 1999 calendar year. The table
following the bar chart compares the average annual total returns of the Fund's
Institutional Class shares to the returns of the Salomon Brothers 3-Month
Treasury Bill Index. This performance information gives some indication of the
risks of an investment in the Fund by comparing the performance of the Fund's
Institutional Class shares with a broad measure of market performance. How the
Fund has performed in the past is not necessarily an indication of how the Fund
will perform in the future.
Annual Total Return of the Fund's Institutional
Class Shares for the Calendar Year Ended 12/31/99(1)(2)
[BAR CHART]
<TABLE>
<CAPTION>
1999
<S> <C>
RETURN 4.46%
</TABLE>
(1) The Fund imposes a contingent redemption fee in the amount of 1.00% on
redemptions and exchanges of Fund shares held for one year or less from
the time of purchase, which is not reflected in the bar chart. If the
contingent redemption fee were reflected, the returns would be less
than those shown.
(2) The unannualized total return of the Fund's Institutional Class shares
for the first three quarters of 2000 was (3.31)%.
During the period shown in the bar chart above, the highest quarterly return of
the Fund's Institutional Class shares was 7.47% for the quarter ended December
31, 1999 and the lowest quarterly return of the Fund's Institutional Class
shares was (11.76)% for the quarter ended March 31, 1999.
Average Annual Total Returns of the Fund's
Institutional Class Shares (as of 12/31/99)
<TABLE>
<CAPTION>
Since Commencement of Investment
Past One Year Operations of the Fund (12/28/98)
------------- ---------------------------------
<S> <C> <C>
Behavioral Long/Short Fund 3.46%(1) 4.42%
Salomon Brothers
3-Month Treasury Bill Index(2) 4.17% 3.84%
</TABLE>
(1) The average annual total return of the Fund for the past year reflects
the deduction of a contingent redemption fee in the amount of 1.00%
that is imposed on redemptions and exchanges of Fund shares held for
one year or less from the time of purchase.
(2) The Salomon Brothers 3-Month Treasury Bill Index is used as a proxy for
the risk-free total return available to investors. The returns are the
U.S. close quotes, constant maturity Treasury Bill rates taken from
Standard & Poor's Micropal. An index is a list of stocks. It is not a
managed investment portfolio like the Fund. The returns of an index are
calculated without taking into account brokerage costs and the other
expenses associated with mutual funds and other managed investment
portfolios.
-8-
<PAGE> 10
UNDISCOVERED MANAGERS SPECIAL SMALL CAP FUND
(THE "SPECIAL SMALL CAP FUND")
Investment Objective
Long-term growth of capital
Principal Investment Strategies
The Special Small Cap Fund seeks to achieve its objective by investing primarily
in common stocks of small cap U.S. companies that the Fund's sub-adviser,
Kestrel Investment Management Corporation ("Kestrel Management"), identifies as
having one or more of the following special characteristics:
o The company has recently been spun off or divested from a former parent
company,
o The company has announced or is conducting a program to buy back its
own stock,
o The company has made or intends to make a relatively significant sale
of assets, or
o The sub-adviser believes the company is undervalued because of other
special circumstances, such as regulatory changes affecting its
industry.
Under normal market conditions, Kestrel expects that the Special Small Cap Fund
will invest at least 65% of its assets in stocks of companies in such special
situations with market capitalizations of between $50 million and $1.2 billion.
The Fund is "non-diversified."
Under normal market conditions, the Fund will invest substantially all of its
assets in common stocks.
Principal Risks
Investing in the Special Small Cap Fund involves risks. The Fund may not perform
as well as other investments, and as with all mutual funds, there is the risk
that you could lose money on your investment in the Fund. Factors that could
harm the investment performance of the Fund include:
o A general decline in the U.S. stock markets,
o Poor performance of individual stocks held by the Fund,
o Potentially rapid price changes (volatility) of equity securities,
o The risks of being non-diversified (greater susceptibility to risks
associated with particular issuers than a diversified fund since a
non-diversified fund may invest a greater percentage of its total
assets in securities of individual issuers, or may invest in a smaller
number of different issuers, than a diversified fund) and
o The risks associated with investment in small capitalization companies
(such as more abrupt price movements, greater dependence on individual
personnel or products, limited markets and less liquidity than larger,
more established companies).
-9-
<PAGE> 11
Fund Performance
The bar chart below shows the annual total returns of the Institutional Class
shares of the Special Small Cap Fund for the 1998 and 1999 calendar years. The
table following the bar chart compares the average annual total returns of the
Fund's Institutional Class shares to the returns of the Russell 2000 Index. This
performance information gives some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Institutional Class
shares from year to year and by showing how the average annual returns of the
Fund's Institutional Class shares compare with those of a broad measure of
market performance. How the Fund has performed in the past is not necessarily an
indication of how the Fund will perform in the future.
Annual Total Returns of the Fund's Institutional
Class Shares for the Calendar Years Ended 12/31/98 and 12/31/99*
[BAR CHART]
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
RETURN (2.92)% 6.09%
</TABLE>
* The unannualized total return of the Fund's Institutional Class shares
for the first three quarters of 2000 was 3.52%.
During the period shown in the bar chart above, the highest quarterly return of
the Fund's Institutional Class shares was 18.78% for the quarter ended March 31,
1999 and the lowest quarterly return of the Fund's Institutional Class shares
was (17.54)% for the quarter ended September 30, 1998.
Average Annual Total Returns of the Fund's
Institutional Class Shares (as of 12/31/99)
<TABLE>
<CAPTION>
Since Commencement of Investment
Past One Year Operations of the Fund (12/30/97)
------------- ---------------------------------
<S> <C> <C>
Special Small Cap Fund 6.09% 2.21%
Russell 2000 Index* 21.26% 10.69%
</TABLE>
* The Russell 2000 Index consists of the 2000 smallest of the 3000
largest U.S.-domiciled companies, ranked by market capitalization. An
index is a list of stocks. It is not a managed investment portfolio
like the Fund. The returns of an index are calculated without taking
into account brokerage costs and the other expenses associated with
mutual funds and other managed investment portfolios.
-10-
<PAGE> 12
UNDISCOVERED MANAGERS REIT FUND
(THE "REIT FUND")
Investment Objective
High total investment return through a combination of capital appreciation and
current income
Principal Investment Strategies
The REIT Fund seeks to achieve its objective by investing substantially all of
its assets, and in any event in normal market conditions at least 65% of its
assets, in equity securities of real estate investment trusts ("REITs"),
including REITs with relatively small market capitalization. The Fund may invest
in both equity REITs and mortgage REITs. Equity REITs take ownership interests
in real estate. Mortgage REITs invest in mortgages (loans secured by interests
in real estate).
In selecting investments for the REIT Fund, the Fund's sub-adviser, Bay Isle
Financial Corporation ("Bay Isle"), seeks to identify REITs that have good
management, strong balance sheets, above average growth in "funds from
operations" and that trade at a discount to their assets' underlying value.
"Funds from operations" generally means a REIT's net income (excluding gains (or
losses) from debt restructuring and sales of property) plus depreciation of real
property. The Fund is "non-diversified."
Principal Risks
Investing in the REIT Fund involves risks. The Fund may not perform as well as
other investments, and as with all mutual funds, there is the risk that you
could lose money on your investment in the Fund. Factors that could harm the
investment performance of the Fund include:
o A general decline in the U.S. stock markets,
o Poor performance of individual stocks held by the Fund,
o Potentially rapid price changes (volatility) of equity securities,
o The risks associated with investment in small capitalization companies
(such as more abrupt price movements, greater dependence on individual
personnel or properties and less liquidity than larger companies),
o The risks of being non-diversified (greater susceptibility to risks
associated with particular issuers than a diversified fund since a
non-diversified fund may invest a greater percentage of its total
assets in securities of individual issuers, or may invest in a smaller
number of different issuers, than a diversified fund) and
o The risks associated with investment in a portfolio consisting
primarily of REITs. The prices of equity REITs are affected by changes
in the value of the underlying property owned by the REITs. The prices
of mortgage REITs are affected by the quality of any credit they
extend, the credit worthiness of the mortgages they hold, as well as by
the value of the property that secures the mortgages. A REIT must
distribute 95% of its taxable income to qualify for beneficial federal
tax treatment. If a REIT is unable to qualify, then it would be taxed
as a corporation and distributions to shareholders would be reduced.
Although the Fund does not invest directly in real estate, an
investment in the Fund is subject to certain of the risks associated
with the ownership of real estate. These risks include possible
declines in the value of real estate, risks related to general and
local economic conditions, possible lack of availability of mortgage
funds and changes in interest rates.
-11-
<PAGE> 13
Fund Performance
The bar chart below shows the annual total returns of the Institutional Class
shares of the REIT Fund for the 1998 and 1999 calendar years. The table
following the bar chart compares the average annual total returns of the Fund's
Institutional Class shares to the returns of the Morgan Stanley REIT Index. This
performance information gives some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Institutional Class
shares from year to year and by showing how the average annual returns of the
Fund's Institutional Class shares compare with those of a broad measure of REIT
market performance. How the Fund has performed in the past is not necessarily an
indication of how the Fund will perform in the future.
Annual Total Returns of the Fund's Institutional
Class Shares for the Calendar Years Ended 12/31/98 and 12/31/99*
[BAR CHART]
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
RETURN (9.76)% (0.39)%
</TABLE>
* The unannualized total return of the Fund's Institutional Class shares
for the first three quarters of 2000 was 25.91%.
During the period shown in the bar chart above, the highest quarterly return of
the Fund's Institutional Class shares was 12.25% for the quarter ended June 30,
1999 and the lowest quarterly return of the Fund's Institutional Class shares
was (6.91)% for the quarter ended September 30, 1998.
Average Annual Total Returns of the Fund's
Institutional Class Shares (as of 12/31/99)
<TABLE>
<CAPTION>
Since Commencement of Investment
Past One Year Operations of the Fund (1/1/98)
------------- --------------------------------
<S> <C> <C>
REIT Fund (0.39)% (5.20)%
Morgan Stanley REIT Index* (4.55)% (10.94)%
</TABLE>
* The Morgan Stanley REIT Index is a market capitalization weighted total
return index of 129 REITs which exceed certain minimum liquidity criteria
concerning market capitalization, shares outstanding, trading volume and
per share market price. An index is a list of stocks. It is not a managed
investment portfolio like the Fund. The returns of an index are calculated
without taking into account brokerage costs and the other expenses
associated with mutual funds and other managed investment portfolios.
-12-
<PAGE> 14
UNDISCOVERED MANAGERS SMALL CAP VALUE FUND
(THE "SMALL CAP VALUE FUND")
Investment Objective
Long-term growth of capital
Principal Investment Strategies
The Small Cap Value Fund seeks to achieve its objective by investing primarily
in common stocks of companies with a market float of $1.2 billion or less that
the Fund's sub-adviser, J.L. Kaplan Associates, LLC ("Kaplan Associates"),
considers to be undervalued at the time of purchase and to have the potential
for long-term capital appreciation. Market float is the total value of all the
outstanding shares of a company that are registered for public trading and does
not include shares held by company founders or other insiders that are not
freely resalable.
In selecting stocks for the Small Cap Value Fund, Kaplan Associates will
consider, among other things, the issuer's earning power and the value of the
issuer's assets.
Under normal market conditions, the Small Cap Value Fund will invest at least
65% of its total assets in common stocks of companies with a market float of
$1.2 billion or less.
Principal Risks
Investing in the Small Cap Value Fund involves risks. The Fund may not perform
as well as other investments, and as with all mutual funds, there is the risk
that you could lose money on your investment in the Fund. Factors that could
harm the investment performance of the Fund include:
o A general decline in the U.S. stock markets,
o Poor performance of individual stocks held by the Fund,
o Potentially rapid price changes (volatility) of equity securities and
o The risks associated with investment in small capitalization companies
(such as more abrupt price movements, greater dependence on individual
personnel or products, limited markets and less liquidity than larger,
more established companies).
-13-
<PAGE> 15
Fund Performance
The bar chart below shows the annual total returns of the Institutional Class
shares of the Small Cap Value Fund for the 1998 and 1999 calendar years. The
table following the bar chart compares the average annual total returns of the
Fund's Institutional Class shares to the returns of the Russell 2000 Value
Index. This performance information gives some indication of the risks of
investing in the Fund by showing changes in the performance of the Fund's
Institutional Class shares from year to year and by showing how the average
annual returns of the Fund's Institutional Class shares compare with those of a
broad measure of market performance. The table also includes the returns of the
Russell 2000 Index, the index against which the Fund was formerly compared. The
Fund has chosen to use the Russell 2000 Value Index as its new comparative index
because the Russell 2000 Value Index more closely reflects the Fund's investment
universe than the Russell 2000 Index. How the Fund has performed in the past is
not necessarily an indication of how the Fund will perform in the future.
Annual Total Returns of the Fund's Institutional
Class Shares for the Calendar Years Ended 12/31/98 and 12/31/99*
[BAR CHART]
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
RETURN (0.72)% 9.94%
</TABLE>
* The unannualized total return of the Fund's Institutional Class shares
for the first three quarters of 2000 was 8.30%.
During the period shown in the bar chart above, the highest quarterly return of
the Fund's Institutional Class shares was 22.20% for the quarter ended June 30,
1999 and the lowest quarterly return of the Fund's Institutional Class shares
was (19.32)% for the quarter ended September 30, 1998.
Average Annual Total Returns of the Fund's
Institutional Class Shares (as of 12/31/99)
<TABLE>
<CAPTION>
Since Commencement of Investment
Past One Year Operations of the Fund (12/30/97)
------------- ---------------------------------
<S> <C> <C>
Small Cap Value Fund 9.94% 5.80%
Russell 2000 Value Index* (1.49)% (3.21)%
Russell 2000 Index* 21.26% 10.69%
</TABLE>
* The Russell 2000 Value Index consists of those companies within the 2000
smallest of the 3000 largest U.S.-domiciled companies, ranked by market
capitalization, with lower price-to-book ratios and lower forecasted growth
rates. The Russell 2000 Index consists of the 2000 smallest of the 3000
largest U.S.-domiciled companies, ranked by market capitalization. An index
is a list of stocks. It is not a managed investment portfolio like the
Fund. The returns of an index are calculated without taking into account
brokerage costs and the other expenses associated with mutual funds and
other managed investment portfolios.
-14-
<PAGE> 16
UNDISCOVERED MANAGERS HIDDEN VALUE FUND
(THE "HIDDEN VALUE FUND")
Investment Objective
Long-term growth of capital
Principal Investment Strategies
The Hidden Value Fund seeks to achieve its objective by investing primarily in
common stocks of companies that the Fund's sub-adviser, Kaplan Associates,
considers to be undervalued at the time of purchase and to have the potential
for long-term capital appreciation. Kaplan Associates believes that the value of
certain stocks will tend to be "hidden" from the market for reasons including
the coverage of certain companies by relatively few securities analysts.
In selecting stocks for the Hidden Value Fund, Kaplan Associates will consider,
among other things, the issuer's earning power and the value of the issuer's
assets.
Kaplan Associates expects that the median market capitalization of stocks held
by the Hidden Value Fund will ordinarily range from $800 million to $5 billion.
Under normal market conditions, the Fund will invest at least 65% of its total
assets in common stocks.
Principal Risks
Investing in the Hidden Value Fund involves risks. The Fund may not perform as
well as other investments, and as with all mutual funds, there is the risk that
you could lose money on your investment in the Fund. Factors that could harm the
investment performance of the Fund include:
o A general decline in the U.S. stock markets,
o Poor performance of individual stocks held by the Fund,
o Potentially rapid price changes (volatility) of equity securities and
o The risks associated with investment in smaller capitalization
companies (such as more abrupt price movements, greater dependence on
individual personnel or products, limited markets and less liquidity
than larger, more established companies).
-15-
<PAGE> 17
Fund Performance
The bar chart below shows the annual total returns of the Institutional Class
shares of the Hidden Value Fund for the 1998 and 1999 calendar years. The table
following the bar chart compares the average annual total returns of the Fund's
Institutional Class shares to the returns of the Russell Midcap Value Index.
This performance information gives some indication of the risks of investing in
the Fund by showing changes in the performance of the Fund's Institutional Class
shares from year to year and by showing how the average annual returns of the
Fund's Institutional Class shares compare with those of a broad measure of
market performance. How the Fund has performed in the past is not necessarily an
indication of how the Fund will perform in the future.
Annual Total Returns of the Fund's Institutional
Class Shares for the Calendar Years Ended 12/31/98 and 12/31/99*
[BAR CHART]
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
RETURN (4.53)% 8.94%
</TABLE>
* The unannualized total return of the Fund's Institutional Class shares
for the first three quarters of 2000 was (1.31)%.
During the period shown in the bar chart above, the highest quarterly return of
the Fund's Institutional Class shares was 18.89% for the quarter ended December
31, 1998 and the lowest quarterly return of the Fund's Institutional Class
shares was (20.95)% for the quarter ended September 30, 1998.
Average Annual Total Returns of the Fund's
Institutional Class Shares (as of 12/31/99)
<TABLE>
<CAPTION>
Since Commencement of Investment
Past One Year Operations of the Fund (12/31/97)
------------- ---------------------------------
<S> <C> <C>
Hidden Value Fund 8.94% 2.55%
Russell Midcap Value Index* (0.11)% 2.79%
</TABLE>
* The Russell Midcap Value Index consists of those companies within the 800
smallest of the 1000 largest U.S.-domiciled companies, ranked by market
capitalization, with lower price-to-book ratios and lower forecasted growth
rates. An index is a list of stocks. It is not a managed investment
portfolio like the Fund. The returns of an index are calculated without
taking into account brokerage costs and the other expenses associated with
mutual funds and other managed investment portfolios.
-16-
<PAGE> 18
UNDISCOVERED MANAGERS CORE EQUITY FUND
(THE "CORE EQUITY FUND")
Investment Objective
Long-term growth of capital
Principal Investment Strategies
The Core Equity Fund seeks to achieve its objective by investing substantially
all of its assets in common stocks of well-established, high-quality U.S.
companies.
In selecting investments for the Core Equity Fund, the Fund's sub-adviser, Waite
& Associates, L.L.C. ("Waite"), will consider, among other things, its
expectations as to the relative performance of various sectors of the economy
and the relative growth prospects of different companies within such sectors.
Although the common stocks in which the Core Equity Fund invests will typically
have larger market capitalization, the Fund may invest in stocks with
capitalization as low as $1 billion. Under normal market conditions, the Fund
will invest substantially all of its assets in common stocks.
Principal Risks
Investing in the Core Equity Fund involves risks. The Fund may not perform as
well as other investments, and as with all mutual funds, there is the risk that
you could lose money on your investment in the Fund. Factors that could harm the
investment performance of the Fund include:
o A general decline in the U.S. stock markets,
o Poor performance of individual stocks held by the Fund and
o Potentially rapid price changes (volatility) of equity securities.
-17-
<PAGE> 19
Fund Performance
The bar chart below shows the annual total returns of the Institutional Class
shares of the Core Equity Fund for the 1998 and 1999 calendar years. The table
following the bar chart compares the average annual total returns of the Fund's
Institutional Class shares to the returns of the Russell 1000 Index. This
performance information gives some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Institutional Class
shares from year to year and by showing how the average annual returns of the
Fund's Institutional Class shares compare with those of a broad measure of
market performance. How the Fund has performed in the past is not necessarily an
indication of how the Fund will perform in the future.
Annual Total Returns of the Fund's Institutional
Class Shares for the Calendar Years Ended 12/31/98 and 12/31/99*
[BAR CHART]
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
RETURN 21.47% 1.95%
</TABLE>
* The unannualized total return of the Fund's Institutional Class shares
for the first three quarters of 2000 was (6.18)%.
During the period shown in the bar chart above, the highest quarterly return of
the Fund's Institutional Class shares was 16.04% for the quarter ended December
31, 1998 and the lowest quarterly return of the Fund's Institutional Class
shares was (9.47)% for the quarter ended September 30, 1998.
Average Annual Total Returns of the Fund's
Institutional Class Shares (as of 12/31/99)
<TABLE>
<CAPTION>
Since Commencement of Investment
Past One Year Operations of the Fund (12/31/97)
------------- ---------------------------------
<S> <C> <C>
Core Equity Fund 1.95% 11.77%
Russell 1000 Index* 20.91% 23.96%
</TABLE>
* The Russell 1000 Index consists of the 1000 largest U.S.-domiciled
companies, ranked by market capitalization. An index is a list of stocks.
It is not a managed investment portfolio like the Fund. The returns of an
index are calculated without taking into account brokerage costs and the
other expenses associated with mutual funds and other managed investment
portfolios.
-18-
<PAGE> 20
UM SMALL CAP GROWTH FUND
(THE "SMALL CAP GROWTH FUND")
Investment Objective
Long-term Capital Appreciation
Principal Investment Strategies
The Small Cap Growth Fund seeks to achieve its objective by investing primarily
in common stocks of U.S. companies with market capitalizations of $2.5 billion
or less that the Fund's sub-adviser, Mazama Capital Management, Inc. ("Mazama")
believes possess superior growth characteristics. Mazama utilizes a proprietary
Price Performance Model to assist it in identifying growth companies it believes
are undervalued relative to their management quality and earnings potential.
Under normal market conditions, the Small Cap Growth Fund will invest
substantially all of its assets in common stocks and at least 65% of its assets
in common stocks of companies with market capitalizations of $2.5 billion or
less.
Principal Risks
Investing in the Small Cap Growth Fund involves risks. The Fund may not perform
as well as other investments, and as with all mutual funds, there is the risk
that you could lose money on your investment in the Fund. Factors that could
harm the investment performance of the Fund include:
o A general decline in the U.S. stock markets,
o Poor performance of individual stocks held by the Fund,
o Potentially rapid price changes (volatility) of equity securities and
o The risks associated with investment in small capitalization companies
(such as more abrupt price movements, greater dependence on individual
personnel or products, limited markets and less liquidity than larger,
more established companies)
-19-
<PAGE> 21
Fund Performance
The Small Cap Growth Fund's performance is variable. Since the Fund commenced
investment operations on October 2, 2000, this Prospectus does not include a bar
chart showing annual total returns or a table showing average annual total
returns compared against an appropriate broad-based securities market index.
-20-
<PAGE> 22
UM INTERNATIONAL EQUITY FUND
(THE "INTERNATIONAL EQUITY FUND")
Investment Objective
Capital appreciation
Principal Investment Strategies
The International Equity Fund seeks to achieve its objective by investing in
common stocks or other equity securities of issuers of any market capitalization
(small-, mid- or large-cap) that are principally traded on any of the stock
markets of Europe, Asia, Australia or New Zealand.
Although permitted to invest in equity securities that are principally traded on
any of the foregoing stock markets, the International Equity Fund will not,
under normal market conditions, invest more than 15% of its total assets in
issuers whose equity securities are not principally traded on stock markets in
countries included in the Morgan Stanley Capital International Europe,
Australasia, Far East Index (the "MSCI EAFE Index"). As of the date of this
Prospectus, the countries included in the MSCI EAFE Index were:
<TABLE>
<S> <C> <C> <C>
Australia France Japan Singapore
Austria Germany Netherlands Spain
Belgium Hong Kong New Zealand Sweden
Denmark Ireland Norway Switzerland
Finland Italy Portugal United Kingdom
</TABLE>
In selecting investment securities for the International Equity Fund, the Fund's
sub-adviser, Unibank Securities, Inc. ("Unibank"), focuses on identifying
structural changes and understanding the implications of these changes and then
identifying investment opportunities that result from these changes.
Under normal market conditions, the Fund will invest substantially all of its
assets in equity securities.
Principal Risks
Investing in the International Equity Fund involves risks. The Fund may not
perform as well as other investments, and as with all mutual funds, there is the
risk that you could lose money on your investment in the Fund. Factors that
could harm the investment performance of the Fund include:
o A general decline in the stock markets of Europe, Asia, Australia or
New Zealand,
o Poor performance of individual stocks held by the Fund,
o Potentially rapid price changes (volatility) of equity securities and
o The risks associated with investment in foreign securities generally,
which include fluctuations in the value of the U.S. dollar relative to
other countries' currencies, higher volatility than U.S. securities and
limited liquidity, risks of unfavorable political and economic
developments in foreign countries, and less extensive or reliable
information about foreign companies than about U.S. companies.
-21-
<PAGE> 23
Fund Performance
The bar chart below shows the annual total return of the Institutional Class
shares of the International Equity Fund for the 1999 calendar year. The table
following the bar chart compares the average annual total returns of the Fund's
Institutional Class shares to the returns of the MSCI EAFE Index. This
performance information gives some indication of the risks of an investment in
the Fund by comparing the performance of the Fund's Institutional Class shares
with a broad measure of market performance. How the Fund has performed in the
past is not necessarily an indication of how the Fund will perform in the
future.
Annual Total Return of the Fund's Institutional
Class Shares for the Calendar Year Ended 12/31/99*
[BAR CHART]
<TABLE>
<CAPTION>
1999
<S> <C>
RETURN 58.94%
</TABLE>
* The unannualized total return of the Fund's Institutional Class shares
for the first three quarters of 2000 was (14.24)%.
During the period shown in the bar chart above, the highest quarterly return of
the Fund's Institutional Class shares was 37.30% for the quarter ended December
31, 1999 and the lowest quarterly return of the Fund's Institutional Class
shares was 2.40% for the quarter ended March 31, 1999.
Average Annual Total Returns of the Fund's
Institutional Class Shares (as of 12/31/99)
<TABLE>
<CAPTION>
Since Commencement of Investment
Past One Year Operations of the Fund (12/30/98)
------------- ---------------------------------
<S> <C> <C>
International Equity Fund 58.94% 58.74%
MSCI EAFE Index* 25.27% 25.03%
</TABLE>
* The MSCI EAFE Index consists of over 1000 stocks from any of 20
different countries with Japan, United Kingdom, France and Germany
being the most heavily weighted. An index is a list of stocks. It is
not a managed investment portfolio like the Fund. The returns of an
index are calculated without taking into account brokerage costs and
the other expenses associated with mutual funds and other managed
investment portfolios.
-22-
<PAGE> 24
UM INTERNATIONAL SMALL CAP EQUITY FUND
(THE "INTERNATIONAL SMALL CAP EQUITY FUND")
Investment Objective
Capital Appreciation
Principal Investment Strategies
The International Small Cap Equity Fund seeks to achieve its objective by
investing primarily in common stocks or other equity securities of small cap
issuers (issuers with a market cap below $1.5 billion) that are principally
traded on any of the stock markets of Europe, Asia, Australia or New Zealand.
Although permitted to invest in equity securities that are principally traded on
any of the foregoing stock markets, the International Small Cap Equity Fund will
not, under normal market conditions, invest more than 15% of its total assets in
issuers whose equity securities are not principally traded on stock markets in
countries included in the MSCI EAFE Index. A list of the MSCI EAFE Index
countries is included in the description of the International Equity Fund above.
In selecting investment securities for the International Small Cap Equity Fund,
the Fund's sub-adviser, Unibank, focuses on identifying structural changes and
understanding the implications of these changes and then identifying investment
opportunities that result from these changes.
Under normal market conditions, the International Small Cap Equity Fund will
invest substantially all of its assets in equity securities and will invest at
least 65% of its total assets in equity securities of issuers with market
capitalizations, at the time of purchase, of under $1.5 billion.
Principal Risks
Investing in the International Small Cap Equity Fund involves risks. The Fund
may not perform as well as other investments, and as with all mutual funds,
there is the risk that you could lose money on your investment in the Fund.
Factors that could harm the investment performance of the Fund include:
o A general decline in the stock markets of Europe, Asia, Australia or
New Zealand,
o Poor performance of individual stocks held by the Fund,
o Potentially rapid price changes (volatility) of equity securities,
o The risks associated with investment in small capitalization companies
(such as more abrupt price movements, greater dependence on individual
personnel or products, limited markets and less liquidity than larger,
more established companies) and
o The risks associated with investment in foreign securities generally,
which include fluctuations in the value of the U.S. dollar relative to
other countries' currencies, higher volatility than U.S. securities and
limited liquidity, risks of unfavorable political and economic
developments in foreign countries, and less extensive or reliable
information about foreign companies than about U.S. companies.
-23-
<PAGE> 25
Fund Performance
The bar chart below shows the annual total return of the Institutional Class
shares of the International Small Cap Equity Fund for the 1999 calendar year.
The table following the bar chart compares the average annual total returns of
the Fund's Institutional Class shares to the returns of the MSCI EAFE Small Cap
Index. This performance information gives some indication of the risks of an
investment in the Fund by comparing the performance of the Fund's Institutional
Class shares with a broad measure of market performance. How the Fund has
performed in the past is not necessarily an indication of how the Fund will
perform in the future.
Annual Total Return of the Fund's Institutional
Class Shares for the Calendar Year Ended 12/31/99(1)(2)
[BAR CHART]
<TABLE>
<CAPTION>
1999
<S> <C>
RETURN 68.65%
</TABLE>
(1) The Fund imposes a contingent redemption fee in the amount of 1.00% on
redemptions and exchanges of Fund shares held for one year or less from
the time of purchase, which is not reflected in the bar chart. If the
contingent redemption fee were reflected, the returns would be less
than those shown.
(2) The unannualized total return of the Fund's Institutional Class shares
for the first three quarters of 2000 was 5.32%.
During the period shown in the bar chart above, the highest quarterly return of
the Fund's Institutional Class shares was 35.13% for the quarter ended December
31, 1999 and the lowest quarterly return of the Fund's Institutional Class
shares was 2.00% for the quarter ended March 31, 1999.
Average Annual Total Returns of the Fund's
Institutional Class Shares (as of 12/31/99)
<TABLE>
<CAPTION>
Since Commencement of Investment
Past One Year Operations of the Fund (12/30/98)
------------- ---------------------------------
<S> <C> <C>
International Small Cap
Equity Fund 67.65%(1) 68.41%
MSCI EAFE
Small Cap Index(2) 17.67% 19.06%
</TABLE>
(1) The average annual return of the Fund for the past year reflects the
deduction of a contingent redemption fee in the amount of 1.00% that is
imposed on redemptions and exchanges of Fund shares held for one year
or less from the time of purchase.
(2) The MSCI Small Cap Index is comprised of over 1200 stocks of companies
that have market capitalizations of between $200 million and $800
million and are from any of 20 different countries with Japan, United
Kingdom, France and Germany being the most heavily weighted. An index
is a list of stocks. It is not a managed investment portfolio like the
Fund. The returns of an index are calculated without taking into
account brokerage costs and the other expenses associated with mutual
funds and other managed investment portfolios.
-24-
<PAGE> 26
THE FUNDS' FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Institutional Class shares of the Funds.
<TABLE>
<CAPTION>
Behavioral Behavioral Behavioral
Growth Fund Value Fund Long/Short Fund
----------- ---------- ---------------
Institutional Institutional Institutional
Class Class Class
------------- ------------- -------------
<S> <C> <C> <C>
SHAREHOLDER FEES (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases none none none
Maximum Deferred Sales Charge (Load) none none none
Maximum Sales Charge (Load) Imposed on Reinvested Dividends none none none
Redemption Fees (as a percentage of amount redeemed, if applicable)(1) none none 1.00%(2)
Exchange Fees (as a percentage of amount exchanged, if applicable). none none 1.00%(2)
ANNUAL FUND OPERATING EXPENSES (expenses that are
deducted from Fund assets)
Management Fees 0.95% 1.05% 1.55%
Distribution (12b-1) Fees none none none
Other Expenses 0.49% 1.26% 2.42%(3)
Total Annual Fund Operating Expenses 1.44% 2.31% 3.97%(3)
Fee Reduction and/or Expense Reimbursement(4) (0.14)% (0.91)% (1.97)%
Net Expenses(4) 1.30% 1.40% 2.00%(3)
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Funds
with the cost of investing in other mutual funds.
This Example assumes that (i) you invest $10,000 in each Fund for the time
periods indicated, (ii) your investment has a 5% return each year, (iii) you
redeem all of your shares at the end of those periods and (iv) each Fund's
operating expenses remain the same. For the Behavioral Long/Short Fund, which
imposes a redemption fee, costs are also shown for when you do not redeem your
shares at the end of the periods. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
Behavioral Long/Short Fund
--------------------------
Behavioral Growth Fund Behavioral Value Fund Redemption No Redemption
---------------------- --------------------- ---------- -------------
<S> <C> <C> <C> <C>
One Year $ 132 $ 143 $ 306 $ 203
Three Years $ 442 $ 634 $1,029 $1,029
Five Years $ 774 $1,153 $1,873 $1,873
Ten Years $1,712 $2,576 $4,058 $4,058
</TABLE>
(1) Redemptions by wire transfer are subject to a wire fee (currently $5) that
is deducted from the redemption proceeds.
(2) A contingent redemption fee in the amount of 1.00% is imposed on redemptions
and exchanges of Fund shares held for one year or less from the time of
purchase. The contingent redemption fee does not apply to reinvested dividends.
See SELLING SHARES -- CONTINGENT REDEMPTION FEE below.
(3) Other Expenses, Total Annual Fund Operating Expenses and Net Expenses do not
include dividend expenses incurred in connection with short sales, which are
included in and reduce the investment return of the Fund. Dividend expenses were
0.69% for the Fund's last fiscal year.
(4) Undiscovered Managers, LLC, the Funds' investment adviser, has contractually
agreed, through December 31, 2001, to reduce its fees and/or pay the expenses of
the Funds' Institutional Class shares in order to limit such class's expenses
(exclusive of brokerage costs, interest, taxes, extraordinary expenses and, in
the case of the Behavioral Long/Short Fund, dividends payable with respect to
securities sold short) to the percentages of net assets shown above, subject to
later reimbursement by such Funds in certain circumstances. See THE FUNDS'
MANAGEMENT -- FUND EXPENSES below.
-25-
<PAGE> 27
<TABLE>
<CAPTION>
Special Small REIT Small Cap
Cap Fund Fund Value Fund
-------- ---- ----------
Institutional Institutional Institutional
Class Class Class
------------- ------------- -------------
<S> <C> <C> <C>
SHAREHOLDER FEES (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases........................... none none none
Maximum Deferred Sales Charge (Load)....................................... none none none
Maximum Sales Charge (Load) Imposed on Reinvested Dividends................ none none none
Redemption Fees(1)......................................................... none none none
Exchange Fees ............................................................. none none none
ANNUAL FUND OPERATING EXPENSES (expenses that are
deducted from Fund assets)
Management Fees............................................................ 0.65%(2) 1.05% 1.05%
Distribution (12b-1) Fees.................................................. none none none
Other Expenses............................................................. 0.75% 0.85% 0.85%
Total Annual Fund Operating Expenses....................................... 1.40% 1.90% 1.90%
Fee Reduction and/or Expense Reimbursement(3).............................. (0.20)% (0.50)% (0.50)%
Net Expenses(3)............................................................ 1.20% 1.40% 1.40%
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Funds
with the cost of investing in other mutual funds.
This Example assumes that (i) you invest $10,000 in each Fund for the time
periods indicated, (ii) your investment has a 5% return each year, (iii) you
redeem all of your shares at the end of those periods and (iv) each Fund's
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
Special Small Cap Fund REIT Fund Small Cap Value Fund
---------------------- --------- --------------------
<S> <C> <C> <C>
One Year $ 122 $ 143 $ 143
Three Years $ 423 $ 548 $ 548
Five Years $ 747 $ 980 $ 980
Ten Years $1,662 $2,182 $2,182
</TABLE>
(1) Redemptions by wire transfer are subject to a wire fee (currently $5) that
is deducted from the redemption proceeds.
(2) The fee rate varies depending on the investment performance of the Fund.
The fee rate is determined by adding to (or subtracting from) 1.15%
one-fifth of the number of basis points by which the total return of the
Fund during the one-year period ending at the end of a quarter exceeds (or
falls short of) the total return of the Russell 2000 Index during the
one-year period ending at the end of such quarter. The annual advisory fee
rate will not be more than 1.65% or less than 0.65%. See THE FUNDS'
MANAGEMENT below.
(3) Undiscovered Managers, LLC, the Funds' investment adviser, has
contractually agreed, through December 31, 2001, to reduce its fees and/or
pay the expenses of the Funds' Institutional Class shares in order to limit
such class's expenses (exclusive of brokerage costs, interest, taxes and
extraordinary expenses) to the percentages of net assets shown above for
the REIT Fund and the Small Cap Value Fund and to a range from 1.20% to
2.20% (depending on the exact rate of the advisory fee) of the net assets
of the Special Small Cap Fund, in each case subject to later reimbursement
by the relevant Fund in certain circumstances. See THE FUNDS' MANAGEMENT --
FUND EXPENSES below.
-26-
<PAGE> 28
<TABLE>
<CAPTION>
Hidden Core Equity Small Cap
Value Fund Fund Growth Fund
---------- -------- ----------
Institutional Institutional Institutional
Class Class Class
------------- ------------- -------------
<S> <C> <C> <C>
SHAREHOLDER FEES (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases............................. none none none
Maximum Deferred Sales Charge (Load)......................................... none none none
Maximum Sales Charge (Load) Imposed on Reinvested Dividends.................. none none none
Redemption Fees(1)........................................................... none none none
Exchange Fees ............................................................... none none none
ANNUAL FUND OPERATING EXPENSES (expenses that are
deducted from Fund assets)
Management Fees.............................................................. 0.95% 0.74% 0.95%
Distribution (12b-1) Fees.................................................... none none none
Other Expenses............................................................... 2.90% 2.87% 0.54(2)%
Total Annual Fund Operating Expenses......................................... 3.85% 3.61% 1.49%
Fee Reduction and/or Expense Reimbursement(3)................................ (2.55)% (2.62)% (0.29)%
Net Expenses(3).............................................................. 1.30% 0.99% 1.20%
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Funds
with the cost of investing in other mutual funds.
This Example assumes that (i) you invest $10,000 in each Fund for the time
periods indicated, (ii) your investment has a 5% return each year, (iii) you
redeem all of your shares at the end of those periods and (iv) each Fund's
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
Hidden Value Fund Core Equity Fund Small Cap Growth Fund(4)
----------------- ---------------- ------------------------
<S> <C> <C> <C>
One Year $ 132 $ 101 $122
Three Years $ 940 $ 862 $443
Five Years $1,766 $1,645
Ten Years $3,917 $3,699
</TABLE>
(1) Redemptions by wire transfer are subject to a wire fee (currently $5)
that is deducted from the redemption proceeds.
(2) Since the Fund is newly organized, Other Expenses is based on estimated
amounts for the current fiscal year.
(3) Undiscovered Managers, LLC, the Funds' investment adviser, has
contractually agreed, through December 31, 2001, to reduce its fees
and/or pay the expenses of the Funds' Institutional Class shares in
order to limit such class's expenses (exclusive of brokerage costs,
interest, taxes and extraordinary expenses) to the percentages of net
assets shown above, subject to later reimbursement by such Funds in
certain circumstances. See THE FUNDS' MANAGEMENT -- FUND EXPENSES
below.
(4) Under SEC rules, a newly organized fund, such as the Small Cap Growth
Fund, is required to show expenses in an example of one- and three-year
periods only.
-27-
<PAGE> 29
<TABLE>
<CAPTION>
International International
Equity Small Cap
Fund Equity Fund
------------- -------------
Institutional Institutional
Class Class
------------- -------------
<S> <C> <C>
SHAREHOLDER FEES (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases none none
Maximum Deferred Sales Charge (Load) none none
Maximum Sales Charge (Load) Imposed on Reinvested Dividends none none
Redemption Fees (as a percentage of amount redeemed, if applicable)(1) none 1.00%(2)
Exchange Fees (as a percentage of amount exchanged, if applicable). none 1.00%(2)
ANNUAL FUND OPERATING EXPENSES (expenses that are
deducted from Fund assets)
Management Fees 0.95% 1.15%
Distribution (12b-1) Fees none none
Other Expenses 1.40% 1.03%
Total Annual Fund Operating Expenses 2.35% 2.18%
Fee Reduction and/or Expense Reimbursement(3) (0.90)% (0.58)%
Net Expenses(3) 1.45% 1.60%
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Funds
with the cost of investing in other mutual funds.
This Example assumes that (i) you invest $10,000 in each Fund for the time
periods indicated, (ii) your investment has a 5% return each year, (iii) you
redeem all of your shares at the end of those periods and (iv) each Fund's
operating expenses remain the same. For the International Small Cap Equity Fund,
which imposes a redemption fee, costs are also shown for when you do not redeem
your shares at the end of the periods. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
International Small Cap Equity Fund
-----------------------------------
International Equity Fund Redemption No Redemption
------------------------- ---------- -------------
<S> <C> <C> <C>
One Year $ 148 $ 266 $ 163
Three Years $ 647 $ 626 $ 626
Five Years $1,174 $1,116 $1,116
Ten Years $2,617 $2,468 $2,468
</TABLE>
(1) Redemptions by wire transfer are subject to a wire fee (currently $5) that
is deducted from the redemption proceeds.
(2) A contingent redemption fee in the amount of 1.00% is imposed on redemptions
and exchanges of Fund shares held for one year or less from the time of
purchase. The contingent redemption fee does not apply to reinvested dividends.
See SELLING SHARES -- CONTINGENT REDEMPTION FEE below.
(3) Undiscovered Managers, LLC, the Funds' investment adviser, has contractually
agreed, through December 31, 2001, to reduce its fees and/or pay the expenses of
the Funds' Institutional Class shares in order to limit such class's expenses
(exclusive of brokerage costs, interest, taxes and extraordinary expenses) to
the percentages of net assets shown above, subject to later reimbursement by
such Funds in certain circumstances. See THE FUNDS' MANAGEMENT -- FUND EXPENSES
below.
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<PAGE> 30
OTHER POLICIES AND ADDITIONAL DISCLOSURE ON RISKS
OTHER POLICIES
ADDITIONAL FUND INVESTMENTS
Each Fund may invest its cash in repurchase agreements and other cash
instruments pending investment in equity securities.
PORTFOLIO TURNOVER
The Funds are actively managed and consequently may engage in frequent trading
of portfolio securities. High portfolio turnover results in higher brokerage and
other expenses, which could reduce Fund performance. High portfolio turnover
also may increase the amount of taxes payable by a Fund's shareholders.
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
The investment objectives and policies of the Funds can be changed without
shareholder approval, except for the policies that are identified in the Funds'
Statement of Additional Information (the "SAI") as "fundamental."
MORE ABOUT RISK
COMMON STOCKS AND OTHER EQUITY SECURITIES
The Funds invest mostly in "common stocks." "Common stocks" represent an
ownership interest in a company. The Funds can also invest in securities that
can be exercised for or converted into common stocks (such as warrants or
convertible preferred stock). While offering greater potential for long-term
growth, common stocks and similar equity securities are more volatile and more
risky than some other forms of investment. Therefore, the value of your
investment in a Fund may sometimes decrease instead of increase. Each Fund may
invest in equity securities of companies with relatively small market
capitalization. Securities of such companies may be more volatile than the
securities of larger, more established companies and the broad equity market
indices. See SMALL COMPANIES below. Each Fund's investments may include
securities traded "over-the-counter" as well as those traded on a securities
exchange. Some over-the-counter securities may be more difficult to sell under
some market conditions.
Convertible securities include other securities, such as warrants, that provide
an opportunity for equity participation. Because convertible securities can be
converted into equity securities, their values will normally increase or
decrease as the values of the underlying equity securities increase or decrease.
The movements in the prices of convertible securities, however, may be smaller
than the movements in the value of the underlying equity securities.
SMALL COMPANIES
All of the Funds may invest in companies with relatively small market
capitalization, and the Special Small Cap Fund, the Small Cap Value Fund, the
Small Cap Growth Fund and the International Small Cap Equity Fund will invest
primarily in such companies.
Investments in companies with relatively small capitalization may involve
greater risk than is usually associated with stocks of larger companies. These
companies often have sales and earnings growth rates which exceed those of
companies with larger capitalization. Such growth rates may in turn be reflected
in more rapid share price appreciation. However, companies with smaller
capitalization often have limited product lines, markets or financial resources
and may be dependent upon a relatively small management group. The securities
may have limited marketability and may be subject to more abrupt or erratic
movements in price than securities of companies with larger capitalization or
market averages in general. The net asset value per share of Funds that invest
in companies with smaller capitalization therefore may fluctuate more widely
than market averages.
SHORT SALES
The Behavioral Long/Short Fund will make short sales of securities. A short sale
is a transaction in which the Fund sells a security it does not own in
anticipation that the market price of that security will decline. When the Fund
makes a short sale, it must borrow the security sold short from a lender, such
as a broker or other institution, and deliver it to the other party to the
transaction. The Fund is obligated to return the security to the lender on
demand. The Fund does this by
-29-
<PAGE> 31
buying the security back and delivering it to the lender. The Fund will incur a
loss as a result of a short sale if the price of the borrowed security increases
between the date of the short sale and the date on which the Fund delivers the
security back to the lender. The Fund will realize a gain if the security
declines in price between those dates. There can be no assurance that the Fund
will be able to close out a short position at any particular time or at an
acceptable price. Although the Fund's gain is limited to the amount at which it
sold a security short, its potential loss is limited only by the maximum
attainable price of the security less the price at which the security was sold
short. Until the security sold short is replaced, the Fund is required to repay
the lender any dividends or interest that accrue during the period of the loan.
To borrow the security, the Fund also may be required to pay a premium. The Fund
also will incur transaction costs in effecting short sales. The amount of any
gain resulting from a short sale will be decreased, and the amount of any loss
increased, by the amount of premiums, dividends, interest or expenses the Fund
may be required to pay in connection with a short sale.
Until the Fund replaces a borrowed security, it will keep in a special account
with its custodian cash, U.S. Government securities or other liquid securities
such that the amount in the account plus any amount deposited with a broker or
other custodian as collateral will at least equal the current market value of
the security sold short. Depending on arrangements made with such broker or
custodian, the Fund may not receive any payments (including interest) on
collateral deposited with such broker or custodian. The Fund will not make a
short sale if, after giving effect to such sale, the market value of all short
positions exceeds 100% of the value of the Fund's net assets. The Fund's use of
short sales may result in the Fund realizing more short-term capital gains
(generally subject to tax at ordinary income tax rates) than it would if it did
not engage in short sales.
REAL ESTATE INVESTMENT TRUSTS
The REIT Fund will invest primarily in shares of REITs. REITs pool investors'
funds for investment primarily in income producing real estate or real estate
related loans or interests. Under the Internal Revenue Code of 1986, as amended
(the "Code"), a REIT is not taxed on income it distributes to its shareholders
if it complies with several requirements relating to its organization,
ownership, assets and income and a requirement that it generally distribute to
its shareholders at least 95% of its taxable income (other than net capital
gains) for each taxable year. REITs can generally be classified as Equity REITs,
Mortgage REITs and Hybrid REITs. Equity REITs, which invest the majority of
their assets directly in real property, derive their income primarily from
rents. Equity REITs can also realize capital gains by selling properties that
have appreciated in value. Mortgage REITs, which invest the majority of their
assets in real estate mortgages, derive their income primarily from interest
payments. Hybrid REITs combine the characteristics of both Equity REITs and
Mortgage REITs.
While the Fund will not invest in real estate directly, the Fund may be subject
to risks similar to those associated with the direct ownership of real estate
(in addition to securities market risks) because of its policy of concentrating
its investments in the real estate industry. These risks include declines in the
value of real estate, risks related to general and local economic conditions,
dependency on management skill, heavy cash flow dependency, possible lack of
availability of mortgage funds, overbuilding, extended vacancies of properties,
increased competition, increases in property taxes and operating expenses,
changes in zoning laws, losses due to costs resulting from the clean-up of
environmental problems, liability to third parties for damages resulting from
environmental problems, casualty or condemnation losses, limitations on rents,
changes in neighborhood values and in the appeal of properties to tenants and
changes in interest rates.
In addition to these risks, Equity REITs may be affected by changes in the value
of the underlying property owned by the trusts, while Mortgage REITs may be
affected by the quality of any credit they extend. Further, Equity REITs and
Mortgage REITs are dependent upon management skills and generally may not be
diversified. Equity REITs and Mortgage REITs are also subject to heavy cash flow
dependency, defaults by borrowers and self-liquidation. In addition, Equity
REITs and Mortgage REITs could fail to qualify for tax-free pass-through of
income under the Code. There is also the risk that borrowers under mortgages
held by a REIT or lessees of property that a REIT owns may be unable to meet
their obligations to the REIT. In the event of a default by a borrower or
lessee, the REIT may experience delays in enforcing its rights as a mortgagee or
lessor and may incur substantial costs associated with protecting its
investments. In addition to the foregoing risks, certain "special purpose" REITs
in which the Fund may invest may have their assets in specific real estate
sectors, such as hotel REITs, nursing home REITs or warehouse REITs, and are
therefore subject to the risks associated with adverse developments in these
sectors.
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<PAGE> 32
FOREIGN SECURITIES
The International Equity and International Small Cap Equity Funds (the
"International Funds") will invest primarily in foreign securities. Investments
in foreign securities present risks not typically associated with investments in
comparable securities of U.S. issuers.
Since most foreign securities are denominated in foreign currencies or traded
primarily in securities markets in which settlements are made in foreign
currencies, the value of these investments and the net investment income
available for distribution to shareholders of the International Funds may be
affected favorably or unfavorably by changes in currency exchange rates or
exchange control regulations. Because the International Funds may purchase
securities denominated in foreign currencies, a change in the value of any such
currency against the U.S. dollar will result in a change in the U.S. dollar
value of the Funds' assets and the Funds' income available for distribution.
In addition, although the International Funds' income may be received or
realized in foreign currencies, the Funds will be required to compute and
distribute their income in U.S. dollars. Therefore, if the value of a currency
relative to the U.S. dollar declines after a Fund's income has been earned in
that currency, translated into U.S. dollars and declared as a dividend, but
before payment of such dividend, the Fund could be required to liquidate
portfolio securities to pay such dividend. Similarly, if the value of a currency
relative to the U.S. dollar declines between the time a Fund incurs expenses in
U.S. dollars and the time such expenses are paid, the amount of such currency
required to be converted into U.S. dollars in order to pay such expenses in U.S.
dollars will be greater than the equivalent amount in such currency of such
expenses at the time they were incurred.
There may be less information publicly available about a foreign corporate or
government issuer than about a U.S. issuer, and foreign corporate issuers are
not generally subject to accounting, auditing and financial reporting standards
and practices comparable to those in the United States. The securities of some
foreign issuers are less liquid and at times more volatile than securities of
comparable U.S. issuers. Foreign brokerage commissions and securities custody
costs are often higher than those in the United States, and judgments against
foreign entities may be more difficult to obtain and enforce. With respect to
certain foreign countries, there is a possibility of governmental expropriation
of assets, confiscatory taxation, political or financial instability and
diplomatic developments that could affect the value of investments in those
countries. The receipt of interest on foreign government securities may depend
on the availability of tax or other revenues to satisfy the issuer's
obligations.
The International Funds' investments in foreign securities may include
investments in emerging or developing countries, whose economies or securities
markets are not yet highly developed. Special risks associated with these
investments (in addition to the risks associated with foreign investments
generally) may include, among others, greater political uncertainties, an
economy's dependence on revenues from particular commodities or on international
aid or development assistance, currency transfer restrictions, highly limited
numbers of potential buyers for such securities and delays and disruptions in
securities settlement procedures.
The International Funds may invest in foreign equity securities either by
purchasing such securities directly or by purchasing "depository receipts."
Depository receipts are instruments issued by a bank that represent an interest
in equity securities held by arrangement with the bank. Depository receipts can
be either "sponsored" or "unsponsored." Sponsored depository receipts are issued
by banks in cooperation with the issuer of the underlying equity securities.
Unsponsored depository receipts are arranged without involvement by the issuer
of the underlying equity securities. Less information about the issuer of the
underlying equity securities may be available in the case of unsponsored
depository receipts.
In determining whether to invest in securities of foreign issuers, Unibank will
consider the likely effects of foreign taxes on the net yield available to the
International Funds and to their shareholders. Compliance with foreign tax law
may reduce each such Fund's net income available for distribution to its
shareholders.
FOREIGN CURRENCY
Most foreign securities in the International Funds' portfolios will be
denominated in foreign currencies or traded in securities markets in which
settlements are made in foreign currencies. Similarly, any income on such
securities is generally paid to the Fund holding such securities in foreign
currencies. The value of these foreign currencies relative to the U.S. dollar
varies continually, causing changes in the dollar value of the Fund's portfolio
investments (even if the local
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<PAGE> 33
market price of the investments is unchanged) and changes in the dollar value of
the Fund's income available for distribution to its shareholders. The effect of
changes in the dollar value of a foreign currency on the dollar value of the
Fund's assets and liabilities and on the net investment income available for
distribution may be favorable or unfavorable.
The International Funds may incur costs in connection with conversions between
various currencies. In addition, each International Fund may be required to
liquidate portfolio assets, or may incur increased currency conversion costs, to
compensate for a decline in the dollar value of a foreign currency occurring
between the time when the Fund declares and pays a dividend, or between the time
when the Fund accrues and pays an operating expense in U.S. dollars.
CURRENCY HEDGING TRANSACTIONS
Each of the International Funds may, at the discretion of Unibank, engage in
foreign currency exchange transactions, in connection with the purchase and sale
of portfolio securities, to protect the value of specific portfolio positions or
in anticipation of changes in relative values of currencies in which current or
future Fund portfolio holdings are denominated or quoted. Currency hedging
transactions may include forward contracts (contracts with another party to buy
or sell a currency at a specified price on a specified date), futures contracts
(which are similar to forward contracts but are traded on an exchange) and
options to buy or sell currencies and currency futures contracts. For more
information on foreign currency hedging transactions, see the SAI. Unibank
expects to engage in currency hedging transactions only under unusual
circumstances. Therefore, investors in the International Funds will ordinarily
be exposed to the risks associated with fluctuations in the value of the U.S.
dollar relative to the currencies in which those Funds' portfolio securities
trade.
THE FUNDS' MANAGEMENT
INVESTMENT ADVISER
The Funds are advised by Undiscovered Managers, LLC ("Undiscovered Managers"),
700 North Pearl Street, Dallas, Texas 75201. Undiscovered Managers was organized
in 1997 and has responsibility for the management of the Funds' affairs, under
the supervision of Undiscovered Managers Funds' Board of Trustees. Each Fund's
investment portfolio is managed on a day-to-day basis by that Fund's
sub-adviser, under the general oversight of Undiscovered Managers and the Board
of Trustees. Undiscovered Managers monitors and evaluates each sub-adviser to
help assure that the sub-adviser is managing its Fund consistently with the
Fund's investment objective and restrictions and applicable laws and guidelines.
Undiscovered Managers does not, however, determine what investments will be
purchased or sold for a Fund.
Each Fund that has completed at least a full fiscal year of investment
operations as of the date of this Prospectus paid to Undiscovered Managers for
services rendered during such Fund's fiscal year ended August 31, 2000, a
management fee at the following annual percentage rates of such Fund's average
daily net assets, subject to the fee deferral arrangements described below:
<TABLE>
<CAPTION>
FUND FEE RATE
---- --------
<S> <C>
Behavioral Growth Fund 0.95%
Behavioral Value Fund 1.05%
Behavioral Long/Short Fund 1.55%
Special Small Cap Fund 0.65%*
REIT Fund 1.05%
Small Cap Value Fund 1.05%
Hidden Value Fund 0.95%
Core Equity Fund 0.74%
International Equity Fund 0.95%
International Small Cap Equity Fund 1.15%
</TABLE>
* The advisory fee rate for the Special Small Cap Fund varies 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 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
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<PAGE> 34
advisory fee rate will not exceed the annual rate of 1.65% nor be less
than the annual rate of 0.65%. The Fund uses the Russell 2000 Index as
the standard of performance comparison because that index is well known
to investors and is commonly regarded as representative of the
performance of United States smaller capitalization stocks. The sponsor
of the Russell 2000 Index does not sponsor and is not in any other way
affiliated with the Fund.
As described above, the advisory fee rate for the Special Small Cap Fund varies
depending on the investment performance of the Fund. The following table
provides information concerning a range of potential advisory fee rates for the
Fund.
<TABLE>
<CAPTION>
SPECIAL SMALL CAP FUND
TOTAL RETURN DIFFERENTIAL FEE
WITH RESPECT TO RUSSELL 2000 INDEX PERCENTAGE
---------------------------------- ----------
<S> <C>
(2.5)% 0.65%*
(1.5)% 0.85%
0% 1.15%
1.5% 1.45%
2.5% 1.65%**
</TABLE>
* Minimum advisory fee rate even if the total return of the
Russell 2000 Index exceeds the total return of the Fund by
more than 2.5%.
** Maximum advisory fee rate even if the total return of the Fund
exceeds the total return of the Russell 2000 Index by more
than 2.5%.
For the Small Cap Growth Fund, which has not completed a full fiscal year of
investment operations as of the date of this Prospectus, the Fund pays to
Undiscovered Managers a management fee at the annual rate of 0.95% of the Fund's
average daily net assets, subject to the fee deferral arrangements described
below.
SUB-ADVISERS AND PORTFOLIO MANAGERS
FULLER & THALER, formerly known as RJF Asset Management, Inc., is the
sub-adviser to the BEHAVIORAL GROWTH FUND, the BEHAVIORAL VALUE FUND and the
BEHAVIORAL LONG/SHORT FUND. As sub-adviser, Fuller & Thaler provides day-to-day
management of such Funds' portfolios. Fuller & Thaler, 411 Borel Avenue, Suite
402, San Mateo, California 94402, was founded in 1993, and currently serves as
an investment adviser to pension and profit sharing plans, academic institutions
and other institutional investors.
Russell J. Fuller, Frederick W. Stanske, Mark Moon and Brendan S. MacMillan have
day-to-day responsibility for managing the portfolio of each of the Behavioral
Growth Fund, the Behavioral Value Fund and the Behavioral Long/Short Fund. Mr.
Fuller founded Fuller & Thaler and has served as its President since 1993. He
was a Vice President of Strategic Development of Concord Capital Management from
1990 to 1993, and a Professor of Finance and Chair of the Department of Finance
at Washington State University from 1984 to 1990. Mr Stanske joined Fuller &
Thaler in 1996 as a Vice President and Portfolio Manager and became a Senior
Vice President and Portfolio Manager in 1997. Prior to joining Fuller & Thaler,
Mr. Stanske was employed as a Securities Analyst at Farmers Insurance Group from
1987 to 1989 and as a Vice President and Research Analyst at Fisher Investments
from 1989 to 1996. Mr. Moon joined Fuller & Thaler in January, 1999 as a Vice
President and Portfolio Manager. Prior to joining Fuller & Thaler, Mr. Moon was
employed as Chief Investment Officer at Heidt Capital Group, LLC from 1995 to
1998 and as Assistant Treasurer at Amgen Inc. from 1989 to 1995. Mr. MacMillan
joined Fuller & Thaler in April, 1999 as a Vice President and Portfolio Manager.
Prior to joining Fuller & Thaler, Mr. MacMillan was a Senior Equity Analyst and
Director of Research at Insight Capital Research & Management, Inc. from 1995 to
1999.
KESTREL MANAGEMENT is the sub-adviser to the SPECIAL SMALL CAP FUND. As
sub-adviser, Kestrel Management provides day-to-day management of the Fund's
portfolio. Kestrel Management, 411 Borel Avenue, Suite 403, San Mateo,
California 94402, was founded in 1993, and serves as an investment adviser for
pension and profit sharing plans, trusts, charitable organizations, and other
institutional and individual investors.
David J. Steirman and Abbott J. Keller have day-to-day responsibility for
managing the Special Small Cap Fund's portfolio. Messrs. Steirman and Keller
have served as President and Chief Investment Officer, respectively, of Kestrel
-33-
<PAGE> 35
Management since founding the firm in 1993. Messrs. Steirman and Keller have
worked together in the investment management business for more than 20 years,
having served from 1981 to 1993 as vice president and investment strategist,
respectively, at Concord Capital Management, and having both been employed
before that at American National Bank of Chicago.
BAY ISLE is the sub-adviser to the REIT FUND. As sub-adviser, Bay Isle provides
day-to-day management of the Fund's portfolio. Bay Isle, 160 Sansome Street, San
Francisco, California 94104, was founded in 1986, and serves as an investment
adviser to pension and profit sharing plans, trusts, charitable organizations,
and other institutional and individual investors.
William F.K. Schaff and Ralph L. Block have day-to-day responsibility for
managing the REIT Fund's portfolio. Mr. Schaff has served as a portfolio manager
and Chief Investment Officer of Bay Isle since 1989. Mr. Block has nearly 30
years' experience investing in REITs and is the author of a recent book on REIT
investing, The Essential REIT. Mr. Block is Bay Isle's chief REIT analyst and
has served as a REIT analyst for Bay Isle since 1993. Mr. Block was also a
Partner of the law firm of Graven Perry Block Brody & Qualls from 1969 to 1995.
KAPLAN ASSOCIATES is the sub-adviser to the SMALL CAP VALUE FUND and the HIDDEN
VALUE FUND. As sub-adviser, Kaplan Associates provides day-to-day management of
such Funds' portfolios. Kaplan Associates, 222 Berkeley Street, Suite 2010,
Boston, Massachusetts 02116, is the successor firm to J.L. Kaplan Associates, an
investment advisory firm founded in 1976. Kaplan Associates serves as an
investment adviser to pension and profit sharing plans, trusts, charitable
organizations and other institutional and private investors.
James L. Kaplan and Paul Weisman have day-to-day responsibility for managing the
portfolio of each of the Small Cap Value Fund and the Hidden Value Fund. Mr.
Kaplan has been the principal of Kaplan Associates and its predecessor since
founding the firm in 1976. From 1972 to 1984, he was Associate Professor of
Mathematics at Boston University. Mr. Weisman has been a portfolio manager at
the firm since 1986. From 1984 to 1986, Mr. Weisman was an investment analyst at
Delphi Management, Inc.
WAITE is the sub-adviser to the CORE EQUITY FUND. As sub-adviser, Waite provides
day-to-day management of the Fund's portfolio. Waite, 350 South Grand Avenue,
Los Angeles, California 90017, is the successor firm to Waite & Associates, the
successor firm to Waite & Correnti, an investment advisory firm founded in 1978.
Waite serves as an investment adviser to institutional and private investors.
Leslie A. Waite and Diana L. Calhoun have day-to-day responsibility for managing
the Core Equity Fund's portfolio. Mr. Waite founded Waite & Correnti in 1978 and
has served since then as President and Chief Investment Officer, first of that
firm, then of Waite & Associates and now of Waite & Associates, L.L.C. Ms.
Calhoun joined the firm in 1981 and holds the positions of Managing Director and
Senior Portfolio Manager. Ms. Calhoun held the position of Senior Vice President
of Trading from 1981 until becoming a Managing Director in 1997, and has been a
Senior Portfolio Manager since 1992.
MAZAMA is the sub-adviser to the SMALL CAP GROWTH FUND. As sub-adviser, Mazama,
provides day-to-day management of the Fund's portfolio. Mazama, One SW Columbia
Street, Suite 1860, Portland, Oregon 97258, is the successor firm to Mazama
Capital Management, LLC, which firm was organized in 1997 in connection with the
acquisition by such firm of substantially all of the assets of Black & Company
Asset Management, Inc., an investment advisory firm founded in 1993. Mazama
serves as investment adviser to certain pension and profit sharing plans,
trusts, charitable organizations and other institutional and private investors.
Ronald A. Sauer and Stephen C. Brink, CFA, have day-to-day responsibility for
managing the portfolio of the Small Cap Growth Fund. Helen M. Degener
contributes ongoing strategic advice and research with respect to the portfolio.
Mr. Sauer is a founder and the President and Senior Portfolio Manager at Mazama,
and has over twenty years of investment experience. Prior to founding Mazama in
October 1997, Mr. Sauer was the President and Director of Research from 1994 to
1997 of Black & Company, Inc., which he joined in 1983. Mr. Brink is a Vice
President and the Director of Research at Mazama, and has over 23 years of
investment experience. Prior to joining Mazama in 1997, he was the Chief
Investment Officer from 1991 to 1997 of US Trust's Pacific Northwest office,
where he had been employed since 1984. Ms. Degener is the Chief Investment
Officer of Mazama and has over 30 years of investment experience. Prior to
joining Mazama,
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<PAGE> 36
she was a Senior Vice President and portfolio manager at Fiduciary Trust Company
International, where she had worked since 1994.
UNIBANK is the sub-adviser to the INTERNATIONAL EQUITY FUND and the
INTERNATIONAL SMALL CAP EQUITY FUND. As sub-adviser, Unibank provides day-to-day
management of such Funds' portfolios. Unibank, 13-15 West 54th Street, New York,
New York 10019, was founded in 1994. Unibank or its affiliate, Unibank A/S,
currently serves as an investment adviser to pension and profit sharing plans,
trusts and other institutional and private investors.
Investment decisions for the International Equity Fund's and the International
Small Cap Equity Fund's portfolios are made by an investment team.
For each Fund that has completed at least a full fiscal year of investment
operations as of the date of this Prospectus, Undiscovered Managers paid to the
relevant sub-adviser for services rendered during such Fund's fiscal year ended
August 31, 2000, a sub-advisory fee at the following annual percentage rates of
such Fund's average daily net assets:
<TABLE>
<CAPTION>
FUND SUB-ADVISER FEE RATE
---- ----------- --------
<S> <C> <C>
Behavioral Growth Fund Fuller & Thaler 0.59%
Behavioral Value Fund Fuller & Thaler 0.70%
Behavioral Long/Short Fund Fuller & Thaler 1.20%
Special Small Cap Fund Kestrel Management 0.30%*
REIT Fund Bay Isle 0.70%
Small Cap Value Fund Kaplan Associates 0.70%
Hidden Value Fund Kaplan Associates 0.60%
Core Equity Fund Waite 0.40%
International Equity Fund Unibank 0.60%
International Small Cap Equity Fund Unibank 0.80%
</TABLE>
* The sub-advisory fee rate for the Special Small Cap Fund varies depending
on the investment performance of the Fund. The applicable fee rate is
determined by adding to (or subtracting from) 0.80% one-fifth of the
number of basis points by which the total return of the Fund during the
one-year period ending at the end of a quarter exceeds (or falls short
of) the total return of the Russell 2000 Index during the one-year period
ending at the end of such quarter. The sub-advisory fee rate will not
exceed the annual rate of 1.30% nor be less than the annual rate of
0.30%.
For the Small Cap Growth Fund, which has not completed a full fiscal year of
investment operations as of the date of this Prospectus, Undiscovered Managers
pays to Mazama a sub-advisory fee at the annual rate of 0.60% of the first $200
million of the Fund's average daily net assets, 0.55% of the next $100 million
of such assets and 0.50% of such assets in excess of $300 million.
FUND EXPENSES
Undiscovered Managers has contractually agreed to reduce its management fees and
pay the expenses of each Fund's Institutional Class shares in order to limit
such class's expenses (exclusive of brokerage costs, interest, taxes,
extraordinary expenses and, in the case of the Behavioral Long/Short Fund,
dividends payable with respect to securities sold short) to the following annual
percentage rate of the average daily net assets of such class, subject to the
obligation of a Fund to repay Undiscovered Managers such deferred fees and
expenses in future years, if any, when such Fund's Institutional Class expenses
(exclusive of brokerage costs, interest, taxes, extraordinary expenses and, in
the case of the Behavioral Long/Short Fund, dividends payable with respect to
securities sold short) fall below the stated percentage rate, but only to the
extent that such repayment would not cause such Fund's Institutional Class
expenses (exclusive of brokerage costs, interest, taxes, extraordinary expenses
and, in the case of the Behavioral Long/Short Fund, dividends payable with
respect to securities sold short) in any such future year to exceed the stated
percentage rate, and provided that such Fund is not obligated to repay any such
deferred fees and expenses more than three years after the end of the fiscal
year in which they were incurred (for expenses incurred before December 28,
1999, the Funds' repayment obligation extended until two years after the end of
the fiscal year in which the expenses were incurred): 0.99% for the Core Equity
Fund; 1.20% for the Small Cap Growth Fund; 1.30% for the Behavioral Growth Fund
and the Hidden Value Fund; 1.40% for the Behavioral Value
-35-
<PAGE> 37
Fund, the REIT Fund and the Small Cap Value Fund; 1.45% for the International
Equity Fund; 1.60% for the International Small Cap Equity Fund; 2.00% for the
Behavioral Long/Short Fund; and, for the Special Small Cap Fund, the sum of
0.55% plus the advisory fee rate for the Fund for the year in question. These
agreements have terms running through December 31, 2001 and are renewable from
year to year thereafter.
OTHER ARRANGEMENTS
Undiscovered Managers Funds has applied for an exemptive order from the
Securities and Exchange Commission to permit Undiscovered Managers, subject to
the approval of Undiscovered Managers Funds' Board of Trustees and certain other
conditions, to enter into sub-advisory agreements with sub-advisers other than
the current sub-adviser of any Fund or of any other investment portfolio of
Undiscovered Managers Funds without obtaining shareholder approval. The
exemptive request also seeks to permit the terms of an existing sub-advisory
agreement to be changed or the employment of an existing sub-adviser to be
continued without shareholder approval after events that would otherwise cause
an automatic termination of a sub-advisory agreement if such changes or
continuation are approved by Undiscovered Managers Funds' Board of Trustees.
There is no assurance that the Securities and Exchange Commission will issue the
exemptive order. This Prospectus would be revised and shareholders notified if
the sub-adviser of any Fund is changed.
-36-
<PAGE> 38
Your Investment
INSTITUTIONAL CLASS SHARES
The Funds' Institutional Class shares are offered without a front-end or
contingent deferred sales charge and are not subject to any 12b-1 fees.
Institutional Class shares of the Behavioral Long/Short Fund and the
International Small Cap Equity Fund are, however, subject to a contingent
redemption fee. See SELLING SHARES -- CONTINGENT REDEMPTION FEE below. Certain
of the Funds also offer Investor Class shares and Class C shares. For a
description of such shares, see ADDITIONAL INFORMATION below.
HOW SHARES ARE PRICED
The price of a Fund's shares is based on its net asset value ("NAV"). For a
Fund, the NAV per share of a class equals the total value of the assets
allocable to the class, minus the class's liabilities, divided by the number of
the class's outstanding shares.
Excluding any transaction-based or other fees charged by your broker-dealer, the
price you will pay (the "offering price") to buy Institutional Class shares of a
Fund is the NAV of such class of shares next calculated after your order is
received by the Funds' transfer or other agent or sub-agent with complete
information and meeting all of the requirements discussed in this Prospectus.
Excluding any transaction-based or other fees charged by your broker-dealer, the
amount you will receive when you sell Institutional Class shares of a Fund is
the NAV of such class of shares next calculated after your order is received by
the Funds' transfer or other agent or sub-agent with complete information and
meeting all of the requirements discussed in this Prospectus, minus any
applicable redemption fee. See CONTINGENT REDEMPTION FEE below.
A Fund's NAV is determined each day the New York Stock Exchange ("NYSE") is open
for regular business, at the earlier of 4:00 p.m. Eastern Time or the close of
regular trading on the NYSE. The NYSE is closed on weekends and national
holidays.
If the Funds' transfer or other agent or sub-agent receives your buy or sell
request in good order before the close of regular trading on the NYSE, you will
pay or receive that day's NAV. If the Funds' transfer or other agent or
sub-agent receives your buy or sell request in good order after the close of
regular trading on the NYSE, you will pay or receive the next day's NAV.
The Funds' securities for which market quotations are readily available are
valued at market value. Other securities for which current market quotations are
not readily available (including restricted securities, if any) and all other
assets are taken at fair value. With regard to the International Funds, because
foreign markets may be open at different times than the NYSE, the value of a
Fund's shares may change on days when shareholders are not able to buy or sell
them. If events materially affecting the values of a Fund's foreign investments
occur between the close of foreign markets and the close of regular trading on
the NYSE, these investments will be valued at their fair value.
BUYING SHARES
An investor may make an initial purchase of Institutional Class shares of any
Fund by submitting a completed application form and payment to:
Undiscovered Managers Funds
4400 Computer Drive
P.O. Box 5181
Westborough, MA 01581-5181
The minimum initial investment in any Fund is $250,000 in that Fund. A minimum
investment of $10,000 applies to the Trustees of Undiscovered Managers Funds,
investment advisory clients of the sub-advisers (and their directors, officers
and employees) of the investment portfolios of Undiscovered Managers Funds, and
employees of Undiscovered Managers
-37-
<PAGE> 39
and the parents, spouses and children of the foregoing. The minimum investment
may be waived by Undiscovered Managers in its sole discretion and will be waived
for you if you are a new shareholder in Undiscovered Managers Funds and you
initially invest less than $250,000 but sign a letter of intent stating your
intention to bring your balance to $250,000 within six months after your initial
purchase. If you purchase shares through a financial intermediary and hold such
shares through an omnibus account with that financial intermediary, the minimum
initial investment applies to the omnibus account and not to you individually.
Undiscovered Managers reserves the right to redeem your account at net asset
value if you have signed a letter of intent but fail to meet the minimum
investment within the specified time or to waive any minimum investment in its
sole discretion. Subsequent investments must be at least $50,000.
You may purchase shares of any Fund (i) with cash, (ii) by exchanging securities
on deposit with a custodian acceptable to Undiscovered Managers or (iii) with
any combination of such securities and cash. If you would like to purchase
shares of a Fund in exchange for securities please call 1-888-242-3514 for
additional information on the terms and conditions in order to do so.
All purchases made by check should be in U.S. dollars and made payable to
Undiscovered Managers Funds. Third party checks will not be accepted. When you
make a purchase by check, redemption proceeds will not be sent to you until the
check paying for the investment has cleared, which may take up to 15 calendar
days.
Upon acceptance of your order, the Funds' transfer agent opens an account,
applies the payment to the purchase of full and fractional Fund shares and mails
to you a statement of account confirming the transaction.
After an account has been established, you may send subsequent investments at
any time directly to the Funds at the above address. The remittance must be
accompanied by either the account identification slip detached from a statement
of account or a note containing sufficient information to identify the account,
i.e., the Fund name and your account number or your name and social security
number.
Initial and subsequent investments can also be made by federal funds wire. You
should instruct your bank to wire federal funds to Boston Safe Deposit & Trust
Company, ABA #011001234. The text of the wire should read as follows:
Boston Safe Deposit & Trust Company
ABA #011001234
Account #145483
FBO: Shareholder Name and Account Number
FOR: Undiscovered Managers Funds
A bank may charge a fee for transmitting funds by wire.
Each Fund and the Funds' distributor reserve the right to reject any purchase
order, including orders in connection with exchanges, for any reason which the
Fund or the distributor in its sole discretion deems appropriate. Although the
Funds do not presently anticipate that they will do so, each Fund reserves the
right to suspend or change the terms of the offering of its shares.
The Funds' distributor may accept telephone orders from broker-dealers, and
other intermediaries designated by such broker-dealers, who have been previously
approved by the distributor. A Fund will be deemed to have received a purchase
order when an approved broker-dealer or its authorized designee accepts such
order. It is the responsibility of such broker-dealers to promptly forward
purchase or redemption orders to the distributor. Although there are no
front-end or contingent deferred sales charges imposed by the Funds or the
distributor in connection with the Funds' offering of Institutional Class
shares, broker-dealers may charge you a transaction-based fee or other fee for
their services at either the time of purchase or the time of redemption. Such
charges may vary among broker-dealers but in all cases will be retained by the
broker-dealers and not remitted to the Funds.
-38-
<PAGE> 40
GENERAL SHAREHOLDER SERVICES
The Funds offer the following shareholder services, which are more fully
described in the SAI. Explanations and forms are available from the Funds.
Telephone redemption and exchange privileges will be established automatically
when you open an account unless you elect on the application to decline the
privileges. Other privileges must be specifically elected. A medallion signature
guarantee may be required to establish these privileges after an account is
opened.
FREE EXCHANGE PRIVILEGE. You may exchange Institutional Class shares of any
Fund, subject to any applicable redemption fees, for Institutional Class shares
of any other Fund. You may not exchange Institutional Class shares for Investor
Class shares or Class C shares. You may make an exchange by written instructions
or by telephone (unless you have elected on the application to decline telephone
exchange privileges). The exchange privilege should not be viewed as a means for
taking advantage of short-term swings in the market, and the Funds reserve the
right to terminate or limit the privilege of any shareholder who makes more than
four exchanges in any calendar year. An exchange of shares of one Fund for
shares of another Fund will generally be treated as a sale of the exchanged
shares for federal income tax purposes. The Funds may terminate or change the
terms of the exchange privilege at any time, upon 60 days' notice to
shareholders.
RETIREMENT PLANS. The Funds' Institutional Class shares may be purchased by all
types of tax-deferred retirement plans. The Funds' distributor makes available
retirement plan forms for IRAs.
SYSTEMATIC WITHDRAWAL PLAN. If the value of your account is at least $25,000,
you may have periodic cash withdrawals automatically paid to you or any person
designated by you.
AUTOMATIC INVESTMENT PLAN. Voluntary monthly investments of at least $1,000 may
be made automatically by pre-authorized withdrawals from your checking account.
SELLING SHARES
You can redeem shares of any Fund by sending a written request to:
PFPC Inc.
4400 Computer Drive
P.O. Box 5181
Westborough, MA 01581-5181
Attn: Undiscovered Managers Funds
As described below, you may also redeem your shares in any Fund by calling
Undiscovered Managers at 1-800-667-1224. Proceeds resulting from a written or
telephonic redemption request can be wired to your bank account or sent by check
in your name(s) (if multiple registered owners) to your record address(es).
Your written request must include the name of the Fund, the class of shares, the
account number, the exact name(s) in which the shares are registered, and the
number of shares or the dollar amount to be redeemed. All owners of the shares
must sign the request in the exact names in which the shares are registered
(this appears on your confirmation statement) and should indicate any special
capacity in which you are signing (such as trustee or custodian or on behalf of
a partnership, corporation or other entity). If you request that redemption
proceeds be wired to your bank account you must provide specific wire
instructions.
If (1) you are redeeming shares worth more than $50,000, (2) you are requesting
that the proceeds check be made out to someone other than you (as the registered
owner) or be sent to an address other than the record address, (3) the account
registration has changed within the last 30 days or (4) you are providing
instructions to wire the proceeds to a bank account not designated on the
application, you must have your signature guaranteed by a medallion signature
guarantor. A medallion signature guarantee may be obtained from a domestic bank
or trust company, broker, dealer, clearing agency, savings association, or other
financial institution which is participating in a medallion program recognized
by the Securities Transfer Association. The three recognized medallion programs
are Securities Transfer Agents Medallion Program (STAMP), Stock Exchanges
Medallion Program (SEMP) and New York Stock Exchange, Inc. Medallion Signature
-39-
<PAGE> 41
Program (NYSE MSP). Signature guarantees from financial institutions which are
not participating in one of these programs will not be accepted. Before
submitting the redemption request, you should verify with the guarantor
institution that it is a medallion guarantor. Signature guarantees by notaries
public are not acceptable.
When you telephone a redemption request, the proceeds are wired to the bank
account previously chosen by you. A wire fee (currently $5) will be deducted
from the proceeds.
If you decide to change the bank account to which proceeds are to be wired, you
must send in this change on the Service Options Form with a medallion signature
guarantee. Telephonic redemptions may only be made if your bank is a member of
the Federal Reserve System or has a correspondent bank that is a member of the
System. Unless you indicate otherwise on the account application, Undiscovered
Managers will be authorized to act upon redemption and exchange instructions
received by telephone from you or any person claiming to act as your
representative who can provide Undiscovered Managers with your account
registration and address as it appears on the records of Undiscovered Managers
Funds. Undiscovered Managers will employ these or other reasonable procedures to
confirm that instructions communicated by telephone are genuine. Undiscovered
Managers Funds, the Funds' transfer agent, the Funds' distributor, Undiscovered
Managers and the sub-advisers will not be liable for any losses due to
unauthorized or fraudulent instructions if these or other reasonable procedures
are followed, but may be liable for any losses due to unauthorized or fraudulent
instructions in the event reasonable procedures are not followed. For further
information, consult Undiscovered Managers. In times of heavy market activity,
if you encounter difficulty in placing a redemption or exchange order by
telephone, you may wish to place the order by mail as described above.
Proceeds resulting from a written redemption request will normally be mailed to
you within seven days after receipt of your request, if the request is in good
order. Telephonic redemption proceeds will normally be wired to your bank on the
first business day following receipt of a proper redemption request. If you
purchased shares by check and the check was deposited less than 15 calendar days
prior to the redemption request, the Fund may withhold redemption proceeds until
the check has cleared.
Each Fund will normally redeem your shares for cash; however, each Fund reserves
the right to pay the redemption price wholly or partly in kind if the Board of
Trustees of Undiscovered Managers Funds determines it to be advisable in the
interest of the remaining shareholders. If portfolio securities are distributed
in lieu of cash, you will normally incur brokerage commissions upon subsequent
disposition of any such securities. However, Undiscovered Managers Funds is
obligated to redeem shares solely in cash for any shareholder during any 90-day
period up to the lesser of $250,000 or 1% of the total net asset value of
Undiscovered Managers Funds at the beginning of such period.
If the balance in your account with a Fund is less than a minimum amount set by
the Board of Trustees of Undiscovered Managers Funds from time to time
(currently $250,000 for all accounts), that Fund may close the account and send
the proceeds to you. If you are affected by this policy, you will be notified of
the Fund's intention to close the account and will have 60 days immediately
following the notice to bring the account up to the minimum. The minimum does
not apply to automatic investment plans or accounts that have fallen below the
minimum solely because of fluctuations in a Fund's net asset value per share.
Undiscovered Managers Funds may suspend the right of redemption and may postpone
payment for more than seven days when the NYSE is closed for other than weekends
or holidays, or if permitted by the rules of the Securities and Exchange
Commission when trading on the NYSE is restricted or during an emergency which
makes it impracticable for a Fund to dispose of its securities or to determine
fairly the value of its net assets, or during any other period permitted by the
Securities and Exchange Commission for the protection of investors.
CONTINGENT REDEMPTION FEE
Each of the BEHAVIORAL LONG/SHORT FUND and the INTERNATIONAL SMALL CAP EQUITY
FUND are intended for long-term investors. In each such Fund, short-term "market
timers" who engage in frequent purchases and redemptions can disrupt the Fund's
investment program and create additional transaction costs that are borne by all
shareholders. For these reasons, each of the Behavioral Long/Short Fund and the
International Small Cap Equity Fund assess a redemption fee in the amount of
1.00% on redemptions and exchanges of Fund shares held for one year or less from
the time of purchase.
-40-
<PAGE> 42
The contingent redemption fee will be paid to the Fund from which the redemption
is made to help offset brokerage and other Fund costs associated with
redemptions. The Funds will use the "First-in, First-out" (FIFO) method to
determine the holding period of an investor's shares. Under this method, the
date of the redemption or exchange will be compared with the earliest purchase
date of Fund shares held in the account. If this holding period is one year or
less, the contingent redemption fee will be assessed. Redemption fees are not
sales loads or contingent deferred sales loads.
The contingent redemption fee does not apply to any shares purchased through the
reinvestment of dividends.
Dividends, Distributions and Taxes
The Funds declare and pay their net investment income to shareholders as
dividends annually. Each Fund also distributes all of its net capital gains
realized from the sale of portfolio securities. Any capital gain distributions
are normally made annually, but may, to the extent permitted by law, be made
more frequently as deemed advisable by the Board of Trustees of Undiscovered
Managers Funds. The Board of Trustees may change the frequency with which the
Funds declare or pay dividends.
Dividends and capital gain distributions will automatically be reinvested in
additional shares of the same Fund on the record date unless an investor has
elected to receive cash.
Each Fund intends to qualify as a regulated investment company under the Code.
As a regulated investment company, and provided that the Fund distributes
substantially all its net investment income to its shareholders, the Fund itself
will not pay any federal income tax on its distributed income and gains.
Income dividends and short-term capital gain distributions are taxable as
ordinary income. Long-term capital gain distributions from all Funds are taxable
as long-term capital gains regardless of how long an investor has owned shares
of a Fund. Distributions are taxable to a shareholder of a Fund even if they are
paid from income or gains earned by the Fund prior to the shareholder's
investment (and thus were included in the price paid by the shareholder).
Distributions are taxable as described above regardless of whether they are
distributed in cash or additional shares.
Certain designated dividends from the Funds are expected to be eligible for the
dividends-received deduction for corporate shareholders (subject to a holding
period requirement). However, any distributions received by a Fund from REITs
will not qualify for the dividends-received deduction. A Fund's investment in
REIT securities may require such Fund to accrue and distribute income not yet
received. In order to generate sufficient cash to make the requisite
distributions, the Fund may be required to sell securities in its portfolio that
it otherwise would have continued to hold (including when it is not advantageous
to do so). A Fund's investment in REIT securities also may result in the Fund's
receipt of cash in excess of the REIT's earnings; if the Fund distributes such
amounts, such distribution could constitute a return of capital to Fund
shareholders for federal income tax purposes.
The Funds' transfer agent will send each investor and the Internal Revenue
Service an annual statement detailing federal tax information, including
information about dividends and distributions paid to the investor during the
preceding year.
Each of the International Fund's investments in foreign securities may be
subject to foreign withholding taxes. In that case, such a Fund's yield on those
securities would be decreased. Shareholders may be entitled to claim a credit or
deduction with respect to foreign taxes. In addition, each International Fund's
investment in foreign securities or foreign currencies may increase or
accelerate such Fund's recognition of ordinary income and may affect the timing
or amount of such Fund's distributions.
Any gain resulting from the redemption, sale or exchange of shares of a Fund
will generally be subject to tax.
NOTE: The foregoing summarizes certain tax consequences of investing in the
Funds for shareholders who are U.S. citizens or corporations. Before
investing, an investor should consult his or her own tax adviser for
more information concerning the federal, state, local and foreign tax
consequences of investing in, redeeming or exchanging Fund shares.
-41-
<PAGE> 43
Additional Information
Certain of the Funds also offer Investor Class shares and/or Class C shares.
Investor Class shares and Class C shares are offered in separate prospectuses.
Investor Class shares and Class C shares are identical to Institutional Class
shares, except that (i) Class C shares are subject to certain front-end and
contingent deferred sales charges, (ii) Investor Class shares and Class C shares
bear certain 12b-1 fees (with Class C shares bearing higher 12b-1 fees than
Investor Class shares) and (iii) Investor Class shares and Class C shares have
separate voting rights in certain circumstances. Since a Fund's Institutional
Class shares bear no such 12b-1 fees, the Fund's Institutional Class shares are
expected to have a higher total return than such Fund's Investor Class and Class
C shares. None of the classes of shares of any Fund have conversion rights into
or may be exchanged for any other classes of shares of such Fund or of any other
Fund.
-42-
<PAGE> 44
Financial Highlights
The financial highlights table is intended to help you understand the financial
performance of each Fund's Institutional Class shares since the commencement of
the Funds' investment operations. Certain information reflects financial results
for a single Institutional Class share of a Fund. The total returns in the table
represent the rate that an investor would have earned or lost on an investment
in a Fund's Institutional Class shares (assuming reinvestment of all dividends
and distributions). This information has been audited by Deloitte & Touche LLP,
independent auditors, whose report, along with the Trust's financial statements,
are included in the Trust's Annual Report to Shareholders, which is available
upon request.
<TABLE>
<CAPTION>
Behavioral Behavioral
Growth Fund Value Fund
------------------------------------------------- -------------------------------
Institutional Institutional
Class (1) Class (2)
------------------------------------------------- -------------------------------
Year ended Year ended Period ended Year ended Period ended
August 31, 2000 August 31, 1999 August 31, 1998 August 31, 2000 August 31, 1999
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 21.38 $ 11.86 $ 12.50 $ 15.11 $ 12.50
Income from Investment Operations:
Net investment income (loss) (0.28) (0.13) (0.02) (0.06) (0.03)
Net realized and unrealized gain (loss)
on investments and securities sold short 9.30 9.65 (0.62) 5.33 2.64
----------- ----------- ----------- ----------- -----------
Total Income (Loss) from Investment
Operations 9.02 9.52 (0.64) 5.27 2.61
----------- ----------- ----------- ----------- -----------
Less Distributions:
Dividends from net investment income 0.00 0.00 0.00 (0.06) 0.00
Distributions from capital gains 0.00 0.00 0.00 (0.64) 0.00
----------- ----------- ----------- ----------- -----------
Total Distributions 0.00 0.00 0.00 (0.70) 0.00
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net asset value 9.02 9.52 (0.64) 4.57 2.61
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 30.40 $ 21.38 $ 11.86 $ 19.68 $ 15.11
=========== =========== =========== =========== ===========
TOTAL RETURN** 42.19% 80.27% (5.12)% 35.99% 20.88%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in 000s) $ 263,268 $ 94,075 $ 5,254 $ 21,015 $ 3,651
Ratios to average net assets (+):
Net investment income (loss) including
reimbursement (0.97)% (0.72)% (0.35)%* (0.35)% (0.35)%*
Operating expenses including
reimbursement 1.30% 1.30% 1.30%* 1.40% 1.40%*
Portfolio turnover rate** 90% 72% 67% 54% 58%
+ The operating expenses may reflect a reduction of the adviser fee, an allocation of expenses to the Investment Adviser,
or both. Had such actions not been taken, the ratios would have been as follows:
Net investment income (loss) (1.11)% (1.26)% (5.08)%* (1.26)% (6.84)%*
Operating expenses 1.44% 1.84% 6.03%* 2.31% 7.89%*
</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.
Per share data is calculated based upon the average shares outstanding during
the period.
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<PAGE> 45
<TABLE>
<CAPTION>
Behavioral REIT
Long/Short Fund Fund
---------------------------------- ---------------------------------------------------
Institutional Institutional
Class (1) Class (2)
---------------------------------- ---------------------------------------------------
Year ended Period ended Year ended Year ended Period ended
August 31, 2000 August 31, 1999 August 31, 2000 August 31, 1999 August 31, 1998
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.70 $ 12.50 $ 11.19 $ 10.64 $ 12.50
Income from Investment Operations:
Net investment income (loss) 0.35 0.20 0.51 0.53 0.20
Net realized and unrealized gain (loss)
on investments and securities sold short (0.61) 0.00(A) 1.26 0.30 (2.06)
---------- ---------- ---------- ----------- -----------
Total Income (Loss) from Investment
Operations (0.26) 0.20 1.77 0.83 (1.86)
---------- ---------- ---------- ----------- -----------
Less Distributions:
Dividends from net investment income (0.36) 0.00 (0.49) (0.28) 0.00
Distributions from capital gains 0.00 0.00 0.00 0.00 0.00
---------- ---------- ---------- ----------- -----------
Total Distributions (0.36) 0.00 (0.49) (0.28) 0.00
---------- ---------- ---------- ----------- -----------
Net increase (decrease) in net asset value (0.62) 0.20 1.28 0.55 (1.86)
---------- ---------- ---------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 12.08 $ 12.70 $ 12.47 $ 11.19 $ 10.64
========== ========== ========== =========== ===========
TOTAL RETURN** (2.05)% 1.60% 17.18% 7.84% (14.88)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in 000s) $ 4,235 $ 5,942 $ 44,558 $ 22,355 $ 9,122
Ratios to average net assets (+):
Net investment income (loss) including
reimbursement 2.81% 2.56%* 4.51% 4.86% 4.85%*
Operating expenses including 2.69%(B) 2.00%*(B) 1.40% 1.40% 1.40%*
reimbursement
Portfolio turnover rate** 242% 128% 64% 67% 52%
+ The operating expenses may reflect a reduction of the adviser fee, an allocation of expenses to the Investment Adviser,
or both. Had such actions not been taken, the ratios would have been as follows:
Net investment income (loss) 1.53% 0.77%* 4.01% 4.28% 1.63%*
Operating expenses 3.97% 3.79%* 1.90% 1.98% 4.62%*
</TABLE>
----------
* Annualized
** For periods less than one year, percentages are not annualized.
(1) The Fund commenced investment operations on December 28, 1998.
(2) The Fund's Institutional Class commenced investment operations on January
1, 1998.
(A) Represents less than $0.005 per share.
(B) The Fund incurred dividend expense on securities sold short for the year
ended August 31, 2000 and the period ended August 31, 1999. If the dividend
expense had not been incurred, the ratio of operating expenses including
reimbursement to average net assets for the year ended August 31, 2000
would have been 2.00%. The ratio for the period ended August 31, 1999 would
be unchanged.
Per share data is calculated based upon the average shares outstanding during
the period.
-44-
<PAGE> 46
<TABLE>
<CAPTION>
Special Small
Cap Fund
------------------------------------------------------
Institutional
Class (1)
------------------------------------------------------
Year ended Year ended Period ended
August 31, 2000 August 31, 1999 August 31, 1998
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.83 $ 10.40 $ 12.50
Income from Investment Operations:
Net investment income (loss) 0.06 (0.06) (0.03)
Net realized and unrealized gain
(loss) on investments and securities
sold short 1.20 2.49 (2.07)
------------ ------------ ------------
Total Income (Loss) from Investment
Operations 1.26 2.43 (2.10)
------------ ------------ ------------
Less Distributions:
Dividends from net investment income 0.00 0.00 0.00
Distributions from capital gains 0.00 0.00 0.00
------------ ------------ ------------
Total Distributions 0.00 0.00 0.00
------------ ------------ ------------
Net increase (decrease) in net asset value 1.26 2.43 (2.10)
------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 14.09 $ 12.83 $ 10.40
============ ============ ============
TOTAL RETURN** 9.82% 23.37% (16.80)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in 000s) $ 19,268 $ 16,078 $ 11,286
Ratios to average net assets (+):
Net investment income (loss) including
reimbursement 0.44% (0.52)% (0.51)%*
Operating expenses including reimbursement 1.20% 1.66% 1.70%*
Portfolio turnover rate** 60% 42% 9%
The operating expenses may reflect a reduction of the adviser fee, an allocation of expenses to the
Investment Adviser, or both. Had such action not been taken, the ratios would have been as follows:
Net investment income (loss) 0.24% (0.70)% (3.13)%*
Operating expenses 1.40% 1.84% 4.32%*
</TABLE>
----------
* Annualized
** For periods less than one year, percentages are not annualized.
(1) The Fund's Institutional Class commenced investment operations on December
30, 1997.
Per share data is calculated based upon the average shares outstanding during
the period.
-45-
<PAGE> 47
<TABLE>
<CAPTION>
Small Cap
Value Fund
---------------------------------------------------
Institutional
Class (1)
---------------------------------------------------
Year ended Year ended Period ended
August 31, 2000 August 31, 1999 August 31, 1998
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.54 $ 10.90 $ 12.50
Income from Investment Operations:
Net investment income (loss) 0.00(A) (0.01) 0.00(A)
Net realized and unrealized gain
(loss) on investments and
securities sold short 1.61 2.72 (1.60)
---------- ---------- ----------
Total Income (Loss) from
Investment Operations 1.61 2.71 (1.60)
---------- ---------- ----------
Less Distributions:
Dividends from net investment
income 0.00 (0.02) 0.00
Distributions from capital gains (0.18) (0.05) 0.00
---------- ---------- ----------
Total Distributions (0.18) (0.07) 0.00
---------- ---------- ----------
Net increase (decrease) in net asset
value 1.43 2.64 (1.60)
---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 14.97 $ 13.54 $ 10.90
========== ========== ==========
TOTAL RETURN** 12.08% 24.89% (12.80)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in 000s) $ 29,171 $ 20,038 $ 13,849
Ratios to average net assets (+):
Net investment income (loss)
including reimbursement 0.00% (0.11)% 0.15%*
Operating expenses including
reimbursement 1.40% 1.40% 1.40%*
Portfolio turnover rate** 58% 56% 10%
Net investment income (loss) (0.50)% (0.85)% (3.32)%*
Operating expenses 1.90% 2.14% 4.87%*
</TABLE>
----------
* Annualized
** For periods less than one year, percentages are not annualized.
(1) The Fund's Institutional Class commenced investment operations on December
30, 1997.
(A) Represents less than $0.005 per share.
Per share data is calculated based upon the average shares outstanding during
the period.
-46-
<PAGE> 48
<TABLE>
<CAPTION>
Hidden Value
Fund
----------------------------------------------------
Institutional
Class (1)
----------------------------------------------------
Year ended Year ended Period ended
August 31, 2000 August 31, 1999 August 31, 1998
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.48 $ 9.76 $ 12.50
Income from Investment Operations:
Net investment income (loss) 0.11 0.06 0.03
Net realized and unrealized gain (loss)
on investments and securities sold short 0.58 2.86 (2.77)
------------ ------------ ------------
Total Income (Loss) from Investment
Operations 0.69 2.92 (2.74)
------------ ------------ ------------
Less Distributions:
Dividends from net investment income (0.08) (0.08) 0.00
Distributions from capital gains (0.59) (0.12) 0.00
------------ ------------ ------------
Total Distributions (0.67) (0.20) 0.00
------------ ------------ ------------
Net increase (decrease) in net asset value 0.02 2.72 (2.74)
------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 12.50 $ 12.48 $ 9.76
============ ============ ============
TOTAL RETURN** 5.99% 30.11% (21.92)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in 000s) $ 5,381 $ 1,628 $ 925
Ratios to average net assets (+):
Net investment income (loss) including
reimbursement 1.10% 0.45% 0.58%*
Operating expenses including
reimbursement 1.30% 1.30% 1.30%*
Portfolio turnover rate** 112% 74% 74%
+ The operating expenses may reflect a reduction of the adviser fee, an allocation of expenses to the
Investment Adviser, or both. Had such actions not been taken, the ratios would have been as follows:
Net investment income (loss) (1.45)% (4.18)% (15.16)%*
Operating expenses 3.85% 5.93% 17.04%*
</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.
Per share data is calculated based upon the average shares outstanding during
the period.
-47
<PAGE> 49
<TABLE>
<CAPTION>
Core Equity
Fund
----------------------------------------------------
Institutional
Class (1)
----------------------------------------------------
Period ended Year ended Period ended
August 31, 2000 August 31, 1999 August 31, 1998
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.33 $ 12.75 $ 12.50
Income from Investment Operations:
Net investment income (loss) 0.16 0.14 0.05
Net realized and unrealized gain (loss)
on investments and securities sold short (0.56) 2.52 0.20
------------ ------------ ------------
Total Income (Loss) from Investment
Operations (0.40) 2.66 0.25
------------ ------------ ------------
Less Distributions:
Dividends from net investment income (0.16) (0.08) 0.00
Distributions from capital gains (0.00) 0.00 0.00
------------ ------------ ------------
Total Distributions (0.16) (0.08) 0.00
------------ ------------ ------------
Net increase (decrease) in net asset value (0.56) 2.58 0.25
------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 14.77 $ 15.33 $ 12.75
============ ============ ============
TOTAL RETURN** (2.67)% 20.92% 2.00%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in 000s) $ 4,788 $ 4,562 $ 1,295
Ratios to average net assets (+):
Net investment income (loss) including
reimbursement 1.08% 0.90% 1.18%*
Operating expenses including
reimbursement 0.99% 0.99% 0.99%*
Portfolio turnover rate** 34% 15% 46%
Net investment income (loss) (1.54)% (1.25)% (16.23)%*
Operating expenses 3.61% 3.14% 18.40%*
</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.
Per share data is calculated based upon the average shares outstanding during
the period.
<PAGE> 50
<TABLE>
<CAPTION>
International International Small
Equity Fund Cap Equity
-------------------------------- -------------------------------
Institutional Institutional
Class (1) Class (1)
-------------------------------- -------------------------------
Year ended Period ended Year ended Year ended
August 31, 2000 August 31, 1999 August 31, 2000 August 31, 1999
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.13 $ 12.50 $ 15.13 $ 12.50
Income from Investment Operations:
Net investment income (loss) 0.00(A) 0.09 (0.15) (0.02)
Net realized and unrealized gain (loss)
on investments and securities sold short 3.99 1.54 8.68 2.65
---------- ---------- ---------- ----------
Total Income (Loss) from Investment
Operations 3.99 1.63 8.53 2.63
---------- ---------- ---------- ----------
Less Distributions:
Dividends from net investment income (0.25) 0.00 0.00 0.00
Distributions from capital gains 0.00 0.00 (0.20) 0.00
---------- ---------- ---------- ----------
Total Distributions (0.25) 0.00 (0.20) 0.00
---------- ---------- ---------- ----------
Net increase (decrease) in net asset value 3.74 1.63 8.33 2.63
---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 17.87 $ 14.13 $ 23.46 $ 15.13
========== ========== ========== ==========
TOTAL RETURN** 28.26% 13.04% 56.70% 21.04%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in 000s) $ 16,427 $ 5,566 $ 20,977 $ 6,768
Ratios to average net assets (+):
Net investment income (loss) including
reimbursement (0.02)% 1.08%* (0.65)% (0.22)%*
Operating expenses including
reimbursement 1.45% 1.45%* 1.60% 1.60%*
Portfolio turnover rate** 24% 10% 20% 52%
+ The operating expenses may reflect a reduction of the adviser fee, an allocation of expenses to the
Investment Adviser, or both. Had such actions not been taken, the ratios would have been as follows:
Net investment income (loss) (0.92)% (1.07)%* (1.23)% (2.35)%*
Operating expenses 2.35% 3.60%* 2.18% 3.73%*
</TABLE>
----------
* Annualized
** For periods less than one year, percentages are not annualized.
(1) The Fund's Institutional Class commenced investment operations on
December 30, 1998.
(A) Represents less than $0.005 per share.
Per share data is calculated based upon the average shares outstanding during
the period.
The Small Cap Growth Fund had not commenced investment operations until October
2, 2000, and therefore has no financial highlights for the year-ended August 31,
2000.
-49-
<PAGE> 51
Where to Get More Information About the Funds
To find out more information about Undiscovered Managers Funds, ask for
a free copy of the following:
STATEMENT OF ADDITIONAL INFORMATION
The SAI provides more information about the Funds. It is filed with the
Securities and Exchange Commission and is incorporated by reference
into this Prospectus, which means that it is legally part of this
Prospectus.
ANNUAL/SEMI-ANNUAL REPORT
Additional information about the Funds' investments, other than the
investments of the Small Cap Growth Fund, is available in such Funds'
annual and semi-annual reports to shareholders. In such Funds' most
recent annual report to shareholders, you will find a discussion of the
market conditions and investment strategies that significantly affected
each such Fund's performance during its last fiscal year. The auditors'
report and financial statements included in such Funds' most recent
annual report to shareholders are incorporated by reference into this
Prospectus, which means that they are legally part of this Prospectus.
In addition, after the Small Cap Growth Fund's annual and semi-annual
reports to shareholders are required to be delivered to the Small Cap
Growth Fund's shareholders, such additional information and discussions
relating to the Small Cap Growth Fund will be found therein.
The SAI and the Funds' annual and semi-annual reports to shareholders
are available (except for the Small Cap Growth Fund's annual and
semi-annual reports, which will be available after they are required to
be delivered to the Small Cap Growth Fund's shareholders), without
charge, upon request. To obtain free copies of the SAI, the Funds'
annual and semi-annual reports to shareholders, request other
information and discuss your questions about any of the Funds, you may
call toll free 1-888-242-3514 or write to:
Undiscovered Managers Funds
Plaza of the Americas
700 North Pearl Street, Suite 1700
Dallas, Texas 75201
You may also view or download this Prospectus, the SAI and other
information about the Funds on our Internet site at
http://www.undiscoveredmanagers.com.
You can also review and copy the SAI and other information about the
Funds at the Securities and Exchange Commission Public Reference Room
in Washington, D.C. Call 1-202-942-8090 for information on the
operations of the Public Reference Room. Reports and other information
about the Funds are available on the EDGAR Database on the Securities
and Exchange Commission's Internet site at http://www.sec.gov and
copies of this information may be obtained, upon payment of a
duplicating fee by electronic request at the following E-mail address:
[email protected], or by writing to the Securities and Exchange
Commission's Public Reference Section, Washington, D.C. 20549-0102.
(Undiscovered Managers Funds' SEC Investment
Company Act file number is 811-8437)
<PAGE> 52
[LOGO] undiscovered managers (TM)
UNDISCOVERED MANAGERS FUNDS
PROSPECTUS
December 28, 2000
Investor Class shares of:
Undiscovered Managers Behavioral Growth Fund
Undiscovered Managers Behavioral Value Fund
Undiscovered Managers REIT Fund
Undiscovered Managers Small Cap Value Fund
UM Small Cap Growth Fund
UM International Equity Fund
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
<PAGE> 53
Table of Contents
<TABLE>
<S> <C>
The Funds.........................................................................................................3
WHAT YOU SHOULD KNOW ABOUT EACH FUND'S INVESTMENT
STRATEGIES, RISKS, PERFORMANCE, EXPENSES AND MANAGEMENT
Undiscovered Managers Behavioral Growth Fund......................................................................3
Undiscovered Managers Behavioral Value Fund.......................................................................5
Undiscovered Managers REIT Fund...................................................................................7
Undiscovered Managers Small Cap Value Fund........................................................................9
UM Small Cap Growth Fund.........................................................................................11
UM International Equity Fund.....................................................................................13
The Funds' Fees and Expenses.....................................................................................15
Other Policies and Additional Disclosure on Risks................................................................17
The Funds' Management............................................................................................20
Your Investment..................................................................................................23
OPENING AND MAINTAINING YOUR UNDISCOVERED
MANAGERS ACCOUNT
Investor Class Shares............................................................................................23
How Shares are Priced............................................................................................23
Buying Shares....................................................................................................23
General Shareholder Services.....................................................................................25
Selling Shares...................................................................................................25
Dividends, Distributions and Taxes...............................................................................27
Rule 12b-1 Fees..................................................................................................27
Additional Information...........................................................................................28
Financial Highlights.............................................................................................29
Where to get More Information about the Funds............................................................Back Cover
</TABLE>
<PAGE> 54
The Funds
Undiscovered Managers Funds has twelve investment portfolios. Six of the
portfolios (each a "Fund," and collectively, the "Funds") offer Investor Class
shares. Such Investor Class shares are offered through this Prospectus.
UNDISCOVERED MANAGERS BEHAVIORAL GROWTH FUND
(THE "BEHAVIORAL GROWTH FUND")
Investment Objective
Growth of capital
Principal Investment Strategies
The Behavioral Growth Fund seeks to achieve its objective by investing primarily
in common stocks of U.S. companies that the Fund's sub-adviser, Fuller & Thaler
Asset Management, Inc. ("Fuller & Thaler"), believes have growth
characteristics.
In selecting stocks for the Behavioral Growth Fund, Fuller & Thaler applies
principles based on behavioral studies. Fuller & Thaler believes that behavioral
biases on the part of investors may cause the market to underreact to new,
positive information concerning a company. Fuller & Thaler analyzes companies
that have recently announced higher than expected earnings, and seeks to
determine whether the market value of a company's stock fully reflects Fuller &
Thaler's expectations as to the company's future earnings and growth prospects.
Under normal market conditions, the Fund will invest substantially all of its
assets in common stocks.
Principal Risks
Investing in the Behavioral Growth Fund involves risks. The Fund may not perform
as well as other investments, and as with all mutual funds, there is the risk
that you could lose money on your investment in the Fund. Factors that could
harm the investment performance of the Fund include:
o A general decline in the U.S. stock markets,
o Poor performance of individual stocks held by the Fund,
o Potentially rapid price changes (volatility) of equity securities and
o The risks associated with investment in small capitalization companies
(such as more abrupt price movements, greater dependence on individual
personnel or products, limited markets and less liquidity than larger, more
established companies).
-3-
<PAGE> 55
Fund Performance
The bar chart below shows the annual total return of the Investor Class shares
of the Behavioral Growth Fund for the 1999 calendar year. The table following
the bar chart compares the average annual total returns of the Fund's Investor
Class shares to the returns of the Russell 2500 Growth Index. This performance
information gives some indication of the risks of an investment in the Fund by
comparing the performance of the Fund's Investor Class shares with a broad
measure of market performance. How the Fund has performed in the past is not
necessarily an indication of how the Fund will perform in the future.
Annual Total Return of the Fund's Investor
Class Shares for the Calendar Year Ended 12/31/99 *
[BAR CHART]
<TABLE>
<CAPTION>
1999
<S> <C>
RETURN 65.13%
</TABLE>
* The unannualized total return of the Fund's Investor Class shares for the
first three quarters of 2000 was (4.60)%.
During the period shown in the bar chart above, the highest quarterly return of
the Fund's Investor Class shares was 35.91% for the quarter ended December 31,
1999 and the lowest quarterly return of the Fund's Investor Class shares was
(0.70)% for the quarter ended March 31, 1999.
Average Annual Total Returns of the Fund's
Investor Class Shares (as of 12/31/99)
<TABLE>
<CAPTION>
Since Commencement of Investment
Operations of the Investor Class Shares
Past One Year of the Fund (7/31/98)
------------- ---------------------------------------
<S> <C> <C>
Behavioral Growth Fund 65.13% 58.09%
Russell 2500 Growth Index* 55.48% 39.24%
</TABLE>
* The Russell 2500 Growth Index consists of those companies within the
2500 smallest of the 3000 largest U.S.-domiciled companies, ranked by
market capitalization, with higher price-to-book ratios and higher
forecasted growth rates. An index is a list of stocks. It is not a
managed investment portfolio like the Fund. The returns of an index are
calculated without taking into account brokerage costs and the other
expenses associated with mutual funds and other managed investment
portfolios.
-4-
<PAGE> 56
UNDISCOVERED MANAGERS BEHAVIORAL VALUE FUND
(THE "BEHAVIORAL VALUE FUND")
Investment Objective
Capital appreciation
Principal Investment Strategies
The Behavioral Value Fund seeks to achieve its objective by investing primarily
in common stocks of U.S. companies that the Fund's sub-adviser, Fuller & Thaler,
believes have value characteristics.
In selecting stocks for the Behavioral Value Fund, Fuller & Thaler applies
principles based on behavioral studies. Fuller & Thaler believes that behavioral
biases on the part of investors may cause the market to overreact to old,
negative information and underreact to new, positive information concerning a
company. In an effort to take advantage of such behavioral biases, Fuller &
Thaler begins by looking at companies that have price-to-earnings ratios below
the median in their industry group or decreasing stock values on an absolute
basis. Within such universes of stocks, Fuller & Thaler selects investments for
the Fund based on such factors as recent under-performance of the company's
stock relative to the market, significant share purchases by company insiders or
stock repurchase activity by the company.
Under normal market conditions, the Fund will invest substantially all of its
assets in common stocks.
Principal Risks
Investing in the Behavioral Value Fund involves risks. The Fund may not perform
as well as other investments, and as with all mutual funds, there is the risk
that you could lose money on your investment in the Fund. Factors that could
harm the investment performance of the Fund include:
o A general decline in the U.S. stock markets,
o Poor performance of individual stocks held by the Fund,
o Potentially rapid price changes (volatility) of equity securities and
o The risks associated with investment in small capitalization companies
(such as more abrupt price movements, greater dependence on individual
personnel or products, limited markets and less liquidity than larger, more
established companies).
-5-
<PAGE> 57
Fund Performance
Since the Behavioral Value Fund had not commenced offering Investor Class shares
as of December 31, 1999, this Prospectus shows performance information of the
Fund's Institutional Class shares. The bar chart below shows the annual total
return of the Fund's Institutional Class shares for the 1999 calendar year. The
table following the bar chart compares the average annual total returns of the
Fund's Institutional Class shares to the returns of the Russell 2000 Value
Index. This performance information gives some indication of the risks of an
investment in the Fund by comparing the performance of the Fund's Institutional
Class shares with a broad measure of market performance. How the Fund has
performed in the past is not necessarily an indication of how the Fund will
perform in the future.
Annual Total Return of the Fund's Institutional
Class Shares for the Calendar Year Ended 12/31/99 (1)(2)
[BAR CHART]
<TABLE>
<CAPTION>
1999
<S> <C>
RETURN 33.11%
</TABLE>
(1) Although the Institutional Class shares of the Fund are not offered in this
Prospectus, the total return of the Fund's Institutional Class shares is
shown because the Fund's Institutional Class shares and Investor Class
shares represent interests in the same portfolio of securities. The annual
returns of the two classes differ only to the extent that Investor Class
shares are subject to higher expenses than Institutional Class shares. If
the higher expenses were reflected, returns would be less than those shown.
(2) The unannualized total return of the Fund's Institutional Class shares for
the first three quarters of 2000 was 19.54%.
During the period shown in the bar chart above, the highest quarterly return of
the Fund's Institutional Class shares was 32.11% for the quarter ended June 30,
1999 and the lowest quarterly return of the Fund's Institutional Class shares
was (8.73)% for the quarter ended March 31, 1999.
Average Annual Total Returns of the Fund's
Institutional Class Shares (as of 12/31/99)
<TABLE>
<CAPTION>
Since Commencement of Investment
Past One Year Operations of the Fund (12/28/98)
------------- ---------------------------------
<S> <C> <C>
Behavioral Value Fund 33.11% 39.86%
Russell 2000 Value Index* (1.49)% (1.97)%
</TABLE>
* The Russell 2000 Value Index consists of those companies within the 2000
smallest of the 3000 largest U.S.-domiciled companies, ranked by market
capitalization, with lower price-to-book ratios and lower forecasted growth
rates. An index is a list of stocks. It is not a managed investment
portfolio like the Fund. The returns of an index are calculated without
taking into account brokerage costs and the other expenses associated with
mutual funds and other managed investment portfolios.
-6-
<PAGE> 58
UNDISCOVERED MANAGERS REIT FUND
(THE "REIT FUND")
Investment Objective
High total investment return through a combination of capital appreciation and
current income
Principal Investment Strategies
The REIT Fund seeks to achieve its objective by investing substantially all of
its assets, and in any event in normal market conditions at least 65% of its
assets, in equity securities of real estate investment trusts ("REITs"),
including REITs with relatively small market capitalization. The Fund may invest
in both equity REITs and mortgage REITs. Equity REITs take ownership interests
in real estate. Mortgage REITs invest in mortgages (loans secured by interests
in real estate).
In selecting investments for the REIT Fund, the Fund's sub-adviser, Bay Isle
Financial Corporation ("Bay Isle"), seeks to identify REITs that have good
management, strong balance sheets, above average growth in "funds from
operations" and that trade at a discount to their assets' underlying value.
"Funds from operations" generally means a REIT's net income (excluding gains (or
losses) from debt restructuring and sales of property) plus depreciation of real
property. The Fund is "non-diversified."
Principal Risks
Investing in the REIT Fund involves risks. The Fund may not perform as well as
other investments, and as with all mutual funds, there is the risk that you
could lose money on your investment in the Fund. Factors that could harm the
investment performance of the Fund include:
o A general decline in the U.S. stock markets,
o Poor performance of individual stocks held by the Fund,
o Potentially rapid price changes (volatility) of equity securities,
o The risks associated with investment in small capitalization companies
(such as more abrupt price movements, greater dependence on individual
personnel or properties and less liquidity than larger companies),
o The risks of being non-diversified (greater susceptibility to risks
associated with particular issuers than a diversified fund since a
non-diversified fund may invest a greater percentage of its total assets in
securities of individual issuers, or may invest in a smaller number of
different issuers, than a diversified fund) and
o The risks associated with investment in a portfolio consisting primarily of
REITs. The prices of equity REITs are affected by changes in the value of
the underlying property owned by the REITs. The prices of mortgage REITs
are affected by the quality of any credit they extend, the credit
worthiness of the mortgages they hold, as well as by the value of the
property that secures the mortgages. A REIT must distribute 95% of its
taxable income to qualify for beneficial federal tax treatment. If a REIT
is unable to qualify, then it would be taxed as a corporation and
distributions to shareholders would be reduced. Although the Fund does not
invest directly in real estate, an investment in the Fund is subject to
certain of the risks associated with the ownership of real estate. These
risks include possible declines in the value of real estate, risks related
to general and local economic conditions, possible lack of availability of
mortgage funds and changes in interest rates.
-7-
<PAGE> 59
Fund Performance
Since the Investor Class shares of the REIT Fund had less than a full calendar
year of performance as of December 31, 1999, this Prospectus shows performance
information of the Fund's Institutional Class shares. The bar chart below shows
the annual total returns of the Fund's Institutional Class shares for the 1998
and 1999 calendar years. The table following the bar chart compares the average
annual total returns of the Fund's Institutional Class shares to the returns of
the Morgan Stanley REIT Index. This performance information gives some
indication of the risks of investing in the Fund by showing changes in the
performance of the Fund's Institutional Class shares from year to year and by
showing how the average annual returns of the Fund's Institutional Class shares
compare with those of a broad measure of REIT market performance. How the Fund
has performed in the past is not necessarily an indication of how the Fund will
perform in the future.
Annual Total Returns of the Fund's Institutional
Class Shares for the Calendar Years Ended 12/31/98 and 12/31/99 (1)(2)
[BAR CHART]
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
RETURN (9.76)% (0.39)%
</TABLE>
(1) Although the Institutional Class shares of the Fund are not offered in this
Prospectus, the total returns of the Fund's Institutional Class shares are
shown because the Fund's Institutional Class shares and Investor Class
shares represent interests in the same portfolio of securities. The annual
returns of the two classes differ only to the extent that Investor Class
shares are subject to higher expenses than Institutional Class shares. If
the higher expenses were reflected, returns would be less than those shown.
(2) The unannualized total return of the Fund's Institutional Class shares for
the first three quarters of 2000 was 25.91%.
During the period shown in the bar chart above, the highest quarterly return of
the Fund's Institutional Class shares was 12.25% for the quarter ended June 30,
1999 and the lowest quarterly return of the Fund's Institutional Class shares
was (6.91)% for the quarter ended September 30, 1998.
Average Annual Total Returns of the Fund's
Institutional Class Shares (as of 12/31/99)
<TABLE>
<CAPTION>
Since Commencement of Investment
Past One Year Operations of the Fund (1/1/98)
------------- -------------------------------
<S> <C> <C>
REIT Fund (0.39)% (5.20)%
Morgan Stanley REIT Index* (4.55)% (10.94)%
</TABLE>
* The Morgan Stanley REIT Index is a market capitalization weighted total
return index of 129 REITs which exceed certain minimum liquidity criteria
concerning market capitalization, shares outstanding, trading volume and
per share market price. An index is a list of stocks. It is not a managed
investment portfolio like the Fund. The returns of an index are calculated
without taking into account brokerage costs and the other expenses
associated with mutual funds and other managed investment portfolios.
-8-
<PAGE> 60
UNDISCOVERED MANAGERS SMALL CAP VALUE FUND
(THE "SMALL CAP VALUE FUND")
Investment Objective
Long-term growth of capital
Principal Investment Strategies
The Small Cap Value Fund seeks to achieve its objective by investing primarily
in common stocks of companies with a market float of $1.2 billion or less that
the Fund's sub-adviser, J.L. Kaplan Associates, LLC ("Kaplan Associates"),
considers to be undervalued at the time of purchase and to have the potential
for long-term capital appreciation. Market float is the total value of all the
outstanding shares of a company that are registered for public trading and does
not include shares held by company founders or other insiders that are not
freely resalable.
In selecting stocks for the Small Cap Value Fund, Kaplan Associates will
consider, among other things, the issuer's earning power and the value of the
issuer's assets.
Under normal market conditions, the Small Cap Value Fund will invest at least
65% of its total assets in common stocks of companies with a market float of
$1.2 billion or less.
Principal Risks
Investing in the Small Cap Value Fund involves risks. The Fund may not perform
as well as other investments, and as with all mutual funds, there is the risk
that you could lose money on your investment in the Fund. Factors that could
harm the investment performance of the Fund include:
o A general decline in the U.S. stock markets,
o Poor performance of individual stocks held by the Fund,
o Potentially rapid price changes (volatility) of equity securities and
o The risks associated with investment in small capitalization companies
(such as more abrupt price movements, greater dependence on individual
personnel or products, limited markets and less liquidity than larger, more
established companies).
-9-
<PAGE> 61
Fund Performance
The bar chart below shows the annual total return of the Investor Class shares
of the Small Cap Value Fund for the 1999 calendar year. The table following the
bar chart compares the average annual total returns of the Fund's Investor Class
shares to the returns of the Russell 2000 Value Index. This performance
information gives some indication of the risks of an investment in the Fund by
comparing the performance of the Fund's Investor Class shares with a broad
measure of market performance. The table also includes the returns of the
Russell 2000 Index, the index against which the Fund was formerly compared. The
Fund has chosen to use the Russell 2000 Value Index as its new comparative index
because the Russell 2000 Value Index more closely reflects the Fund's investment
universe than the Russell 2000 Index. How the Fund has performed in the past is
not necessarily an indication of how the Fund will perform in the future.
Annual Total Return of the Fund's Investor
Class Shares for the Calendar Year Ended 12/31/99 *
[BAR CHART]
<TABLE>
<CAPTION>
1999
<S> <C>
RETURN 9.54%
</TABLE>
* The unannualized total return of the Fund's Investor Class shares for the
first three quarters of 2000 was 8.04%.
During the period shown in the bar chart above, the highest quarterly return of
the Fund's Investor Class shares was 22.12% for the quarter ended June 30, 1999
and the lowest quarterly return of the Fund's Investor Class shares was (8.57)%
for the quarter ended September 30, 1999.
Average Annual Total Returns of the Fund's
Investor Class Shares (as of 12/31/99)
<TABLE>
<CAPTION>
Since Commencement of Investment
Operations of the Investor Class
Past One Year Shares of the Fund (7/31/98)
------------- --------------------------------
<S> <C> <C>
Small Cap Value Fund 9.54% 2.57%
Russell 2000 Value Index* (1.49)% (4.39)%
Russell 2000 Index* 21.26% 13.55%
</TABLE>
* The Russell 2000 Value Index consists of those companies within the 2000
smallest of the 3000 largest U.S.-domiciled companies, ranked by market
capitalization, with lower price-to-book ratios and lower forecasted growth
rates. The Russell 2000 Index consists of the 2000 smallest of the 3000
largest U.S.-domiciled companies, ranked by market capitalization. An index
is a list of stocks. It is not a managed investment portfolio like the
Fund. The returns of an index are calculated without taking into account
brokerage costs and the other expenses associated with mutual funds and
other managed investment portfolios.
-10-
<PAGE> 62
UM SMALL CAP GROWTH FUND
(THE "SMALL CAP GROWTH FUND")
Investment Objective
Long-term Capital Appreciation
Principal Investment Strategies
The Small Cap Growth Fund seeks to achieve its objective by investing primarily
in common stocks of U.S. companies with market capitalizations of $2.5 billion
or less that the Fund's sub-adviser, Mazama Capital Management, Inc. ("Mazama")
believes possess superior growth characteristics. Mazama utilizes a proprietary
Price Performance Model to assist it in identifying growth companies it believes
are undervalued relative to their management quality and earnings potential.
Under normal market conditions, the Small Cap Growth Fund will invest
substantially all of its assets in common stocks and at least 65% of its assets
in common stocks of companies with market capitalizations of $2.5 billion or
less.
Principal Risks
Investing in the Small Cap Growth Fund involves risks. The Fund may not perform
as well as other investments, and as with all mutual funds, there is the risk
that you could lose money on your investment in the Fund. Factors that could
harm the investment performance of the Fund include:
o A general decline in the U.S. stock markets,
o Poor performance of individual stocks held by the Fund,
o Potentially rapid price changes (volatility) of equity securities and
o The risks associated with investment in small capitalization companies
(such as more abrupt price movements, greater dependence on individual
personnel or products, limited markets and less liquidity than larger, more
established companies)
-11-
<PAGE> 63
Fund Performance
The Small Cap Growth Fund's performance is variable. Since the Fund commenced
investment operations on October 2, 2000, this Prospectus does not include a bar
chart showing annual total returns or a table showing average annual total
returns compared against an appropriate broad-based securities market index.
-12-
<PAGE> 64
UM INTERNATIONAL EQUITY FUND
(THE "INTERNATIONAL EQUITY FUND")
Investment Objective
Capital appreciation
Principal Investment Strategies
The International Equity Fund seeks to achieve its objective by investing in
common stocks or other equity securities of issuers of any market capitalization
(small-, mid- or large-cap) that are principally traded on any of the stock
markets of Europe, Asia, Australia or New Zealand.
Although permitted to invest in equity securities that are principally traded on
any of the foregoing stock markets, the International Equity Fund will not,
under normal market conditions, invest more than 15% of its total assets in
issuers whose equity securities are not principally traded on stock markets in
countries included in the Morgan Stanley Capital International Europe,
Australasia, Far East Index (the "MSCI EAFE Index"). As of the date of this
Prospectus, the countries included in the MSCI EAFE Index were:
<TABLE>
<S> <C> <C> <C>
Australia France Japan Singapore
Austria Germany Netherlands Spain
Belgium Hong Kong New Zealand Sweden
Denmark Ireland Norway Switzerland
Finland Italy Portugal United Kingdom
</TABLE>
In selecting investment securities for the International Equity Fund, the Fund's
sub-adviser, Unibank Securities, Inc. ("Unibank"), focuses on identifying
structural changes and understanding the implications of these changes and then
identifying investment opportunities that result from these changes.
Under normal market conditions, the Fund will invest substantially all of its
assets in equity securities.
Principal Risks
Investing in the International Equity Fund involves risks. The Fund may not
perform as well as other investments, and as with all mutual funds, there is the
risk that you could lose money on your investment in the Fund. Factors that
could harm the investment performance of the Fund include:
o A general decline in the stock markets of Europe, Asia, Australia or New
Zealand,
o Poor performance of individual stocks held by the Fund,
o Potentially rapid price changes (volatility) of equity securities and
o The risks associated with investment in foreign securities generally, which
include fluctuations in the value of the U.S. dollar relative to other
countries' currencies, higher volatility than U.S. securities and limited
liquidity, risks of unfavorable political and economic developments in
foreign countries, and less extensive or reliable information about foreign
companies than about U.S. companies.
-13-
<PAGE> 65
Fund Performance
Since the International Equity Fund had not commenced offering Investor Class
shares as of December 31, 1999, this Prospectus shows performance information of
the Fund's Institutional Class shares. The bar chart below shows the annual
total return of the Fund's Institutional Class shares for the 1999 calendar
year. The table following the bar chart compares the average annual total
returns of the Fund's Institutional Class shares to the returns of the MSCI EAFE
Index. This performance information gives some indication of the risks of an
investment in the Fund by comparing the performance of the Fund's Institutional
Class shares with a broad measure of market performance. How the Fund has
performed in the past is not necessarily an indication of how the Fund will
perform in the future.
Annual Total Return of the Fund's Institutional
Class Shares for the Calendar Year Ended 12/31/99 (1)(2)
[BAR CHART]
<TABLE>
<CAPTION>
1999
<S> <C>
RETURN 58.94%
</TABLE>
(1) Although the Institutional Class shares of the Fund are not offered in this
Prospectus, the total return of the Fund's Institutional Class shares is
shown because the Fund's Institutional Class shares and Investor Class
shares represent interests in the same portfolio of securities. The annual
returns of the two classes differ only to the extent that Investor Class
shares are subject to higher expenses than Institutional Class shares. If
the higher expenses were reflected, returns would be less than those shown.
(2) The unannualized total return of the Fund's Institutional Class shares for
the first three quarters of 2000 was (14.24)%.
During the period shown in the bar chart above, the highest quarterly return of
the Fund's Institutional Class shares was 37.30% for the quarter ended December
31, 1999 and the lowest quarterly return of the Fund's Institutional Class
shares was 2.40% for the quarter ended March 31, 1999.
Average Annual Total Returns of the Fund's
Institutional Class Shares (as of 12/31/99)
<TABLE>
<CAPTION>
Since Commencement of Investment
Past One Year Operations of the Fund (12/30/98)
------------- ---------------------------------
<S> <C> <C>
International Equity Fund 58.94% 58.74%
MSCI EAFE Index* 25.27% 25.03%
</TABLE>
* The MSCI EAFE Index consists of over 1000 stocks from any of 20 different
countries with Japan, United Kingdom, France and Germany being the most
heavily weighted. An index is a list of stocks. It is not a managed
investment portfolio like the Fund. The returns of an index are calculated
without taking into account brokerage costs and the other expenses
associated with mutual funds and other managed investment portfolios.
-14-
<PAGE> 66
THE FUNDS' FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Investor Class shares of the Funds.
<TABLE>
<CAPTION>
Behavioral Behavioral REIT
Growth Fund Value Fund Fund
----------- ---------- ----
Investor Investor Investor
Class Class Class
----- ----- -----
<S> <C> <C> <C>
SHAREHOLDER FEES (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases none none none
Maximum Deferred Sales Charge (Load) none none none
Maximum Sales Charge (Load) Imposed on Reinvested Dividends none none none
Redemption Fees (1) none none none
Exchange Fees. none none none
ANNUAL FUND OPERATING EXPENSES (expenses that are
deducted from Fund assets)
Management Fees 0.95% 1.05% 1.05%
Distribution and/or Service (12b-1) Fees (2) 0.35% 0.35% 0.35%
Other Expenses 0.52% 1.26% 0.98%
Total Annual Fund Operating Expenses 1.82% 2.66% 2.38%
Fee Reduction and/or Expense Reimbursement (3) (0.17)% (0.91)% (0.63)%
Net Expenses (3) 1.65% 1.75% 1.75%
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Funds
with the cost of investing in other mutual funds.
This Example assumes that (i) you invest $10,000 in each Fund for the time
periods indicated, (ii) your investment has a 5% return each year, (iii) you
redeem all of your shares at the end of those periods and (iv) each Fund's
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
Behavioral Growth Fund Behavioral Value Fund REIT Fund
---------------------- --------------------- ---------
<S> <C> <C> <C>
One Year $ 168 $ 178 $ 178
Three Years $ 556 $ 740 $ 682
Five Years $ 969 $1,329 $1,213
Ten Years $2,123 $2,926 $2,668
</TABLE>
(1) Redemptions by wire transfer are subject to a wire fee (currently $5) that
is deducted from the redemption proceeds.
(2) 12b-1 fees cause long-term Investor Class shareholders to pay more than
would be permitted if such fees were a front-end sales charge.
(3) Undiscovered Managers, LLC, the Funds' investment adviser, has
contractually agreed, through December 31, 2001, to reduce its fees and/or
pay the expenses of the Funds' Investor Class shares in order to limit such
class's expenses (exclusive of brokerage costs, interest, taxes and
extraordinary expenses) to the percentages of net assets shown above,
subject to later reimbursement by such Funds in certain circumstances. See
THE FUNDS' MANAGEMENT -- FUND EXPENSES below.
-15-
<PAGE> 67
<TABLE>
<CAPTION>
Small Cap Small Cap International
Value Fund Growth Fund Equity Fund
---------- ----------- -----------
Investor Investor Investor
Class Class Class
----- ----- -----
<S> <C> <C> <C>
SHAREHOLDER FEES (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases none none none
Maximum Deferred Sales Charge (Load) none none none
Maximum Sales Charge (Load) Imposed on Reinvested Dividends none none none
Redemption Fees (1) none none none
Exchange Fees. none none none
ANNUAL FUND OPERATING EXPENSES (expenses that are
deducted from Fund assets)
Management Fees 1.05% 0.95% 0.95%
Distribution and/or Service (12b-1) Fees (2) 0.35% 0.35% 0.35%
Other Expenses 0.97% 0.54%(3) 1.40%
Total Annual Fund Operating Expenses 2.37% 1.84% 2.70%
Fee Reduction and/or Expense Reimbursement (4) (0.62)% (0.29)% (0.90)%
Net Expenses (4) 1.75% 1.55% 1.80%
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Funds
with the cost of investing in other mutual funds.
This Example assumes that (i) you invest $10,000 in each Fund for the time
periods indicated, (ii) your investment has a 5% return each year, (iii) you
redeem all of your shares at the end of those periods and (iv) each Fund's
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
Small Cap Value Fund Small Cap Growth Fund (5) International Equity Fund
-------------------- ------------------------- -------------------------
<S> <C> <C> <C>
One Year $ 178 $158 $ 899
Three Years $ 680 $550 $1,275
Five Years $1,209 $1,772
Ten Years $2,659 $3,135
</TABLE>
(1) Redemptions by wire transfer are subject to a wire fee (currently $5) that
is deducted from the redemption proceeds.
(2) 12b-1 fees cause long-term Investor Class shareholders to pay more than
would be permitted if such fees were a front-end sales charge.
(3) Since the Fund is newly organized, Other Expenses is based on estimated
amounts for the current fiscal year.
(4) Undiscovered Managers, LLC, the Funds' investment adviser, has
contractually agreed, through December 31, 2001, to reduce its fees and/or
pay the expenses of the Funds' Investor Class shares in order to limit such
class's expenses (exclusive of brokerage costs, interest, taxes and
extraordinary expenses) to the percentages of net assets shown above,
subject to later reimbursement by such Funds in certain circumstances. See
THE FUNDS' MANAGEMENT -- FUND EXPENSES below.
(5) Under SEC rules, a newly organized fund, such as the Small Cap Growth Fund,
is required to show expenses in an example for one- and three-year periods
only.
-16-
<PAGE> 68
OTHER POLICIES AND ADDITIONAL DISCLOSURE ON RISKS
OTHER POLICIES
ADDITIONAL FUND INVESTMENTS
Each Fund may invest its cash in repurchase agreements and other cash
instruments pending investment in equity securities.
PORTFOLIO TURNOVER
The Funds are actively managed and consequently may engage in frequent trading
of portfolio securities. High portfolio turnover results in higher brokerage and
other expenses, which could reduce Fund performance. High portfolio turnover
also may increase the amount of taxes payable by a Fund's shareholders.
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
The investment objectives and policies of the Funds can be changed without
shareholder approval, except for the policies that are identified in the Funds'
Statement of Additional Information (the "SAI") as "fundamental."
MORE ABOUT RISK
COMMON STOCKS AND OTHER EQUITY SECURITIES
The Funds invest mostly in "common stocks." "Common stocks" represent an
ownership interest in a company. The Funds can also invest in securities that
can be exercised for or converted into common stocks (such as warrants or
convertible preferred stock). While offering greater potential for long-term
growth, common stocks and similar equity securities are more volatile and more
risky than some other forms of investment. Therefore, the value of your
investment in a Fund may sometimes decrease instead of increase. Each Fund may
invest in equity securities of companies with relatively small market
capitalization. Securities of such companies may be more volatile than the
securities of larger, more established companies and the broad equity market
indices. See SMALL COMPANIES below. Each Fund's investments may include
securities traded "over-the-counter" as well as those traded on a securities
exchange. Some over-the-counter securities may be more difficult to sell under
some market conditions.
Convertible securities include other securities, such as warrants, that provide
an opportunity for equity participation. Because convertible securities can be
converted into equity securities, their values will normally increase or
decrease as the values of the underlying equity securities increase or decrease.
The movements in the prices of convertible securities, however, may be smaller
than the movements in the value of the underlying equity securities.
SMALL COMPANIES
All of the Funds may invest in companies with relatively small market
capitalization, and the Small Cap Value Fund and the Small Cap Growth Fund will
invest primarily in such companies.
Investments in companies with relatively small capitalization may involve
greater risk than is usually associated with stocks of larger companies. These
companies often have sales and earnings growth rates which exceed those of
companies with larger capitalization. Such growth rates may in turn be reflected
in more rapid share price appreciation. However, companies with smaller
capitalization often have limited product lines, markets or financial resources
and may be dependent upon a relatively small management group. The securities
may have limited marketability and may be subject to more abrupt or erratic
movements in price than securities of companies with larger capitalization or
market averages in general. The net asset value per share of Funds that invest
in companies with smaller capitalization therefore may fluctuate more widely
than market averages.
REAL ESTATE INVESTMENT TRUSTS
The REIT Fund will invest primarily in shares of REITs. REITs pool investors'
funds for investment primarily in income producing real estate or real estate
related loans or interests. Under the Internal Revenue Code of 1986, as amended
(the "Code"), a REIT is not taxed on income it distributes to its shareholders
if it complies with several requirements relating to its organization,
ownership, assets and income and a requirement that it generally distribute to
its shareholders at least 95% of its taxable income (other than net capital
gains) for each taxable year. REITs can generally be classified as Equity
-17-
<PAGE> 69
REITs, Mortgage REITs and Hybrid REITs. Equity REITs, which invest the majority
of their assets directly in real property, derive their income primarily from
rents. Equity REITs can also realize capital gains by selling properties that
have appreciated in value. Mortgage REITs, which invest the majority of their
assets in real estate mortgages, derive their income primarily from interest
payments. Hybrid REITs combine the characteristics of both Equity REITs and
Mortgage REITs.
While the Fund will not invest in real estate directly, the Fund may be subject
to risks similar to those associated with the direct ownership of real estate
(in addition to securities market risks) because of its policy of concentrating
its investments in the real estate industry. These risks include declines in the
value of real estate, risks related to general and local economic conditions,
dependency on management skill, heavy cash flow dependency, possible lack of
availability of mortgage funds, overbuilding, extended vacancies of properties,
increased competition, increases in property taxes and operating expenses,
changes in zoning laws, losses due to costs resulting from the clean-up of
environmental problems, liability to third parties for damages resulting from
environmental problems, casualty or condemnation losses, limitations on rents,
changes in neighborhood values and in the appeal of properties to tenants and
changes in interest rates.
In addition to these risks, Equity REITs may be affected by changes in the value
of the underlying property owned by the trusts, while Mortgage REITs may be
affected by the quality of any credit they extend. Further, Equity REITs and
Mortgage REITs are dependent upon management skills and generally may not be
diversified. Equity REITs and Mortgage REITs are also subject to heavy cash flow
dependency, defaults by borrowers and self-liquidation. In addition, Equity
REITs and Mortgage REITs could fail to qualify for tax-free pass-through of
income under the Code. There is also the risk that borrowers under mortgages
held by a REIT or lessees of property that a REIT owns may be unable to meet
their obligations to the REIT. In the event of a default by a borrower or
lessee, the REIT may experience delays in enforcing its rights as a mortgagee or
lessor and may incur substantial costs associated with protecting its
investments. In addition to the foregoing risks, certain "special purpose" REITs
in which the Fund may invest may have their assets in specific real estate
sectors, such as hotel REITs, nursing home REITs or warehouse REITs, and are
therefore subject to the risks associated with adverse developments in these
sectors.
FOREIGN SECURITIES
The International Equity Fund will invest primarily in foreign securities.
Investments in foreign securities present risks not typically associated with
investments in comparable securities of U.S. issuers.
Since most foreign securities are denominated in foreign currencies or traded
primarily in securities markets in which settlements are made in foreign
currencies, the value of these investments and the net investment income
available for distribution to shareholders of the International Equity Fund may
be affected favorably or unfavorably by changes in currency exchange rates or
exchange control regulations. Because the International Equity Fund may purchase
securities denominated in foreign currencies, a change in the value of any such
currency against the U.S. dollar will result in a change in the U.S. dollar
value of the Fund's assets and the Fund's income available for distribution.
In addition, although the International Equity Fund's income may be received or
realized in foreign currencies, the Fund will be required to compute and
distribute its income in U.S. dollars. Therefore, if the value of a currency
relative to the U.S. dollar declines after the Fund's income has been earned in
that currency, translated into U.S. dollars and declared as a dividend, but
before payment of such dividend, the Fund could be required to liquidate
portfolio securities to pay such dividend. Similarly, if the value of a currency
relative to the U.S. dollar declines between the time the Fund incurs expenses
in U.S. dollars and the time such expenses are paid, the amount of such currency
required to be converted into U.S. dollars in order to pay such expenses in U.S.
dollars will be greater than the equivalent amount in such currency of such
expenses at the time they were incurred.
There may be less information publicly available about a foreign corporate or
government issuer than about a U.S. issuer, and foreign corporate issuers are
not generally subject to accounting, auditing and financial reporting standards
and practices comparable to those in the United States. The securities of some
foreign issuers are less liquid and at times more volatile than securities of
comparable U.S. issuers. Foreign brokerage commissions and securities custody
costs are often
-18-
<PAGE> 70
higher than those in the United States, and judgments against foreign entities
may be more difficult to obtain and enforce. With respect to certain foreign
countries, there is a possibility of governmental expropriation of assets,
confiscatory taxation, political or financial instability and diplomatic
developments that could affect the value of investments in those countries. The
receipt of interest on foreign government securities may depend on the
availability of tax or other revenues to satisfy the issuer's obligations.
The International Equity Fund's investments in foreign securities may include
investments in emerging or developing countries, whose economies or securities
markets are not yet highly developed. Special risks associated with these
investments (in addition to the risks associated with foreign investments
generally) may include, among others, greater political uncertainties, an
economy's dependence on revenues from particular commodities or on international
aid or development assistance, currency transfer restrictions, highly limited
numbers of potential buyers for such securities and delays and disruptions in
securities settlement procedures.
The International Equity Fund may invest in foreign equity securities either by
purchasing such securities directly or by purchasing "depository receipts."
Depository receipts are instruments issued by a bank that represent an interest
in equity securities held by arrangement with the bank. Depository receipts can
be either "sponsored" or "unsponsored." Sponsored depository receipts are issued
by banks in cooperation with the issuer of the underlying equity securities.
Unsponsored depository receipts are arranged without involvement by the issuer
of the underlying equity securities. Less information about the issuer of the
underlying equity securities may be available in the case of unsponsored
depository receipts.
In determining whether to invest in securities of foreign issuers, Unibank will
consider the likely effects of foreign taxes on the net yield available to the
International Equity Fund and to its shareholders. Compliance with foreign tax
law may reduce the Fund's net income available for distribution to its
shareholders.
FOREIGN CURRENCY
Most foreign securities in the International Equity Fund's portfolio will be
denominated in foreign currencies or traded in securities markets in which
settlements are made in foreign currencies. Similarly, any income on such
securities is generally paid to the Fund in foreign currencies. The value of
these foreign currencies relative to the U.S. dollar varies continually, causing
changes in the dollar value of the Fund's portfolio investments (even if the
local market price of the investments is unchanged) and changes in the dollar
value of the Fund's income available for distribution to its shareholders. The
effect of changes in the dollar value of a foreign currency on the dollar value
of the Fund's assets and liabilities on the net investment income available for
distribution may be favorable or unfavorable.
The International Equity Fund may incur costs in connection with conversions
between various currencies. In addition, the Fund may be required to liquidate
portfolio assets, or may incur increased currency conversion costs, to
compensate for a decline in the dollar value of a foreign currency occurring
between the time when the Fund declares and pays a dividend, or between the time
when the Fund accrues and pays an operating expense in U.S. dollars.
CURRENCY HEDGING TRANSACTIONS
The International Equity Fund may, at the discretion of Unibank, engage in
foreign currency exchange transactions, in connection with the purchase and sale
of portfolio securities, to protect the value of specific portfolio positions or
in anticipation of changes in relative values of currencies in which current or
future Fund portfolio holdings are denominated or quoted. Currency hedging
transactions may include forward contracts (contracts with another party to buy
or sell a currency at a specified price on a specified date), futures contracts
(which are similar to forward contracts but are traded on an exchange) and
options to buy or sell currencies and currency futures contracts. For more
information on foreign currency hedging transactions, see the SAI. Unibank
expects to engage in currency hedging transactions only under unusual
circumstances. Therefore, investors in the International Equity Fund will
ordinarily be exposed to the risks associated with fluctuations in the value of
the U.S. dollar relative to the currencies in which the Fund's portfolio
securities trade.
-19-
<PAGE> 71
THE FUNDS' MANAGEMENT
INVESTMENT ADVISER
The Funds are advised by Undiscovered Managers, LLC ("Undiscovered Managers"),
700 North Pearl Street, Dallas, Texas 75201. Undiscovered Managers was organized
in 1997 and has responsibility for the management of the Funds' affairs, under
the supervision of Undiscovered Managers Funds' Board of Trustees. Each Fund's
investment portfolio is managed on a day-to-day basis by that Fund's
sub-adviser, under the general oversight of Undiscovered Managers and the Board
of Trustees. Undiscovered Managers monitors and evaluates each sub-adviser to
help assure that the sub-adviser is managing its Fund consistently with the
Fund's investment objective and restrictions and applicable laws and guidelines.
Undiscovered Managers does not, however, determine what investments will be
purchased or sold for a Fund.
Each Fund that has completed at least a full fiscal year of investment
operations as of the date of this Prospectus paid to Undiscovered Managers for
services rendered during such Fund's fiscal year ended August 31, 2000, a
management fee at the following annual percentage rates of such Fund's average
daily net assets, subject to the fee deferral arrangements described below:
<TABLE>
<CAPTION>
FUND FEE RATE
---- --------
<S> <C>
Behavioral Growth Fund 0.95%
Behavioral Value Fund 1.05%
REIT Fund 1.05%
Small Cap Value Fund 1.05%
International Equity Fund 0.95%
</TABLE>
For the Small Cap Growth Fund, which has not completed a full fiscal year of
investment operations as of the date of this Prospectus, the Fund pays to
Undiscovered Managers a management fee at the annual rate of 0.95% of the Fund's
average daily net assets, subject to the fee deferral arrangements described
below.
SUB-ADVISERS AND PORTFOLIO MANAGERS
FULLER & THALER, formerly known as RJF Asset Management, Inc., is the
sub-adviser to the BEHAVIORAL GROWTH FUND AND THE BEHAVIORAL VALUE FUND. As
sub-adviser, Fuller & Thaler provides day-to-day management of such Funds'
portfolios. Fuller & Thaler, 411 Borel Avenue, Suite 402, San Mateo, California
94402, was founded in 1993, and currently serves as an investment adviser to
pension and profit sharing plans, academic institutions and other institutional
investors.
Russell J. Fuller, Frederick W. Stanske, Mark Moon and Brendan S. MacMillan have
day-to-day responsibility for managing the portfolio of each of the Behavioral
Growth Fund and the Behavioral Value Fund. Mr. Fuller founded Fuller & Thaler
and has served as its President since 1993. He was a Vice President of Strategic
Development of Concord Capital Management from 1990 to 1993, and a Professor of
Finance and Chair of the Department of Finance at Washington State University
from 1984 to 1990. Mr Stanske joined Fuller & Thaler in 1996 as a Vice President
and Portfolio Manager and became a Senior Vice President and Portfolio Manager
in 1997. Prior to joining Fuller & Thaler, Mr. Stanske was employed as a
Securities Analyst at Farmers Insurance Group from 1987 to 1989 and as a Vice
President and Research Analyst at Fisher Investments from 1989 to 1996. Mr. Moon
joined Fuller & Thaler in January, 1999 as a Vice President and Portfolio
Manager. Prior to joining Fuller & Thaler, Mr. Moon was employed as Chief
Investment Officer at Heidt Capital Group, LLC from 1995 to 1998 and as
Assistant Treasurer at Amgen Inc. from 1989 to 1995. Mr. MacMillan joined Fuller
& Thaler in April, 1999 as a Vice President and Portfolio Manager. Prior to
joining Fuller & Thaler, Mr. MacMillan was a Senior Equity Analyst and Director
of Research at Insight Capital Research & Management, Inc. from 1995 to 1999.
BAY ISLE is the sub-adviser to the REIT FUND. As sub-adviser, Bay Isle provides
day-to-day management of the Fund's portfolio. Bay Isle, 160 Sansome Street, San
Francisco, California 94104, was founded in 1986, and serves as an
-20-
<PAGE> 72
investment adviser to pension and profit sharing plans, trusts, charitable
organizations, and other institutional and individual investors.
William F.K. Schaff and Ralph L. Block have day-to-day responsibility for
managing the REIT Fund's portfolio. Mr. Schaff has served as a portfolio manager
and Chief Investment Officer of Bay Isle since 1989. Mr. Block has nearly 30
years' experience investing in REITs and is the author of a recent book on REIT
investing, The Essential REIT. Mr. Block is Bay Isle's chief REIT analyst and
has served as a REIT analyst for Bay Isle since 1993. Mr. Block was also a
Partner of the law firm of Graven Perry Block Brody & Qualls from 1969 to 1995.
KAPLAN ASSOCIATES is the sub-adviser to the SMALL CAP VALUE FUND. As
sub-adviser, Kaplan Associates provides day-to-day management of the Fund's
portfolio. Kaplan Associates, 222 Berkeley Street, Suite 2010, Boston,
Massachusetts 02116, is the successor firm to J.L. Kaplan Associates, an
investment advisory firm founded in 1976. Kaplan Associates serves as an
investment adviser to pension and profit sharing plans, trusts, charitable
organizations and other institutional and private investors.
James L. Kaplan and Paul Weisman have day-to-day responsibility for managing the
portfolio of the Small Cap Value Fund. Mr. Kaplan has been the principal of
Kaplan Associates and its predecessor since founding the firm in 1976. From 1972
to 1984, he was Associate Professor of Mathematics at Boston University. Mr.
Weisman has been a portfolio manager at the firm since 1986. From 1984 to 1986,
Mr. Weisman was an investment analyst at Delphi Management, Inc.
MAZAMA is the sub-adviser to the SMALL CAP GROWTH FUND. As sub-adviser, Mazama,
provides day-to-day management of the Fund's portfolio. Mazama, One SW Columbia
Street, Suite 1860, Portland, Oregon 97258, is the successor firm to Mazama
Capital Management, LLC, which firm was organized in 1997 in connection with the
acquisition by such firm of substantially all of the assets of Black & Company
Asset Management, Inc., an investment advisory firm founded in 1993. Mazama
serves as investment adviser to certain pension and profit sharing plans,
trusts, charitable organizations and other institutional and private investors.
Ronald A. Sauer and Stephen C. Brink, CFA, have day-to-day responsibility for
managing the portfolio of the Small Cap Growth Fund. Helen M. Degener
contributes ongoing strategic advice and research with respect to the portfolio.
Mr. Sauer is a founder and the President and Senior Portfolio Manager at Mazama,
and has over twenty years of investment experience. Prior to founding Mazama in
October 1997, Mr. Sauer was the President and Director of Research from 1994 to
1997 of Black & Company, Inc., which he joined in 1983. Mr. Brink is a Vice
President and the Director of Research at Mazama, and has over 23 years of
investment experience. Prior to joining Mazama in 1997, he was the Chief
Investment Officer from 1991 to 1997 of US Trust's Pacific Northwest office,
where he had been employed since 1984. Ms. Degener is the Chief Investment
Officer of Mazama and has over 30 years of investment experience. Prior to
joining Mazama, she was a Senior Vice President and portfolio manager at
Fiduciary Trust Company International, where she had worked since 1994.
UNIBANK is the sub-adviser to the INTERNATIONAL EQUITY FUND. As sub-adviser,
Unibank provides day-to-day management of the Fund's portfolio. Unibank, 13-15
West 54th Street, New York, New York 10019, was founded in 1994. Unibank or its
affiliate, Unibank A/S, currently serves as an investment adviser to pension and
profit sharing plans, trusts and other institutional and private investors.
Investment decisions for the International Equity Fund's portfolio are made by
an investment team.
For each Fund that has completed a full fiscal year of investment operations as
of the date of this Prospectus, Undiscovered Managers paid to the relevant
sub-adviser for services rendered during such Fund's fiscal year ended August
31, 2000, a sub-advisory fee at the following annual percentage rates of such
Fund's average daily net assets:
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<PAGE> 73
<TABLE>
<CAPTION>
FUND SUB-ADVISER FEE RATE
---- ----------- --------
<S> <C> <C>
Behavioral Growth Fund Fuller & Thaler 0.59%
Behavioral Value Fund Fuller & Thaler 0.70%
REIT Fund Bay Isle 0.70%
Small Cap Value Fund Kaplan Associates 0.70%
International Equity Fund Unibank 0.60%
</TABLE>
For the Small Cap Growth Fund, which has not completed a full fiscal year of
investment operations as of the date of this Prospectus, Undiscovered Managers
pays to Mazama a sub-advisory fee at the annual rate of 0.60% of the first $200
million of the Fund's average daily net assets, 0.55% of the next $100 million
of such assets and 0.50% of such assets in excess of $300 million.
FUND EXPENSES
Undiscovered Managers has contractually agreed to reduce its management fees and
pay the expenses of each Fund's Investor Class shares in order to limit such
class's expenses (exclusive of brokerage costs, interest, taxes and
extraordinary expenses) to the following annual percentage rate of the average
daily net assets of such class, subject to the obligation of a Fund to repay
Undiscovered Managers such deferred fees and expenses in future years, if any,
when such Fund's Investor Class expenses (exclusive of brokerage costs,
interest, taxes and extraordinary expenses) fall below the stated percentage
rate, but only to the extent that such repayment would not cause such Fund's
Investor Class expenses (exclusive of brokerage costs, interest, taxes and
extraordinary expenses) in any such future year to exceed the stated percentage
rate, and provided that such Fund is not obligated to repay any such deferred
fees and expenses more than three years after the end of the fiscal year in
which they were incurred (for expenses incurred before December 28, 1999, the
Funds' repayment obligation extended until two years after the end of the fiscal
year in which the expenses were incurred): 1.55% for the Small Cap Growth Fund;
1.65% for the Behavioral Growth Fund; 1.75% for the REIT Fund, the Small Cap
Value Fund and the Behavioral Value Fund; and 1.80% for the International Equity
Fund. These agreements have terms running through December 31, 2001 and are
renewable from year to year thereafter.
OTHER ARRANGEMENTS
Undiscovered Managers Funds has applied for an exemptive order from the
Securities and Exchange Commission to permit Undiscovered Managers, subject to
the approval of Undiscovered Managers Funds' Board of Trustees and certain other
conditions, to enter into sub-advisory agreements with sub-advisers other than
the current sub-adviser of any Fund or of any other investment portfolio of
Undiscovered Managers Funds without obtaining shareholder approval. The
exemptive request also seeks to permit the terms of an existing sub-advisory
agreement to be changed or the employment of an existing sub-adviser to be
continued without shareholder approval after events that would otherwise cause
an automatic termination of a sub-advisory agreement if such changes or
continuation are approved by Undiscovered Managers Funds' Board of Trustees.
There is no assurance that the Securities and Exchange Commission will issue the
exemptive order. This Prospectus would be revised and shareholders notified if
the sub-adviser of any Fund is changed.
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<PAGE> 74
Your Investment
INVESTOR CLASS SHARES
The Funds' Investor Class shares are offered without a front-end or contingent
deferred sales charge but are subject to certain 12b-1 fees. See RULE 12b-1 FEES
below. All of the Funds also offer Institutional Class shares and certain of the
Funds offer Class C shares. For a description of such shares, see ADDITIONAL
INFORMATION below.
HOW SHARES ARE PRICED
The price of a Fund's shares is based on its net asset value ("NAV"). For a
Fund, the NAV per share of a class equals the total value of the assets
allocable to the class, minus the class's liabilities, divided by the number of
the class's outstanding shares.
Excluding any transaction-based or other fees charged by your broker-dealer, the
price you will pay (the "offering price") to buy Investor Class shares of a Fund
is the NAV of such class of shares next calculated after your order is received
by the Funds' transfer or other agent or sub-agent with complete information and
meeting all of the requirements discussed in this Prospectus. Excluding any
transaction-based or other fees charged by your broker-dealer, the amount you
will receive when you sell Investor Class shares of a Fund is the NAV of such
class of shares next calculated after your order is received by the Funds'
transfer or other agent or sub-agent with complete information and meeting all
of the requirements discussed in this Prospectus.
A Fund's NAV is determined each day the New York Stock Exchange ("NYSE") is open
for regular business, at the earlier of 4:00 p.m. Eastern Time or the close of
regular trading on the NYSE. The NYSE is closed on weekends and national
holidays.
If the Funds' transfer or other agent or sub-agent receives your buy or sell
request in good order before the close of regular trading on the NYSE, you will
pay or receive that day's NAV. If the Funds' transfer or other agent or
sub-agent receives your buy or sell request in good order after the close of
regular trading on the NYSE, you will pay or receive the next day's NAV.
The Funds' securities for which market quotations are readily available are
valued at market value. Other securities for which current market quotations are
not readily available (including restricted securities, if any) and all other
assets are taken at fair value. With regard to the International Equity Fund,
because foreign markets may be open at different times than the NYSE, the value
of the Fund's shares may change on days when shareholders are not able to buy or
sell them. If events materially affecting the values of the Fund's foreign
investments occur between the close of foreign markets and the close of regular
trading on the NYSE, these investments will be valued at their fair value.
BUYING SHARES
An investor may make an initial purchase of Investor Class shares of any Fund by
submitting a completed application form and payment to:
Undiscovered Managers Funds
4400 Computer Drive
P.O. Box 5181
Westborough, MA 01581-5181
The minimum initial investment in any Fund is $250,000 in that Fund. A minimum
investment of $10,000 applies to the Trustees of Undiscovered Managers Funds,
investment advisory clients of the sub-advisers (and their directors, officers
and employees) of the investment portfolios of Undiscovered Managers Funds, and
employees of Undiscovered Managers and the parents, spouses and children of the
foregoing. The minimum investment may be waived by Undiscovered
-23-
<PAGE> 75
Managers in its sole discretion and will be waived for you if you are a new
shareholder in Undiscovered Managers Funds and you initially invest less than
$250,000 but sign a letter of intent stating your intention to bring your
balance to $250,000 within six months after your initial purchase. If you
purchase shares through a financial intermediary and hold such shares through an
omnibus account with that financial intermediary, the minimum initial investment
applies to the omnibus account and not to you individually. Undiscovered
Managers reserves the right to redeem your account at net asset value if you
have signed a letter of intent but fail to meet the minimum investment within
the specified time or to waive any minimum investment in its sole discretion.
Subsequent investments must be at least $50,000.
You may purchase shares of any Fund (i) with cash, (ii) by exchanging securities
on deposit with a custodian acceptable to Undiscovered Managers or (iii) with
any combination of such securities and cash. If you would like to purchase
shares of a Fund in exchange for securities please call 1-888-242-3514 for
additional information on the terms and conditions in order to do so.
All purchases made by check should be in U.S. dollars and made payable to
Undiscovered Managers Funds. Third party checks will not be accepted. When you
make a purchase by check, redemption proceeds will not be sent to you until the
check paying for the investment has cleared, which may take up to 15 calendar
days.
Upon acceptance of your order, the Funds' transfer agent opens an account,
applies the payment to the purchase of full and fractional Fund shares and mails
to you a statement of account confirming the transaction.
After an account has been established, you may send subsequent investments at
any time directly to the Funds at the above address. The remittance must be
accompanied by either the account identification slip detached from a statement
of account or a note containing sufficient information to identify the account,
i.e., the Fund name and your account number or your name and social security
number.
Initial and subsequent investments can also be made by federal funds wire. You
should instruct your bank to wire federal funds to Boston Safe Deposit & Trust
Company, ABA #011001234. The text of the wire should read as follows:
Boston Safe Deposit & Trust Company
ABA #011001234
Account #145483
FBO: Shareholder Name and Account Number
FOR: Undiscovered Managers Funds
A bank may charge a fee for transmitting funds by wire.
Each Fund and the Funds' distributor reserve the right to reject any purchase
order, including orders in connection with exchanges, for any reason which the
Fund or the distributor in its sole discretion deems appropriate. Although the
Funds do not presently anticipate that they will do so, each Fund reserves the
right to suspend or change the terms of the offering of its shares.
The Funds' distributor may accept telephone orders from broker-dealers, and
other intermediaries designated by such broker-dealers, who have been previously
approved by the distributor. A Fund will be deemed to have received a purchase
order when an approved broker-dealer or its authorized designee accepts such
order. It is the responsibility of such broker-dealers to promptly forward
purchase or redemption orders to the distributor. Although there are no
front-end or contingent deferred sales charges imposed by the Funds or the
distributor in connection with the Funds' offering of Investor Class shares,
broker-dealers may charge you a transaction-based fee or other fee for their
services at either the time of purchase or the time of redemption. Such charges
may vary among broker-dealers but in all cases will be retained by the
broker-dealers and not remitted to the Funds.
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<PAGE> 76
GENERAL SHAREHOLDER SERVICES
The Funds offer the following shareholder services, which are more fully
described in the SAI. Explanations and forms are available from the Funds.
Telephone redemption and exchange privileges will be established automatically
when you open an account unless you elect on the application to decline the
privileges. Other privileges must be specifically elected. A medallion signature
guarantee may be required to establish these privileges after an account is
opened.
FREE EXCHANGE PRIVILEGE. You may exchange Investor Class shares of any Fund for
Investor Class shares of any other Fund. You may not exchange Investor Class
shares for Institutional Class shares or Class C shares. You may make an
exchange by written instructions or by telephone (unless you have elected on the
application to decline telephone exchange privileges). The exchange privilege
should not be viewed as a means for taking advantage of short-term swings in the
market, and the Funds reserve the right to terminate or limit the privilege of
any shareholder who makes more than four exchanges in any calendar year. An
exchange of shares of one Fund for shares of another Fund will generally be
treated as a sale of the exchanged shares for federal income tax purposes. The
Funds may terminate or change the terms of the exchange privilege at any time,
upon 60 days' notice to shareholders.
RETIREMENT PLANS. The Funds' Investor Class shares may be purchased by all types
of tax-deferred retirement plans. The Funds' distributor makes available
retirement plan forms for IRAs.
SYSTEMATIC WITHDRAWAL PLAN. If the value of your account is at least $25,000,
you may have periodic cash withdrawals automatically paid to you or any person
designated by you.
AUTOMATIC INVESTMENT PLAN. Voluntary monthly investments of at least $1,000 may
be made automatically by pre-authorized withdrawals from your checking account.
SELLING SHARES
You can redeem shares of any Fund by sending a written request to:
PFPC Inc.
4400 Computer Drive
P.O. Box 5181
Westborough, MA 01581-5181
Attn: Undiscovered Managers Funds
As described below, you may also redeem your shares in any Fund by calling
Undiscovered Managers at 1-800-667-1224. Proceeds resulting from a written or
telephonic redemption request can be wired to your bank account or sent by check
in your name(s) (if multiple registered owners) to your record address(es).
Your written request must include the name of the Fund, the class of shares, the
account number, the exact name(s) in which the shares are registered, and the
number of shares or the dollar amount to be redeemed. All owners of the shares
must sign the request in the exact names in which the shares are registered
(this appears on your confirmation statement) and should indicate any special
capacity in which you are signing (such as trustee or custodian or on behalf of
a partnership, corporation or other entity). If you request that redemption
proceeds be wired to your bank account you must provide specific wire
instructions.
If (1) you are redeeming shares worth more than $50,000, (2) you are requesting
that the proceeds check be made out to someone other than you (as the registered
owner) or be sent to an address other than the record address, (3) the account
registration has changed within the last 30 days or (4) you are providing
instructions to wire the proceeds to a bank account not designated on the
application, you must have your signature guaranteed by a medallion signature
guarantor. A medallion signature guarantee may be obtained from a domestic bank
or trust company, broker, dealer, clearing agency, savings association, or other
financial institution which is participating in a medallion program recognized
by the
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<PAGE> 77
Securities Transfer Association. The three recognized medallion programs are
Securities Transfer Agents Medallion Program (STAMP), Stock Exchanges Medallion
Program (SEMP) and New York Stock Exchange, Inc. Medallion Signature Program
(NYSE MSP). Signature guarantees from financial institutions which are not
participating in one of these programs will not be accepted. Before submitting
the redemption request, you should verify with the guarantor institution that it
is a medallion guarantor. Signature guarantees by notaries public are not
acceptable.
When you telephone a redemption request, the proceeds are wired to
the bank account previously chosen by you. A wire fee (currently $5) will be
deducted from the proceeds.
If you decide to change the bank account to which proceeds are to be wired, you
must send in this change on the Service Options Form with a medallion signature
guarantee. Telephonic redemptions may only be made if your bank is a member of
the Federal Reserve System or has a correspondent bank that is a member of the
System. Unless you indicate otherwise on the account application, Undiscovered
Managers will be authorized to act upon redemption and exchange instructions
received by telephone from you or any person claiming to act as your
representative who can provide Undiscovered Managers with your account
registration and address as it appears on the records of Undiscovered Managers
Funds. Undiscovered Managers will employ these or other reasonable procedures to
confirm that instructions communicated by telephone are genuine. Undiscovered
Managers Funds, the Funds' transfer agent, the Funds' distributor, Undiscovered
Managers and the sub-advisers will not be liable for any losses due to
unauthorized or fraudulent instructions if these or other reasonable procedures
are followed, but may be liable for any losses due to unauthorized or fraudulent
instructions in the event reasonable procedures are not followed. For further
information, consult Undiscovered Managers. In times of heavy market activity,
if you encounter difficulty in placing a redemption or exchange order by
telephone, you may wish to place the order by mail as described above.
Proceeds resulting from a written redemption request will normally be mailed to
you within seven days after receipt of your request, if the request is in good
order. Telephonic redemption proceeds will normally be wired to your bank on the
first business day following receipt of a proper redemption request. If you
purchased shares by check and the check was deposited less than 15 calendar days
prior to the redemption request, the Fund may withhold redemption proceeds until
the check has cleared.
Each Fund will normally redeem your shares for cash; however, each Fund reserves
the right to pay the redemption price wholly or partly in kind if the Board of
Trustees of Undiscovered Managers Funds determines it to be advisable in the
interest of the remaining shareholders. If portfolio securities are distributed
in lieu of cash, you will normally incur brokerage commissions upon subsequent
disposition of any such securities. However, Undiscovered Managers Funds is
obligated to redeem shares solely in cash for any shareholder during any 90-day
period up to the lesser of $250,000 or 1% of the total net asset value of
Undiscovered Managers Funds at the beginning of such period.
If the balance in your account with a Fund is less than a minimum amount set by
the Board of Trustees of Undiscovered Managers Funds from time to time
(currently $250,000 for all accounts), that Fund may close the account and send
the proceeds to you. If you are affected by this policy, you will be notified of
the Fund's intention to close the account and will have 60 days immediately
following the notice to bring the account up to the minimum. The minimum does
not apply to automatic investment plans or accounts that have fallen below the
minimum solely because of fluctuations in a Fund's net asset value per share.
Undiscovered Managers Funds may suspend the right of redemption and may postpone
payment for more than seven days when the NYSE is closed for other than weekends
or holidays, or if permitted by the rules of the Securities and Exchange
Commission when trading on the NYSE is restricted or during an emergency which
makes it impracticable for a Fund to dispose of its securities or to determine
fairly the value of its net assets, or during any other period permitted by the
Securities and Exchange Commission for the protection of investors.
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<PAGE> 78
Dividends, Distributions and Taxes
The Funds declare and pay their net investment income to shareholders as
dividends annually. Each Fund also distributes all of its net capital gains
realized from the sale of portfolio securities. Any capital gain distributions
are normally made annually, but may, to the extent permitted by law, be made
more frequently as deemed advisable by the Board of Trustees of Undiscovered
Managers Funds. The Board of Trustees may change the frequency with which the
Funds declare or pay dividends.
Dividends and capital gain distributions will automatically be reinvested in
additional shares of the same Fund on the record date unless an investor has
elected to receive cash.
Each Fund intends to qualify as a regulated investment company under the Code.
As a regulated investment company, and provided that the Fund distributes
substantially all its net investment income to its shareholders, the Fund itself
will not pay any federal income tax on its distributed income and gains.
Income dividends and short-term capital gain distributions are taxable as
ordinary income. Long-term capital gain distributions from all Funds are taxable
as long-term capital gains regardless of how long an investor has owned shares
of a Fund. Distributions are taxable to a shareholder of a Fund even if they are
paid from income or gains earned by the Fund prior to the shareholder's
investment (and thus were included in the price paid by the shareholder).
Distributions are taxable as described above regardless of whether they are
distributed in cash or additional shares.
Certain designated dividends from the Funds are expected to be eligible for the
dividends-received deduction for corporate shareholders (subject to a holding
period requirement). However, any distributions received by a Fund from REITs
will not qualify for the dividends-received deduction. A Fund's investment in
REIT securities may require such Fund to accrue and distribute income not yet
received. In order to generate sufficient cash to make the requisite
distributions, the Fund may be required to sell securities in its portfolio that
it otherwise would have continued to hold (including when it is not advantageous
to do so). A Fund's investment in REIT securities also may result in the Fund's
receipt of cash in excess of the REIT's earnings; if the Fund distributes such
amounts, such distribution could constitute a return of capital to Fund
shareholders for federal income tax purposes.
The Funds' transfer agent will send each investor and the Internal Revenue
Service an annual statement detailing federal tax information, including
information about dividends and distributions paid to the investor during the
preceding year.
The International Equity Fund's investments in foreign securities may be subject
to foreign withholding taxes. In that case, the Fund's yield on those securities
would be decreased. Shareholders may be entitled to claim a credit or deduction
with respect to foreign taxes. In addition, the International Equity Fund's
investment in foreign securities or foreign currencies may increase or
accelerate the Fund's recognition of ordinary income and may affect the timing
or amount of the Fund's distributions.
Any gain resulting from the redemption, sale or exchange of shares of a Fund
will generally be subject to tax.
NOTE: The foregoing summarizes certain tax consequences of investing in the
Funds for shareholders who are U.S. citizens or corporations. Before
investing, an investor should consult his or her own tax adviser for
more information concerning the federal, state, local and foreign tax
consequences of investing in, redeeming or exchanging Fund shares.
Rule 12b-1 Fees
Under a Service and Distribution Plan relating to Investor Class shares adopted
by Undiscovered Managers Funds pursuant to Rule 12b-1 under the Investment
Company Act of 1940, Undiscovered Managers Funds may pay fees as compensation
for any or all of the following: (i) engaging in activities or bearing expenses
primarily intended to result in
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<PAGE> 79
the sale of Investor Class shares, (ii) providing services relating to Investor
Class shares (which would be in addition to any general services provided to a
Fund as a whole) and (iii) providing additional personal services to Investor
Class shareholders and/or for the maintenance of Investor Class shareholder
accounts. On an annual basis, the aggregate amount of fees under such plan with
respect to each Fund will not exceed 0.35% of the Fund's average daily net
assets attributable to its Investor Class shares. Because these fees are paid
out of a Fund's assets on an on-going basis, over time these fees will increase
the cost of your investment and may cost you more than paying other types of
sales charges.
Additional Information
Currently, each Fund has three classes of shares--Institutional Class shares,
Investor Class shares and Class C shares--except for the Small Cap Growth Fund
and the Behavioral Value Fund which have only two classes of shares -
Institutional Class shares and Investor Class shares. Certain other investment
portfolios of Undiscovered Managers Funds have only Institutional Class shares,
and one other investment portfolio of Undiscovered Managers Funds has both
Institutional Class shares and Class C shares, but does not have Investor Class
shares. Institutional Class shares and Class C shares are offered in separate
prospectuses. Institutional Class shares and Class C shares are identical to
Investor Class shares, except that (i) Class C shares are subject to certain
front-end and contingent deferred sales charges, (ii) Institutional Class shares
bear no 12b-1 fees, (iii) Class C shares bear higher 12b-1 fees than Investor
Class shares and (iv) Investor Class shares and Class C shares have separate
voting rights in certain circumstances. Since a Fund's Institutional Class
shares bear no such 12b-1 fees and a Fund's Class C shares, if any, bear higher
12b-1 fees than Investor Class shares, Institutional Class shares of a Fund are
expected to have a higher total return, and Class C shares of the Fund are
expected to have a lower total return, than Investor Class shares of such Fund.
None of the classes of shares of any Fund have conversion rights into or may be
exchanged for any other classes of shares of any Fund or any other investment
portfolio of Undiscovered Managers Funds.
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<PAGE> 80
Financial Highlights
The financial highlights table is intended to help you understand the financial
performance of each Fund's Investor Class shares since the commencement of such
class's investment operations. Certain information reflects financial results
for a single Investor Class share of a Fund. The total returns in the table
represent the rate that an investor would have earned or lost on an investment
in a Fund's Investor Class shares (assuming reinvestment of all dividends and
distributions). This information has been audited by Deloitte & Touche LLP,
independent auditors, whose report, along with the Trust's financial statements,
are included in the Trust's Annual Report to Shareholders, which is available
upon request.
<TABLE>
<CAPTION>
Behavioral REIT
Growth Fund Fund
---------------------------------------- --------------------------
Investor Investor
Class (1) Class (2)
---------------------------------------- --------------------------
Year ended Year ended Period ended Year ended Period ended
August 31, August 31, August 31, August 31, August 31,
2000 1999 1998 2000 1999
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 21.31 $ 11.85 $ 14.74 $ 11.18 $ 10.13
Income from Investment Operations:
Net investment income (loss) (0.38) (0.20) 0.00(A) 0.48 0.20
Net realized and unrealized gain (loss)
on investments and securities sold short 9.28 9.66 (2.89) 1.25 0.85
---------- ---------- ---------- ---------- ----------
Total Income (Loss) from Investment
Operations 8.90 9.46 (2.89) 1.73 1.05
---------- ---------- ---------- ---------- ----------
Less Distributions:
Dividends from net investment income 0.00 0.00 0.00 (0.47) 0.00
Distributions from capital gains 0.00 0.00 0.00 0.00 0.00
---------- ---------- ---------- ---------- ----------
Total Distributions 0.00 0.00 0.00 (0.47) 0.00
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net asset value 8.90 9.46 (2.89) 1.26 1.05
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 30.21 $ 21.31 $ 11.85 $ 12.44 $ 11.18
========== ========== ========== ========== ==========
TOTAL RETURN** 41.76% 79.83% (19.61)% 16.77% 10.37%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in 000s) $ 19,077 $ 4,590 $ 40 $ 388 $ 509
Ratios to average net assets (+):
Net investment income (loss) including
reimbursement (1.32)% (1.09)% (0.35)%* 4.38% 3.97%*
Operating expenses including 1.65% 1.65% 1.30%* 1.75% 1.75%*
reimbursement
Portfolio turnover rate** 90% 72% 67% 64% 67%
+ The operating expenses may reflect a reduction of the adviser fee, an allocation of expenses to the Investment
Adviser, or both. Had such actions not been taken, the ratios would have been as follows:
Net investment income (loss) (1.49)% (1.77)% (5.43)%* 3.75% 3.26%*
Operating expenses 1.82% 2.33% 6.38%* 2.38% 2.46%*
</TABLE>
----------
* Annualized
** For periods less than one year, percentages are not annualized.
(1) The Fund's Investor Class commenced investment operations on July 31, 1998.
(2) The Fund's Investor Class commenced investment operations on March 24,
1999.
(A) Represents less than $0.005 per share.
Per share data is calculated based upon the average shares outstanding during
the period.
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<PAGE> 81
<TABLE>
<CAPTION>
Small Cap
Value Fund
----------------------------------------
Investor
Class (1)
----------------------------------------
Year ended Year ended Period ended
August 31, August 31, August 31,
2000 1999 1998
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.52 $ 10.91 $ 13.45
Income from Investment Operations:
Net investment income (loss) (0.06) (0.07) 0.00(A)
Net realized and unrealized gain (loss)
on investments and securities sold short 1.61 2.74 (2.54)
---------- ---------- ----------
Total Income (Loss) from Investment
Operations 1.55 2.67 (2.54)
---------- ---------- ----------
Less Distributions:
Dividends from net investment income 0.00 (0.01) 0.00
Distributions from capital gains (0.18) (0.05) 0.00
---------- ---------- ----------
Total Distributions (0.18) (0.06) 0.00
---------- ---------- ----------
Net increase (decrease) in net asset value 1.37 2.61 (2.54)
---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 14.89 $ 13.52 $ 10.91
========== ========== ==========
TOTAL RETURN** 11.65% 24.51% (18.88)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in 000s) $ 5,179 $ 957 $ 31
Ratios to average net assets (+):
Net investment income (loss) including
reimbursement (0.48)% (0.50)% 0.15%*
Operating expenses including 1.75% 1.75% 1.40%*
reimbursement
Portfolio turnover rate** 58% 56% 10%
+ The operating expenses may reflect a reduction of the adviser fee, an
allocation of expenses to the Investment Adviser, or both. Had such actions not
been taken, the ratios would have been as follows:
Net investment income (loss) (1.10)% (1.43)% (3.67)%*
Operating expenses 2.37% 2.68% 5.22%*
</TABLE>
----------
* Annualized
** For periods less than one year, percentages are not annualized.
(1) The Fund's Investor Class commenced investment operations on July 31, 1998.
(A) Represents less than $0.005 per share.
Per share data is calculated based upon the average shares outstanding during
the period.
None of the Behavioral Value Fund, the International Equity Fund nor the Small
Cap Growth Fund had commenced investment operations of its Investor Class Shares
prior to the date of this Prospectus, and therefore have no financial highlights
for their Investor Class shares for the year-ended August 31, 2000.
-30-
<PAGE> 82
Where to Get More Information About the Funds
To find out more information about Undiscovered Managers Funds, ask for a free
copy of the following:
STATEMENT OF ADDITIONAL INFORMATION
The SAI provides more information about the Funds. It is filed with the
Securities and Exchange Commission and is incorporated by reference into this
Prospectus, which means that it is legally part of this Prospectus.
ANNUAL/SEMI-ANNUAL REPORT
Additional information about the Funds' investments, other than the investments
of the Small Cap Growth Fund, is available in such Funds' annual and semi-annual
reports to shareholders. In such Funds' most recent annual report to
shareholders, you will find a discussion of the market conditions and investment
strategies that significantly affected each such Fund's performance during its
last fiscal year. The auditor's report and financial statements included in such
Funds' most recent annual report to shareholders are incorporated by reference
into this Prospectus, which means that they are legally part of this Prospectus.
In addition, after the Small Cap Growth Fund's annual and semi-annual reports to
shareholders are required to be delivered to the Small Cap Growth Fund's
shareholders, such additional information and discussions relating to the Small
Cap Growth Fund will be found therein.
The SAI and the Funds' annual and semi-annual reports to shareholders are
available (except for the Small Cap Growth Fund's annual and semi-annual
reports, which will be available after they are required to be delivered to the
Small Cap Growth Fund's shareholders), without charge, upon request. To obtain
free copies of the SAI, the Funds' annual and semi-annual reports to
shareholders, request other information and discuss your questions about any of
the Funds, you may call toll free 1-888-242-3514 or write to:
Undiscovered Managers Funds
Plaza of the Americas
700 North Pearl Street, Suite 1700
Dallas, Texas 75201
You may also view or download this Prospectus, the SAI and other information
about the Funds on our Internet site at http://www.undiscoveredmanagers.com.
You can also review and copy the SAI and other information about the Funds at
the Securities and Exchange Commission Public Reference Room in Washington, D.C.
Call 1-202-942-8090 for information on the operations of the Public Reference
Room. Reports and other information about the Funds are available on the EDGAR
Database on the Securities and Exchange Commission's Internet site at
http://www.sec.gov and copies of this information may be obtained, upon payment
of a duplicating fee, by electronic request at the following E-mail address
[email protected], or by writing to the Securities and Exchange Commission's
Public Reference Section, Washington, D.C. 20549-0102.
(Undiscovered Managers Funds' SEC Investment
Company Act file number is 811-8437)
<PAGE> 83
[LOGO] undiscovered managers (TM)
UNDISCOVERED MANAGERS FUNDS
PROSPECTUS
December 28, 2000
Class C shares of:
Undiscovered Managers Behavioral Growth Fund
Undiscovered Managers REIT Fund
Undiscovered Managers Small Cap Value Fund
Undiscovered Managers Core Equity Fund
UM International Equity Fund
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
<PAGE> 84
Table of Contents
<TABLE>
<S> <C>
The Funds.....................................................................3
WHAT YOU SHOULD KNOW ABOUT EACH FUND'S INVESTMENT
STRATEGIES, RISKS, PERFORMANCE, EXPENSES AND MANAGEMENT
Undiscovered Managers Behavioral Growth Fund..................................3
Undiscovered Managers REIT Fund...............................................5
Undiscovered Managers Small Cap Value Fund....................................7
Undiscovered Managers Core Equity Fund........................................9
UM International Equity Fund ................................................11
The Funds' Fees and Expenses.................................................13
Other Policies and Additional Disclosure on Risks............................15
The Funds' Management........................................................18
Your Investment..............................................................21
OPENING AND MAINTAINING YOUR UNDISCOVERED
MANAGERS ACCOUNT
Class C Shares...............................................................21
How Shares are Priced........................................................21
Buying Shares................................................................21
General Shareholder Services.................................................23
Selling Shares...............................................................24
Dividends, Distributions and Taxes...........................................25
Rule 12b-1 Fees..............................................................26
Additional Information.......................................................26
Financial Highlights.........................................................28
Where to get More Information about the Funds........................Back Cover
</TABLE>
<PAGE> 85
The Funds
Undiscovered Managers Funds has twelve investment portfolios. Five of the
portfolios (each a "Fund," and collectively, the "Funds") offer Class C shares.
Such Class C shares are offered through this Prospectus.
UNDISCOVERED MANAGERS BEHAVIORAL GROWTH FUND
(THE "BEHAVIORAL GROWTH FUND")
Investment Objective
Growth of capital
Principal Investment Strategies
The Behavioral Growth Fund seeks to achieve its objective by investing primarily
in common stocks of U.S. companies that the Fund's sub-adviser, Fuller & Thaler
Asset Management, Inc. ("Fuller & Thaler"), believes have growth
characteristics.
In selecting stocks for the Behavioral Growth Fund, Fuller & Thaler applies
principles based on behavioral studies. Fuller & Thaler believes that behavioral
biases on the part of investors may cause the market to underreact to new,
positive information concerning a company. Fuller & Thaler analyzes companies
that have recently announced higher than expected earnings, and seeks to
determine whether the market value of a company's stock fully reflects Fuller &
Thaler's expectations as to the company's future earnings and growth prospects.
Under normal market conditions, the Fund will invest substantially all of its
assets in common stocks.
Principal Risks
Investing in the Behavioral Growth Fund involves risks. The Fund may not perform
as well as other investments, and as with all mutual funds, there is the risk
that you could lose money on your investment in the Fund. Factors that could
harm the investment performance of the Fund include:
o A general decline in the U.S. stock markets,
o Poor performance of individual stocks held by the Fund,
o Potentially rapid price changes (volatility) of equity securities and
o The risks associated with investment in small capitalization companies
(such as more abrupt price movements, greater dependence on individual
personnel or products, limited markets and less liquidity than larger, more
established companies).
-3-
<PAGE> 86
Fund Performance
Since the Class C shares of the Behavioral Growth Fund had less than a full
calendar year of performance as of December 31, 1999, this Prospectus shows
performance information of the Fund's Institutional Class shares. The bar chart
below shows the annual total returns of the Fund's Institutional Class shares
for the 1998 and 1999 calendar years. The table following the bar chart compares
the average annual total returns of the Fund's Institutional Class shares to the
returns of the Russell 2500 Growth Index. This performance information gives
some indication of the risks of investing in the Fund by showing changes in the
performance of the Fund's Institutional Class shares from year to year and by
showing how the average annual returns of the Fund's Institutional Class shares
compare with those of a broad measure of market performance. How the Fund has
performed in the past is not necessarily an indication of how the Fund will
perform in the future.
Annual Total Returns of the Fund's Institutional
Class Shares for the Calendar Years Ended 12/31/98 and 12/31/99 (1)(2)
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
RETURN 33.20% 65.67%
</TABLE>
(1) Although the Institutional Class shares of the Fund are not offered in
this Prospectus, the total returns of the Fund's Institutional Class
shares are shown because the Fund's Institutional Class shares and
Class C shares represent interests in the same portfolio of securities.
The annual returns of the two classes differ only to the extent that
Class C shares are subject to higher expenses than Institutional Class
shares and Class C shares are sold subject to sales charges. If the
higher expenses and the sales charges were reflected, returns would be
less than those shown.
(2) The unannualized total return of the Fund's Institutional Class shares
for the first three quarters of 2000 was (4.33)%.
During the period shown in the bar chart above, the highest quarterly return of
the Fund's Institutional Class shares was 35.98% for the quarter ended December
31, 1999 and the lowest quarterly return of the Fund's Institutional Class
shares was (14.52)% for the quarter ended September 30, 1998.
Average Annual Total Returns of the Fund's
Institutional Class Shares (as of 12/31/99)
<TABLE>
<CAPTION>
Since Commencement of Investment
Past One Year Operations of the Fund (12/31/97)
------------- ---------------------------------
<S> <C> <C>
Behavioral Growth Fund 65.67% 50.68%
Russell 2500 Growth Index* 55.48% 27.29%
</TABLE>
* The Russell 2500 Growth Index consists of those companies within the
2500 smallest of the 3000 largest U.S.-domiciled companies, ranked by
market capitalization, with higher price-to-book ratios and higher
forecasted growth rates. An index is a list of stocks. It is not a
managed investment portfolio like the Fund. The returns of an index are
calculated without taking into account brokerage costs and the other
expenses associated with mutual funds and other managed investment
portfolios.
-4-
<PAGE> 87
UNDISCOVERED MANAGERS REIT FUND
(THE "REIT FUND")
Investment Objective
High total investment return through a combination of capital appreciation and
current income
Principal Investment Strategies
The REIT Fund seeks to achieve its objective by investing substantially all of
its assets, and in any event in normal market conditions at least 65% of its
assets, in equity securities of real estate investment trusts ("REITs"),
including REITs with relatively small market capitalization. The Fund may invest
in both equity REITs and mortgage REITs. Equity REITs take ownership interests
in real estate. Mortgage REITs invest in mortgages (loans secured by interests
in real estate).
In selecting investments for the REIT Fund, the Fund's sub-adviser, Bay Isle
Financial Corporation ("Bay Isle"), seeks to identify REITs that have good
management, strong balance sheets, above average growth in "funds from
operations" and that trade at a discount to their assets' underlying value.
"Funds from operations" generally means a REIT's net income (excluding gains (or
losses) from debt restructuring and sales of property) plus depreciation of real
property. The Fund is "non-diversified."
Principal Risks
Investing in the REIT Fund involves risks. The Fund may not perform as well as
other investments, and as with all mutual funds, there is the risk that you
could lose money on your investment in the Fund. Factors that could harm the
investment performance of the Fund include:
o A general decline in the U.S. stock markets,
o Poor performance of individual stocks held by the Fund,
o Potentially rapid price changes (volatility) of equity securities,
o The risks associated with investment in small capitalization companies
(such as more abrupt price movements, greater dependence on individual
personnel or properties and less liquidity than larger companies),
o The risks of being non-diversified (greater susceptibility to risks
associated with particular issuers than a diversified fund since a
non-diversified fund may invest a greater percentage of its total assets in
securities of individual issuers, or may invest in a smaller number of
different issuers, than a diversified fund) and
o The risks associated with investment in a portfolio consisting primarily of
REITs. The prices of equity REITs are affected by changes in the value of
the underlying property owned by the REITs. The prices of mortgage REITs
are affected by the quality of any credit they extend, the credit
worthiness of the mortgages they hold, as well as by the value of the
property that secures the mortgages. A REIT must distribute 95% of its
taxable income to qualify for beneficial federal tax treatment. If a REIT
is unable to qualify, then it would be taxed as a corporation and
distributions to shareholders would be reduced. Although the Fund does not
invest directly in real estate, an investment in the Fund is subject to
certain of the risks associated with the ownership of real estate. These
risks include possible declines in the value of real estate, risks related
to general and local economic conditions, possible lack of availability of
mortgage funds and changes in interest rates.
-5-
<PAGE> 88
Fund Performance
Since the Class C shares of the REIT Fund had less than a full calendar year of
performance as of December 31, 1999, this Prospectus shows performance
information of the Fund's Institutional Class shares. The bar chart below shows
the annual total returns of the Fund's Institutional Class shares for the 1998
and 1999 calendar years. The table following the bar chart compares the average
annual total returns of the Fund's Institutional Class shares to the returns of
the Morgan Stanley REIT Index. This performance information gives some
indication of the risks of investing in the Fund by showing changes in the
performance of the Fund's Institutional Class shares from year to year and by
showing how the average annual returns of the Fund's Institutional Class shares
compare with those of a broad measure of REIT market performance. How the Fund
has performed in the past is not necessarily an indication of how the Fund will
perform in the future.
Annual Total Returns of the Fund's Institutional
Class Shares for the Calendar Years Ended 12/31/98 and 12/31/99 (1)(2)
[BAR CHART]
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
RETURN (9.76)% (0.39)%
</TABLE>
(1) Although the Institutional Class shares of the Fund are not offered in
this Prospectus, the total returns of the Fund's Institutional Class
shares are shown because the Fund's Institutional Class shares and
Class C shares represent interests in the same portfolio of securities.
The annual returns of the two classes differ only to the extent that
Class C shares are subject to higher expenses than Institutional Class
shares and Class C shares are sold subject to sales charges. If the
higher expenses and the sales charges were reflected, returns would be
less than those shown.
(2) The unannualized total return of the Fund's Institutional Class shares
for the first three quarters of 2000 was 25.91%.
During the period shown in the bar chart above, the highest quarterly return of
the Fund's Institutional Class shares was 12.25% for the quarter ended June 30,
1999 and the lowest quarterly return of the Fund's Institutional Class shares
was (6.91)% for the quarter ended September 30, 1998.
Average Annual Total Returns of the Fund's
Institutional Class Shares (as of 12/31/99)
<TABLE>
<CAPTION>
Since Commencement of Investment
Past One Year Operations of the Fund (1/1/98)
------------- --------------------------------
<S> <C> <C>
REIT Fund (0.39)% (5.20)%
Morgan Stanley REIT Index* (4.55)% (10.94)%
</TABLE>
* The Morgan Stanley REIT Index is a market capitalization weighted total
return index of 129 REITs which exceed certain minimum liquidity criteria
concerning market capitalization, shares outstanding, trading volume and
per share market price. An index is a list of stocks. It is not a managed
investment portfolio like the Fund. The returns of an index are calculated
without taking into account brokerage costs and the other expenses
associated with mutual funds and other managed investment portfolios.
-6-
<PAGE> 89
UNDISCOVERED MANAGERS SMALL CAP VALUE FUND
(THE "SMALL CAP VALUE FUND")
Investment Objective
Long-term growth of capital
Principal Investment Strategies
The Small Cap Value Fund seeks to achieve its objective by investing primarily
in common stocks of companies with a market float of $1.2 billion or less that
the Fund's sub-adviser, J.L. Kaplan Associates, LLC ("Kaplan Associates"),
considers to be undervalued at the time of purchase and to have the potential
for long-term capital appreciation. Market float is the total value of all the
outstanding shares of a company that are registered for public trading and does
not include shares held by company founders or other insiders that are not
freely resalable.
In selecting stocks for the Small Cap Value Fund, Kaplan Associates will
consider, among other things, the issuer's earning power and the value of the
issuer's assets.
Under normal market conditions, the Small Cap Value Fund will invest at least
65% of its total assets in common stocks of companies with a market float of
$1.2 billion or less.
Principal Risks
Investing in the Small Cap Value Fund involves risks. The Fund may not perform
as well as other investments, and as with all mutual funds, there is the risk
that you could lose money on your investment in the Fund. Factors that could
harm the investment performance of the Fund include:
o A general decline in the U.S. stock markets,
o Poor performance of individual stocks held by the Fund,
o Potentially rapid price changes (volatility) of equity securities and
o The risks associated with investment in small capitalization companies
(such as more abrupt price movements, greater dependence on individual
personnel or products, limited markets and less liquidity than larger, more
established companies).
-7-
<PAGE> 90
Fund Performance
Since the Class C shares of the Small Cap Value Fund had less than a full
calendar year of performance as of December 31, 1999, this Prospectus shows
performance information of the Fund's Institutional Class shares. The bar chart
below shows the annual total returns of the Fund's Institutional Class shares
for the 1998 and 1999 calendar years. The table following the bar chart compares
the average annual total returns of the Fund's Institutional Class shares to the
returns of the Russell 2000 Value Index. This performance information gives some
indication of the risks of investing in the Fund by showing changes in the
performance of the Fund's Institutional Class shares from year to year and by
showing how the average annual returns of the Fund's Institutional Class shares
compare with those of a broad measure of market performance. The table also
includes the returns of the Russell 2000 Index, the index against which the Fund
was formerly compared. The Fund has chosen to use the Russell 2000 Value Index
as its new comparative index because the Russell 2000 Value Index more closely
reflects the Fund's investment universe than the Russell 2000 Index. How the
Fund has performed in the past is not necessarily an indication of how the Fund
will perform in the future.
Annual Total Returns of the Fund's Institutional
Class Shares for the Calendar Years Ended 12/31/98 and 12/31/99 (1)(2)
[BAR CHART]
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
RETURN (0.72)% 9.94%
</TABLE>
(1) Although the Institutional Class shares of the Fund are not offered in
this Prospectus, the total returns of the Fund's Institutional Class
shares are shown because the Fund's Institutional Class shares and
Class C shares represent interests in the same portfolio of securities.
The annual returns of the two classes differ only to the extent that
Class C shares are subject to higher expenses than Institutional Class
shares and Class C shares are sold subject to sales charges. If the
higher expenses and the sales charges were reflected, returns would be
less than those shown.
(2) The unannualized total return of the Fund's Institutional Class shares
for the first three quarters of 2000 was 8.30%.
During the period shown in the bar chart above, the highest quarterly return of
the Fund's Institutional Class shares was 22.20% for the quarter ended June 30,
1999 and the lowest quarterly return of the Fund's Institutional Class shares
was (19.32)% for the quarter ended September 30, 1998.
Average Annual Total Returns of the Fund's
Institutional Class Shares (as of 12/31/99)
Since Commencement of Investment
Past One Year Operations of the Fund (12/30/97)
------------- ---------------------------------
Small Cap Value Fund 9.94% 5.80%
Russell 2000 Value Index* (1.49)% (3.21)%
Russell 2000 Index* 21.26% 10.69%
* The Russell 2000 Value Index consists of those companies within the 2000
smallest of the 3000 largest U.S.-domiciled companies, ranked by market
capitalization, with lower price-to-book ratios and lower forecasted growth
rates. The Russell 2000 Index consists of the 2000 smallest of the 3000
largest U.S.-domiciled companies, ranked by market capitalization. An index
is a list of stocks. It is not a managed investment portfolio like the
Fund. The returns of an index are calculated without taking into account
brokerage costs and the other expenses associated with mutual funds and
other managed investment portfolios.
-8-
<PAGE> 91
UNDISCOVERED MANAGERS CORE EQUITY FUND
(THE "CORE EQUITY FUND")
Investment Objective
Long-term growth of capital
Principal Investment Strategies
The Core Equity Fund seeks to achieve its objective by investing substantially
all of its assets in common stocks of well-established, high-quality U.S.
companies.
In selecting investments for the Core Equity Fund, the Fund's sub-adviser, Waite
& Associates, L.L.C. ("Waite"), will consider, among other things, its
expectations as to the relative performance of various sectors of the economy
and the relative growth prospects of different companies within such sectors.
Although the common stocks in which the Core Equity Fund invests will typically
have larger market capitalization, the Fund may invest in stocks with
capitalization as low as $1 billion. Under normal market conditions, the Fund
will invest substantially all of its assets in common stocks.
Principal Risks
Investing in the Core Equity Fund involves risks. The Fund may not perform as
well as other investments, and as with all mutual funds, there is the risk that
you could lose money on your investment in the Fund. Factors that could harm the
investment performance of the Fund include:
o A general decline in the U.S. stock markets,
o Poor performance of individual stocks held by the Fund and
o Potentially rapid price changes (volatility) of equity securities.
-9-
<PAGE> 92
Fund Performance
Since the Class C shares of the Core Equity Fund had less than a full calendar
year of performance as of December 31, 1999, this Prospectus shows performance
information of the Fund's Institutional Class shares. The bar chart below shows
the annual total returns of the Fund's Institutional Class shares for the 1998
and 1999 calendar years. The table following the bar chart compares the average
annual total returns of the Fund's Institutional Class shares to the returns of
the Russell 1000 Index. This performance information gives some indication of
the risks of investing in the Fund by showing changes in the performance of the
Fund's Institutional Class shares from year to year and by showing how the
average annual returns of the Fund's Institutional Class shares compare with
those of a broad measure of market performance. How the Fund has performed in
the past is not necessarily an indication of how the Fund will perform in the
future.
Annual Total Returns of the Fund's Institutional
Class Shares for the Calendar Years Ended 12/31/98 and 12/31/99 (1)(2)
[BAR CHART]
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
RETURN 21.47% 1.95%
</TABLE>
(1) Although the Institutional Class shares of the Fund are not offered in
this Prospectus, the total returns of the Fund's Institutional Class
shares are shown because the Fund's Institutional Class shares and
Class C shares represent interests in the same portfolio of securities.
The annual returns of the two classes differ only to the extent that
Class C shares are subject to higher expenses than Institutional Class
shares and Class C shares are sold subject to sales charges. If the
higher expenses and the sales charges were reflected, returns would be
less than those shown.
(2) The unannualized total return of the Fund's Institutional Class shares
for the first three quarters of 2000 was (6.18)%.
During the period shown in the bar chart above, the highest quarterly return of
the Fund's Institutional Class shares was 16.04% for the quarter ended December
31, 1998 and the lowest quarterly return of the Fund's Institutional Class
shares was (9.47)% for the quarter ended September 30, 1998.
Average Annual Total Returns of the Fund's
Institutional Class Shares (as of 12/31/99)
<TABLE>
<CAPTION>
Since Commencement of Investment
Past One Year Operations of the Fund (12/31/97)
------------- ---------------------------------
<S> <C> <C>
Core Equity Fund 1.95% 11.77%
Russell 1000 Index* 20.91% 23.96%
</TABLE>
* The Russell 1000 Index consists of the 1000 largest U.S.-domiciled
companies, ranked by market capitalization. An index is a list of stocks.
It is not a managed investment portfolio like the Fund. The returns of an
index are calculated without taking into account brokerage costs and the
other expenses associated with mutual funds and other managed investment
portfolios.
-10-
<PAGE> 93
UM INTERNATIONAL EQUITY FUND
(THE "INTERNATIONAL EQUITY FUND")
Investment Objective
Capital appreciation
Principal Investment Strategies
The International Equity Fund seeks to achieve its objective by investing in
common stocks or other equity securities of issuers of any market capitalization
(small-, mid- or large-cap) that are principally traded on any of the stock
markets of Europe, Asia, Australia or New Zealand.
Although permitted to invest in equity securities that are principally traded on
any of the foregoing stock markets, the International Equity Fund will not,
under normal market conditions, invest more than 15% of its total assets in
issuers whose equity securities are not principally traded on stock markets in
countries included in the Morgan Stanley Capital International Europe,
Australasia, Far East Index (the "MSCI EAFE Index"). As of the date of this
Prospectus, the countries included in the MSCI EAFE Index were:
<TABLE>
<S> <C> <C> <C>
Australia France Japan Singapore
Austria Germany Netherlands Spain
Belgium Hong Kong New Zealand Sweden
Denmark Ireland Norway Switzerland
Finland Italy Portugal United Kingdom
</TABLE>
In selecting investment securities for the International Equity Fund, the Fund's
sub-adviser, Unibank Securities, Inc. ("Unibank"), focuses on identifying
structural changes and understanding the implications of these changes and then
identifying investment opportunities that result from these changes.
Under normal market conditions, the Fund will invest substantially all of its
assets in equity securities.
Principal Risks
Investing in the International Equity Fund involves risks. The Fund may not
perform as well as other investments, and as with all mutual funds, there is the
risk that you could lose money on your investment in the Fund. Factors that
could harm the investment performance of the Fund include:
o A general decline in the stock markets of Europe, Asia, Australia or New
Zealand,
o Poor performance of individual stocks held by the Fund,
o Potentially rapid price changes (volatility) of equity securities and
o The risks associated with investment in foreign securities generally, which
include fluctuations in the value of the U.S. dollar relative to other
countries' currencies, higher volatility than U.S. securities and limited
liquidity, risks of unfavorable political and economic developments in
foreign countries, and less extensive or reliable information about foreign
companies than about U.S. companies.
-11-
<PAGE> 94
Fund Performance
Since the Class C shares of the International Equity Fund had less than a full
calendar year of performance as of December 31, 1999, this Prospectus shows
performance information of the Fund's Institutional Class shares. The bar chart
below shows the annual total return of the Fund's Institutional Class shares for
the 1999 calendar year. The table following the bar chart compares the average
annual total returns of the Fund's Institutional Class shares to the returns of
the MSCI EAFE Index. This performance information gives some indication of the
risks of an investment in the Fund by comparing the performance of the Fund's
Institutional Class shares with a broad measure of market performance. How the
Fund has performed in the past is not necessarily an indication of how the Fund
will perform in the future.
Annual Total Return of the Fund's Institutional
Class Shares for the Calendar Year Ended 12/31/99 (1)(2)
[BAR CHART]
<TABLE>
<CAPTION>
1999
<S> <C>
RETURN 58.94%
</TABLE>
(1) Although the Institutional Class shares of the Fund are not offered in
this Prospectus, the total return of the Fund's Institutional Class
shares is shown because the Fund's Institutional Class shares and Class
C shares represent interests in the same portfolio of securities. The
annual returns of the two classes differ only to the extent that Class
C shares are subject to higher expenses than Institutional Class shares
and Class C shares are sold subject to sales charges. If the higher
expenses and the sales charges were reflected, returns would be less
than those shown.
(2) The unannualized total return of the Fund's Institutional Class shares
for the first three quarters of 2000 was (14.24)%.
During the period shown in the bar chart above, the highest quarterly return of
the Fund's Institutional Class shares was 37.30% for the quarter ended December
31, 1999 and the lowest quarterly return of the Fund's Institutional Class
shares was 2.40% for the quarter ended March 31, 1999.
Average Annual Total Returns of the Fund's
Institutional Class Shares (as of 12/31/99)
<TABLE>
<CAPTION>
Since Commencement of Investment
Past One Year Operations of the Fund (12/30/98)
------------- ---------------------------------
<S> <C> <C>
International Equity Fund 58.94% 58.74%
MSCI EAFE Index* 25.27% 25.03%
</TABLE>
* The MSCI EAFE Index consists of over 1000 stocks from any of 20
different countries with Japan, United Kingdom, France and Germany
being the most heavily weighted. An index is a list of stocks. It is
not a managed investment portfolio like the Fund. The returns of an
index are calculated without taking into account brokerage costs and
the other expenses associated with mutual funds and other managed
investment portfolios.
-12-
<PAGE> 95
THE FUNDS' FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Class C shares of the Funds.
<TABLE>
<CAPTION>
Behavioral REIT Small Cap
Growth Fund Fund Value Fund
----------- ------- ----------
Class C Class C Class C
----------- ------- ----------
<S> <C> <C> <C>
SHAREHOLDER FEES (fees paid directly from your investment)
Maximum Sales Charge (Load) 2.00% 2.00% 2.00%
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 1.00% 1.00% 1.00%
Maximum Deferred Sales Charge (Load) (as a percentage of net
amount invested or redemption proceeds, as applicable)(1) 1.00% 1.00% 1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends none none none
Redemption Fees(2) none none none
Exchange Fees. none none none
ANNUAL FUND OPERATING EXPENSES (expenses that are
deducted from Fund assets)
Management Fees 0.95% 1.05% 1.05%
Distribution and/or Service (12b-1) Fees(3) 1.00% 1.00% 1.00%
Other Expenses 0.59% 1.21% 1.20%
Total Annual Fund Operating Expenses 2.54% 3.26% 3.25%
Fee Reduction and/or Expense Reimbursement(4) (0.24)% (0.86)% (0.85)%
Net Expenses(4) 2.30% 2.40% 2.40%
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Funds
with the cost of investing in other mutual funds.
This Example assumes that (i) you invest $10,000 in each Fund for the time
periods indicated, (ii) your investment has a 5% return each year and (iii) each
Fund's operating expenses remain the same. Costs are shown for when you redeem
and when you do not redeem your shares at the end of the periods. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
Behavioral Growth Fund REIT Fund Small Cap Value Fund
---------------------------- ---------------------------- ----------------------------
Redemption No Redemption Redemption No Redemption Redemption No Redemption
---------- ------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
One Year $ 432 $ 331 $ 442 $ 341 $ 442 $ 341
Three Years $ 860 $ 860 $1,015 $1,015 $1,013 $1,013
Five Years $1,416 $1,416 $1,712 $1,712 $1,708 $1,708
Ten Years $2,929 $2,929 $3,565 $3,565 $3,556 $3,556
</TABLE>
(1) A contingent deferred sales charge of 1.00% may apply to any Class C share
purchase if an investor sells the shares within 18 months. The charge is based
on the value of the shares sold or the net asset value at the time of purchase,
whichever is less. The contingent deferred sales charge does not apply to
reinvested distributions. See BUYING SHARES -- CONTINGENT DEFERRED SALES CHARGE
below.
(2) Redemptions by wire transfer are subject to a wire fee (currently $5) that
is deducted from the redemption proceeds.
(3) 12b-1 fees cause long-term Class C shareholders to pay more than would be
permitted if such fees were a front-end sales charge.
(4) Undiscovered Managers, LLC, the Funds' investment adviser, has contractually
agreed, through December 31, 2001, to reduce its fees and/or pay the expenses of
the Funds' Class C shares in order to limit such class's expenses (exclusive of
brokerage costs, interest, taxes and extraordinary expenses) to the percentages
of net assets shown above, subject to later reimbursement by such Funds in
certain circumstances. See THE FUNDS' MANAGEMENT -- FUND EXPENSES below.
-13-
<PAGE> 96
<TABLE>
<CAPTION>
Core Equity International
Fund Equity Fund
----------- -------------
Class C Class C
----------- -------------
<S> <C> <C>
SHAREHOLDER FEES (fees paid directly from your investment)
Maximum Sales Charge (Load).................................................. 2.00% 2.00%
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price).................................... 1.00% 1.00%
Maximum Deferred Sales Charge (Load) (as a percentage of net
amount invested or redemption proceeds, as applicable) (1)............. 1.00% 1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends............... none none
Redemption Fees (2).......................................................... none none
Exchange Fees................................................................ none none
ANNUAL FUND OPERATING EXPENSES (expenses that are
deducted from Fund assets)
Management Fees.............................................................. 0.74% 0.95%
Distribution and/or Service (12b-1) Fees (3)................................. 1.00% 1.00%
Other Expenses............................................................... 5.49% 2.04%
Total Annual Fund Operating Expenses......................................... 7.23% 3.99%
Fee Reduction and/or Expense Reimbursement (4)............................... (5.24)% (1.54)%
Net Expenses (4)............................................................. 1.99% 2.45%
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Funds
with the cost of investing in other mutual funds.
This Example assumes that (i) you invest $10,000 in each Fund for the time
periods indicated, (ii) your investment has a 5% return each year and (iii) each
Fund's operating expenses remain the same. Costs are shown for when you redeem
and when you do not redeem your shares at the end of the periods. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
Core Equity Fund International Equity Fund
---------------------------- ----------------------------
Redemption No Redemption Redemption No Redemption
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
One Year $ 402 $ 300 $ 447 $ 346
Three Years $ 1,742 $1,742 $1,164 $1,164
Five Years $ 3,120 $3,120 $1,999 $1,999
Ten Years $6, 306 $6,306 $4,161 $4,161
</TABLE>
(1) A contingent deferred sales charge of 1.00% may apply to any Class C share
purchase if an investor sells the shares within 18 months. The charge is
based on the value of the shares sold or the net asset value at the time of
purchase, whichever is less. The contingent deferred sales charge does not
apply to reinvested distributions. See BUYING SHARES -- CONTINGENT DEFERRED
SALES CHARGE below.
(2) Redemptions by wire transfer are subject to a wire fee (currently $5) that
is deducted from the redemption proceeds.
(3) 12b-1 fees cause long-term Class C shareholders to pay more than would be
permitted if such fees were a front-end sales charge.
(4) Undiscovered Managers, LLC, the Funds' investment adviser, has
contractually agreed, through December 31, 2001, to reduce its fees and/or
pay the expenses of the Funds' Class C shares in order to limit such
class's expenses (exclusive of brokerage costs, interest, taxes and
extraordinary expenses) to the percentages of net assets shown above,
subject to later reimbursement by such Funds in certain circumstances. See
THE FUNDS' MANAGEMENT -- FUND EXPENSES below.
-14-
<PAGE> 97
OTHER POLICIES AND ADDITIONAL DISCLOSURE ON RISKS
OTHER POLICIES
ADDITIONAL FUND INVESTMENTS
Each Fund may invest its cash in repurchase agreements and other cash
instruments pending investment in equity securities.
PORTFOLIO TURNOVER
The Funds are actively managed and consequently may engage in frequent trading
of portfolio securities. High portfolio turnover results in higher brokerage and
other expenses, which could reduce Fund performance. High portfolio turnover
also may increase the amount of taxes payable by a Fund's shareholders.
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
The investment objectives and policies of the Funds can be changed without
shareholder approval, except for the policies that are identified in the Funds'
Statement of Additional Information (the "SAI") as "fundamental."
MORE ABOUT RISK
COMMON STOCKS AND OTHER EQUITY SECURITIES
The Funds invest mostly in "common stocks." "Common stocks" represent an
ownership interest in a company. The Funds can also invest in securities that
can be exercised for or converted into common stocks (such as warrants or
convertible preferred stock). While offering greater potential for long-term
growth, common stocks and similar equity securities are more volatile and more
risky than some other forms of investment. Therefore, the value of your
investment in a Fund may sometimes decrease instead of increase. Each Fund may
invest in equity securities of companies with relatively small market
capitalization. Securities of such companies may be more volatile than the
securities of larger, more established companies and the broad equity market
indices. See SMALL COMPANIES below. Each Fund's investments may include
securities traded "over-the-counter" as well as those traded on a securities
exchange. Some over-the-counter securities may be more difficult to sell under
some market conditions.
Convertible securities include other securities, such as warrants, that provide
an opportunity for equity participation. Because convertible securities can be
converted into equity securities, their values will normally increase or
decrease as the values of the underlying equity securities increase or decrease.
The movements in the prices of convertible securities, however, may be smaller
than the movements in the value of the underlying equity securities.
SMALL COMPANIES
All of the Funds may invest in companies with relatively small market
capitalization, and the Small Cap Value Fund will invest primarily in such
companies.
Investments in companies with relatively small capitalization may involve
greater risk than is usually associated with stocks of larger companies. These
companies often have sales and earnings growth rates which exceed those of
companies with larger capitalization. Such growth rates may in turn be reflected
in more rapid share price appreciation. However, companies with smaller
capitalization often have limited product lines, markets or financial resources
and may be dependent upon a relatively small management group. The securities
may have limited marketability and may be subject to more abrupt or erratic
movements in price than securities of companies with larger capitalization or
market averages in general. The net asset value per share of Funds that invest
in companies with smaller capitalization therefore may fluctuate more widely
than market averages.
REAL ESTATE INVESTMENT TRUSTS
The REIT Fund will invest primarily in shares of REITs. REITs pool investors'
funds for investment primarily in income producing real estate or real estate
related loans or interests. Under the Internal Revenue Code of 1986, as amended
(the "Code"), a REIT is not taxed on income it distributes to its shareholders
if it complies with several requirements relating to its organization,
ownership, assets and income and a requirement that it generally distribute to
its shareholders at least 95% of its taxable income (other than net capital
gains) for each taxable year. REITs can generally be classified as Equity REITs,
Mortgage REITs and Hybrid REITs. Equity REITs, which invest the majority of
their assets directly in real
-15-
<PAGE> 98
property, derive their income primarily from rents. Equity REITs can also
realize capital gains by selling properties that have appreciated in value.
Mortgage REITs, which invest the majority of their assets in real estate
mortgages, derive their income primarily from interest payments. Hybrid REITs
combine the characteristics of both Equity REITs and Mortgage REITs.
While the Fund will not invest in real estate directly, the Fund may be subject
to risks similar to those associated with the direct ownership of real estate
(in addition to securities market risks) because of its policy of concentrating
its investments in the real estate industry. These risks include declines in the
value of real estate, risks related to general and local economic conditions,
dependency on management skill, heavy cash flow dependency, possible lack of
availability of mortgage funds, overbuilding, extended vacancies of properties,
increased competition, increases in property taxes and operating expenses,
changes in zoning laws, losses due to costs resulting from the clean-up of
environmental problems, liability to third parties for damages resulting from
environmental problems, casualty or condemnation losses, limitations on rents,
changes in neighborhood values and in the appeal of properties to tenants and
changes in interest rates.
In addition to these risks, Equity REITs may be affected by changes in the value
of the underlying property owned by the trusts, while Mortgage REITs may be
affected by the quality of any credit they extend. Further, Equity REITs and
Mortgage REITs are dependent upon management skills and generally may not be
diversified. Equity REITs and Mortgage REITs are also subject to heavy cash flow
dependency, defaults by borrowers and self-liquidation. In addition, Equity
REITs and Mortgage REITs could fail to qualify for tax-free pass-through of
income under the Code. There is also the risk that borrowers under mortgages
held by a REIT or lessees of property that a REIT owns may be unable to meet
their obligations to the REIT. In the event of a default by a borrower or
lessee, the REIT may experience delays in enforcing its rights as a mortgagee or
lessor and may incur substantial costs associated with protecting its
investments. In addition to the foregoing risks, certain "special purpose" REITs
in which the Fund may invest may have their assets in specific real estate
sectors, such as hotel REITs, nursing home REITs or warehouse REITs, and are
therefore subject to the risks associated with adverse developments in these
sectors.
FOREIGN SECURITIES
The International Equity Fund will invest primarily in foreign securities.
Investments in foreign securities present risks not typically associated with
investments in comparable securities of U.S. issuers.
Since most foreign securities are denominated in foreign currencies or traded
primarily in securities markets in which settlements are made in foreign
currencies, the value of these investments and the net investment income
available for distribution to shareholders of the International Equity Fund may
be affected favorably or unfavorably by changes in currency exchange rates or
exchange control regulations. Because the International Equity Fund may purchase
securities denominated in foreign currencies, a change in the value of any such
currency against the U.S. dollar will result in a change in the U.S. dollar
value of the Fund's assets and the Fund's income available for distribution.
In addition, although the International Equity Fund's income may be received or
realized in foreign currencies, the Fund will be required to compute and
distribute its income in U.S. dollars. Therefore, if the value of a currency
relative to the U.S. dollar declines after the Fund's income has been earned in
that currency, translated into U.S. dollars and declared as a dividend, but
before payment of such dividend, the Fund could be required to liquidate
portfolio securities to pay such dividend. Similarly, if the value of a currency
relative to the U.S. dollar declines between the time the Fund incurs expenses
in U.S. dollars and the time such expenses are paid, the amount of such currency
required to be converted into U.S. dollars in order to pay such expenses in U.S.
dollars will be greater than the equivalent amount in such currency of such
expenses at the time they were incurred.
There may be less information publicly available about a foreign corporate or
government issuer than about a U.S. issuer, and foreign corporate issuers are
not generally subject to accounting, auditing and financial reporting standards
and practices comparable to those in the United States. The securities of some
foreign issuers are less liquid and at times more volatile than securities of
comparable U.S. issuers. Foreign brokerage commissions and securities custody
costs are often higher than those in the United States, and judgments against
foreign entities may be more difficult to obtain and enforce. With respect to
certain foreign countries, there is a possibility of governmental expropriation
of assets, confiscatory taxation, political or financial instability and
diplomatic developments that could affect the value of investments in those
-16-
<PAGE> 99
countries. The receipt of interest on foreign government securities may depend
on the availability of tax or other revenues to satisfy the issuer's
obligations.
The International Equity Fund's investments in foreign securities may include
investments in emerging or developing countries, whose economies or securities
markets are not yet highly developed. Special risks associated with these
investments (in addition to the risks associated with foreign investments
generally) may include, among others, greater political uncertainties, an
economy's dependence on revenues from particular commodities or on international
aid or development assistance, currency transfer restrictions, highly limited
numbers of potential buyers for such securities and delays and disruptions in
securities settlement procedures.
The International Equity Fund may invest in foreign equity securities either by
purchasing such securities directly or by purchasing "depository receipts."
Depository receipts are instruments issued by a bank that represent an interest
in equity securities held by arrangement with the bank. Depository receipts can
be either "sponsored" or "unsponsored." Sponsored depository receipts are issued
by banks in cooperation with the issuer of the underlying equity securities.
Unsponsored depository receipts are arranged without involvement by the issuer
of the underlying equity securities. Less information about the issuer of the
underlying equity securities may be available in the case of unsponsored
depository receipts.
In determining whether to invest in securities of foreign issuers, Unibank will
consider the likely effects of foreign taxes on the net yield available to the
International Equity Fund and to its shareholders. Compliance with foreign tax
law may reduce the Fund's net income available for distribution to its
shareholders.
FOREIGN CURRENCY
Most foreign securities in the International Equity Fund's portfolio will be
denominated in foreign currencies or traded in securities markets in which
settlements are made in foreign currencies. Similarly, any income on such
securities is generally paid to the Fund in foreign currencies. The value of
these foreign currencies relative to the U.S. dollar varies continually, causing
changes in the dollar value of the Fund's portfolio investments (even if the
local market price of the investments is unchanged) and changes in the dollar
value of the Fund's income available for distribution to its shareholders. The
effect of changes in the dollar value of a foreign currency on the dollar value
of the Fund's assets and liabilities and on the net investment income available
for distribution may be favorable or unfavorable.
The International Equity Fund may incur costs in connection with conversions
between various currencies. In addition, the Fund may be required to liquidate
portfolio assets, or may incur increased currency conversion costs, to
compensate for a decline in the dollar value of a foreign currency occurring
between the time when the Fund declares and pays a dividend, or between the time
when the Fund accrues and pays an operating expense in U.S. dollars.
CURRENCY HEDGING TRANSACTIONS
The International Equity Fund may, at the discretion of Unibank, engage in
foreign currency exchange transactions, in connection with the purchase and sale
of portfolio securities, to protect the value of specific portfolio positions or
in anticipation of changes in relative values of currencies in which current or
future Fund portfolio holdings are denominated or quoted. Currency hedging
transactions may include forward contracts (contracts with another party to buy
or sell a currency at a specified price on a specified date), futures contracts
(which are similar to forward contracts but are traded on an exchange) and
options to buy or sell currencies and currency futures contracts. For more
information on foreign currency hedging transactions, see the SAI. Unibank
expects to engage in currency hedging transactions only under unusual
circumstances. Therefore, investors in the International Equity Fund will
ordinarily be exposed to the risks associated with fluctuations in the value of
the U.S. dollar relative to the currencies in which the Fund's portfolio
securities trade.
-17-
<PAGE> 100
THE FUNDS' MANAGEMENT
INVESTMENT ADVISER
The Funds are advised by Undiscovered Managers, LLC ("Undiscovered Managers"),
700 North Pearl Street, Dallas, Texas 75201. Undiscovered Managers was organized
in 1997 and has responsibility for the management of the Funds' affairs, under
the supervision of Undiscovered Managers Funds' Board of Trustees. Each Fund's
investment portfolio is managed on a day-to-day basis by that Fund's
sub-adviser, under the general oversight of Undiscovered Managers and the Board
of Trustees. Undiscovered Managers monitors and evaluates each sub-adviser to
help assure that the sub-adviser is managing its Fund consistently with the
Fund's investment objective and restrictions and applicable laws and guidelines.
Undiscovered Managers does not, however, determine what investments will be
purchased or sold for a Fund.
During the fiscal year ended August 31, 2000, each Fund paid to Undiscovered
Managers a management fee at the following annual percentage rates of such
Fund's average daily net assets, subject to the fee deferral arrangements
described below:
<TABLE>
<CAPTION>
FUND FEE RATE
---- --------
<S> <C>
Behavioral Growth Fund 0.95%
REIT Fund 1.05%
Small Cap Value Fund 1.05%
Core Equity Fund 0.74%
International Equity Fund 0.95%
</TABLE>
SUB-ADVISERS AND PORTFOLIO MANAGERS
FULLER & THALER, formerly known as RJF Asset Management, Inc., is the
sub-adviser to the BEHAVIORAL GROWTH FUND. As sub-adviser, Fuller & Thaler
provides day-to-day management of the Fund's portfolio. Fuller & Thaler, 411
Borel Avenue, Suite 402, San Mateo, California 94402, was founded in 1993, and
currently serves as an investment adviser to pension and profit sharing plans,
academic institutions and other institutional investors.
Russell J. Fuller, Frederick W. Stanske, Mark Moon and Brendan S. MacMillan have
day-to-day responsibility for managing the portfolio of the Behavioral Growth
Fund. Mr. Fuller founded Fuller & Thaler and has served as its President since
1993. He was a Vice President of Strategic Development of Concord Capital
Management from 1990 to 1993, and a Professor of Finance and Chair of the
Department of Finance at Washington State University from 1984 to 1990. Mr
Stanske joined Fuller & Thaler in 1996 as a Vice President and Portfolio Manager
and became a Senior Vice President and Portfolio Manager in 1997. Prior to
joining Fuller & Thaler, Mr. Stanske was employed as a Securities Analyst at
Farmers Insurance Group from 1987 to 1989 and as a Vice President and Research
Analyst at Fisher Investments from 1989 to 1996. Mr. Moon joined Fuller & Thaler
in January, 1999 as a Vice President and Portfolio Manager. Prior to joining
Fuller & Thaler, Mr. Moon was employed as Chief Investment Officer at Heidt
Capital Group, LLC from 1995 to 1998 and as Assistant Treasurer at Amgen Inc.
from 1989 to 1995. Mr. MacMillan joined Fuller & Thaler in April, 1999 as a Vice
President and Portfolio Manager. Prior to joining Fuller & Thaler, Mr. MacMillan
was a Senior Equity Analyst and Director of Research at Insight Capital Research
& Management, Inc. from 1995 to 1999.
BAY ISLE is the sub-adviser to the REIT FUND. As sub-adviser, Bay Isle provides
day-to-day management of the Fund's portfolio. Bay Isle, 160 Sansome Street, San
Francisco, California 94104, was founded in 1986, and serves as an investment
adviser to pension and profit sharing plans, trusts, charitable organizations,
and other institutional and individual investors.
William F.K. Schaff and Ralph L. Block have day-to-day responsibility for
managing the REIT Fund's portfolio. Mr. Schaff has served as a portfolio manager
and Chief Investment Officer of Bay Isle since 1989. Mr. Block has nearly 30
years' experience investing in REITs and is the author of a recent book on REIT
investing, The Essential REIT. Mr. Block is Bay Isle's chief REIT analyst and
has served as a REIT analyst for Bay Isle since 1993. Mr. Block was also a
Partner of the law firm of Graven Perry Block Brody & Qualls from 1969 to 1995.
-18-
<PAGE> 101
KAPLAN ASSOCIATES is the sub-adviser to the SMALL CAP VALUE FUND. As
sub-adviser, Kaplan Associates provides day-to-day management of the Fund's
portfolio. Kaplan Associates, 222 Berkeley Street, Suite 2010, Boston,
Massachusetts 02116, is the successor firm to J.L. Kaplan Associates, an
investment advisory firm founded in 1976. Kaplan Associates serves as an
investment adviser to pension and profit sharing plans, trusts, charitable
organizations and other institutional and private investors.
James L. Kaplan and Paul Weisman have day-to-day responsibility for managing the
Small Cap Value Fund's portfolio. Mr. Kaplan has been the principal of Kaplan
Associates and its predecessor since founding the firm in 1976. From 1972 to
1984, he was Associate Professor of Mathematics at Boston University. Mr.
Weisman has been a portfolio manager at the firm since 1986. From 1984 to 1986,
Mr. Weisman was an investment analyst at Delphi Management, Inc.
WAITE is the sub-adviser to the CORE EQUITY FUND. As sub-adviser, Waite provides
day-to-day management of the Fund's portfolio. Waite, 350 South Grand Avenue,
Los Angeles, California 90017, is the successor firm to Waite & Associates, the
successor firm to Waite & Correnti, an investment advisory firm founded in 1978.
Waite serves as an investment adviser to institutional and private investors.
Leslie A. Waite and Diana L. Calhoun have day-to-day responsibility for managing
the Core Equity Fund's portfolio. Mr. Waite founded Waite & Correnti in 1978 and
has served since then as President and Chief Investment Officer, first of that
firm, then of Waite & Associates and now of Waite & Associates, L.L.C. Ms.
Calhoun joined the firm in 1981 and holds the positions of Managing Director and
Senior Portfolio Manager. Ms. Calhoun held the position of Senior Vice President
of Trading from 1981 until becoming a Managing Director in 1997, and has been a
Senior Portfolio Manager since 1992.
UNIBANK is the sub-adviser to the INTERNATIONAL EQUITY FUND. As sub-adviser,
Unibank provides day-to-day management of the Fund's portfolio. Unibank, 13-15
West 54th Street, New York, New York 10019, was founded in 1994. Unibank or its
affiliate, Unibank A/S, currently serves as an investment adviser to pension and
profit sharing plans, trusts and other institutional and private investors.
Investment decisions for the International Equity Fund's portfolio are made by
an investment team.
During the fiscal year ended August 31, 2000, Undiscovered Managers paid to the
sub-adviser of each Fund, a sub-advisory fee at the following annual percentage
rates of such Fund's average daily net assets:
<TABLE>
<CAPTION>
FUND SUB-ADVISER FEE RATE
---- ----------- --------
<S> <C> <C>
Behavioral Growth Fund Fuller & Thaler 0.59%
REIT Fund Bay Isle 0.70%
Small Cap Value Fund Kaplan Associates 0.70%
Core Equity Fund Waite 0.40%
International Equity Fund Unibank 0.60%
</TABLE>
FUND EXPENSES
Undiscovered Managers has contractually agreed to reduce its management fees and
pay the expenses of each Fund's Class C shares in order to limit such class's
expenses (exclusive of brokerage costs, interest, taxes and extraordinary
expenses) to the following annual percentage rate of the average daily net
assets of such class, subject to the obligation of a Fund to repay Undiscovered
Managers such deferred fees and expenses in future years, if any, when such
Fund's Class C expenses (exclusive of brokerage costs, interest, taxes and
extraordinary expenses) fall below the stated percentage rate, but only to the
extent that such repayment would not cause such Fund's Class C expenses
(exclusive of brokerage costs, interest, taxes and extraordinary expenses) in
any such future year to exceed the stated percentage rate, and provided that
such Fund is not obligated to repay any such deferred fees and expenses more
than three years after the end of the fiscal year in which they were incurred
(for expenses incurred before December 28, 1999, the Funds' repayment obligation
extended until two years after the end of the fiscal year in which the expenses
were incurred): 1.99% for the Core Equity Fund; 2.30% for the Behavioral Growth
Fund; 2.40% for the REIT Fund and the Small Cap Value Fund; and 2.45% for the
International Equity Fund. These agreements have terms running through December
31, 2001 and are renewable from year to year thereafter.
-19-
<PAGE> 102
OTHER ARRANGEMENTS
Undiscovered Managers Funds has applied for an exemptive order from the
Securities and Exchange Commission to permit Undiscovered Managers, subject to
the approval of Undiscovered Managers Funds' Board of Trustees and certain other
conditions, to enter into sub-advisory agreements with sub-advisers other than
the current sub-adviser of any Fund or of any other investment portfolio of
Undiscovered Managers Funds without obtaining shareholder approval. The
exemptive request also seeks to permit the terms of an existing sub-advisory
agreement to be changed or the employment of an existing sub-adviser to be
continued without shareholder approval after events that would otherwise cause
an automatic termination of a sub-advisory agreement if such changes or
continuation are approved by Undiscovered Managers Funds' Board of Trustees.
There is no assurance that the Securities and Exchange Commission will issue the
exemptive order. This Prospectus would be revised and shareholders notified if
the sub-adviser of any Fund is changed.
-20-
<PAGE> 103
Your Investment
CLASS C SHARES
The Funds' Class C shares are offered with a 1.00% front-end sales charge, a
1.00% contingent deferred sales charge and a 1.00% 12b-1 fee. See BUYING SHARES
-- SALES CHARGE, BUYING SHARES -- CONTINGENT DEFERRED SALES CHARGE and RULE
12B-1 FEES below. All of the Funds also offer Institutional Class shares and
certain of the Funds offer Investor Class shares. For a description of such
shares, see ADDITIONAL INFORMATION below.
HOW SHARES ARE PRICED
The price of a Fund's shares is based on its net asset value ("NAV"). For a
Fund, the NAV per share of a class equals the total value of the assets
allocable to the class, minus the class's liabilities, divided by the number of
the class's outstanding shares.
Excluding any transaction-based or other fees charged by your broker-dealer, the
price you will pay (the "offering price") to buy Class C shares of a Fund is the
NAV of such class of shares next calculated after your order is received by the
Funds' transfer or other agent or sub-agent with complete information and
meeting all of the requirements discussed in this Prospectus, plus any
applicable sales charge. See BUYING SHARES -- SALES CHARGE below. Excluding any
transaction-based or other fees charged by your broker-dealer, the amount you
will receive when you sell Class C shares of a Fund is the NAV of such class of
shares next calculated after your order is received by the Funds' transfer or
other agent or sub-agent with complete information and meeting all of the
requirements discussed in this Prospectus, minus any applicable contingent
deferred sales charge. See SELLING SHARES -- CONTINGENT DEFERRED SALES CHARGE
below.
A Fund's NAV is determined each day the New York Stock Exchange ("NYSE") is open
for regular business, at the earlier of 4:00 p.m. Eastern Time or the close of
regular trading on the NYSE. The NYSE is closed on weekends and national
holidays.
If the Funds' transfer or other agent or sub-agent receives your buy or sell
request in good order before the close of regular trading on the NYSE, you will
pay or receive that day's NAV. If the Funds' transfer or other agent or
sub-agent receives your buy or sell request in good order after the close of
regular trading on the NYSE, you will pay or receive the next day's NAV.
The Funds' securities for which market quotations are readily available are
valued at market value. Other securities for which current market quotations are
not readily available (including restricted securities, if any) and all other
assets are taken at fair value. With regard to the International Equity Fund,
because foreign markets may be open at different times than the NYSE, the value
of the Fund's shares may change on days when shareholders are not able to buy or
sell them. If events materially affecting the values of the Fund's foreign
investments occur between the close of foreign markets and the close of regular
trading on the NYSE, these investments will be valued at their fair value.
BUYING SHARES
An investor may make an initial purchase of Class C shares of any Fund by
submitting a completed application form and payment to:
Undiscovered Managers Funds
4400 Computer Drive
P.O. Box 5181
Westborough, MA 01581-5181
The minimum initial investment in any Fund is $250,000 in that Fund. A minimum
investment of $10,000 applies to the Trustees of Undiscovered Managers Funds,
investment advisory clients of the sub-advisers (and their directors, officers
and employees) of the investment portfolios of Undiscovered Managers Funds, and
employees of Undiscovered Managers
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<PAGE> 104
and the parents, spouses and children of the foregoing. The minimum investment
may be waived by Undiscovered Managers in its sole discretion and will be waived
for you if you are a new shareholder in Undiscovered Managers Funds and you
initially invest less than $250,000 but sign a letter of intent stating your
intention to bring your balance to $250,000 within six months after your initial
purchase. If you purchase shares through a financial intermediary and hold such
shares through an omnibus account with that financial intermediary, the minimum
initial investment applies to the omnibus account and not to you individually.
Undiscovered Managers reserves the right to redeem your account at net asset
value if you have signed a letter of intent but fail to meet the minimum
investment within the specified time or to waive any minimum investment in its
sole discretion. Subsequent investments must be at least $50,000.
You may purchase shares of any Fund (i) with cash, (ii) by exchanging securities
on deposit with a custodian acceptable to Undiscovered Managers or (iii) with
any combination of such securities and cash. If you would like to purchase
shares of a Fund in exchange for securities please call 1-888-242-3514 for
additional information on the terms and conditions in order to do so.
All purchases made by check should be in U.S. dollars and made payable to
Undiscovered Managers Funds. Third party checks will not be accepted. When you
make a purchase by check, redemption proceeds will not be sent to you until the
check paying for the investment has cleared, which may take up to 15 calendar
days.
Upon acceptance of your order, the Funds' transfer agent opens an account,
applies the payment, less any sales charge, to the purchase of full and
fractional Fund shares and mails to you a statement of account confirming the
transaction. See SALES CHARGE below.
After an account has been established, you may send subsequent investments at
any time directly to the Funds at the above address. The remittance must be
accompanied by either the account identification slip detached from a statement
of account or a note containing sufficient information to identify the account,
i.e., the Fund name and your account number or your name and social security
number.
Initial and subsequent investments can also be made by federal funds wire. You
should instruct your bank to wire federal funds to Boston Safe Deposit & Trust
Company, ABA #011001234. The text of the wire should read as follows:
Boston Safe Deposit & Trust Company
ABA #011001234
Account #145483
FBO: Shareholder Name and Account Number
FOR: Undiscovered Managers Funds
A bank may charge a fee for transmitting funds by wire.
Each Fund and the Funds' distributor reserve the right to reject any purchase
order, including orders in connection with exchanges, for any reason which the
Fund or the distributor in its sole discretion deems appropriate. Although the
Funds do not presently anticipate that they will do so, each Fund reserves the
right to suspend or change the terms of the offering of its shares.
The Funds' distributor may accept telephone orders from broker-dealers, and
other intermediaries designated by such broker-dealers, who have been previously
approved by the distributor. A Fund will be deemed to have received a purchase
order when an approved broker-dealer or its authorized designee accepts such
order. It is the responsibility of such broker-dealers to promptly forward
purchase or redemption orders to the distributor. In addition to the front-end
and contingent deferred sales charges imposed by the Funds' distributor,
broker-dealers may charge you a transaction-based fee or other fee for their
services at either the time of purchase or the time of redemption. Such charges
may vary among broker-dealers but in all cases will be retained by the
broker-dealers and not remitted to the Funds.
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<PAGE> 105
SALES CHARGE
Class C shares of the Funds are offered at net asset value plus a 1.00%
front-end sales charge. On each purchase, the net asset value is invested in the
applicable Fund, and the sales charge is paid to the Funds' distributor. The
Funds' distributor reallows the whole sales charge to the investment dealer who
initiates and is responsible for the share purchase. In addition, at the time of
sale, the Funds' distributor pays to the investment dealer an additional 1.00%
of the purchase price. The additional 1.00% is paid by the Fund's distributor
and not by the Funds or their shareholders.
Investment dealers who receive the additional 1.00% of the purchase price from
the Fund's distributor will be eligible to receive the fee under the Class C
Service and Distribution Plan associated with the purchase starting in the
thirteenth calendar month after such purchase. No sales charge will be assessed
on reinvested distributions into Class C shares or on exchanges from one Fund to
another Fund.
<TABLE>
<CAPTION>
Total Sales Charge as a % of
-------------------------------------------- Amount Paid to Dealer as a
Amount of Purchase Offering Price Net Amount Invested % of Public Offering Price
------------------ -------------- ------------------- --------------------------
<S> <C> <C> <C>
All Amounts* 1.00% 1.01% 1.00%
</TABLE>
----------
* A Contingent Deferred Sales Charge of 1.00% may apply to any Class C share
purchase. See CONTINGENT DEFERRED SALES CHARGE below.
CONTINGENT DEFERRED SALES CHARGE
For any Class C share purchase, a contingent deferred sales charge may apply if
an investor sells the shares within eighteen months after purchase. The
contingent deferred sales charge is 1.00% of the value of the shares sold or the
net asset value of such shares at the time of purchase, whichever is less, which
means that the maximum amount of the contingent deferred sales charge on a Class
C share will never be greater than 0.99% of the offering price of such share at
the time of its purchase. The contingent deferred sales charge is paid to the
Funds' distributor. If an investor redeems any Class C shares in a Fund, the
Fund will first redeem any shares in the investor's account that are not subject
to the contingent deferred sales charge. If there are not enough of these shares
to meet the investor's request, the Fund will redeem shares subject to the
charge in the order they were purchased. Unless otherwise specified, when an
investor requests to sell a stated dollar amount in a Fund, the Fund will redeem
additional shares to cover any contingent deferred sales charge. For requests to
sell a stated number of shares in a Fund, the Fund will deduct the amount of the
contingent deferred sales charge, if any, from the sale proceeds.
No contingent deferred sales charge will be assessed on reinvested
distributions, redemptions by a Fund when an account falls below the minimum
required account size, redemptions following the death of the shareholder or
beneficial owner, distributions from IRAs due to death or disability or returns
of excess contributions (and earnings, if applicable) from retirement plan
accounts. An exchange of Class C shares from one Fund to another Fund is not
considered a redemption or a purchase for purposes of the contingent deferred
sales charge. If a shareholder exchanges Class C shares of a Fund for Class C
shares of another Fund, the eighteen-month holding period for purposes of the
contingent deferred sales charge will continue to run after the exchange.
GENERAL SHAREHOLDER SERVICES
The Funds offer the following shareholder services, which are more fully
described in the SAI. Explanations and forms are available from the Funds.
Telephone redemption and exchange privileges will be established automatically
when you open an account unless you elect on the application to decline the
privileges. Other privileges must be specifically elected. A medallion signature
guarantee may be required to establish these privileges after an account is
opened.
FREE EXCHANGE PRIVILEGE. You may exchange Class C shares of any Fund for Class C
shares of any other Fund. No front-end or contingent deferred sales charges will
be imposed on any such exchange. You may not exchange Class C shares for
Institutional Class shares or Investor Class shares. You may make an exchange by
written instructions or by telephone (unless you have elected on the application
to decline telephone exchange privileges). The exchange privilege should not be
viewed as a means for taking advantage of short-term swings in the market, and
the Funds reserve the right to
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<PAGE> 106
terminate or limit the privilege of any shareholder who makes more than four
exchanges in any calendar year. An exchange of shares of one Fund for shares of
another Fund will generally be treated as a sale of the exchanged shares for
federal income tax purposes. The Funds may terminate or change the terms of the
exchange privilege at any time, upon 60 days' notice to shareholders.
RETIREMENT PLANS. The Funds' Class C shares may be purchased by all types of
tax-deferred retirement plans. The Funds' distributor makes available retirement
plan forms for IRAs.
SYSTEMATIC WITHDRAWAL PLAN. If the value of your account is at least $25,000,
you may have periodic cash withdrawals automatically paid to you or any person
designated by you.
AUTOMATIC INVESTMENT PLAN. Voluntary monthly investments of at least $1,000 may
be made automatically by pre-authorized withdrawals from your checking account.
SELLING SHARES
You can redeem shares of any Fund by sending a written request to:
PFPC Inc.
4400 Computer Drive
P.O. Box 5181
Westborough, MA 01581-5181
Attn: Undiscovered Managers Funds
As described below, you may also redeem your shares in any Fund by calling
Undiscovered Managers at 1-800-667-1224. Proceeds resulting from a written or
telephonic redemption request can be wired to your bank account or sent by check
in your name(s) (if multiple registered owners) to your record address(es).
Your written request must include the name of the Fund, the class of shares, the
account number, the exact name(s) in which the shares are registered, and the
number of shares or the dollar amount to be redeemed. All owners of the shares
must sign the request in the exact names in which the shares are registered
(this appears on your confirmation statement) and should indicate any special
capacity in which you are signing (such as trustee or custodian or on behalf of
a partnership, corporation or other entity). If you request that redemption
proceeds be wired to your bank account you must provide specific wire
instructions.
If (1) you are redeeming shares worth more than $50,000, (2) you are requesting
that the proceeds check be made out to someone other than you (as the registered
owner) or be sent to an address other than the record address, (3) the account
registration has changed within the last 30 days or (4) you are providing
instructions to wire the proceeds to a bank account not designated on the
application, you must have your signature guaranteed by a medallion signature
guarantor. A medallion signature guarantee may be obtained from a domestic bank
or trust company, broker, dealer, clearing agency, savings association, or other
financial institution which is participating in a medallion program recognized
by the Securities Transfer Association. The three recognized medallion programs
are Securities Transfer Agents Medallion Program (STAMP), Stock Exchanges
Medallion Program (SEMP) and New York Stock Exchange, Inc. Medallion Signature
Program (NYSE MSP). Signature guarantees from financial institutions which are
not participating in one of these programs will not be accepted. Before
submitting the redemption request, you should verify with the guarantor
institution that it is a medallion guarantor. Signature guarantees by notaries
public are not acceptable.
When you telephone a redemption request, the proceeds are wired to the bank
account previously chosen by you. A wire fee (currently $5) will be deducted
from the proceeds.
If you decide to change the bank account to which proceeds are to be wired, you
must send in this change on the Service Options Form with a medallion signature
guarantee. Telephonic redemptions may only be made if your bank is a member of
the Federal Reserve System or has a correspondent bank that is a member of the
System. Unless you indicate otherwise
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<PAGE> 107
on the account application, Undiscovered Managers will be authorized to act upon
redemption and exchange instructions received by telephone from you or any
person claiming to act as your representative who can provide Undiscovered
Managers with your account registration and address as it appears on the records
of Undiscovered Managers Funds. Undiscovered Managers will employ these or other
reasonable procedures to confirm that instructions communicated by telephone are
genuine. Undiscovered Managers Funds, the Funds' transfer agent, the Funds'
distributor, Undiscovered Managers and the sub-advisers will not be liable for
any losses due to unauthorized or fraudulent instructions if these or other
reasonable procedures are followed, but may be liable for any losses due to
unauthorized or fraudulent instructions in the event reasonable procedures are
not followed. For further information, consult Undiscovered Managers. In times
of heavy market activity, if you encounter difficulty in placing a redemption or
exchange order by telephone, you may wish to place the order by mail as
described above.
Proceeds resulting from a written redemption request will normally be mailed to
you within seven days after receipt of your request, if the request is in good
order. Telephonic redemption proceeds will normally be wired to your bank on the
first business day following receipt of a proper redemption request. If you
purchased shares by check and the check was deposited less than 15 calendar days
prior to the redemption request, the Fund may withhold redemption proceeds until
the check has cleared.
Each Fund will normally redeem your shares for cash; however, each Fund reserves
the right to pay the redemption price wholly or partly in kind if the Board of
Trustees of Undiscovered Managers Funds determines it to be advisable in the
interest of the remaining shareholders. If portfolio securities are distributed
in lieu of cash, you will normally incur brokerage commissions upon subsequent
disposition of any such securities. However, Undiscovered Managers Funds is
obligated to redeem shares solely in cash for any shareholder during any 90-day
period up to the lesser of $250,000 or 1% of the total net asset value of
Undiscovered Managers Funds at the beginning of such period.
If the balance in your account with a Fund is less than a minimum amount set by
the Board of Trustees of Undiscovered Managers Funds from time to time
(currently $250,000 for all accounts), that Fund may close the account and send
the proceeds to you. If you are affected by this policy, you will be notified of
the Fund's intention to close the account and will have 60 days immediately
following the notice to bring the account up to the minimum. The minimum does
not apply to automatic investment plans or accounts that have fallen below the
minimum solely because of fluctuations in a Fund's net asset value per share.
Undiscovered Managers Funds may suspend the right of redemption and may postpone
payment for more than seven days when the NYSE is closed for other than weekends
or holidays, or if permitted by the rules of the Securities and Exchange
Commission when trading on the NYSE is restricted or during an emergency which
makes it impracticable for a Fund to dispose of its securities or to determine
fairly the value of its net assets, or during any other period permitted by the
Securities and Exchange Commission for the protection of investors.
Dividends, Distributions and Taxes
The Funds declare and pay their net investment income to shareholders as
dividends annually. Each Fund also distributes all of its net capital gains
realized from the sale of portfolio securities. Any capital gain distributions
are normally made annually, but may, to the extent permitted by law, be made
more frequently as deemed advisable by the Board of Trustees of Undiscovered
Managers Funds. The Board of Trustees may change the frequency with which the
Funds declare or pay dividends.
Dividends and capital gain distributions will automatically be reinvested in
additional shares of the same Fund on the record date unless an investor has
elected to receive cash.
Each Fund intends to qualify as a regulated investment company under the Code.
As a regulated investment company, and provided that the Fund distributes
substantially all its net investment income to its shareholders, the Fund itself
will not pay any federal income tax on its distributed income and gains.
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<PAGE> 108
Income dividends and short-term capital gain distributions are taxable as
ordinary income. Long-term capital gain distributions from all Funds are taxable
as long-term capital gains regardless of how long an investor has owned shares
of a Fund. Distributions are taxable to a shareholder of a Fund even if they are
paid from income or gains earned by the Fund prior to the shareholder's
investment (and thus were included in the price paid by the shareholder).
Distributions are taxable as described above regardless of whether they are
distributed in cash or additional shares.
Certain designated dividends from the Funds are expected to be eligible for the
dividends-received deduction for corporate shareholders (subject to a holding
period requirement). However, any distributions received by a Fund from REITs
will not qualify for the dividends-received deduction. A Fund's investment in
REIT securities may require such Fund to accrue and distribute income not yet
received. In order to generate sufficient cash to make the requisite
distributions, the Fund may be required to sell securities in its portfolio that
it otherwise would have continued to hold (including when it is not advantageous
to do so). A Fund's investment in REIT securities also may result in the Fund's
receipt of cash in excess of the REIT's earnings; if the Fund distributes such
amounts, such distribution could constitute a return of capital to Fund
shareholders for federal income tax purposes.
The Funds' transfer agent will send each investor and the Internal Revenue
Service an annual statement detailing federal tax information, including
information about dividends and distributions paid to the investor during the
preceding year.
The International Equity Fund's investments in foreign securities may be subject
to foreign withholding taxes. In that case, the Fund's yield on those securities
would be decreased. Shareholders may be entitled to claim a credit or deduction
with respect to foreign taxes. In addition, the International Equity Fund's
investment in foreign securities or foreign currencies may increase or
accelerate the Fund's recognition of ordinary income and may affect the timing
or amount of the Fund's distributions.
Any gain resulting from the redemption, sale or exchange of shares of a Fund
will generally be subject to tax.
NOTE: The foregoing summarizes certain tax consequences of investing in the
Funds for shareholders who are U.S. citizens or corporations. Before
investing, an investor should consult his or her own tax adviser for
more information concerning the federal, state, local and foreign tax
consequences of investing in, redeeming or exchanging Fund shares.
Rule 12b-1 Fees
Under a Service and Distribution Plan relating to Class C shares adopted by
Undiscovered Managers Funds pursuant to Rule 12b-1 under the Investment Company
Act of 1940, Undiscovered Managers Funds 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 Class C shares and (ii) providing additional
personal services to Class C shareholders and/or for the maintenance of Class C
shareholder accounts. On an annual basis, the aggregate amount of fees under
such plan with respect to each Fund will not exceed 1.00% of the Fund's average
daily net assets attributable to its Class C shares. Because these fees are paid
out of a Fund's assets on an on-going basis, over time these fees will increase
the cost of your investment and may cost you more than paying other types of
sales charges.
Additional Information
Currently, each Fund has three classes of shares--Institutional Class shares,
Investor Class shares and Class C shares - except for the Core Equity Fund which
has only two classes of shares - Institutional Class shares and Class C shares.
Certain other investment portfolios of Undiscovered Managers Funds have only
Institutional Class shares, and certain other investment portfolios of
Undiscovered Managers Funds have only Institutional Class shares and Investor
Class shares. Institutional Class shares and Investor Class shares are offered
in separate prospectuses. Institutional Class shares and Investor Class shares
are identical to Class C shares, except that (i) Class C shares are subject to
certain front-end and contingent deferred sales charges, (ii) Institutional
Class shares bear no 12b-1 fees, (iii) Investor Class shares bear lower 12b-1
fees than Class C shares and (iv) Investor Class shares and Class C shares have
separate voting rights in certain circumstances. Since a Fund's Institutional
Class shares bear no such 12b-1 fees and a Fund's Investor Class shares, if
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<PAGE> 109
any, bear lower 12b-1 fees than Class C shares, Institutional Class shares and
Investor Class shares of a Fund are expected to have a higher total return than
Class C shares of such Fund. None of the classes of shares of any Fund have
conversion rights into or may be exchanged for any other classes of shares of
any Fund or any other investment portfolio of Undiscovered Managers Funds.
-27-
<PAGE> 110
Financial Highlights
The financial highlights table is intended to help you understand the financial
performance of each Fund's Class C shares since the commencement of such class's
investment operations. Certain information reflects financial results for a
single Class C share of a Fund. The total returns in the table represent the
rate that an investor would have earned or lost on an investment in a Fund's
Class C shares (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, independent auditors,
whose report, along with the Trust's financial statements, are included in the
Trust's Annual Report to Shareholders, which is available upon request.
<TABLE>
<CAPTION>
Behavioral REIT
Growth Fund Fund
--------------------------------- ---------------------------------
C Class (1) C Class (2)
--------------------------------- ---------------------------------
Year ended Period ended Year ended Period ended
August 31, 2000 August 31, 1999 August 31, 2000 August 31, 1999
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 21.28 $ 19.44 $ 11.17 $ 11.19
Income from Investment Operations:
Net investment income (loss) (0.58) (0.07) 0.42 0.04
Net realized and unrealized gain (loss)
on investments and securities sold short 9.28 1.91 1.23 (0.06)
--------- --------- --------- ---------
Total Income (Loss) from Investment
Operations 8.70 1.84 1.65 (0.02)
--------- --------- --------- ---------
Less Distributions:
Dividends from net investment income 0.00 0.00 (0.47) 0.00
Distributions from capital gains 0.00 0.00 0.00 0.00
--------- --------- --------- ---------
Total Distributions 0.00 0.00 (0.47) 0.00
--------- --------- --------- ---------
Net increase (decrease) in net asset value 8.70 1.84 1.18 (0.02)
--------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 29.98 $ 21.28 $ 12.35 $ 11.17
========= ========= ========= =========
TOTAL RETURN** 40.77% 9.52% 16.06% (0.18)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in 000s) $ 2,680 $ 185 $ 375 $ 20
Ratios to average net assets (+):
Net investment income (loss) including
reimbursement (1.98)% (1.66)%* 3.71% 4.57%*
Operating expenses including reimbursement 2.30% 2.25%* 2.40% 2.21%*
Portfolio turnover rate** 90% 72% 64% 67%
+ The operating expenses may reflect a reduction of the adviser fee, an
allocation of expenses to the Investment Adviser, or both.
Had such actions not been taken, the ratios would have been as follows:
Net investment income (loss) (2.22)% (2.62)%* 2.85% 3.68%*
Operating expenses 2.54% 3.21%* 3.26% 3.10%*
</TABLE>
----------
* Annualized
** For periods less than one year, percentages are not annualized.
(1) The Fund's C Class commenced investment operations on June 21, 1999.
(2) The Fund's C Class commenced investment operations August 3, 1999.
Per share data is calculated based upon the average shares outstanding during
the period.
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<PAGE> 111
<TABLE>
<CAPTION>
Small Cap Core International
Value Fund Equity Fund Equity Fund
--------------------------- --------------------------- ---------------
C Class (1) C Class (2) C Class (3)
--------------------------- --------------------------- ---------------
Year ended Period ended Year ended Period ended Period ended
August 31, August 31, August 31, August 31, August 31, 2000
2000 1999 2000 1999
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.51 $ 13.86 $ 15.21 $ 15.31 $ 14.21
Income from Investment Operations:
Net investment income (loss) (0.17) (0.03) 0.06 0.00(A) (0.14)
Net realized and unrealized gain (loss)
on investments and securities sold short 1.62 (0.32) (0.51) (0.10) 3.89
------- ------- ------- ------- -------
Total Income (Loss) from Investment
Operations 1.45 (0.35) (0.45) (0.10) 3.75
------- ------- ------- ------- -------
Less Distributions:
Dividends from net investment income 0.00 0.00 (0.10) 0.00 (0.25)
Distributions from capital gains (0.18) 0.00 0.00 0.00 0.00
------- ------- ------- ------- -------
Total Distributions (0.18) 0.00 (0.10) 0.00 (0.25)
------- ------- ------- ------- -------
Net increase (decrease) in net asset value 1.27 (0.35) (0.55) (0.10) 3.50
NET ASSET VALUE, END OF PERIOD $ 14.78 $ 13.51 $ 14.66 $ 15.21 $ 17.71
======= ======= ======= ======= =======
TOTAL RETURN** 10.91% (2.53)% (3.58)% (0.65)% 26.40%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in 000s) $ 420 $ 117 $ 59 $ 5 $ 121
Ratios to average net assets (+):
Net investment income (loss) including
reimbursement (1.23)% (0.97)%* 0.42% (0.88)%* (0.83)%*
Operating expenses including reimbursement 2.40% 2.31%* 1.99% 1.99%* 2.45%*
Portfolio turnover rate** 58% 56% 34% 15% 24%
+ The operating expenses may reflect a reduction of the adviser fee, an allocation of expenses to the Investment Adviser,
or both. Had such actions not been taken, the ratios would have been as follows:
Net investment income (loss) (2.08)% (2.19)%* (4.82)% (1.84)%* (2.37)%*
Operating expenses 3.25% 3.53%* 7.23% 2.95%* 3.99%*
</TABLE>
----------
* Annualized
** For periods less than one year, percentages are not annualized.
(1) The Fund's C Class commenced investment operations on June 21, 1999.
(2) The Fund's C Class commenced investment operations on August 31, 1999.
(3) The Fund's C Class commenced investment operations on September 28,
1999.
(A) Represents less than $0.005 per share.
Per share data is calculated based upon the average shares outstanding during
the period.
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<PAGE> 112
WHERE TO GET MORE INFORMATION ABOUT THE FUNDS
To find out more information about Undiscovered Managers Funds, ask for a free
copy of the following:
STATEMENT OF ADDITIONAL INFORMATION
The SAI provides more information about the Funds. It is filed with the
Securities and Exchange Commission and is incorporated by reference into this
Prospectus, which means that it is legally part of this Prospectus.
ANNUAL/SEMI-ANNUAL REPORT
Additional information about the Funds' investments is available in the Funds'
annual and semi-annual reports to shareholders. In the Funds' most recent annual
report to shareholders, you will find a discussion of the market conditions and
investment strategies that significantly affected each Fund's performance during
its last fiscal year. The auditor's report and financial statements included in
the Funds' most recent annual report to shareholders are incorporated by
reference into this Prospectus, which means that they are legally part of this
Prospectus.
The SAI and the Funds' annual and semi-annual reports to shareholders are
available, without charge, upon request. To obtain free copies of the SAI, the
Funds' annual and semi-annual reports to shareholders, request other information
and discuss your questions about any of the Funds, you may call toll free
1-888-242-3514 or write to:
Undiscovered Managers Funds
Plaza of the Americas
700 North Pearl Street, Suite 1700
Dallas, Texas 75201
You may also view or download this Prospectus, the SAI and other information
about the Funds on our Internet site at http://www.undiscoveredmanagers.com.
You can also review and copy the SAI and other information about the Funds at
the Securities and Exchange Commission Public Reference Room in Washington, D.C.
Call 1-202-942-8090 for information on the operations of the Public Reference
Room. Reports and other information about the Funds are available on the EDGAR
Database on the Securities and Exchange Commission's Internet site at
http://www.sec.gov and copies of this information may be obtained, upon payment
of a duplicating fee by electronic request at the following E-mail address:
[email protected], or by writing to the Securities and Exchange Commission's
Public Reference Section, Washington, D.C. 20549-0102.
<PAGE> 113
[LOGO] undiscovered managers (TM)
UNDISCOVERED MANAGERS FUNDS
PROSPECTUS
December 28, 2000
Institutional Class shares of:
UM Behavioral Large Cap Fund
UM Merger & Acquisition Fund
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
<PAGE> 114
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Funds....................................................................3
WHAT YOU SHOULD KNOW ABOUT EACH FUND'S INVESTMENT
STRATEGIES, RISKS, PERFORMANCE, EXPENSES AND MANAGEMENT
UM Behavioral Large Cap Fund.................................................3
UM Merger & Acquisition Fund.................................................5
The Funds' Fees and Expenses.................................................7
Other Policies and Additional Disclosure on Risks............................8
The Funds' Management........................................................9
Your Investment.............................................................11
OPENING AND MAINTAINING YOUR UNDISCOVERED
MANAGERS ACCOUNT
Institutional Class Shares..................................................11
How Shares are Priced.......................................................11
Buying Shares...............................................................12
General Shareholder Services................................................13
Selling Shares..............................................................14
Dividends, Distributions and Taxes..........................................15
Where to get More Information about the Funds.......................Back Cover
</TABLE>
2
<PAGE> 115
THE FUNDS
This Prospectus offers Institutional Class shares of two investment portfolios
(each a "Fund," and collectively, the "Funds") of Undiscovered Managers Funds.
UM BEHAVIORAL LARGE CAP FUND
(THE "BEHAVIORAL LARGE CAP FUND")
Investment Objective
LONG-TERM GROWTH OF CAPITAL
Principal Investment Strategies
THE BEHAVIORAL LARGE CAP FUND SEEKS TO ACHIEVE ITS OBJECTIVE BY INVESTING
PRIMARILY IN COMMON STOCKS OF U.S. COMPANIES THAT ARE INCLUDED IN THE RUSSELL
1000 INDEX THAT HAVE EITHER GROWTH OR VALUE CHARACTERISTICS AND THAT ARE
BELIEVED TO BE UNDERVALUED BY THE FUND'S SUB-ADVISOR, FULLER & THALER ASSET
MANAGEMENT, INC. ("FULLER & THALER").
In selecting stocks for the Behavioral Large Cap Fund, Fuller & Thaler applies
principles based on behavioral studies. Fuller & Thaler believes that behavioral
biases on the part of investors may cause the market to underreact to new,
positive information and overreact to old, negative information concerning a
company.
In an effort to take advantage of such behavioral biases, Fuller & Thaler
divides companies in the Russell 1000 Index into 40 to 50 groups defined by
market capitalization and economic sectors. Fuller & Thaler ordinarily selects
two stocks from each group - a growth stock and a value stock. In selecting the
growth stock, Fuller & Thaler analyzes companies that have recently announced
positive news, and then determines whether the stock price fully reflects Fuller
& Thaler's expectations regarding the company's future earnings and growth
prospects. In selecting the value stock, Fuller & Thaler considers companies
that have price-to-earnings ratios below the median in their industry group or
decreasing stock values on an absolute basis and then selects stocks within this
universe based on factors such as recent underperformance of the company's stock
relative to the market, and signals from management that their company's stock
is undervalued.
Under normal market conditions, the Fund will invest substantially all of its
assets in common stocks and at least 65% of its assets in common stocks of
companies with market capitalizations of $5 billion or more.
Principal Risks
Investing in the Behavioral Large Cap Fund involves risks. The Fund may not
perform as well as other investments, and as with all mutual funds, there is the
risk that you could lose money on your investment in the Fund. Factors that
could harm the investment performance of the Fund include:
o A general decline in the U.S. stock markets,
o Poor performance of individual stocks held by the Fund and
o Potentially rapid price changes (volatility) of equity securities.
3
<PAGE> 116
Fund Performance
The Behavioral Large Cap Fund's performance is variable. Since the Fund has not
commenced investment operations as of the date of this Prospectus, this
Prospectus does not include a bar chart showing annual total returns or a table
showing average annual total returns compared against an appropriate broad-based
securities market index.
4
<PAGE> 117
UM MERGER & ACQUISITION FUND
(THE "MERGER & ACQUISITION FUND")
Investment Objective
LONG TERM GROWTH OF CAPITAL
Principal Investment Strategies
THE MERGER & ACQUISITION FUND SEEKS TO ACHIEVE ITS OBJECTIVE BY INVESTING
PRIMARILY IN STOCKS OF COMPANIES THAT HAVE EITHER RECENTLY RECEIVED PURCHASE OR
MERGER OFFERS FROM OTHER PUBLICLY TRADED COMPANIES OR HAVE PUBLICLY ANNOUNCED
THEY ARE PURSUING "STRATEGIC ALTERNATIVES". J.L. KAPLAN ASSOCIATES, LLC ("KAPLAN
ASSOCIATES") BELIEVES COMPANIES THAT HAVE RECEIVED BUYOUT OFFERS ARE NOT
NECESSARILY EFFICIENTLY PRICED BY THE MARKET DUE TO A VARIETY OF FACTORS.
Kaplan Associates will potentially invest in companies of all different sizes,
as well as companies across different industries and sectors. When selecting
investments, Kaplan Associates will analyze the probability of the transaction
closing, the intrinsic value of both the acquirer and target in a stock
transaction, the time value of money during the period between announcement and
potential closing and the regulatory issues involved. There are no assurances,
however, with regard to any company in which the Fund invests, that such company
will in fact be involved in a merger or that any merger in which such company is
involved will be successful or that the price of the company's stock will be
favorably influenced by the merger.
Under normal market conditions, the Merger & Acquisition Fund will invest at
least 65% of its assets in common stocks of companies that are involved in
potential merger or acquisition activity, either as an acquisition target or as
the acquiring company.
Principal Risks
Investing in the Merger & Acquisition Fund involves risks. The Fund may not
perform as well as other investments, and as with all mutual funds, there is the
risk that you could lose money on your investment in the Fund. Factors that
could harm the investment performance of the Fund include:
o A general decline in the U.S. stock markets,
o Poor performance of individual stocks held by the Fund,
o Potentially rapid changes (volatility) of equity securities and
o The risks associated with investment in small capitalization companies
(such as more abrupt price movements, greater dependence on individual
personnel or products, limited markets and less liquidity than larger, more
established companies).
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<PAGE> 118
Fund Performance
The Merger & Acquisition Fund's performance is variable. Since the Fund
commenced investment operations as of October 2, 2000, this Prospectus does not
include a bar chart showing annual total returns or a table showing average
annual total returns compared against an appropriate broad-based securities
market index.
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<PAGE> 119
THE FUNDS' FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Institutional Class shares of the Funds.
<TABLE>
<CAPTION>
Behavioral Merger &
Large Cap Fund Acquisition Fund
-------------- ----------------
Institutional Institutional
Class Class
-------------- ----------------
<S> <C> <C>
SHAREHOLDER FEES (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases none none
Maximum Deferred Sales Charge (Load) none none
Maximum Sales Charge (Load) Imposed on Reinvested Dividends none none
Redemption Fees(1) none none
Exchange Fees none none
ANNUAL FUND OPERATING EXPENSES (expenses that are
deducted from Fund assets)
Management Fees 0.74% 0.95%
Distribution (12b-1) Fees none none
Other Expenses(2) 25.43% 25.43%
Total Annual Fund Operating Expenses 26.17% 26.38%
Fee Reduction and/or Expense Reimbursement(3) (25.18)% (25.08)%
Net Expenses(3) 0.99% 1.30%
</TABLE>
EXAMPLE (4)
This Example is intended to help you compare the cost of investing in the Funds
with the cost of investing in other mutual funds.
This Example assumes that (i) you invest $10,000 in each Fund for the time
periods indicated, (ii) your investment has a 5% return each year, (iii) you
redeem all of your shares at the end of those periods and (iv) each Fund's
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
Behavioral Merger &
Large Cap Fund Acquisition Fund
-------------- ----------------
<S> <C> <C>
One Year $ 101 $ 132
Three Years $4,453 $4,582
</TABLE>
(1) Redemptions by wire transfer are subject to a wire fee (currently $5) that
is deducted from the redemption proceeds.
(2) Since the Funds are newly-organized, Other Expenses are based on estimated
amounts for the current fiscal year.
(3) Undiscovered Managers, LLC, the Funds' investment adviser, has contractually
agreed, through December 31, 2001, to reduce its fees and/or pay the expenses of
the Funds' Institutional Class shares in order to limit such class's expenses
(exclusive of brokerage costs, interest, taxes and extraordinary expenses) to
the percentages of net assets shown above, subject to later reimbursement by
such Funds in certain circumstances. See THE FUNDS' MANAGEMENT -- FUND EXPENSES
below.
(4) Under SEC rules, newly-organized funds, such as the Funds, are required to
show expenses in an example for one- and three-year periods only.
7
<PAGE> 120
OTHER POLICIES AND ADDITIONAL DISCLOSURE ON RISKS
OTHER POLICIES
ADDITIONAL FUND INVESTMENTS
Each Fund may invest its cash in repurchase agreements and other cash
instruments pending investment in equity securities.
PORTFOLIO TURNOVER
The Funds are actively managed and consequently may engage in frequent trading
of portfolio securities. High portfolio turnover results in higher brokerage and
other expenses, which could reduce Fund performance. High portfolio turnover
also may increase the amount of taxes payable by a Fund's shareholders.
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
The investment objectives and policies of the Funds can be changed without
shareholder approval, except for the policies that are identified in the Funds'
Statement of Additional Information (the "SAI") as "fundamental."
MORE ABOUT RISK
COMMON STOCKS AND OTHER EQUITY SECURITIES
The Funds invest mostly in "common stocks." Common stocks represent an ownership
interest in a company. The Funds can also invest in securities that can be
exercised for or converted into common stocks (such as warrants or convertible
preferred stock). While offering greater potential for long-term growth, common
stocks and similar equity securities are more volatile and more risky than some
other forms of investment. Therefore, the value of your investment in a Fund may
sometimes decrease instead of increase. Each Fund may invest in equity
securities of companies with relatively small market capitalization. Securities
of such companies may be more volatile than the securities of larger, more
established companies and the broad equity market indices. See SMALL COMPANIES
below. Each Fund's investments may include securities traded "over-the-counter"
as well as those traded on a securities exchange. Some over-the-counter
securities may be more difficult to sell under some market conditions.
Convertible securities include other securities, such as warrants, that provide
an opportunity for equity participation. Because convertible securities can be
converted into equity securities, their values will normally increase or
decrease as the values of the underlying equity securities increase or decrease.
The movements in the prices of convertible securities, however, may be smaller
than the movements in the value of the underlying equity securities.
SMALL COMPANIES
Each Fund may invest in companies with relatively small market capitalization,
and the Merger & Acquisition Fund will invest primarily in such companies.
Investments in companies with relatively small capitalization may involve
greater risk than is usually associated with stocks of larger companies. These
companies often have sales and earnings growth rates which exceed those of
companies with larger capitalization. Such growth rates may in turn be reflected
in more rapid share price appreciation. However, companies with smaller
capitalization often have limited product lines, markets or financial resources
and may be dependent upon a relatively small management group. The securities
may have limited marketability and may be subject to more abrupt or erratic
movements in price than securities of companies with larger capitalization or
market averages in general. The net asset value per share of Funds that invest
in companies with smaller capitalization therefore may fluctuate more widely
than market averages.
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<PAGE> 121
THE FUNDS' MANAGEMENT
INVESTMENT ADVISER
The Funds are advised by Undiscovered Managers, LLC ("Undiscovered Managers"),
700 North Pearl Street, Dallas, Texas 75201. Undiscovered Managers was organized
in 1997 and has responsibility for the management of the Funds' affairs, under
the supervision of Undiscovered Managers Funds' Board of Trustees. Each Fund's
investment portfolio is managed on a day-to-day basis by that Fund's
sub-adviser, under the general oversight of Undiscovered Managers and the Board
of Trustees. Undiscovered Managers monitors and evaluates each sub-adviser to
help assure that the sub-adviser is managing its Fund consistently with the
Fund's investment objective and restrictions and applicable laws and guidelines.
Undiscovered Managers does not, however, determine what investments will be
purchased or sold for a Fund.
Each Fund pays to Undiscovered Managers a management fee at the following annual
percentage rates of such Fund's average daily net assets, subject to the fee
deferral arrangements described below:
<TABLE>
<CAPTION>
FUND FEE RATE
---- --------
<S> <C>
Behavioral Large Cap Fund 0.74%
Merger & Acquisition Fund 0.95%
</TABLE>
SUB-ADVISERS AND PORTFOLIO MANAGERS
FULLER & THALER, formerly known as RJF Asset Management, Inc., is the
sub-adviser to the BEHAVIORAL LARGE CAP Fund. As sub-adviser, Fuller & Thaler
provides day-to-day management of the Fund's portfolio. Fuller & Thaler, 411
Borel Avenue, Suite 402, San Mateo, California 94402, was founded in 1993, and
currently serves as an investment adviser to three other investment portfolios
of Undiscovered Managers Funds, and to certain pension and profit sharing plans,
academic institutions and other institutional investors.
Russell J. Fuller, Frederick W. Stanske, John L. Kling and Mark Moon have
day-to-day responsibility for managing the BEHAVIORAL LARGE CAP FUND'S
portfolio. Mr. Fuller founded Fuller & Thaler and has served as its President
since 1993. He was a Vice President of Strategic Development of Concord Capital
Management from 1990 to 1993, and a Professor of Finance and Chair of the
Department of Finance at Washington State University from 1984 to 1990. Mr.
Stanske joined Fuller & Thaler in 1996 as a Vice President and Portfolio Manager
and became a Senior Vice President and Portfolio Manager in 1997. Prior to
joining Fuller & Thaler, Mr. Stanske was employed as a Securities Analyst at
Farmers Insurance Group from 1987 to 1989 and as a Vice President and Research
Analyst at Fisher Investments from 1989 to 1996. Mr. Kling joined Fuller &
Thaler in May 2000 as Senior Vice President and Director of Research. Prior to
joining Fuller & Thaler, Mr. Kling was employed by Washington State University
as an Associate Professor from 1988 to 2000. Mr. Kling has been a board member
for Fuller & Thaler (and previously, RJF Asset Management) since 1993. Mr. Moon
joined Fuller & Thaler in January, 1999 as a Vice President and Portfolio
Manager. Prior to joining Fuller & Thaler, Mr. Moon was employed as Chief
Investment Officer at Heidt Capital Group, LLC from 1995 to 1998 and as
Assistant Treasurer at Amgen, Inc. from 1989 to 1995.
KAPLAN ASSOCIATES is the sub-adviser to the MERGER & ACQUISITION FUND. As
sub-adviser, Kaplan Associates provides day-to-day management of the Fund's
portfolio. Kaplan Associates, 222 Berkeley Street, Suite 2010, Boston,
Massachusetts 02116, is the successor firm to J.L. Kaplan Associates, an
investment advisory firm founded in 1976. Kaplan Associates serves as an
investment adviser to two other investment portfolios of Undiscovered Managers
Funds, and to certain pension and profit sharing plans, trusts, charitable
organizations and other institutional and private investors.
James L. Kaplan, Paul Weisman and Regina Wiedenski have day-to-day
responsibility for managing the portfolio of the MERGER & ACQUISITION FUND. Mr.
Kaplan has been the principal of Kaplan Associates and its predecessor since
founding the firm in 1976. From 1972 to 1984, he was Associate Professor of
9
<PAGE> 122
Mathematics at Boston University. Mr. Weisman has been a portfolio manager at
the firm since 1986. From 1984 to 1986, Mr. Weisman was an investment analyst at
Delphi Management, Inc. Ms. Wiedenski joined Kaplan Associates in January 1998
as a Portfolio Manager. Prior to joining Kaplan Associates she was an Investment
Analyst for Advest, Inc. from 1993 to 1997.
Undiscovered Managers pays each Fund's sub-adviser a sub-advisory fee at the
following annual percentage rates of the specified levels of the Fund's average
daily net assets:
<TABLE>
<CAPTION>
FUND SUB-ADVISER FEE RATE AS % OF FUND'S NET ASSETS
---- ----------- ----------------------------------
<S> <C> <C>
Behavioral Large Cap Fund Fuller & Thaler 0.40% of the first $200 million
0.35% of the next $100 million
0.30% of assets in excess of $300 million
Merger & Acquisition Fund Kaplan Associates 0.60% of the first $200 million
0.55% of the next $100 million
0.50% of assets in excess of $300 million
</TABLE>
FUND EXPENSES
Undiscovered Managers has contractually agreed to reduce its management fees and
pay the expenses of each Fund's Institutional Class shares in order to limit
such class's expenses (exclusive of brokerage costs, interest, taxes and
extraordinary expenses) to the following annual percentage rate of the average
daily net assets of such class, subject to the obligation of a Fund to repay
Undiscovered Managers such deferred fees and expenses in future years, if any,
when such Fund's Institutional Class expenses (exclusive of brokerage costs,
interest, taxes and extraordinary expenses) fall below the stated percentage
rate, but only to the extent that such repayment would not cause such Fund's
Institutional Class expenses (exclusive of brokerage costs, interest, taxes and
extraordinary expenses) in any such future year to exceed the stated percentage
rate, and provided that such Fund is not obligated to repay any such deferred
fees and expenses more than three years after the end of the fiscal year in
which they were incurred: 0.99% for the Behavioral Large Cap Fund and 1.30% for
the Merger & Acquisition Fund. These agreements have terms running through
December 31, 2001 and are renewable from year to year thereafter.
OTHER ARRANGEMENTS
Undiscovered Managers Funds has applied for an exemptive order from the
Securities and Exchange Commission to permit Undiscovered Managers, subject to
the approval of Undiscovered Managers Funds' Board of Trustees and certain other
conditions, to enter into sub-advisory agreements with sub-advisers other than
the current sub-adviser of either Fund or of any other investment portfolio of
Undiscovered Managers Funds without obtaining shareholder approval. The
exemptive request also seeks to permit the terms of an existing sub-advisory
agreement to be changed or the employment of an existing sub-adviser to be
continued without shareholder approval after events that would otherwise cause
an automatic termination of a sub-advisory agreement if such changes or
continuation are approved by Undiscovered Managers Funds' Board of Trustees.
There is no assurance that the Securities and Exchange Commission will issue the
exemptive order. This Prospectus would be revised and shareholders notified if
the sub-adviser of either Fund is changed.
10
<PAGE> 123
YOUR INVESTMENT
INSTITUTIONAL CLASS SHARES
The Funds' Institutional Class shares are offered without a front-end or
contingent deferred sales charge and are not subject to any 12b-1 fees.
HOW SHARES ARE PRICED
The price of a Fund's shares is based on its net asset value ("NAV"). For a
Fund, the NAV per share of a class equals the total value of the assets
allocable to the class, minus the class's liabilities, divided by the number of
the class's outstanding shares.
Excluding any transaction-based or other fees charged by your broker-dealer, the
price you will pay to buy Institutional Class shares of a Fund is the NAV of
such class of shares next calculated after your order is received by the Funds'
transfer or other agent or sub-agent with complete information and meeting all
of the requirements discussed in this Prospectus. Excluding any
transaction-based or other fees charged by your broker-dealer, the amount you
will receive when you sell Institutional Class shares of a Fund is the NAV of
such class of shares next calculated after your order is received by the Funds'
transfer or other agent or sub-agent with complete information and meeting all
of the requirements discussed in this Prospectus.
A Fund's NAV is determined each day the New York Stock Exchange ("NYSE") is open
for regular business, at the earlier of 4:00 p.m. Eastern Time or the close of
regular trading on the NYSE. The NYSE is closed on weekends and national
holidays.
If the Funds' transfer or other agent or sub-agent receives your buy or sell
request in good order before the close of regular trading on the NYSE, you will
pay or receive that day's NAV. If the Funds' transfer or other agent or
sub-agent receives your buy or sell request in good order after the close of
regular trading on the NYSE, you will pay or receive the next day's NAV.
The Funds' securities for which market quotations are readily available are
valued at market value. Other securities for which current market quotations are
not readily available (including restricted securities, if any) and all other
assets are taken at fair value.
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<PAGE> 124
BUYING SHARES
An investor may make an initial purchase of Institutional Class shares of a Fund
by submitting a completed application form and payment to:
Undiscovered Managers Funds
4400 Computer Drive
P.O. Box 5181
Westborough, MA 01581-5181
The minimum initial investment in a Fund is $250,000 in that Fund. A minimum
investment of $10,000 applies to the Trustees of Undiscovered Managers Funds,
investment advisory clients of the sub-advisers (and their directors, officers
and employees) of the investment portfolios of Undiscovered Managers Funds, and
employees of Undiscovered Managers and the parents, spouses and children of the
foregoing. The minimum investment may be waived by Undiscovered Managers in its
sole discretion and will be waived for you if you are a new shareholder in
Undiscovered Managers Funds and you initially invest less than $250,000 but sign
a letter of intent stating your intention to bring your balance to $250,000
within six months after your initial purchase. If you purchase shares through a
financial intermediary and hold such shares through an omnibus account with that
financial intermediary, the minimum initial investment applies to the omnibus
account and not to you individually. Undiscovered Managers reserves the right to
redeem your account at net asset value if you have signed a letter of intent but
fail to meet the minimum investment within the specified time or to waive any
minimum investment in its sole discretion. Subsequent investments must be at
least $50,000.
You may purchase shares of a Fund (i) with cash, (ii) by exchanging securities
on deposit with a custodian acceptable to Undiscovered Managers or (iii) with
any combination of such securities and cash. If you would like to purchase
shares of a Fund in exchange for securities please call 1-888-242-3514 for
additional information on the terms and conditions in order to do so.
All purchases made by check should be in U.S. dollars and made payable to
Undiscovered Managers Funds. Third party checks will not be accepted. When you
make a purchase by check, redemption proceeds will not be sent to you until the
check paying for the investment has cleared, which may take up to 15 calendar
days.
Upon acceptance of your order, the Funds' transfer agent opens an account,
applies the payment to the purchase of full and fractional Fund shares and mails
to you a statement of account confirming the transaction.
After an account has been established, you may send subsequent investments at
any time directly to the Funds at the above address. The remittance must be
accompanied by either the account identification slip detached from a statement
of account or a note containing sufficient information to identify the account,
i.e., the Fund name and your account number or your name and social security
number.
Initial and subsequent investments can also be made by federal funds wire. You
should instruct your bank to wire federal funds to Boston Safe Deposit & Trust
Company, ABA #011001234. The text of the wire should read as follows:
Boston Safe Deposit & Trust Company
ABA #011001234
Account #145483
FBO: Shareholder Name and Account Number
FOR: Undiscovered Managers Funds
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<PAGE> 125
A bank may charge a fee for transmitting funds by wire.
Each Fund and the Funds' distributor reserve the right to reject any purchase
order, including orders in connection with exchanges, for any reason which the
Fund or the distributor in its sole discretion deems appropriate. Although the
Funds do not presently anticipate that they will do so, each Fund reserves the
right to suspend or change the terms of the offering of its shares.
The Funds' distributor may accept telephone orders from broker-dealers, and
other intermediaries designated by such broker-dealers, who have been previously
approved by the distributor. A Fund will be deemed to have received a purchase
order when an approved broker-dealer or its authorized designee accepts such
order. It is the responsibility of such broker-dealers to promptly forward
purchase or redemption orders to the distributor. Although there are no
front-end or contingent deferred sales charges imposed by the Funds or the
distributor in connection with the Funds' offering of Institutional Class
shares, broker-dealers may charge you a transaction-based fee or other fee for
their services at either the time of purchase or the time of redemption. Such
charges may vary among broker-dealers but in all cases will be retained by the
broker-dealers and not remitted to the Funds.
GENERAL SHAREHOLDER SERVICES
The Funds offer the following shareholder services, which are more fully
described in the SAI. Explanations and forms are available from the Funds.
Telephone redemption and exchange privileges will be established automatically
when you open an account unless you elect on the application to decline the
privileges. Other privileges must be specifically elected. A medallion signature
guarantee may be required to establish these privileges after an account is
opened.
FREE EXCHANGE PRIVILEGE. You may exchange Institutional Class shares of a Fund
for Institutional Class shares of the other Fund or any other investment
portfolio of Undiscovered Managers Funds. You may not exchange Institutional
Class shares for Investor Class shares or Class C shares. You may make an
exchange by written instructions or by telephone (unless you have elected on the
application to decline telephone exchange privileges). The exchange privilege
should not be viewed as a means for taking advantage of short-term swings in the
market, and the Funds reserve the right to terminate or limit the privilege of
any shareholder who makes more than four exchanges in any calendar year. An
exchange of shares of one Fund for shares of the other Fund or any other
investment portfolio of Undiscovered Managers Funds will generally be treated as
a sale of the exchanged shares for federal income tax purposes. The Funds may
terminate or change the terms of the exchange privilege at any time, upon 60
days' notice to shareholders.
RETIREMENT PLANS. The Funds' Institutional Class shares may be purchased by all
types of tax-deferred retirement plans. The Funds' distributor makes available
retirement plan forms for IRAs.
SYSTEMATIC WITHDRAWAL PLAN. If the value of your account is at least $25,000,
you may have periodic cash withdrawals automatically paid to you or any person
designated by you.
AUTOMATIC INVESTMENT PLAN. Voluntary monthly investments of at least $1,000 may
be made automatically by pre-authorized withdrawals from your checking account.
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<PAGE> 126
SELLING SHARES
You can redeem shares of a Fund by sending a written request to:
PFPC Inc.
4400 Computer Drive
P.O. Box 5181
Westborough, MA 01581-5181
Attn: Undiscovered Managers Funds
As described below, you may also redeem your shares in a Fund by calling
Undiscovered Managers at 1-800-667-1224. Proceeds resulting from a written or
telephonic redemption request can be wired to your bank account or sent by check
in your name(s) (if multiple registered owners) to your record address(es).
Your written request must include the name of the Fund, the class of shares, the
account number, the exact name(s) in which the shares are registered, and the
number of shares or the dollar amount to be redeemed. All owners of the shares
must sign the request in the exact names in which the shares are registered
(this appears on your confirmation statement) and should indicate any special
capacity in which you are signing (such as trustee or custodian or on behalf of
a partnership, corporation or other entity). If you request that redemption
proceeds be wired to your bank account you must provide specific wire
instructions.
If (1) you are redeeming shares worth more than $50,000, (2) you are requesting
that the proceeds check be made out to someone other than you (as the registered
owner) or be sent to an address other than the record address, (3) the account
registration has changed within the last 30 days or (4) you are providing
instructions to wire the proceeds to a bank account not designated on the
application, you must have your signature guaranteed by a medallion signature
guarantor. A medallion signature guarantee may be obtained from a domestic bank
or trust company, broker, dealer, clearing agency, savings association, or other
financial institution which is participating in a medallion program recognized
by the Securities Transfer Association. The three recognized medallion programs
are Securities Transfer Agents Medallion Program (STAMP), Stock Exchanges
Medallion Program (SEMP) and New York Stock Exchange, Inc. Medallion Signature
Program (NYSE MSP). Signature guarantees from financial institutions which are
not participating in one of these programs will not be accepted. Before
submitting the redemption request, you should verify with the guarantor
institution that it is a medallion guarantor. Signature guarantees by notaries
public are not acceptable.
When you telephone a redemption request, the proceeds are wired to the bank
account previously chosen by you. A wire fee (currently $5) will be deducted
from the proceeds.
If you decide to change the bank account to which proceeds are to be wired, you
must send in this change on the Service Options Form with a medallion signature
guarantee. Telephonic redemptions may only be made if your bank is a member of
the Federal Reserve System or has a correspondent bank that is a member of the
System. Unless you indicate otherwise on the account application, Undiscovered
Managers will be authorized to act upon redemption and exchange instructions
received by telephone from you or any person claiming to act as your
representative who can provide Undiscovered Managers with your account
registration and address as it appears on the records of Undiscovered Managers
Funds. Undiscovered Managers will employ these or other reasonable procedures to
confirm that instructions communicated by telephone are genuine. Undiscovered
Managers Funds, the Funds' transfer agent, the Funds' distributor, Undiscovered
Managers and the sub-advisers will not be liable for any losses due to
unauthorized or fraudulent instructions if these or other reasonable procedures
are followed, but may be liable for any losses due to unauthorized or fraudulent
instructions in the event reasonable procedures are not followed. For further
information, consult Undiscovered Managers. In times of heavy market activity,
if you encounter difficulty in placing a redemption or exchange order by
telephone, you may wish to place the order by mail as described above.
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<PAGE> 127
Proceeds resulting from a written redemption request will normally be mailed to
you within seven days after receipt of your request, if the request is in good
order. Telephonic redemption proceeds will normally be wired to your bank on the
first business day following receipt of a proper redemption request. If you
purchased shares by check and the check was deposited less than 15 calendar days
prior to the redemption request, the Fund may withhold redemption proceeds until
the check has cleared.
Each Fund will normally redeem your shares for cash; however, each Fund reserves
the right to pay the redemption price wholly or partly in kind if the Board of
Trustees of Undiscovered Managers Funds determines it to be advisable in the
interest of the remaining shareholders. If portfolio securities are distributed
in lieu of cash, you will normally incur brokerage commissions upon subsequent
disposition of any such securities. However, Undiscovered Managers Funds is
obligated to redeem shares solely in cash for any shareholder during any 90-day
period up to the lesser of $250,000 or 1% of the total net asset value of
Undiscovered Managers Funds at the beginning of such period.
If the balance in your account with a Fund is less than a minimum amount set by
the Board of Trustees of Undiscovered Managers Funds from time to time
(currently $250,000 for all accounts), that Fund may close the account and send
the proceeds to you. If you are affected by this policy, you will be notified of
the Fund's intention to close the account and will have 60 days immediately
following the notice to bring the account up to the minimum. The minimum does
not apply to automatic investment plans or accounts that have fallen below the
minimum solely because of fluctuations in a Fund's net asset value per share.
Undiscovered Managers Funds may suspend the right of redemption and may postpone
payment for more than seven days when the NYSE is closed for other than weekends
or holidays, or if permitted by the rules of the Securities and Exchange
Commission when trading on the NYSE is restricted or during an emergency which
makes it impracticable for a Fund to dispose of its securities or to determine
fairly the value of its net assets, or during any other period permitted by the
Securities and Exchange Commission for the protection of investors.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Funds declare and pay their net investment income to shareholders as
dividends annually. Each Fund also distributes all of its net capital gains
realized from the sale of portfolio securities. Any capital gain distributions
are normally made annually, but may, to the extent permitted by law, be made
more frequently as deemed advisable by the Board of Trustees of Undiscovered
Managers Funds. The Board of Trustees may change the frequency with which the
Funds declare or pay dividends.
Dividends and capital gain distributions will automatically be reinvested in
additional shares of the same Fund on the record date unless an investor has
elected to receive cash.
Each Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended. As a regulated investment company,
and provided that the Fund distributes substantially all its net investment
income to its shareholders, the Fund itself will not pay any federal income tax
on its distributed income and gains.
Income dividends and short-term capital gain distributions are taxable as
ordinary income. Long-term capital gain distributions from all Funds are taxable
as long-term capital gains regardless of how long an investor has owned shares
of a Fund. Distributions are taxable to a shareholder of a Fund even if they are
paid from income or gains earned by the Fund prior to the shareholder's
investment (and thus were included in the price paid by the shareholder).
Distributions are taxable as described above regardless of whether they are
distributed in cash or additional shares.
Certain designated dividends from the Funds are expected to be eligible for the
dividends-received deduction for corporate shareholders (subject to a holding
period requirement).
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The Funds' transfer agent will send each investor and the Internal Revenue
Service an annual statement detailing federal tax information, including
information about dividends and distributions paid to the investor during the
preceding year.
Any gain resulting from the redemption, sale or exchange of shares of a Fund
will generally be subject to tax.
NOTE: The foregoing summarizes certain tax consequences of investing in the
Funds for shareholders who are U.S. citizens or corporations. Before
investing, an investor should consult his or her own tax adviser for more
information concerning the federal, state, local and foreign tax
consequences of investing in, redeeming or exchanging Fund shares.
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WHERE TO GET MORE INFORMATION ABOUT THE FUNDS
To find out more information about Undiscovered Managers Funds, ask for a free
copy of the following:
STATEMENT OF ADDITIONAL INFORMATION
The SAI provides more information about the Funds. It is filed with the
Securities and Exchange Commission and is incorporated by reference into this
Prospectus, which means that it is legally part of this Prospectus.
The SAI is available, without charge, upon request. In addition, after the
Funds' annual and semi-annual reports to shareholders are required to be
delivered to the Funds' shareholders, such reports will be available, without
charge, upon request. To obtain free copies of the SAI, the Funds' annual and
semi-annual reports to shareholders (after such reports are required to be
delivered to the Funds' shareholders in the future), request other information
and discuss your questions about the Funds, you may call toll free
1-888-242-3514 or write to:
Undiscovered Managers Funds
Plaza of the Americas
700 North Pearl Street, Suite 1700
Dallas, Texas 75201
You may also view or download this Prospectus, the SAI and other information
about the Funds on our Internet site at http://www.undiscoveredmanagers.com.
You can also review and copy the SAI and other information about the Funds at
the Securities and Exchange Commission Public Reference Room in Washington, D.C.
Call 1-202-942-8090 for information on the operations of the Public Reference
Room. Reports and other information about the Funds are available on the EDGAR
Database on the Securities and Exchange Commission's Internet site at
http://www.sec.gov, and copies of this information may be obtained, upon payment
of a duplicating fee, by electronic request at the following E-mail address:
[email protected], or by writing to the Securities and Exchange Commission's
Public Reference Section, Washington, D.C. 20549-0102.
(Undiscovered Managers Funds' SEC Investment
Company Act file number is 811-8437)
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[UNDISCOVERED MANAGERS LOGO](TM)
STATEMENT OF ADDITIONAL INFORMATION
December 28, 2000
for
UNDISCOVERED MANAGERS BEHAVIORAL GROWTH FUND
UNDISCOVERED MANAGERS BEHAVIORAL VALUE FUND
UNDISCOVERED MANAGERS BEHAVIORAL LONG/SHORT FUND
UNDISCOVERED MANAGERS SPECIAL SMALL CAP FUND
UNDISCOVERED MANAGERS REIT FUND
UNDISCOVERED MANAGERS SMALL CAP VALUE FUND
UNDISCOVERED MANAGERS HIDDEN VALUE FUND
UNDISCOVERED MANAGERS CORE EQUITY FUND
UM SMALL CAP GROWTH FUND
UM INTERNATIONAL EQUITY FUND
UM INTERNATIONAL SMALL CAP EQUITY FUND
Each a Series of
UNDISCOVERED MANAGERS FUNDS
This Statement of Additional Information ("SAI") is not a prospectus but
contains information that may be useful to investors that is not included in the
relevant Prospectus. This SAI relates to the Undiscovered Managers Funds'
Institutional Class Prospectus dated December 28, 2000, the Undiscovered
Managers Funds' Investor Class Prospectus dated December 28, 2000 and the
Undiscovered Managers Funds' Class C Prospectus dated December 28, 2000, of the
series of Undiscovered Managers Funds listed above (the "Funds" and each a
"Fund"), and is only authorized for distribution when accompanied or preceded by
the relevant Prospectus. If a Fund offers shares in more than one Prospectus,
each reference to the "Prospectus" in this SAI shall include all of such Fund's
prospectuses unless otherwise noted. This SAI should be read together with the
applicable Prospectus. A free copy of the applicable Prospectus may be obtained
by calling 1-888-242-3514 or by sending a request to Undiscovered Managers
Funds, Plaza of the Americas, 700 North Pearl Street, Suite 1700, Dallas, Texas
75201.
Certain disclosure has been incorporated by reference from the Funds' annual
report to shareholders. The Funds' annual report to shareholders may be
obtained, without charge, by calling 1-888-242-3514.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Organization and Classification...................................................................................3
Investment Objectives, Policies and Restrictions..................................................................3
Additional Description of Investments, Investment Practices and Risks.............................................6
Management of the Trust..........................................................................................10
Ownership of Shares of the Funds.................................................................................13
Investment Advisory and Other Services...........................................................................23
Portfolio Transactions and Brokerage.............................................................................31
Description of the Trust.........................................................................................33
Additional Purchase and Redemption Information...................................................................36
Net Asset Value..................................................................................................39
Income Dividends, Capital Gain Distributions and Tax Status......................................................40
Calculation of Total Return......................................................................................43
Performance Comparisons..........................................................................................44
Financial Statements.............................................................................................47
Appendix A--Publications That May Contain Fund Information......................................................A-1
Appendix B--Advertising and Promotional Literature..............................................................B-1
</TABLE>
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ORGANIZATION AND CLASSIFICATION
Undiscovered Managers Funds (the "Trust") is an open-end management investment
company organized under the laws of Massachusetts as a Massachusetts business
trust by an Agreement and Declaration of Trust dated September 29, 1997 (as
amended, the "Declaration of Trust"). Each Fund is a series of the Trust. The
Trust is authorized to issue an unlimited number of full and fractional shares
of beneficial interest in multiple series. The Trustees of the Trust may,
without shareholder approval, divide the shares of any series into multiple
classes of shares having such preferences and special or relative rights and
privileges as the Trustees of the Trust determine. Each Fund is a series of the
Trust.
Each Fund is a "diversified" fund, as defined in the Investment Company Act of
1940 (the "1940 Act"), except for Undiscovered Managers REIT Fund (the "REIT
Fund") and Undiscovered Managers Special Small Cap Fund (the "Special Small Cap
Fund"), which are "non-diversified." With respect to 75% of its assets, a
diversified fund may not invest more than 5% of its total assets in the
securities of any one issuer (except U.S. government securities) while the
remaining 25% of its total assets are not subject to such restriction. A
non-diversified fund is restricted with respect to 50% of its total assets from
investing more than 5% of its total assets in the securities of any one issuer
(except U.S. government securities), and with respect to the remaining 50% of
its total assets, it is restricted from investing more than 25% of its total
assets in the securities of any one issuer. A non-diversified fund may invest a
greater percentage of its total assets in securities of individual issuers, or
may invest in a smaller number of different issuers, than a diversified fund.
Accordingly, a non-diversified fund is more susceptible to risks associated with
particular issuers than a diversified fund.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
The investment objective and policies of each Fund are summarized in the
Prospectus under "The Funds." The investment policies of each Fund set forth in
the Prospectus and in this SAI may be changed by the Fund's adviser, subject to
review and approval by the Trust's Board of Trustees, without shareholder
approval except that any Fund policy explicitly identified as "fundamental" may
not be changed without the approval of the holders of a majority of the
outstanding shares of the Fund (which in the Prospectus and this SAI means the
lesser of (i) 67% of the shares of the Fund represented at a meeting at which at
least 50% of the outstanding shares are represented or (ii) more than 50% of the
outstanding shares).
INVESTMENT RESTRICTIONS--UNDISCOVERED MANAGERS BEHAVIORAL GROWTH FUND,
UNDISCOVERED MANAGERS BEHAVIORAL VALUE FUND, UNDISCOVERED MANAGERS CORE EQUITY
FUND, UNDISCOVERED MANAGERS HIDDEN VALUE FUND, UNDISCOVERED MANAGERS REIT FUND,
UNDISCOVERED MANAGERS SMALL CAP VALUE FUND, UNDISCOVERED MANAGERS SPECIAL SMALL
CAP FUND, UM SMALL CAP GROWTH FUND, UM INTERNATIONAL EQUITY FUND AND UM
INTERNATIONAL SMALL CAP EQUITY FUND
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The following investment restrictions are fundamental policies of Undiscovered
Managers Behavioral Growth Fund (the "Behavioral Growth Fund"), Undiscovered
Managers Behavioral Value Fund (the "Behavioral Value Fund"), the Special Small
Cap Fund, the REIT Fund, Undiscovered Managers Small Cap Value Fund (the "Small
Cap Value Fund"), Undiscovered Managers Hidden Value Fund (the "Hidden Value
Fund"), Undiscovered Managers Core Equity Fund (the "Core Equity Fund"), UM
Small Cap Growth Fund (the "Small Cap Growth Fund"), UM International Equity
Fund (the "International Equity Fund") and UM International Small Cap Equity
Fund (the "International Small Cap Equity Fund").
Each Fund will not:
1. Borrow money in excess of 33 1/3% of the value of its total assets (not
including the amount borrowed) at the time the borrowing is made.
2. Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments,
it may be deemed to be an underwriter under certain federal securities
laws.
3. Purchase or sell real estate, although it may purchase securities of
issuers which deal in real estate, securities which are secured by
interests in real estate, and securities which represent interests in
real estate, and it may acquire and dispose of real estate or interests
in real estate acquired through the exercise of its rights as a holder
of debt obligations secured by real estate or interests therein.
4. Purchase or sell commodities or commodity contracts, except that the
Fund may purchase and sell financial futures contracts and options, and
may enter into swap agreements, foreign exchange contracts and other
financial transactions not involving physical commodities.
5. Make loans, except by purchase of debt obligations in which the Fund
may invest consistent with its investment policies, by entering into
repurchase agreements, or by lending its portfolio securities.
6. Purchase securities (other than securities of the U.S. government, its
agencies or instrumentalities) if, as a result of such purchase, more
than 25% of the Fund's total assets would be invested in any one
industry; except that the REIT Fund will invest more than 25% of its
total assets in securities issued by real estate investment trusts (as
defined in the Internal Revenue Code of 1986 (the "Code")).
7. Issue any class of securities which is senior to the Fund's shares of
beneficial interest, except for permitted borrowings.
Although the Funds are permitted to borrow money to a limited extent, no Fund
currently intends to do so.
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<PAGE> 134
In addition to the foregoing fundamental investment restrictions, it is contrary
to each Fund's present policy, which may be changed without shareholder
approval, to:
Invest in (a) securities which at the time of such investment are not readily
marketable, (b) securities restricted as to resale (excluding securities
determined by the Trustees of the Trust (or the person designated by the
Trustees to make such determinations) to be readily marketable), and (c)
repurchase agreements maturing in more than seven days, if, as a result, more
than 15% of the Fund's net assets (taken at current value) would be invested in
securities described in (a), (b) and (c) above.
All percentage limitations on investments will apply at the time of the making
of an investment (except for the non-fundamental restriction set forth in the
immediately preceding paragraph) and shall not be considered violated unless an
excess or deficiency occurs or exists immediately after and as a result of such
investment.
INVESTMENT RESTRICTIONS--UNDISCOVERED MANAGERS BEHAVIORAL LONG/SHORT FUND
The following investment restrictions are fundamental policies of Undiscovered
Managers Behavioral Long/Short Fund (the "Behavioral Long/Short Fund").
The Fund will not:
1. Borrow money in excess of 33 1/3% of the value of its total assets (not
including the amount borrowed) at the time the borrowing is made. Short
sales and related borrowings of securities are not subject to this
restriction.
2. Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments,
it may be deemed to be an underwriter under certain federal securities
laws.
3. Purchase or sell real estate, although it may purchase securities of
issuers which deal in real estate, securities which are secured by
interests in real estate, and securities which represent interests in
real estate, and it may acquire and dispose of real estate or interests
in real estate acquired through the exercise of its rights as a holder
of debt obligations secured by real estate or interests therein.
4. Purchase or sell commodities or commodity contracts, except that the
Fund may purchase and sell financial futures contracts and options, and
may enter into swap agreements, foreign exchange contracts and other
financial transactions not involving physical commodities.
5. Make loans, except by purchase of debt obligations in which the Fund
may invest consistent with its investment policies, by entering into
repurchase agreements, or by lending its portfolio securities.
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<PAGE> 135
6. Purchase securities (other than securities of the U.S. government, its
agencies or instrumentalities) if, as a result of such purchase, more
than 25% of the Fund's total assets would be invested in any one
industry.
7. Issue any class of securities which is senior to the Fund's shares of
beneficial interest, except for permitted borrowings; any pledge or
encumbrance of assets; short sales; any collateral arrangements with
respect to short sales, swaps, options, future contracts and options on
future contracts and with respect to initial and variation margin; and
the purchase or sale of options, future contracts or options on future
contracts.
Although the Fund is permitted to borrow money to a limited extent, it does not
currently intend to do so.
In addition to the foregoing fundamental investment restrictions, it is contrary
to the Fund's present policy, which may be changed without shareholder approval,
to:
Invest in (a) securities which at the time of such investment are not readily
marketable, (b) securities restricted as to resale (excluding securities
determined by the Trustees of the Trust (or the person designated by the
Trustees to make such determinations) to be readily marketable), and (c)
repurchase agreements maturing in more than seven days, if, as a result, more
than 15% of the Fund's net assets (taken at current value) would be invested in
securities described in (a), (b) and (c) above.
All percentage limitations on investments will apply at the time of the making
of an investment (except for the non-fundamental restriction set forth in the
immediately preceding paragraph) and shall not be considered violated unless an
excess or deficiency occurs or exists immediately after and as a result of such
investment.
ADDITIONAL DESCRIPTION OF INVESTMENTS,
INVESTMENT PRACTICES AND RISKS
The following is an additional description of certain investments, investment
practices and risks of certain of the Funds.
SHORT SALES
The Behavioral Long/Short Fund will seek to realize gains through short sales.
Short sales are transactions in which the Fund sells a security that it does not
own, in anticipation of a future decline in the value of that security. To
complete such a transaction, the Fund must borrow the security to make delivery
to the buyer. The Fund is then obligated to replace the security borrowed by
purchasing it in the market at or prior to the time of replacement. The price at
such time may be more or less than the price at which the security was sold by
the Fund. Until the security is replaced, the Fund is required to repay the
lender any dividends or interest that accrue during the period of the loan. To
borrow the security, the Fund may also be required to pay a premium, which would
increase the cost of the security sold. The net proceeds of the short sale will
be retained by the broker (or by the Fund's custodian in a special custody
account), to the extent necessary to meet margin requirements, until the short
position is closed out. The Fund will also incur transaction costs in effecting
short sales.
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<PAGE> 136
The Fund will incur a loss as a result of the short sale if the price of the
security increases between the date of the short sale and the date which the
Fund replaces the borrowed security. The Fund will realize a gain if the
security declines in price between those dates. The amount of any gain will be
decreased, and the amount of any loss increased, by the amount of the premium,
dividends, interest or expenses the Fund may be required to pay in connection
with a short sale. An increase in the value of a security sold short by the Fund
over the price at which it was sold short will result in a loss to the Fund.
There can be no assurance that the Fund will be able to close out the position
at any particular time or at any acceptable price. The Fund's use of short sales
may cause the Fund to realize higher amounts of short-term capital gains which
are generally taxed at ordinary income tax rates than it would if it did not
engage in short sales.
REPURCHASE AGREEMENTS
Any assets of the Funds not invested in common stocks or other equity securities
will generally be held in the form of cash or in repurchase agreements. Under a
repurchase agreement, a Fund buys securities from a seller, usually a bank or
brokerage firm, with the understanding that the seller will repurchase the
securities at a higher price at a later date. If the seller fails to repurchase
the securities, the Fund has rights to sell the securities to third parties.
Repurchase agreements can be regarded as loans by the Fund to the seller,
collateralized by the securities that are the subject of the agreement.
Repurchase agreements afford an opportunity for the Fund to earn a return on
available cash at relatively low credit risk, although the Fund may be subject
to various delays and risks of loss if the seller fails to meet its obligation
to repurchase. The staff of the Securities and Exchange Commission is currently
of the view that repurchase agreements maturing in more than seven days are
illiquid securities.
LOANS OF SECURITIES
The Funds may lend their portfolio securities, provided that cash or equivalent
collateral equal to at least 100% of the market value of the securities loaned
is continuously maintained by the borrower with the Funds. During the time
securities are on loan, the borrower will pay the Fund an amount equivalent to
any dividends or interest paid on such securities, and the Fund may invest the
cash collateral and earn additional income, or it may receive an agreed upon
amount of interest income from the borrower who has delivered equivalent
collateral. These loans are subject to termination at the option of the Fund or
the borrower. A Fund may pay reasonable administrative and custodial fees in
connection with a loan and may pay a negotiated portion of the interest earned
on the cash or equivalent collateral to the borrower or placing broker. It is
not currently anticipated that any Fund will have on loan at any given time
securities totaling more than one-third of its net assets. A Fund runs the risk
that the counterparty to a loan transaction will default on its obligation and
that the value of the collateral received may be insufficient to cover the
securities loaned as a result of an increase in the value of the securities or
decline in the value of the collateral.
LEVERAGE
Although it is not the current intention of any of the Funds to engage in
borrowing, each Fund may borrow money provided that the total amount borrowed
and outstanding at the time the borrowing is made does not exceed 33 1/3% of the
value of such Fund's total assets (not including the amount borrowed). The use
of leverage through borrowing creates an opportunity for increased net income,
but, at the same time, creates special risks. There can be no assurance that a
leveraging strategy will be successful during any period in which it is
employed. The intent of using leverage would be to provide the holders of a
Fund's shares with a potentially higher return. Leverage creates risks for a
Fund, including the likelihood of greater volatility of the net asset value and
market price of the Fund's shares. To the extent the income derived from
securities purchased with funds received from leverage exceeds the cost of
leverage, a Fund's
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<PAGE> 137
return will be greater than if leverage had not been used. Conversely, if the
income from the securities purchased with such funds is not sufficient to cover
the cost of leverage, the return to a Fund will be less than if leverage had not
been used, and therefore the amounts available for distribution to such Fund's
shareholders as dividends and other distributions will be reduced or eliminated.
In the latter case, a Fund's sub-adviser in its best judgment nevertheless may
determine to maintain the Fund's leveraged position if it deems such action to
be appropriate under the circumstances. During periods in which a Fund is using
leverage, the fees paid by such Fund to Undiscovered Managers, LLC
("Undiscovered Managers"), for investment advisory and administrative services
will be higher than if the Fund did not use leverage because the fees paid will
be calculated on the basis of the Fund's total net assets, including the amount
borrowed.
FOREIGN CURRENCY HEDGING TRANSACTIONS
Each of the International Equity and the International Small Cap Equity Funds
(the "International Funds") may engage in foreign currency exchange
transactions. The International Funds may (i) purchase or sell a foreign
currency on a spot (or cash) basis at the prevailing spot rate, (ii) enter into
negotiated contracts to purchase or sell foreign currencies at a future date
("forward contracts"), (iii) purchase and sell standardized, exchange-traded
foreign currency futures contracts and (iv) purchase exchange-listed and
over-the-counter call and put options on foreign currency futures contracts and
on foreign currencies. A put option on a futures contract gives a Fund the right
to assume a short position in the futures contract until the expiration of the
option. A put option on currency gives a Fund the right to sell a currency at an
exercise price until the expiration of the option. A call option on a futures
contract gives a Fund the right to assume a long position in the futures
contract until the expiration of the option. A call option on currency gives a
Fund the right to purchase a currency at the exercise price until the expiration
of the option.
The precise matching of the amounts of foreign currency exchange transactions
and the value of any related portfolio securities will not generally be possible
since the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
dates the currency exchange transactions are entered into and the dates they
mature.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward or futures contract.
Accordingly, in cases where a Fund seeks to protect the value of portfolio
securities through a foreign currency hedging transaction, it may be necessary
for a Fund to purchase additional foreign currency on the spot market (and bear
the expense of such purchase) if the market value of the security or securities
being hedged is less than the amount of foreign currency a Fund is obligated to
deliver and if a decision is made to sell the security or securities and make
delivery of the foreign currency. Conversely, it may be necessary to sell on the
spot market some of the foreign currency received upon the sale of the portfolio
security or securities if the market value of such security or securities
exceeds the amount of foreign currency a Fund is obligated to deliver.
Foreign currency transactions that are intended to hedge the value of securities
a Fund owns or contemplates purchasing do not eliminate fluctuations in the
underlying prices of those securities. Rather, such currency transactions simply
establish a rate of exchange which can be used at some future point in time.
Additionally, although these techniques tend to minimize the risk of loss due to
a change in the value of the currency involved, they tend to limit any potential
gain that might result from the increase in the value of such currency.
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CURRENCY FORWARD AND FUTURES CONTRACTS
A forward foreign currency exchange contract involves an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract as agreed by the parties, at a price set at
the time of the contract. In the case of a cancelable forward contract, the
holder has the unilateral right to cancel the contract at maturity by paying a
specified fee. The contracts traded in the interbank market are negotiated
directly between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades. A foreign currency futures
contract is a standardized contract for the future delivery of a specified
amount of a foreign currency at a future date at a price set at the time of the
contract. Foreign currency futures contracts are traded on futures exchanges.
Forward foreign currency exchange contracts differ from foreign currency futures
contracts in certain respects. For example, the maturity date of a forward
contract may be any fixed number of days from the date of the contract agreed
upon by the parties, rather than a date selected in accordance with exchange
rules in a predetermined month. Forward contracts may be in any amounts agreed
upon by the parties rather than standardized amounts. Also, forward foreign
exchange contracts are traded directly between currency traders so that no
intermediary is required. A forward contract generally requires no margin or
other deposit.
At the maturity of a forward or futures contract, a Fund may either accept or
make delivery of the currency specified in the contract, or at or prior to
maturity enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to futures contracts are
effected on an exchange; a clearing corporation associated with the exchange
typically assumes responsibility for closing out such contracts. Closing
transactions with respect to forward contracts are usually effected with the
currency trader who is a party to the original forward contract. It may
therefore be more difficult to effect a closing transaction with respect to a
forward contract than with respect to a futures contract.
Positions in foreign currency futures contracts may be closed out only on an
exchange that provides a secondary market in such contracts. Although the Funds
intend to purchase or sell foreign currency futures contracts only on exchanges
where there appears to be an active secondary market, there is no assurance that
a secondary market on an exchange will exist for any particular contract or at
any particular time. In such event, it may not be possible to close a futures
position and, in the event of adverse price movements, a Fund would continue to
be required to make daily cash payments of variation margin.
Each International Fund will maintain cash or liquid securities eligible for
purchase by such Fund in a segregated account with the Fund's custodian in an
amount at least equal to (i) the difference between the current value of such
Fund's liquid holdings that settle in the relevant currency and such Fund's
outstanding obligations under currency forward contracts, or (ii) the current
amount, if any, that would be required to be paid to enter into an offsetting
forward currency contract which would have the effect of closing out the
original forward contract.
FOREIGN CURRENCY OPTIONS
Options on foreign currencies operate similarly to options on securities, and
are traded primarily in the over-the-counter market, although options on foreign
currencies are listed on several exchanges. There can be no assurance that a
liquid secondary market will exist for a particular option at any specific time.
Options on foreign currencies are affected by all of those factors that
influence foreign exchange rates and investments generally.
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The value of a foreign currency option is dependent upon the value of the
foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, investors may
be disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign currencies
and there is no regulatory requirement that quotations available through dealers
or other market sources be firm or revised on a timely basis. Available
quotation information is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(less than $1 million) where rates may be less favorable. The interbank market
in foreign currencies is a global, around-the-clock market. To the extent that
the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that cannot be reflected in the U.S. options markets.
FOREIGN CURRENCY CONVERSION
Although foreign exchange dealers do not charge a fee for currency conversion,
they do realize a profit based on the difference (the "spread") between prices
at which they are buying and selling various currencies. Thus, a dealer may
offer to sell a foreign currency to a Fund at one rate, while offering a lesser
rate of exchange should a Fund desire to resell that currency to the dealer.
For a discussion of tax considerations relating to foreign currency
transactions, see "Income Dividends, Capital Gain Distributions and Tax Status"
below.
MANAGEMENT OF THE TRUST
The Trustees of the Trust are responsible for generally overseeing the conduct
of the Trust's business. Subject to such policies as the Trustees of the Trust
may determine, Undiscovered Managers, the Funds' investment adviser, has
responsibility for the management of the Funds' affairs. Each Fund's investment
portfolio is managed on a day-to-day basis by that Fund's sub-adviser, under the
general oversight of Undiscovered Managers and the Trustees of the Trust.
The Trustees and officers of the Trust, their ages, addresses and principal
occupations during the past five years are as follows:
*MARK P. HURLEY (42)--Trustee and President. President and Chief Executive
Officer of Undiscovered Managers since September, 1997; formerly Managing
Director of Merrill Lynch & Company from February, 1996 to January, 1997;
formerly Vice President of Goldman, Sachs & Co. from August, 1992 to February,
1996.
ROGER B. KEATING (39)--Trustee.; 22000 AOL Way - 46A:A01, Dulles, Virginia
20166; Senior Vice President of America On Line since December, 2000; President
and Chief Executive Officer of Zatso (formerly known as ReacTV), an online news
broadcasting firm, from March, 1998 to November, 2000; Senior Vice President of
Online Division of Comcast Cable Communications from May, 1996 to March,
-10-
<PAGE> 140
1998; Area Vice President and General Manager of West Florida area of Comcast
Cable Communications from August, 1993 to May, 1996.
MATTHEW J. KILEY (38)--Trustee. 849 Foxfield Road, Lower Gwynedd, Pennsylvania
19002; self-employed; formerly Executive Vice President of Campus Services at
ARAMARK from May, 1998 to October, 1999 and Executive Vice President of Sports
and Entertainment and Vice President of Global Food and Support Services at
ARAMARK Corp. from September, 1996 to May, 1998; formerly Manager at McKinsey &
Company from January, 1990 to September, 1996.
ROBERT P. SCHMERMUND (45)--Trustee. 900 19th Street, N.W., Suite 400,
Washington, D.C. 20006; Communications Director of America's Community Bankers
since January, 1993.
BRIAN J. O'NEILL (32)--Treasurer. 3200 Horizon Drive, King of Prussia,
Pennsylvania 19406; Director of Financial Reporting Department for PFPC Inc.,
since June, 1994.
PATRICIA L. DUNCAN (38)--Secretary. Vice President-Fund Operations of
Undiscovered Managers since January, 2000, Registered Marketing Administrator of
Undiscovered Managers from December, 1997 to January, 2000; Executive Secretary
at Prentiss Properties Trust from April, 1994 to December, 1997.
----------
* Trustees who are "interested persons" (as defined in the 1940 Act) of the
Trust or of Undiscovered Managers.
The address of each Trustee and officer of the Trust affiliated with
Undiscovered Managers is Plaza of the Americas, 700 North Pearl Street, Dallas,
Texas 75201.
The Trust pays no compensation to any of its officers or to the Trustees listed
above who are officers or employees of Undiscovered Managers. Each Trustee who
is not an officer or employee of Undiscovered Managers is compensated at the
rate of $10,000 per annum. The Trust provides no pension or retirement benefits
to the Trustees but has adopted a deferred payment arrangement under which each
Trustee who is to receive fees from the Trust 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 such fees would have if they had been invested in one or more of the
Funds or any other investment portfolio of the Trust on the normal payment date
for such fees. As a result of this method of calculating the deferred payments,
each Fund, upon making the deferred payments, will be in the same financial
position as if the fees had been paid on the normal payment dates.
-11-
<PAGE> 141
The following table sets forth information covering the total compensation paid
(or deferred in lieu of current payment) by the Trust during its fiscal year
ended August 31, 2000 to the persons who served as Trustees during such period:
<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE COMPENSATION FROM TRUST AND
PERSON FROM TRUST FUND COMPLEX*
------ ---------- -------------
<S> <C> <C>
Mark P. Hurley $ 0 $ 0
Roger B. Keating $10,000(1) $10,000
Matthew J. Kiley $10,000 $10,000
Robert P. Schmermund $10,000 $10,000
</TABLE>
----------
* No Trustee received any compensation from any mutual fund affiliated
with Undiscovered Managers, other than the Trust.
(1) Roger B. Keating deferred receipt of $10,000 of such compensation
pursuant to the fee deferral arrangements described above.
-12-
<PAGE> 142
OWNERSHIP OF SHARES OF THE FUNDS
As of November 30, 2000, the following persons or entities held more than 25% of
the outstanding shares of a Fund, and as a result, may be deemed to "control"
such Fund as that term is defined in the 1940 Act.
<TABLE>
<CAPTION>
FUND NAME % OWNERSHIP
---- ---- -----------
<S> <C> <C>
Behavioral Growth Fund None
Behavioral Value Fund None
Behavioral Long/Short Fund BankBoston Custodian f/b/o 62.22%
Dr. Roy F. Kokenge IRA
819 North 53 Ave.
Yakima, WA 98908
Special Small Cap Fund Northern Trust TTE 52.24%
FBO Pechiney Plastic Packaging Inc.
Acct # 22-03100
PO Box 92956
Chicago, Il 60675
REIT Fund None
Small Cap Value Fund None
Hidden Value Fund Value Fund NFSC FEBO # U19-000019 69.63%
Firststar-Reinvest Chris Surges PO
Box 1787 Mutual Funds, 9th Floor
Milwaukee, WI 53201
Core Equity Fund None
Small Cap Growth Fund All First Trust Company 25.06%
FBO Mercersburg Academy
Attn. Securities Processing 109-911
PO Box 1596
Baltimore, MD 21203
International Equity Fund None
International Small Cap Equity Fund Forbank & Co. 42.37%
c/o Bankers Trust Co.
P.O. Box 704
Church Street Station
New York, NY 10008
</TABLE>
-13-
<PAGE> 143
INSTITUTIONAL CLASS SHARES
As of November 30, 2000, to the Trust's knowledge, the following persons or
entities owned of record and/or beneficially 5% or more of the outstanding
Institutional Class shares of the following Funds:
<TABLE>
<CAPTION>
FUND NAME AND ADDRESS % OWNERSHIP
---- ---------------- -----------
<S> <C> <C>
Behavioral Growth Fund Charles Schwab & Co. Inc. 48.17%
Special Cust A/C
FBO Exclusive Benefit of Customers
Attn. Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
Fidelity Investments Institutional 21.01%
Operations Inc., as agent for certain
employee benefit plans
100 Magellan Way
Covington, KY 41045-0000
Behavioral Value Fund Charles Schwab & Co. Inc. 57.56%
Special Cust A/C
FBO Exclusive Benefit of Customers
Attn. Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
The Columbus Fund Limited 7.72%
C/O Moore Stephen INTL Services
PO Box 3186 Abbot Building
Main Street
Tortola, British Vir
Ingersoll & Co 5.23%
PO Box 10478
Des Moines, IA 50306
Behavioral Long/Short Fund Bank Boston Cust 62.22%
FBO Dr. Roy F. Kokenge IRA
819 North 53 Avenue
Yakima, WA 98908
Charles Schwab & Co Inc. 24.46%
Special Cust A/C
FBO Exclusive Benefit of Customers
Attn. Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
</TABLE>
-14-
<PAGE> 144
<TABLE>
<CAPTION>
FUND NAME AND ADDRESS % OWNERSHIP
---- ---------------- -----------
<S> <C> <C>
George K. Fuller P/S/P 9.05%
4091 Lincoln
Oakland, CA 94602
Special Small Cap Fund Northern Trust TTE 52.24%
FBO Pechiney Plastic Packaging Inc.
Acct # 22-03100
PO Box 92956
Chicago, Il 60675
Charles Schwab & Co. Inc. 35.88%
Special Cust A/C
FBO Exclusive Benefit of Customers
Attn. Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
REIT Fund Charles Schwab & Co. Inc. 81.28%
Special Cust A/C
FBO Exclusive Benefit of Customers
Attn. Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
Small Cap Value Fund Charles Schwab & Co. Inc. 54.08%
Special Cust. A/C
FBO Exclusive Benefit of Customers
Attn. Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
Thompson Mccully Foundation 9.68%
Attn. Patrick E. Sharp
46642 Arboretum Circle
Plymouth, MI 48170
National Investors Service Corporation 6.09%
For The Exclusive Benefit of Our
Customers
55 Water St. 32nd Floor
New York, NY 10041-3299
Donaldson Lufkin Jenrette 71.62%
Securities Corporation Inc.
PO Box 2052
Jersey City, NJ 07303-9998
</TABLE>
-15-
<PAGE> 145
<TABLE>
<CAPTION>
FUND NAME AND ADDRESS % OWNERSHIP
---- ---------------- -----------
<S> <C> <C>
Hidden Value Fund NFSC FEBO # U19-000019 69.63%
Firststar-Reinvest
Chris Surges
PO Box 1787
Mutual Funds, 9th Floor
Milwaukee, WI 53201
Provident Bank 17.37%
PO Box 691198
Cincinnati, OH 45269-1198
Core Equity Fund Charles Schwab & Co. Inc. 59.05%
Special Cust A/C
FBO Exclusive Benefit of Customers
Attn. Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
Small Cap Growth Fund Donaldson Lufkin Jenrette 71.62%
Securities Corporation Inc.
PO Box 2052
Jersey City, NJ 07303-9998
All First Trust Company 25.06%
FBO Mercersburg Academy
Attn. Securities Processing 109-911
PO Box 1596
Baltimore, MD 21203
International Equity Fund Charles Schwab & Co. Inc. 71.11%
Special Cust A/C
FBO Exclusive Benefit of Customers
Attn. Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
National Investors Service Corporation 6.35%
For the Exclusive Benefit of Our
Customers
55 Water St. 32nd Floor
New York, NY 10041-3299
</TABLE>
-16-
<PAGE> 146
<TABLE>
<CAPTION>
FUND NAME AND ADDRESS % OWNERSHIP
---- ---------------- -----------
<S> <C> <C>
International Small Cap Equity Fund Forbank & Co. 42.37%
C/O Bankers Trust Co.
PO Box 704 Church St. Station
New York, NY 10008
Charles Schwab & Co. Inc 29.89%
Special Cust. A/C
FBO Exclusive Benefit of Customers
Attn. Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
National Investors Service Corporation 8.58%
For the Exclusive Benefit of Our
Customers
55 Water St. 32nd Floor
New York, NY 10041-3299
</TABLE>
-17-
<PAGE> 147
INVESTOR CLASS SHARES
As of November 30, 2000, to the Trust's knowledge, the following persons or
entities owned of record and/or beneficially 5% or more of the outstanding
Investor Class shares of the following Funds:
<TABLE>
<CAPTION>
FUND NAME AND ADDRESS % OWNERSHIP
---- ---------------- -----------
<S> <C> <C>
Behavioral Growth Fund Fidelity Investments Institutional 51.56%
Operations Inc.
As Agent for Certain Employee
Benefit Plans
100 Magellan Way
Covington, KY 41045-0000
7.79%
Dain Rauscher Incorporated FBO
Michael G. King
Elizabeth W. King
Long Term Account
14800 164th Place NE
Woodinville, WA 98072-0000
REIT Fund Dain Rauscher Inc. FBO 27.35%
William F. Etter
Mary Beth O. Etter
JT Ten
Portfolio Focus
1906 East 23rd Ave
Spokane, WA 99203-3802
Dain Rauscher Custodian 18.87%
James L. Kirschbaum
Qualified IRA Rollover
Portfolio Focus
2318 E 55th
Spokane, WA 99223-0000
Dain Rauscher Custodian 9.68%
Richard A. Hoffman
Individual Retirement Account
1351 Margaret Ave
Coeur D. Alene, ID 83815
National Investors Service Corp 8.75%
For the Exclusive Benefit of Our Customers
55 Water St 32nd Floor
New York, NY 10041-3299
NFSC FEBO # 379-336440 8.54%
FMT CO Cust IRA
FBO Marilyn Bauer Davison
1064 Baumock Burn Dr.
Columbus, OH 43235
</TABLE>
-18-
<PAGE> 148
<TABLE>
<CAPTION>
FUND NAME AND ADDRESS % OWNERSHIP
---- ---------------- -----------
<S> <C> <C>
Dain Rauscher Custodian 7.03%
Eric R. Weissman
A/C # 8403-9228 Individual Retirement
Account 18701 25th Ave NE Seattle, WA
98155
Dain Rauscher Custodian 6.28%
Cynthia G. Shurtleff
A/C # 7382-9491 Individual Retirement
Account 422 34th Ave South Seattle, WA
98144
Dain Rauscher Custodian 6.06%
Kenneth Nelson Degerman
A/C #6006-9925
Individual Retirement Account
21230 N. Circle Road
Rathdrum, ID 83858-8821
Small Cap Value Fund Charles Schwab & Co. Inc. 87.06%
Special Cust A/C
FBO Exclusive Benefit of Customers
Attn. Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
Hidden Value Fund* National Investors Service Corp 100.00%
For The Exclusive Benefit
Of Our Customers
55 Water St 32nd Fl
New York, NY 100413299
</TABLE>
* On December 27, 2000, the Trust ceased offering Investor Class shares of the
Hidden Value Fund.
As of November 30, 2000, the Behavioral Value Fund, the International Equity
Fund and the Small Cap Growth Fund had no outstanding Investor Class shares.
-19-
<PAGE> 149
CLASS C SHARES
As of November 30, 2000, to the Trust's knowledge, the following persons or
entities owned of record and/or beneficially 5% or more of the outstanding Class
C shares of the following Funds:
<TABLE>
<CAPTION>
FUND NAME AND ADDRESS % OWNERSHIP
---- ---------------- -----------
<S> <C> <C>
Behavioral Growth Fund Donaldson Lufkin Jenrette 79.94%
Securities Corporation Inc.
PO Box 2052
Jersey City, NJ 07303-9988
LPL Financial Services 6.77%
A/C 4535-9585
9785 Towne Centre Drive
San Diego, CA 92121-1968
REIT Fund Donaldson Lufkin Jenrette 29.56%
Securities Corporation Inc.
PO Box 2052
Jersey City, NJ 07303-9998
LPL Financial Services 23.40%
A/C 5782-1659
9785 Towne Centre Drive
San Diego, CA 92121-1968
LPL Financial Services 12.11%
A/C 2865-9870
9785 Town Centre Drive
San Diego, CA 92121-1968
Resources Trust Co. Cust UA IRA FBO 5.19%
George A. Toes
RTC # 1571685737
PO Box 5900
Denver, CO 80217
Small Cap Value Fund Donaldson Lufkin Jenrette 46.56%
Securities Corporation Inc.
PO Box 2052
Jersey City, NJ 07303-9998
NFSC FEBO # BAJ-307912 11.32%
NFSC/FMTC IRA Rollover FBO Dan O Bauer PO
Box 318 Free Union, VA 22940
</TABLE>
-20-
<PAGE> 150
<TABLE>
<CAPTION>
FUND NAME AND ADDRESS % OWNERSHIP
---- ---------------- -----------
<S> <C> <C>
NFSC FEBO # BAJ-302805 11.30%
NFSC/FMTC IRA SEPP
FBO John R. Dougherty
38A Collins St.
Danvers, MA 01923
NFSC FEBO # BAJ-304980 9.01%
Elizabeth E. Steele
55 Exeter St.
Medford, MA 02155
NFSC FEBO # BAJ-310158 7.06%
NFSC/FMTC IRA Rollover
FBO Sabatino J. Calleva
50 Pearl St.
Watertown, MA 02472
Core Equity Fund Bank Boston Cust IRA 51.37%
Frank M. Grazioso
85 Livingston St.
New Haven, CT 06511
Bank Boston Cust IRA Rollover 23.64%
Theresa Fabrico
302 Kentucky Ave
Williamstown, NJ 08094
Bank Boston Cust IRA 16.86%
J. Richard Dudash
810 Sheffield Ct.
Carnegie, PA 15106
NFSC FEBO # 0C8-2220450 8.10%
NFSC/FMTC IRA
FBO Laurel J. Rocchio
24 Ledge Road
East Greenwich, RI 02818
International Equity Fund Donaldson Lufkin Jenrette 62.90%
Securities Corporation Inc.
PO Box 2052
Jersey City, NJ 07303-9998
Bank Boston Cust IRA 12.84%
Frank M. Grazioso
85 Livingston St.
New Haven, CT 06511
</TABLE>
-21-
<PAGE> 151
<TABLE>
<CAPTION>
FUND NAME AND ADDRESS % OWNERSHIP
---- ---------------- -----------
<S> <C> <C>
Lynn O. Surls 10.48%
Kathryn L. Surls JTWROS
7227 Lane Park Drive
Dallas, TX 75225
Lynn O. Surls TTEE 8.55%
Austin Family Trust
DTD 6/13/97
FBO Katy & Lee Austin
7227 Lane Park Drive
Dallas, TX 75225
</TABLE>
OWNERSHIP BY TRUSTEES AND OFFICERS
As of November 30, 2000, the Trustees and officers of the Trust owned
beneficially less than 1% of the shares of each class of each Fund, except for
Institutional Class shares of the following Funds, which represent the following
percentage ownership of Institutional Class shares of such Funds:
<TABLE>
<CAPTION>
FUND SHARES % OWNERSHIP
---- ------ -----------
<S> <C> <C>
Special Small Cap Fund 17,125.181 1.28
Hidden Value Fund 7,882.163 1.89
Core Equity Fund 5,756.164 1.87
</TABLE>
None of the foregoing amounts include amounts owned by Undiscovered Managers, of
which Mr. Hurley, a Trustee and the President of the Trust, is a controlling
person.
-22-
<PAGE> 152
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER AND SUB-ADVISERS
As described in the Prospectus, Undiscovered Managers is the investment adviser
of each Fund and as such, has responsibility for the management of each Fund's
affairs, under the supervision of the Trust's Board of Trustees. Each Fund's
investment portfolio is managed on a day-to-day basis by that Fund's
sub-adviser, under the general oversight of Undiscovered Managers and the Board
of Trustees. See "The Funds" in the Prospectus. Undiscovered Managers is a
limited liability company organized under the laws of Delaware. Mark P. Hurley
and AMRESCO, Inc., a publicly traded corporation engaged in residential mortgage
banking, commercial mortgage banking, asset management and commercial finance,
each own beneficially more than 25% of the voting securities of Undiscovered
Managers and therefore may be regarded to control Undiscovered Managers for
purposes of the 1940 Act. As disclosed in this SAI under the heading "Management
of the Trust," (i) Mark P. Hurley is a Trustee and the President of the Trust as
well as the President and Chief Executive Officer and a controlling member of
Undiscovered Managers, and (ii) Patricia L. Duncan is the Secretary of the Trust
as well as Vice President-Fund Operations of Undiscovered Managers.
Under each Fund's advisory agreement with Undiscovered Managers, Undiscovered
Managers is entitled to fees, payable at least quarterly, of a certain
percentage of the average daily net asset value of such Fund. Such fees are paid
by each class of shares of the relevant Fund based upon the average daily net
assets of such class. For a description of such fees, see "The Funds -- The
Funds' Management" in the Prospectus. During the Trust's fiscal years ended
August 31, 1998, August 31, 1999 and August 31, 2000, the advisory fees incurred
by the Funds to Undiscovered Managers pursuant to the relevant advisory
agreement (before giving effect to expense reductions under the expense deferral
arrangements described below), and the amount of expense reductions under the
expense deferral arrangements relating to the advisory fee, were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
AUGUST 31, 1998 AUGUST 31, 1999 AUGUST 31, 2000
--------------------------- --------------------------- ---------------------------
EXPENSE EXPENSE EXPENSE
FUND ADVISORY FEE REDUCTION ADVISORY FEE REDUCTION ADVISORY FEE REDUCTION
---- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Behavioral Growth Fund $ 22,389 $ 22,389 $ 376,813 $ 218,521 $ 1,971,850 $ 294,092
Behavioral Value Fund -0-* -0-* $ 10,202 $ 10,202 $ 113,164 $ 99,517
Behavioral Long/Short Fund -0-* -0-* $ 50,272 $ 50,272 $ 81,981 $ 67,548
Special Small Cap Fund $ 61,497 $ 61,497 $ 155,906 $ 28,586 $ 117,614 $ 34,542
REIT Fund $ 36,513 $ 36,513 $ 182,364 $ 100,455 $ 319,695 $ 154,769
Small Cap Value Fund $ 31,827 $ 31,827 $ 183,573 $ 130,092 $ 293,588 $ 143,105
Hidden Value Fund $ 4,606 $ 4,606 $ 19,851 $ 19,851 $ 33,672 $ 99,400
Core Equity Fund $ 3,175 $ 3,175 $ 32,670 $ 32,670 $ 35,610 $ 131,795
Small Cap Growth Fund -0-** -0-** -0-** -0-** -0-** -0-**
International Equity Fund -0-* -0-* $ 28,069 $ 28,069 $ 111,269 $ 106,705
International Small Cap -0-* -0-* $ 38,928 $ 38,928 $ 158,914 $ 80,494
Equity Fund
</TABLE>
----------
*The Fund had not commenced operations as of August 31, 1998.
**The Fund had not commenced operations as of August 31, 2000.
-23-
<PAGE> 153
The advisory fee payable by the Special Small Cap Fund varies depending on the
Fund's investment performance. For a description of such fee rate and an example
of such rate at various levels of performance see "The Funds -- The Funds'
Management" in the Prospectus.
As described in the Prospectus, Undiscovered Managers has contractually agreed
to certain arrangements to limit each Fund's expenses. See "Trust Expenses"
below.
Each Fund's investment portfolio is managed on a day-to-day basis by that Fund's
sub-adviser. Each of the sub-advisers, except Unibank Securities, Inc., is
regarded for purposes of the 1940 Act as being controlled by the following
persons, each of whom is a principal of the firm and owns more than 25% of the
voting securities of the firm: Russell J. Fuller (Fuller & Thaler Asset
Management, Inc.); David J. Steirman and Abbott J. Keller (Kestrel Investment
Management Corporation); Gary G. Pollock and William F.K. Schaff (Bay Isle
Financial Corporation); James L. Kaplan (J.L. Kaplan Associates, LLC); Leslie A.
Waite (Waite & Associates, L.L.C.); and Ronald A. Sauer (Mazama Capital
Management, Inc.). Unibank Securities, Inc., is regarded for purposes of the
1940 Act as being controlled by Unidanmark A/S, a publicly traded financial
services holding company in Denmark.
Under each sub-advisory agreement relating to the Funds between Undiscovered
Managers and such Fund's sub-adviser, the sub-adviser is entitled to fees,
payable at least quarterly by Undiscovered Managers out of the fees Undiscovered
Managers receives, of a certain percentage of the average daily net asset value
of such Fund. For a description of such fees, see "The Funds -- The Funds'
Management" in the Prospectus. During the Trust's fiscal years ended August 31,
1998, August 31, 1999 and August 31, 2000, Undiscovered Managers paid the
following amounts as sub-advisory fees to the following sub-advisers pursuant to
the relevant sub-advisory agreements:
<TABLE>
<CAPTION>
SUB-ADVISORY FEE SUB-ADVISORY FEE SUB-ADVISORY FEE
FUND SUB-ADVISER FOR FISCAL YEAR 1998 FOR FISCAL YEAR 1999 FOR FISCAL YEAR 2000
---- ----------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Behavioral Growth Fund Fuller & Thaler Asset Management, Inc. $14,139 $237,987 $1,229,391
Behavioral Value Fund Fuller & Thaler Asset Management, Inc. -0-* $ 6,801 $ 75,513
Behavioral Long/Short Fund Fuller & Thaler Asset Management, Inc. -0-* $ 38,921 $ 63,500
Special Small Cap Fund Kestrel Investment Management Corp. $42,754 $113,040 $ 52,672
REIT Fund Bay Isle Financial Corporation $24,342 $121,576 $ 213,012
Small Cap Value Fund J.L. Kaplan Associates, LLC $21,214 $122,382 $ 195,644
Hidden Value Fund J.L. Kaplan Associates, LLC $ 2,907 $ 15,159 $ 21,292
Core Equity Fund Waite & Associates, L.L.C. $ 1,715 $ 17,659 $ 19,245
Small Cap Growth Fund Mazama Capital Management, Inc. -0-** -0-** -0-**
International Equity Fund Unibank Securities, Inc. -0-* $ 17,728 $ 70,306
International Small Cap Unibank Securities, Inc. -0-* $ 27,080 $ 110,603
Equity Fund
</TABLE>
----------
*The Fund had not commenced operations as of August 31, 1998.
**The Fund had not commenced operations as of August 31, 2000.
The sub-advisory fee payable by Undiscovered Managers relating to the Special
Small Cap Fund varies depending on the Fund's investment performance. For a
description of such fee rate, see "The Funds -- The Funds' Management" in the
Prospectus.
Each Fund's advisory agreement and related sub-advisory agreement provides that
it will continue in effect for two years from its date of execution and
thereafter from year to year if its continuance is approved at least
-24-
<PAGE> 154
annually (i) by the Board of Trustees of the Trust or by vote of a majority of
the outstanding voting securities of the relevant Fund and (ii) by vote of a
majority of the Trustees who are not "interested persons" of the Trust,
Undiscovered Managers or, in the case of the related sub-advisory agreement, the
relevant sub-adviser, as that term is defined in the 1940 Act, cast in person at
a meeting called for the purpose of voting on such approval. Any amendment to a
Fund's advisory agreement must be approved by vote of a majority of the
outstanding voting securities of the relevant Fund and by vote of a majority of
the Trustees who are not interested persons, cast in person at a meeting called
for the purpose of voting on such approval. Any amendment to a sub-advisory
agreement relating to a Fund must be approved by vote of a majority of the
outstanding voting securities of such Fund and by vote of a majority of the
Trustees who are not interested persons, cast in person at a meeting called for
the purpose of voting on such approval, unless such approvals are no longer
required by law.
Each Fund's advisory agreement may be terminated without penalty by vote of the
Board of Trustees of the Trust or by vote of a majority of the outstanding
securities of the relevant Fund, upon sixty days' written notice, and by
Undiscovered Managers upon ninety days' written notice, and shall automatically
terminate in the event of its assignment. Each Fund's advisory agreement
provides that Undiscovered Managers owns all rights to and control of the name
"Undiscovered Managers," and each of the International Funds' and the Small Cap
Growth Fund's advisory agreement also provides that Undiscovered Managers owns
all rights to and control of the name "UM." Each Fund's advisory agreement will
automatically terminate if the Trust or the relevant Fund shall at any time be
required by Undiscovered Managers to eliminate all reference to the words
"Undiscovered Managers" or the letters "UM," as applicable, in the name of the
Trust or the relevant Fund, unless the continuance of the agreement after such
change of name is approved by a majority of the outstanding voting securities of
the relevant Fund and by a majority of the Trustees who are not interested
persons of the Trust or Undiscovered Managers, cast in person at a meeting
called for the purpose of voting on such approval.
Each sub-advisory agreement relating to a Fund may be terminated without penalty
by Undiscovered Managers, by vote of the Board of Trustees or by vote of a
majority of the outstanding voting securities of the relevant Fund, upon sixty
days' written notice, and each terminates automatically in the event of its
assignment and upon termination of the related advisory agreement. Certain of
the sub-advisory agreements relating to the Funds may be terminated by the
relevant sub-adviser in certain circumstances.
Each Fund's advisory agreement and related sub-advisory agreement provides that
Undiscovered Managers or the applicable sub-adviser shall not be subject to any
liability in connection with the performance of its services thereunder in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties.
The Trust has applied for an exemptive order from the Securities and Exchange
Commission to permit Undiscovered Managers, subject to the approval of the
Trust's Board of Trustees and certain other conditions, to enter into
sub-advisory agreements with sub-advisers other than the current sub-adviser of
any Fund or of any other investment portfolio of the Trust and amend
sub-advisory agreements with sub-advisers without obtaining shareholder
approval. See "The Funds -- The Funds' Management" in the Prospectus.
TRUST EXPENSES
The Trust pays the compensation of its Trustees who are not officers or
employees of Undiscovered Managers; registration, filing and other fees in
connection with requirements of regulatory authorities; all charges and expenses
of its custodian and transfer agent; the charges and expenses of its independent
accountants; all brokerage commissions and transfer taxes in connection with
portfolio transactions; 12b-1
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<PAGE> 155
fees; all taxes and fees payable to governmental agencies; the cost of any
certificates representing shares of the Funds or the other investment portfolios
of the Trust; the expenses of meetings of the shareholders and Trustees of the
Trust; the charges and expenses of the Trust's legal counsel; interest on any
borrowings by the Funds or the other investment portfolios of the Trust; the
cost of services, including services of counsel, required in connection with the
preparation of, and the cost of printing, the Trust's registration statements
and prospectuses, including amendments and revisions thereto, annual, semiannual
and other periodic reports of the Trust, and notices and proxy solicitation
material furnished to shareholders or regulatory authorities, to the extent that
any such materials relate to the Trust or its shareholders; and the Trust's
expenses of bookkeeping, accounting, auditing and financial reporting, including
related clerical expenses. 12b-1 fees with respect to a Fund, if any, are
allocated only to that Fund's Investor Class shares or Class C shares, as
applicable. Certain other expenses relating to a particular class (such as class
specific shareholders services fees) may be allocated solely to that class.
As described in the Prospectus, Undiscovered Managers has contractually agreed
to reduce its management fees and pay the expenses of each Fund's Institutional
Class, Investor Class and Class C shares in order to limit such classes'
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 their respective average daily net assets,
subject to the obligation of each class of a Fund to repay Undiscovered Managers
such class's deferred fees and expenses in future years, if any, when such
class's 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 expenses) in any such future year to exceed the stated
percentage rate, and provided that such class is not obligated to repay any such
deferred fees and expenses more than three years after the end of the fiscal
year in which they were incurred (for expenses incurred prior to December 28,
1999, the Funds' repayment obligation extended until two years after the end of
the fiscal year in which the expenses were incurred):
<TABLE>
<CAPTION>
FUND INSTITUTIONAL CLASS INVESTOR CLASS CLASS C
---- ------------------- -------------- -------
<S> <C> <C> <C>
Behavioral Growth Fund 1.30% 1.65% 2.30%
Behavioral Value Fund 1.40% 1.75% N/A*
Behavioral Long/Short Fund 2.00% N/A* N/A*
Special Small Cap Fund 0.55% plus the advisory N/A* N/A*
fee rate for the year
in question
REIT Fund 1.40% 1.75% 2.40%
Small Cap Value Fund 1.40% 1.75% 2.40%
Hidden Value Fund 1.30% N/A* N/A*
Core Equity Fund 0.99% N/A* 1.99%
Small Cap Growth Fund 1.20% 1.55% N/A*
International Equity Fund 1.45% 1.80% 2.45%
International Small Cap Equity Fund 1.60% N/A* N/A*
</TABLE>
----------
* The Fund does not currently offer such class.
These agreements have a term ending on December 31, 2001 and are renewable year
to year thereafter.
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<PAGE> 156
ADMINISTRATOR
Pursuant to an Administrative Services Agreement between the Trust and
Undiscovered Managers, Undiscovered Managers has agreed to provide all
administrative services to the Funds, including but not limited to corporate
secretarial, treasury, blue sky and fund accounting services. For these
services, each Fund pays Undiscovered Managers a monthly fee at the annual rate
of 0.25% of such Fund's average net asset value. During the Trust's fiscal year
ended August 31, 1998, August 31, 1999 and August 31, 2000, the following
amounts were paid or payable to Undiscovered Managers pursuant to the
Administrative Services Agreement:
<TABLE>
<CAPTION>
ADMINISTRATION FEE ADMINISTRATION FEE ADMINISTRATION FEE
FOR THE FISCAL YEAR FOR THE FISCAL YEAR FOR THE FISCAL YEAR
FUND ENDED AUGUST 31, 1998 ENDED AUGUST 31, 1999 ENDED AUGUST 31, 2000
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Behavioral Growth Fund $ 5,892 $ 99,161 $ 519,561
Behavioral Value Fund -0-* $ 2,429 $ 26,969
Behavioral Long/Short Fund -0-* $ 8,109 $ 13,229
Special Small Cap Fund $ 13,369 $ 39,702 $ 45,236
REIT Fund $ 8,693 $ 43,420 $ 76,076
Small Cap Value Fund $ 7,578 $ 43,708 $ 69,873
Hidden Value Fund $ 1,212 $ 5,224 $ 8,872
Core Equity Fund $ 1,073 $ 11,037 $ 12,028
Small Cap Growth Fund -0-** -0-** -0-**
International Equity Fund -0-* $ 7,387 $ 29,294
International Small Cap Equity Fund -0-* $ 8,463 $ 34,564
</TABLE>
----------
*The Fund had not commenced operations as of August 31, 1998.
** The Fund had not commenced operations as of August 31, 2000.
These amounts were subject to reduction and reimbursement under the expense
deferral arrangements described above. Undiscovered Managers has entered into an
agreement with PFPC Inc. to provide certain of the foregoing administrative
services, at the expense of Undiscovered Managers.
DISTRIBUTOR
Until January 2, 2001, Institutional Class, Investor Class and Class C shares
will be sold on a continuous basis by the Trust's distributor, Provident
Distributors, Inc. ("Provident Distributors"), 3200 Horizon Drive, King of
Prussia, Pennsylvania 19406, and commencing on January 2, 2001, Institutional
Class, Investor Class and Class C shares will be sold on a continuous basis by
the Trust's new distributor, PFPC Distributors, Inc. ("PFPC Distributors" and
collectively with Provident Distributors, the "Distributors"), 3200 Horizon
Drive, King of Prussia, Pennsylvania 19406. Under the relevant Distribution
Agreement between the Trust and the Distributor, the Distributor is not
obligated to sell any specific amount of shares of the Trust, but will use
efforts deemed appropriate by it to solicit orders for the sale of the Trust's
shares and to undertake such advertising and promotion as it believes reasonable
in connection with such solicitation. Prior to December 1, 1999, First Data
Distributors, Inc. ("First Data Distributors"), 4400 Computer Drive,
Westborough, Massachusetts 01581 was the distributor to the Trust. During the
fiscal year ended August 31, 1998, First Data Distributors received no
underwriting commissions from the Trust. During the fiscal years ended August
31, 1999 and August 31, 2000, First Data Distributors received the following
underwriting commissions relating to the following Funds:
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<PAGE> 157
<TABLE>
<CAPTION>
UNDERWRITING COMMISSIONS UNDERWRITING COMMISSIONS
FOR THE FISCAL YEAR ENDED FOR THE FISCAL YEAR ENDED
FUND AUGUST 31 ,1999 AUGUST 31, 2000
---- --------------- ---------------
<S> <C> <C>
Behavioral Growth Fund $1,814 $2,581.31
REIT Fund $195 $1,352.30
Small Cap Value Fund $1,225 -0-
Core Equity Fund $49 -0-
International Equity Fund -0- $100
</TABLE>
During the fiscal year ended August 31, 2000, Provident Distributors received
the following underwriting commissions relating to the following Funds.
<TABLE>
<CAPTION>
FUND UNDERWRITING COMMISSIONS
---- ------------------------
<S> <C>
Behavioral Growth Fund $21,875.05
REIT Fund $485.40
Small Cap Value Fund 153.57
Core Equity Fund 452.16
International Equity Fund 220.23
</TABLE>
None of the underwriting commissions listed above were retained by First Data
Distributors or Provident Distributors.
SERVICE AND DISTRIBUTION PLANS
As described in the Prospectus, the Trust has adopted, under Rule 12b-1 under
the 1940 Act, a Service and Distribution Plan relating to its Investor Class
shares and a Service and Distribution Plan relating to its Class C shares
(together, the "Service and Distribution Plans"). The Service and Distribution
Plans permit the Trust to pay to the then current principal underwriter of the
Trust or to one or more other persons or entities (which may but need not be
affiliated with the Trust or any of its investment advisers or other service
providers), pursuant to agreements executed on behalf of the Trust by one or
more officers of the Trust or by the then current principal underwriter of the
Trust, fees for services rendered and expenses borne in connection with the
provision of certain services. The Service and Distribution Plan with respect to
Investor Class shares provides that such fees may be paid 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 Service and
Distribution Plan relating to Investor Class shares with respect to each Fund
will not exceed 0.35% of the Fund's average daily net assets attributable to its
Investor Class shares. The Service and Distribution Plan with respect to Class C
shares provides that such fees may be paid as compensation for any or all of the
following: (i) engaging in activities or bearing expenses primarily intended to
result in the sale of Class C shares of the Trust and (ii) providing additional
personal services to the Trust's Class C shareholders and/or for the maintenance
of Class C shareholder accounts. On an annual basis, the aggregate amount of
fees under the Service and Distribution Plan relating to Class C shares with
respect to each Fund will not exceed 1.00% of the Fund's average daily net
assets attributable to its Class C shares. The Service and Distribution Plans
are of the type known as "compensation" plans. This means that, although the
Trustees of the Trust are expected to take into account the expenses of the
current principal underwriter of the Trust in their periodic review of the
Service and Distribution Plans, the fees are payable to
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<PAGE> 158
compensate such underwriter for services rendered even if the amount paid
exceeds such underwriter's expenses.
Each Service and Distribution Plan may be terminated at any time as to any Fund
by vote of a majority of the Trustees of the Trust who are not interested
persons of the Trust (as defined in the 1940 Act) and who have no direct or
indirect financial interest in the operation of the Service and Distribution
Plan or any agreements related to it, or by a vote of a majority of the
outstanding Investor Class voting securities or Class C voting securities, as
applicable, of that Fund (as defined in the 1940 Act). Any change in a Service
and Distribution Plan that would materially increase the cost to the Investor
Class shares or Class C shares, as applicable, of a Fund to which the Service
and Distribution Plan relates requires approval by the Investor Class or Class C
shareholders, as applicable, of that Fund. The Trustees of the Trust review at
least quarterly a written report of such costs and the purposes for which such
costs have been incurred. All material amendments to a Service and Distribution
Plan requires a vote of the Trustees of the Trust, including a majority of the
Trustees of the Trust who are not interested persons of the Trust (as defined in
the 1940 Act) and who have no direct or indirect financial interest in the
operation of such Service and Distribution Plan or any agreements related to it,
cast in person at a meeting called for such purpose. For so long as the Service
and Distribution Plans are in effect, the selection and nomination of those
Trustees of the Trust who are not interested persons of the Trust shall be
committed to the discretion of such disinterested persons.
Each Service and Distribution Plan will continue in effect for successive
one-year periods, provided that each such continuance is specifically approved
(i) by the vote of a majority of the Trustees of the Trust who are not
interested persons of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the operation of the Service and
Distribution Plan or any agreements related to it and (ii) by the vote of a
majority of the entire Board of Trustees of the Trust, in each case cast in
person at a meeting called for the purpose of voting on the continuance of the
Service and Distribution Plan.
For the Trust's fiscal year ended August 31, 2000, the following Funds paid
Provident Distributors and First Data Distributors (a former distributor of the
Trust), collectively, the following amounts under the Service and Distribution
Plan relating to their Investor Class shares:
<TABLE>
<CAPTION>
AGGREGATE AMOUNT PAID DURING FISCAL
FUND YEAR ENDED AUGUST 31, 2000
---- --------------------------
<S> <C>
Behavioral Growth Fund $39,297
REIT Fund $ 1,629
Small Cap Value Fund $ 9,215
Hidden Value Fund* $ 3,594
Core Equity Fund* $ 2,144
Behavioral Value Fund -0-**
Small Cap Growth Fund -0-**
International Equity Fund -0-**
</TABLE>
*On December 13, 2000, the Hidden Value Fund ceased offering Investor Class
shares, and on December 27, 2000 the Core Equity Fund ceased offering Investor
Class shares.
**The Fund had not commenced investment operations of its Investor Class shares
as of August 31, 2000.
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<PAGE> 159
For the Trust's fiscal year ended August 31, 2000, the following Funds paid
Provident Distributors and First Data Distributors, collectively, the following
amounts under the Service and Distribution Plan relating to their Class C
shares:
<TABLE>
<CAPTION>
AGGREGATE AMOUNT PAID DURING FISCAL
FUND YEAR ENDED AUGUST 31, 2000
---- --------------------------
<S> <C>
Behavioral Growth Fund $11,832
REIT Fund $ 1,929
Small Cap Value Fund $ 1,650
Core Equity Fund $159
International Equity Fund $655
</TABLE>
The Trustees of the Trust believe that the Service and Distribution Plans will
provide benefits to each Fund with Investor Class shares and Class C shares, as
applicable. The Trustees of the Trust believe that the Service and Distribution
Plan relating to Investor Class shares is likely to result in greater sales
and/or fewer redemptions of the Trust's Investor Class shares, and thus higher
asset levels in the Funds with Investor Class shares, although it is impossible
to know for certain the level of sales and redemptions of the Trust's Investor
Class shares that would occur in the absence of such Service and Distribution
Plan or under alternative distribution arrangements. The Trustees of the Trust
believe that the Service and Distribution Plan relating to Class C shares is
likely to result in greater sales and/or fewer redemptions of the Trust's Class
C shares, and thus higher asset levels in the Funds with Class C shares,
although it is impossible to know for certain the level of sales and redemptions
of the Trust's Class C shares that would occur in the absence of such Service
and Distribution Plan or under alternative distribution arrangements. The
Trustees of the Trust believe that higher asset levels could benefit the Funds
with Investor Class shares and Class C shares by reducing Fund expense ratios
and/or by affording greater investment flexibility to such Funds.
ADDITIONAL ARRANGEMENTS
CUSTODIAL ARRANGEMENTS. The Bank of New York, One Wall Street, New York, New
York 10286, is the custodian for each Fund except the Behavioral Long/Short
Fund. Custodial Trust Company, 101 Carnegie Center, Princeton, New Jersey 08540,
is the custodian for the Behavioral Long/Short Fund. The custodians hold in
safekeeping certificated securities and cash belonging to the Funds and, in such
capacity, are the registered owners of securities held in book entry form
belonging to the Funds. Upon instruction, the custodians receive and deliver
cash and securities of the Funds in connection with Fund transactions and
collect all dividends and other distributions made with respect to Fund
portfolio securities. The custodians also maintain certain accounts and records
of the Funds.
INDEPENDENT AUDITORS. The Trust's independent auditors are Deloitte & Touche
LLP, Two World Financial Center, New York, New York 10281. Deloitte & Touche LLP
conducts an annual audit of the Trust's financial statements, assists in the
preparation of the Funds' federal and state income tax returns and consults with
the Funds as to matters of accounting and federal and state income taxation.
TRANSFER AND DIVIDEND PAYING AGENT. PFPC Inc., 4400 Computer Drive, Westborough,
Massachusetts 01581, is the transfer and dividend paying agent of the Funds.
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<PAGE> 160
CODE OF ETHICS
The Trust, Undiscovered Managers, the sub-advisers of the Funds and the
Distributors have adopted Codes of Ethics pursuant to the requirements of the
1940 Act. These Codes of Ethics permit personnel subject to the Codes to invest
in securities, including securities that may be purchased or held by the Funds.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Transactions on stock exchanges and other agency transactions for the account of
the Funds involve the payment by the Funds of negotiated brokerage commissions.
Such commissions vary among different brokers. A particular broker may charge
different commissions according to such factors as the difficulty and size of
the transaction. There is generally no stated commission in the case of
securities traded in the over-the-counter markets, but the price paid by the
Funds usually includes an undisclosed dealer commission, markup or markdown. In
underwritten offerings, the price paid by the Funds includes a disclosed, fixed
commission or discount retained by the underwriter or dealer.
In addition to selecting portfolio investments for the Fund(s) it manages, each
sub-adviser selects brokers or dealers to execute securities purchases and sales
for the Fund's account. Each sub-adviser selects only brokers or dealers which
it believes are financially responsible, will provide efficient and effective
services in executing, clearing and settling an order and will charge commission
rates which, when combined with the quality of the foregoing services, will
produce best price and execution for the transaction. This does not necessarily
mean that the lowest available brokerage commission will be paid. However, the
commissions are believed to be competitive with generally prevailing rates. Each
sub-adviser uses its best efforts to obtain information as to the general level
of commission rates being charged by the brokerage community from time to time
and evaluates the overall reasonableness of brokerage commissions paid on
transactions by reference to such data. In making such evaluation, all factors
affecting liquidity and execution of the order, as well as the amount of the
capital commitment by the broker in connection with the order, are taken into
account.
A sub-adviser's receipt of research services from brokers may sometimes be a
factor in its selection of a broker that it believes will provide best price and
execution for a transaction. These research services include not only a wide
variety of reports on such matters as economic and political developments,
industries, companies, securities, portfolio strategy, account performance,
daily prices of securities, stock and bond market conditions and projections,
asset allocation and portfolio structure, but also meetings with management
representatives of issuers and with other analysts and specialists. Although it
is in many cases not possible to assign an exact dollar value to these services,
they may, to the extent used, tend to reduce the sub-adviser's expenses. Such
services may be used by a sub-adviser in managing other client accounts and in
some cases may not be used with respect to the Funds. Receipt of services or
products other than research from brokers is not a factor in the selection of
brokers. Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc., and subject to seeking best price and execution,
purchases of shares of a Fund by customers of broker-dealers may be considered
as a factor in the selection of broker-dealers to execute the Fund's securities
transactions.
A sub-adviser may cause a Fund to pay a broker-dealer that provides brokerage
and research services to the sub-adviser an amount of commission for effecting a
securities transaction for that Fund in excess of the amount another
broker-dealer would have charged for effecting that transaction. The sub-adviser
must determine in good faith that such greater commission is reasonable in
relation to the value of the brokerage and research services provided by the
executing broker-dealer viewed in terms of that particular transaction or the
sub-adviser's overall responsibilities to the Fund and its other clients. The
sub-adviser's authority to cause a Fund to pay greater commissions is also
subject to such policies as the Trustees of the Trust may adopt from time to
time.
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<PAGE> 161
Portfolio transactions for the International Equity and International Small Cap
Equity Funds may be effected by Aros Securities Inc., which is an affiliate of
Unibank, the sub-adviser to such Funds. As of August 31, 2000, the Trust had
paid no brokerage commissions to Aros Securities Inc.
Transactions in unlisted securities are carried out through broker-dealers who
make the primary market for such securities unless, in the judgment of each
sub-adviser, a more favorable price can be obtained by carrying out such
transactions through other brokers or dealers.
During the fiscal years ended August 31, 1998, August 31, 1999 and August 31,
2000, the Trust paid, on behalf of the following Funds, the aggregate amount of
commissions set forth below:
<TABLE>
<CAPTION>
COMMISSIONS
---------------------
FOR FISCAL YEAR FOR FISCAL YEAR FOR FISCAL YEAR
FUND ENDED AUGUST 31, 1998 ENDED AUGUST 31, 1999 ENDED AUGUST 31, 2000
---- --------------------- --------------------- ---------------------
<S> <C> <C> <C>
Behavioral Growth Fund $ 14,632 $154,819 $497,011
Behavioral Value Fund -0-* $15,253 $82,785
Behavioral Long/Short Fund -0-* $18,715 $37,545
Special Small Cap Fund $34,920 $36,076 $63,790
REIT Fund $40,434 $97,164 $141,621
Small Cap Value Fund $36,083 $41,407 $106,063
Hidden Value Fund $3,627 $7,727 $18,901
Core Equity Fund $1,156 $3,739 $3,297
Small Cap Growth Fund -0-** -0-** -0-**
International Equity Fund -0-* $8,540 $45,766
International Small Cap Equity Fund -0-* $11,607 $48,974
</TABLE>
----------
*The Fund had not commenced operations as of August 31, 1998.
** The Fund had not commenced operations as of August 31, 2000.
For each Fund that paid an aggregate dollar amount of commissions during the
fiscal year ended August 31, 2000 that was materially different from the
aggregate dollar amount of commissions paid by the Fund during the fiscal year
ended August 31, 1998 and August 31, 1999, the principal reason for such
difference was an increase in the assets of the Fund.
During the fiscal year ended August 31, 2000, the sub-advisers to each of the
following Funds directed brokerage transactions, in such aggregate amounts and
for such aggregate commissions as are set forth below, for the purpose of
obtaining research services:
<TABLE>
<CAPTION>
BROKERAGE RELATED
FUND TRANSACTIONS COMMISSIONS
---- ------------ -----------
<S> <C> <C>
Behavioral Growth Fund $350,416,049 $353,280
Behavioral Value Fund $15,935,900 $61,097
Behavioral Long/Short Fund $3,917,084 $4,888
Special Small Cap Fund $15,522,232 $50,922
REIT Fund $56,477,129 $123,300
Small Cap Value Fund $12,112,440 $33,078
Hidden Value Fund $6,599,575 $13,854
Core Equity Fund $165,621 $290
Small Cap Growth Fund -0-* -0-*
</TABLE>
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<PAGE> 162
<TABLE>
<CAPTION>
BROKERAGE RELATED
FUND TRANSACTIONS COMMISSIONS
---- ------------ -----------
<S> <C> <C>
International Equity Fund -0- -0-
International Small Cap Equity Fund -0- -0-
</TABLE>
*The Fund had not commenced investment operations as of August 31, 2000.
During the fiscal year-ended August 31, 2000, the International Equity Fund
purchased securities of Credit Suisse Group, the parent company of Credit Suisse
First Boston, a firm that is regularly used for the Fund's trading. As of August
31, 2000, the value of the holding was $216,330.75.
During the fiscal year ended August 31, 2000, the Behavioral Long/Short Fund had
a portfolio turnover rate of 242%, which was significantly higher than the
portfolio turnover rate of the Fund during the period ended August 31, 1999 of
128%. The higher turnover resulted primarily from (1) purchases and sales of
securities in connection with a change in portfolio strategy and (2) the new
portfolio strategy itself, which seeks to control risk through more frequent
rebalancings of the portfolio.
DESCRIPTION OF THE TRUST
As stated previously, the Trust was organized as a Massachusetts business trust
by the Declaration of Trust dated September 29, 1997. The Declaration of Trust
currently permits the Trustees to issue an unlimited number of full and
fractional shares of each investment portfolio of the Trust (a "series"). The
Trust currently has twelve series, eleven of which are the Funds. Each share of
each Fund represents an equal proportionate interest in such Fund with each
other share of that Fund and is entitled to a proportionate interest in the
dividends and distributions from that Fund. The shares of each Fund do not have
any preemptive rights. Upon termination of any Fund, whether pursuant to
liquidation of the Trust or otherwise, shareholders of that Fund are entitled to
share pro rata in the net assets of that Fund available for distribution to
shareholders. Shares are freely transferable, are not convertible and may be
redeemed in accordance with the terms and provisions in the Prospectus. The
Declaration of Trust permits the Trustees to charge shareholders directly for
custodial, transfer agency and servicing expenses.
The Declaration of Trust also permits the Trustees, without shareholder
approval, to subdivide any series of shares into various classes of shares with
such preferences and other rights as the Trustees may designate. The Trustees
may also, without shareholder approval, establish one or more additional
separate portfolios for investments in the Trust. Shareholders' investments in
such an additional portfolio would be evidenced by a separate series of shares
(i.e., a new "Fund").
The Declaration of Trust provides for the perpetual existence of the Trust. The
Trust or any Fund, however, may be terminated at any time by vote of at least
two-thirds of the outstanding shares of each Fund affected. The Declaration of
Trust further provides that the Trustees may also terminate the Trust or any
Fund upon written notice to the shareholders.
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<PAGE> 163
Currently, the Funds offer the following classes of shares:
<TABLE>
<CAPTION>
FUND INSTITUTIONAL CLASS INVESTOR CLASS CLASS C
---- ------------------- -------------- -------
<S> <C> <C> <C>
Behavioral Growth Fund X X X
Behavioral Value Fund X X
Behavioral Long/Short Fund X
Special Small Cap Fund X
REIT Fund X X X
Small Cap Value Fund X X X
Hidden Value Fund X *
Core Equity Fund X ** X
Small Cap Growth Fund X X
International Equity Fund X X X
International Small Cap Equity Fund X
</TABLE>
----------
*On December 27, 2000, the Hidden Value Fund ceased offering Investor Class
shares.
**On December 13, 2000, the Core Equity Fund ceased offering Investor Class
shares.
In general, expenses of each Fund are borne by all the shares in such Fund,
regardless of class, on a pro rata basis relative to the net assets of each
class. Fees under a 12b-1 plan with respect to a Fund, if any, however, are
allocated only to that Fund's Investor Class shares or Class C shares, as
applicable. Certain other expenses relating to a particular class (such as
class-specific shareholder services fees) may be allocated solely to that class.
The assets received by any class of the Funds for the issue or sale of its
shares and all income, earnings, profits, losses and proceeds therefrom, subject
only to the rights of creditors, are allocated to, and constitute the underlying
assets of, that class. The underlying assets of any class of the Funds are
segregated and are charged with the expenses with respect to that class and with
a share of the general expenses of the corresponding Fund. Any general expenses
of a Fund that are not readily identifiable as belonging to a particular class
of such Fund are allocated by or under the direction of the Trustees in such
manner as the Trustees determine to be fair and equitable. While the expenses of
the Trust are allocated to the separate books of account of each Fund, certain
expenses may be legally chargeable against the assets of all classes of the
Funds.
VOTING RIGHTS
Shareholders are entitled to one vote for each full share held (with fractional
votes for each fractional share held) and may vote (to the extent provided in
the Declaration of Trust) on the election of Trustees and the termination of the
Trust and on other matters submitted to the vote of shareholders.
The Declaration of Trust provides that on any matter submitted to a vote of all
Trust shareholders, all Trust shares entitled to vote shall be voted together
irrespective of series or class unless the rights of a particular series or
class would be adversely affected by the vote, in which case a separate vote of
that series or class shall be required to decide the question. Also, a separate
vote shall be held whenever required by the 1940 Act or any rule thereunder.
Rule 18f-2 under the 1940 Act provides in effect that a series or class shall be
deemed to be affected by a matter unless it is clear that the interests of each
series or class in the matter are substantially identical or that the matter
does not affect any interest of such series or class. On matters affecting an
individual series or class, only shareholders of that series or class are
entitled to vote. Consistent
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<PAGE> 164
with the current position of the Securities and Exchange Commission,
shareholders of all series and classes vote together, irrespective of series or
class, on the election of Trustees and the selection of the Trust's independent
accountants, but shareholders of each series vote separately on other matters
requiring shareholder approval, such as certain changes in investment policies
of that series or the approval of the investment advisory and sub-advisory
agreements relating to that series.
There will normally be no meetings of shareholders for the purpose of electing
Trustees except that, in accordance with the 1940 Act, (i) the Trust will hold a
shareholders' meeting for the election of Trustees at such time as less than a
majority of the Trustees holding office have been elected by shareholders, and
(ii) if, as a result of a vacancy on the Board of Trustees, less than two-thirds
of the Trustees holding office have been elected by the shareholders, that
vacancy may be filled only by a vote of the shareholders. In addition, Trustees
may be removed from office by a written consent signed by the holders of
two-thirds of the outstanding shares and filed with the Trust's custodian or by
a vote of the holders of two-thirds of the outstanding shares at a meeting duly
called for that purpose, which meeting shall be held upon the written request of
the holders of not less than 10% of the outstanding shares.
Upon written request by 10 shareholders of record, who have been such for at
least six months preceding the date of such request and who hold shares in the
aggregate having a net asset value of at least one percent (1%) of the
outstanding shares, stating that such shareholders wish to communicate with the
other shareholders for the purpose of obtaining the signatures necessary to
demand a meeting to consider removal of a Trustee, the Trust has undertaken to
provide a list of shareholders or to disseminate appropriate materials (at the
expense of the requesting shareholders).
Except as set forth above, the Trustees shall continue to hold office and may
appoint successor Trustees. Voting rights are not cumulative.
No amendment may be made to the Declaration of Trust without the affirmative
vote of a majority of the outstanding shares of the Trust, except (i) to change
the Trust's name or to cure technical problems in the Declaration of Trust and
(ii) to establish, change or eliminate the par value of any shares (currently
all shares have no par value).
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims shareholder liability for acts or obligations of
each Fund and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Trust or the
Trustees relating to the Fund. The Declaration of Trust provides for
indemnification out of assets of a Fund or assets attributable to the particular
class of a Fund for all loss and expense of any shareholder held personally
liable for the obligations of such Fund or such class. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
considered remote since it is limited to circumstances in which the disclaimer
is inoperative and the Fund itself would be unable to meet its obligations.
The Declaration of Trust further provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, nothing in the
Declaration of Trust protects a Trustee against any liability to which the
Trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office. The By-Laws of the Trust provide for indemnification by the Trust of
the Trustees and officers of the Trust except with respect to any matter as to
which any such person is found after final adjudication in an action, suit or
proceeding not to have acted in good faith in the reasonable belief that such
action was in the best interests of the Trust. No officer or Trustee may be
indemnified against any liability to the Trust or the Trust's shareholders to
which such person would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office.
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ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
HOW TO BUY SHARES
Subject to minimum initial investment requirements and certain other conditions,
an investor may make an initial purchase of shares of any class of shares of any
Fund by submitting a completed application form and payment to:
Undiscovered Managers Funds
4400 Computer Drive
P.O. Box 5181
Westborough, MA 01581-5181
The procedures for purchasing shares of any class of any Fund are summarized in
"Your Investment -- Buying Shares" in the Prospectus. The Prospectus also
explains total offering price of the relevant class of shares, any applicable
sales charge, 12b-1 fee, contingent deferred sales charge, and, for the
Behavioral Long/Short Fund and the International Small Cap Equity Fund, any
redemption fee.
As described in the Prospectus, shares of any Fund may be purchased by
exchanging securities on deposit with a custodian acceptable to Undiscovered
Managers. Such a purchase is subject in each case to the determination by
Undiscovered Managers that the securities to be exchanged are acceptable for
purchase by the Fund. In all cases, Undiscovered Managers reserves the right to
reject any securities that are proposed for exchange. Securities accepted by
Undiscovered Managers in exchange for Fund shares will be valued in the same
manner as the Fund's assets as of the time of the Fund's next determination of
net asset value after such acceptance. All dividends and subscription or other
rights which are reflected in the market price of accepted securities at the
time of valuation become the property of the Fund and must be delivered to the
Fund upon receipt by the investor from the issuer. Generally, a gain or loss for
federal income tax purposes would be realized upon the exchange of securities by
an investor that is subject to federal income taxation, depending upon the
investor's basis in the securities tendered.
Undiscovered Managers will not approve the acceptance of securities in exchange
for shares of any Fund unless (1) Undiscovered Managers and the applicable
sub-adviser in their discretion, believes the securities are appropriate
investments for the Fund; (2) the investor represents and agrees that all
securities offered to the Fund can be resold by the Fund without restriction
under the Securities Act of 1933, as amended, or otherwise; and (3) the
securities are eligible to be acquired under the Fund's investment policies and
restrictions. No investor owning 5% or more of a Fund's shares may purchase
additional shares of that Fund by an exchange of securities.
OFFERING PRICE
The public offering price of a class of shares of a Fund is the net asset value
of such class, plus any applicable sales charge. Only Class C shares have sales
charges. On each purchase of shares, the net asset value is invested in the
applicable Fund, and on each purchase of Class C shares, the sales charge is
paid to the Trust's Distributor. On such purchases of Class C shares, the
Trust's Distributor reallows the whole sales charge
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<PAGE> 166
(1.00% of the offering price) to the dealer responsible for the share purchase.
Shares are purchased at the public offering price next determined after PFPC
Inc. or another agent or sub-agent of the Fund receives the investor's order in
proper form. If PFPC Inc. or another agent or sub-agent of the Fund receives an
order in proper form before the close of regular trading on the New York Stock
Exchange (the "NYSE"), the investor will pay or receive that day's net asset
value. If PFPC Inc. or another agent or sub-agent of the Fund receives an order
in proper form after the close of regular trading on the NYSE, the investor will
pay or receive the next day's net asset value.
SHAREHOLDER SERVICES
OPEN ACCOUNTS
A shareholder's investment in any Fund is automatically credited to an open
account maintained for the shareholder by PFPC Inc. Following each transaction
in the account, a shareholder will receive an account statement disclosing the
current balance of shares owned and the details of recent transactions in the
account. After the close of each fiscal year PFPC Inc. will send each
shareholder a statement providing federal tax information on dividends and
distributions paid to the shareholder during the year. This statement should be
retained as a permanent record. Shareholders will be charged a fee for duplicate
information. The open account system permits the purchase of full and fractional
shares and, by making the issuance and delivery of certificates representing
shares unnecessary, eliminates the problems of handling and safekeeping
certificates and the cost and inconvenience of replacing lost, stolen, mutilated
or destroyed certificates.
The costs of maintaining the open account system are borne by the Trust, and no
direct charges are made to shareholders. Although the Trust has no present
intention of making such direct charges to shareholders, it reserves the right
to do so. Shareholders will receive prior notice before any such charges are
made.
SYSTEMATIC WITHDRAWAL PLAN
A Systematic Withdrawal Plan, referred to in the Prospectus under "Your
Investment -- General Shareholder Services," provides for monthly, quarterly,
semiannual or annual withdrawal payments of $1,000 or more from the account of a
shareholder provided that the account has a value of at least $25,000 at the
time the plan is established. The proceeds from any such withdrawal shall equal
the amount redeemed less any applicable contingent deferred sales charge and/or
redemption fee.
Payments will be made either to the shareholder or to any other person
designated by the shareholder. If payments are issued to an individual other
than the registered owner(s), a medallion signature guarantee will be required
on the Plan application. Income dividends and capital gain distributions will be
reinvested at the net asset value determined as of the close of regular trading
on the NYSE on the record date for the dividend or distribution.
Since withdrawal payments represent proceeds from liquidation of shares, the
shareholder should recognize that withdrawals may reduce and possibly exhaust
the value of the account, particularly in the event of a decline in net asset
value. Accordingly, the shareholder should consider whether a Systematic
Withdrawal Plan and the specified amounts to be withdrawn are appropriate in the
circumstances. The Trust makes no recommendations or representations in this
regard. It may be appropriate for the shareholder to consult a tax adviser
before establishing such a plan. See "Redemptions" and "Income Dividends,
Capital Gain Distributions and Tax Status" below for certain information as to
federal income taxes.
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EXCHANGE PRIVILEGE
Shareholders may redeem their shares of any Fund, subject to any applicable
redemption fees, and have the proceeds applied on the same day to purchase the
same class of shares of any other Fund. No front-end or contingent deferred
sales charges will be imposed on any such exchange, but, for Funds that impose a
redemption fee, the exchange will be treated as a redemption and the redemption
fee will apply. The value of shares exchanged must be at least $1,000 and all
exchanges are subject to the minimum investment requirement of the Fund into
which the exchange is being made. This option is summarized in the Prospectus
under "Your Investment -- General Shareholder Services."
Exchanges may be effected by (1) making a telephone request by calling
1-800-667-1224, provided that a special authorization form is on file with PFPC
Inc., or (2) sending a written exchange request to PFPC Inc. accompanied by an
account application for the appropriate Fund. The Trust reserves the right to
modify this exchange privilege without prior notice.
An exchange constitutes a sale of the shares for federal income tax purposes on
which the investor may realize a capital gain or loss.
IRAS
Under "Your Investment -- General Shareholder Services," the Prospectus refers
to IRAs established under a prototype plan made available by the Trust's
Distributor. These plans may be funded with shares of any Fund. All income
dividends and capital gain distributions of plan participants must be
reinvested. Plan documents and further information can be obtained from the
Trust's Distributor.
Check with your financial or tax adviser as to the suitability of Fund shares
for your retirement plan.
REDEMPTIONS
The procedures for redemption of shares of any class of any Fund are summarized
in the Prospectus under "Your Investment -- Selling Shares." Except as noted
below, signatures on redemption requests must be guaranteed by a medallion
signature guarantor. A medallion signature guarantee may be obtained from a
domestic bank or trust company, broker, dealer, clearing agency, savings
association, or other financial institution which is participating in a
medallion program recognized by the Securities Transfer Association. The three
recognized medallion programs are Securities Transfer Agents Medallion Program
(STAMP), Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange,
Inc. Medallion Signature Program (NYSE MSP). Signature guarantees from financial
institutions which are not participating in one of these programs will not be
accepted. Signature guarantees by notaries public are not acceptable. However,
as noted in the Prospectus, a medallion signature guarantee will not be required
if the proceeds of the redemption do not exceed $50,000 and the proceeds check
is made payable to the registered owner(s) and mailed to the record address.
If a shareholder selects the telephone redemption service in the manner
described in the next paragraph, Fund shares may be redeemed by making a
telephone call directly to Undiscovered Managers at 1-800-667-1224. When a
telephonic redemption request is received, the proceeds are wired to the bank
account previously chosen by the shareholder and a nominal wire fee (currently
$5.00) is deducted. Telephonic redemption requests must be received by
Undiscovered Managers prior to the close of regular trading on the NYSE on a day
when the NYSE is open for business. Requests made after that time or on a day
when the NYSE is not open for business cannot be accepted by Undiscovered
Managers and a new request will be necessary.
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<PAGE> 168
In order to redeem shares by telephone, a shareholder must either select this
service when completing the Fund application or must do so subsequently on the
Service Options Form available from PFPC Inc. When selecting the service, a
shareholder must designate a bank account to which the redemption proceeds
should be wired. Any change in the bank account so designated must be made by
furnishing to PFPC Inc. a completed Service Options Form with a signature
guarantee. Whenever the Service Options Form is used, the shareholder's
signature must be guaranteed as described above. Telephone redemptions may only
be made if an investor's bank is a member of the Federal Reserve System or has a
correspondent bank that is a member of the System. If the account is with a
savings bank, it must have only one correspondent bank that is a member of the
System. The Trust, PFPC Inc., the Trust's Distributor, Undiscovered Managers and
the sub-advisers are not responsible for the authenticity of withdrawal
instructions received by telephone. In the event that reasonable procedures are
not followed in the verification of withdrawal instructions, the foregoing
parties may be liable for any losses due to unauthorized instructions.
The redemption price will be the net asset value per share next determined after
the redemption request and any necessary special documentation are received by
PFPC Inc. or an approved broker-dealer or its authorized designee in proper
form, less any applicable contingent deferred sales charge and/or redemption
fee. Proceeds resulting from a written redemption request will normally be
mailed to you within seven days after receipt of your request in good order.
Telephonic redemption proceeds will normally be wired on the first business day
following receipt of a proper redemption request. In those cases where you have
recently purchased your shares by check and your check was received less than
fifteen days prior to the redemption request, the Fund may withhold redemption
proceeds until your check has cleared.
Each Fund will normally redeem shares for cash; however, each Fund reserves the
right to pay the redemption price wholly or partly in kind if the Board of
Trustees of the Trust determines it to be advisable in the interest of the
remaining shareholders. If portfolio securities are distributed in lieu of cash,
the shareholder will normally incur brokerage commissions upon subsequent
disposition of any such securities. However, the Trust has elected to be
governed by Rule 18f-1 under the 1940 Act pursuant to which the Trust is
obligated to redeem shares solely in cash for any shareholder during any 90-day
period up to the lesser of $250,000 or 1% of the total net asset value of the
Trust at the beginning of such period.
A redemption constitutes a sale of shares for federal income tax purposes on
which the investor may realize a long- or short-term capital gain or loss. See
"Income Dividends, Capital Gain Distributions and Tax Status."
NET ASSET VALUE
As indicated in the Prospectus, the net asset value of each Fund is determined
and the shares of each Fund are priced as of the earlier of 4:00 p.m., Eastern
Time, or the close of regular trading on the NYSE, on each Business Day. A
"Business Day" is any day the NYSE is open for regular business. Currently the
NYSE is closed in observance of the following holidays: New Year's Day, Martin
Luther King, Jr. Day, President's Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
Valuations of securities purchased by the Funds are supplied by independent
pricing services used by PFPC Inc., as sub-administrator. Equity securities
which are listed or admitted to trading on a national securities exchange or
other market trading system which reports actual transaction prices on a
contemporaneous basis will be valued at the last sales price on the exchange on
which the security is principally traded. Equity securities for which there is
no sale on that day and equity securities traded only in the over-the-counter
market will be valued at their closing bid prices obtained from one or more
dealers making markets for such
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<PAGE> 169
securities or, if market quotations are not readily available, at their fair
value as determined in good faith by or under the direction of the Board of
Trustees of the Trust.
Generally, trading in foreign securities markets is substantially completed each
day at various times prior to the close of regular trading on the NYSE.
Occasionally, events affecting the value of equity securities of non-U.S.
issuers not traded on a U.S. exchange may occur between the completion of
substantial trading of such securities for the day and the close of regular
trading on the NYSE. If events materially affecting the value of any Fund's
portfolio securities of non-U.S. issuers occur during such period, then these
securities will be valued at their fair value as determined in good faith by or
in accordance with procedures approved by the Board of Trustees.
INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS
As described in the Prospectus under "Dividends, Distributions and Taxes" it is
the policy of each Fund to pay its shareholders, as dividends, substantially all
net investment income and to distribute at least annually all net realized
capital gains, if any, after offsetting any capital loss carryovers.
Income dividends and capital gain distributions are payable in full and
fractional shares of the particular Fund based upon the net asset value
determined as of the close of regular trading on the NYSE on the record date for
each dividend or distribution. Shareholders, however, may elect to receive their
income dividends or capital gain distributions, or both, in cash. The election
may be made at any time by submitting a written request directly to PFPC Inc. In
order for a change to be in effect for any dividend or distribution, it must be
received by PFPC Inc. on or before the record date for such dividend or
distribution.
As required by federal law, detailed federal tax information will be furnished
to each shareholder for each calendar year on or before January 31 of the
succeeding year.
Each Fund intends to qualify each year as a regulated investment company under
Subchapter M of the Code and to qualify for the special tax treatment accorded
regulated investment companies and their shareholders. In order so to qualify,
the Fund must, among other things, (i) derive at least 90% of its gross income
from dividends, interest, payments with respect to certain securities loans,
gains from the sale of stock, securities or foreign currencies, or other income
(including but not limited to gains from options, futures or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies; (ii) distribute with respect to each taxable year at least 90% of
the sum of its taxable net investment income, its net tax-exempt income (if
any), and the excess, if any, of net short-term capital gains over net long-term
capital losses for such year; and (iii) at the end of each quarter maintain at
least 50% of the value of its total assets in cash, cash items (including
receivables), government securities, securities of other regulated investment
companies, and other securities of issuers which represent, with respect to each
issuer, no more than 5% of the value of the Fund's total assets and 10% of the
outstanding voting securities of such issuer, and with no more than 25% of the
value of its total assets invested in the securities (other than those of the
U.S. government or other regulated investment companies) of any one issuer or of
two or more issuers which the Fund controls and which are engaged in the same,
similar or related trades and businesses. If it qualifies for treatment as a
regulated investment company that is accorded special tax treatment, the Fund
will not be subject to federal income tax on income paid to its shareholders in
the form of dividends or capital gain distributions. If the Fund does not
qualify for taxation as a regulated investment company for any taxable year, the
Fund's income will be subject to corporate income taxes imposed at the Fund
level, and all distributions from earnings and profits, including distributions
of net exempt-interest income and net capital
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gain, will be taxable to shareholders as ordinary income. In addition, in order
to requalify for taxation as a regulated investment company, the Fund may be
required to recognize unrealized gains, pay substantial taxes and interest, and
make certain distributions.
An excise tax at the rate of 4% will be imposed on the excess, if any, of each
Fund's "required distribution" over its actual distributions in any calendar
year. Generally, the "required distribution" is an amount at least equal to the
sum of 98% of the Fund's ordinary income for the calendar year plus 98% of its
capital gain net income recognized during the one-year period ending on October
31 plus undistributed amounts from prior years. Each Fund intends to make
distributions sufficient to avoid imposition of the excise tax. Distributions
declared by a Fund during October, November or December to shareholders of
record on a date in any such month and paid by the Fund during the following
January will be treated for federal tax purposes as paid by the Fund and
received by shareholders on December 31 of the year in which declared.
Dividends and distributions on a Fund's shares are generally subject to federal
income tax as described herein to the extent they do not exceed the Fund's
realized income and gains, even though such dividends and distributions may
economically represent a return of a particular shareholder's investment. Such
distributions are likely to occur in respect of shares purchased at a time when
a Fund's net asset value reflects gains that are either unrealized, or realized
but not distributed. Such realized gains may be required to be distributed even
when a Fund's net asset value also reflects unrealized losses. Shareholders of
each Fund will be subject to federal income taxes on distributions made by the
Fund whether received in cash or additional shares of the Fund. Distributions by
each Fund of net income and short-term capital gains, if any, will be taxable to
shareholders as ordinary income. Distributions of long-term capital gains
(generally subject to a maximum tax rate of 20% for shareholders who are
individuals), if any, will be taxable to shareholders as such, without regard to
how long a shareholder has held shares of the Fund.
In general, sales, redemptions and exchanges of each Fund's shares are taxable
events and, accordingly, shareholders may realize gains and losses on these
transactions. If shares have been held for more than one year, gain or loss
realized will be long-term capital gain or loss, provided the shareholder holds
the shares as a capital asset. If shares have been held for one year or less,
the gain or loss on the sale, redemption or exchange of such shares will be
treated as short-term capital gain or loss. For taxable years beginning after
December 31, 2000, the maximum capital gain tax rates for capital assets
(including Fund shares) held by a non-corporate shareholder for more than 5
years will be 8% and 18% (rather than 10% and 20%). The 18% rate applies only to
assets the holding period for which begins after December 31, 2000 (including by
way of an election to mark the asset to the market, and to pay the tax on any
gain thereon, as of January 2, 2001). The mark-to-market election may be
disadvantageous from a federal tax perspective, and shareholders should consult
their tax advisors before making such an election.
In general, if a shareholder sells Fund shares at a loss within six months after
purchasing the shares, the loss will be treated as a long-term capital loss to
the extent of any long-term capital gain distributions received by the
shareholder. Furthermore, no loss will be allowed on the sale of Fund shares to
the extent the shareholder acquired other shares of the same Fund within 30 days
prior to the sale of the loss shares or 30 days after such sale.
Dividends and certain interest income earned by each of the International Funds
from foreign securities may be subject to foreign withholding taxes or other
taxes. So long as more than 50% of the value of a Fund's total assets at the
close of any taxable year consists of stock or securities of foreign
corporations, such Fund may elect, for federal income tax purposes, to treat
certain foreign taxes paid by it, including generally any withholding taxes and
other foreign income taxes, as paid by its shareholders. It is possible that
each of the
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International Funds will make this election in certain years. The remaining
Funds do not expect to be eligible to make this election. If a Fund makes the
election, the amount of such foreign taxes paid by the Fund will be included in
its shareholders' income pro rata (in addition to taxable distributions actually
received by them) and shareholders whose income from the Fund is subject to U.S.
taxation at the graduated rates applicable to U.S. citizens, residents or
domestic corporations may be able to claim a foreign tax credit or deduction
(but not both). A shareholder's ability to claim a foreign tax credit or
deduction in respect of foreign taxes paid by such Fund may be subject to
certain limitations imposed by the Code, as a result of which a shareholder may
not get a full credit or deduction for the amount of such taxes. Shareholders
who do not itemize on their federal income tax returns may claim a credit (but
no deduction) for such foreign taxes.
Each of the International Funds' transactions in foreign currencies and hedging
activities may give rise to ordinary income or loss to the extent such income or
loss results from fluctuations in value of the foreign currency concerned. In
addition, such activities will likely produce a difference between book income
and taxable income. This difference may cause a portion of each such Fund's
distributions to constitute a return of capital for tax purposes or require such
Fund to make distributions exceeding book income to qualify as a regulated
investment company for tax purposes.
Investment by each of the International Funds in "passive foreign investment
companies" could subject such Funds to a U.S. federal income tax or other charge
on distributions received from the company or on the proceeds from the sale of
its investment in such a company; however, this tax can be avoided by making an
election to mark such investments to market annually or to treat the passive
foreign investment company as a "qualified electing fund." The mark-to-market
and qualified electing fund elections may have the effect of accelerating the
recognition of income (without the receipt for cash) and increasing the amount
required to be distributed for the Fund to avoid taxation. Making either of
these elections therefore may require a Fund to liquidate other investments
(including when it is not advantageous to do so) to meet its distribution
requirement.
A "passive foreign investment company" is any foreign corporation (i) 75% or
more of the income of which for the taxable year is passive income or (ii) at
least 50% of the assets of which (generally by value, but by adjusted tax basis
in certain cases), on average, produce or are held for the production of passive
income. Generally, passive income for this purpose means dividends, interest
(including income equivalent to interest), royalties, rents, annuities, the
excess of gains over losses from certain property transactions and commodities
transactions, and foreign currency gains. Passive income for this purpose does
not include rents and royalties received by the foreign corporation from active
business and certain income received from related persons.
The foregoing is a general and abbreviated summary of the applicable provisions
of the Code and regulations currently in effect. For the complete provisions,
reference should be made to the pertinent Code sections and regulations. The
Code and regulations are subject to change by legislative or administrative
action.
Dividends and distributions also may be subject to state, local and foreign
taxes. Shareholders are urged to consult their tax advisers regarding specific
questions as to federal, state, local and foreign taxes.
The foregoing discussion relates solely to U.S. federal income tax law. Non-U.S.
investors should consult their tax advisers concerning the tax consequences of
ownership of shares of a Fund, including the possibility that distributions may
be subject to a 30% U.S. withholding tax (or a reduced rate of withholding
provided by treaty).
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A Fund is generally required to withhold and remit to the U.S. Treasury 31% of
the taxable dividends and other distributions paid to any shareholder who fails
to furnish the Fund with a correct taxpayer identification number (TIN), who has
under-reported dividends or interest income, or who fails to certify to the Fund
that he or she is not subject to such withholding.
The Internal Revenue Service recently revised its regulations affecting the
application to foreign investors of the back-up withholding and withholding tax
rules discussed above. The new regulations will generally be effective for
payments made after December 31, 2000. In some circumstances, the new rules will
increase the certification and filing requirements imposed on foreign investors
in order to qualify for exemption from the 31% back-up withholding tax and for
reduced withholding tax rates under income tax treaties. Foreign investors in a
Fund should consult their tax advisers with respect to the potential application
of these new regulations.
CALCULATION OF TOTAL RETURN
Quotations of average annual total return for a Fund will be expressed in terms
of the average annual compounded rate of return of a hypothetical investment in
the Fund or class for periods of one, five, and ten years (or for such shorter
periods as shares of the Fund or class have been offered), calculated pursuant
to the following formula: P (1 + T) [n exponent]= ERV (where P = a hypothetical
initial payment of $1,000, T = the average annual total return, n = the number
of years, and ERV = the ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the period). Except as noted below, all total return
figures reflect the deduction of a proportional share of Fund expenses on an
annual basis, and assume that (i) the maximum sales load (or other charges
deducted from payments) is deducted from the initial $1,000 payment, (ii) any
deferred sales load will be deducted at the times, in the amounts and under the
terms disclosed in the Prospectus and (iii) all dividends and distributions are
reinvested at net asset value on the reinvestment dates during the period. The
ending redeemable value is also determined by assuming a complete redemption at
the end of the relevant periods and the deduction at the end of such periods of
all non-recurring charges that would be imposed by the relevant fund. Quotations
of total return may also be shown for other periods and without the deduction of
front-end or contingent deferred sales charges. Aggregate total return may also
be shown and is calculated in a similar manner, except that the results are not
annualized. A Fund may also, with respect to certain periods of less than one
year, provide total return information for that period that is unannualized. Any
such information would be accompanied by standardized total return information.
Quotations of investment performance for any period when an expense limitation
was in effect will be greater than if the limitation had not been in effect.
The table below sets forth the average annual total return of the Institutional
Class shares, Investor Class shares and Class C shares of each Fund for the time
periods listed below, each ending on August 31, 2000:
INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
ONE YEAR SINCE INCEPTION INCEPTION DATE
-------- --------------- --------------
<S> <C> <C> <C>
Behavioral Growth Fund 42.19% 39.57% 12/31/97
Behavioral Value Fund 34.63% 34.57% 12/28/98
Behavioral Long/Short Fund (3.03)% (1.29)% 12/28/98
Special Small Cap Fund 9.82% 4.59% 12/30/97
REIT Fund 17.18% 2.78% 1/1/98
Small Cap Value Fund 12.08% 7.76% 12/30/97
</TABLE>
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<TABLE>
<CAPTION>
ONE YEAR SINCE INCEPTION INCEPTION DATE
-------- --------------- --------------
<S> <C> <C> <C>
Hidden Value Fund 5.99% 2.81% 12/31/97
Core Equity Fund (2.67)% 7.10% 12/31/97
Small Cap Growth Fund -- -- 10/02/00
International Equity Fund 26.98% 23.69% 12/30/98
International Small Cap Equity Fund 55.13% 46.76% 12/30/98
</TABLE>
INVESTOR CLASS
<TABLE>
<CAPTION>
ONE YEAR SINCE INCEPTION INCEPTION DATE
-------- --------------- --------------
<S> <C> <C> <C>
Behavioral Growth Fund 41.76% 41.08% 7/31/98
Behavioral Value Fund -- -- 12/28/00
REIT Fund 16.77% 19.29% 3/24/99
Small Cap Value Fund 11.65% 5.93% 7/31/98
Hidden Value Fund(1) 5.71% 5.07% 7/31/98
Core Equity Fund(2) (3.02)% 0.59% 7/31/98
Small Cap Growth Fund -- -- 12/28/00
International Equity Fund -- -- 12/28/00
</TABLE>
----------
(1) The Hidden Value Fund ceased offering Investor Class shares on December 27,
2000.
(2) The Core Equity Fund ceased offering Investor Class shares on December 13,
2000.
CLASS C
<TABLE>
<CAPTION>
ONE YEAR SINCE INCEPTION INCEPTION DATE
-------- --------------- --------------
<S> <C> <C> <C>
Behavioral Growth Fund 37.95% 43.67% 6/21/99
REIT Fund 13.74% 14.64% 8/3/99
Small Cap Value Fund 8.69% 6.75% 6/21/99
Core Equity Fund (5.51%) (3.58%) 8/31/99
International Equity Fund -- 23.87% 9/27/99
</TABLE>
PERFORMANCE COMPARISONS
TOTAL RETURN. Each Fund may from time to time include its total return
information in advertisements or in information furnished to present or
prospective shareholders. Each Fund may from time to time also include in
advertisements or information furnished to present or prospective shareholders
(i) the ranking of performance figures relative to such figures for groups of
mutual funds categorized by Lipper Analytical Services, Inc. or Micropal, Inc.
as having similar investment objectives, (ii) the rating assigned to the Fund by
Morningstar, Inc. based on the Fund's risk-adjusted performance relative to
other mutual funds in its broad investment class, and/or (iii) the ranking of
performance figures relative to such figures for mutual funds in its general
investment category as determined by CDA/Weisenberger's Management Results.
LIPPER ANALYTICAL SERVICES, INC. ("Lipper") distributes mutual fund rankings
monthly. The rankings are based on total return performance calculated by
Lipper, generally reflecting changes in net asset value adjusted for
reinvestment of capital gains and income dividends. The rankings do not reflect
deduction of any
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<PAGE> 174
sales charges. Lipper rankings cover a variety of performance periods, including
year-to-date, 1-year, 5-year, and 10-year performance. Lipper classifies mutual
funds by investment objective and asset category.
MICROPAL, INC. ("Micropal") distributes mutual fund rankings weekly and monthly.
The rankings are based upon performance calculated by Micropal, generally
reflecting changes in net asset value that can be adjusted for the reinvestment
of capital gains and dividends. If deemed appropriate by the user, performance
can also reflect deductions for sales charges. Micropal rankings cover a variety
of performance periods, including year-to-date, 1-year, 5-year and 10-year
performance. Micropal classifies mutual funds by investment objective and asset
category.
MORNINGSTAR, INC. ("Morningstar") distributes mutual fund ratings twice a month.
The ratings are divided into five groups: highest, above average, neutral, below
average and lowest. They represent a fund's historical risk/reward ratio
relative to other funds in its broad investment class as determined by
Morningstar. Morningstar ratings cover a variety of performance periods,
including 3-year, 5-year, 10-year and overall performance. The performance
factor for the overall rating is a weighted-average return performance (if
available) reflecting deduction of expenses and sales charges. Performance is
adjusted using quantitative techniques to reflect the risk profile of the fund.
The ratings are derived from a purely quantitative system that does not utilize
the subjective criteria customarily employed by rating agencies such as Standard
& Poor's and Moody's Investors Service, Inc.
CDA/WIESENBERGER'S MANAGEMENT RESULTS ("Wiesenberger") publishes mutual fund
rankings and is distributed monthly. The rankings are based entirely on total
return calculated by Wiesenberger for periods such as year-to-date, 1-year,
3-year, 5-year and 10-year. Mutual funds are ranked in general categories (e.g.,
international bond, international equity, municipal bond, and maximum capital
gain). Wiesenberger rankings do not reflect deduction of sales charges or fees.
As is discussed in greater detail below, performance information may also be
used to compare the performance of the Funds to certain widely acknowledged
standards or indices for stock market performance, such as those listed below.
CONSUMER PRICE INDEX. The Consumer Price Index, published by the U.S. Bureau of
Labor Statistics, is a statistical measure of changes, over time, in the prices
of goods and services in major expenditure groups.
DOW JONES INDUSTRIAL AVERAGE. The Dow Jones Industrial Average is a market
value-weighted and unmanaged index of 30 large industrial stocks traded on the
NYSE.
MORGAN STANLEY REIT INDEX. The Morgan Stanley REIT Index is a market
capitalization weighted total return index of 129 REITs which exceed certain
minimum liquidity criteria concerning market capitalization, shares outstanding,
trading volume and per share market price.
MSCI EAFE INDEX. The MSCI EAFE Index contains over 1000 stocks from 20 different
countries with Japan (approximately 50%), United Kingdom, France and Germany
being the most heavily weighted.
MSCI EAFE EX-JAPAN INDEX. The MSCI EAFE ex-Japan Index consists of all stocks
contained in the MSCI-EAFE Index, other than stocks from Japan.
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<PAGE> 175
MSCI EAFE SMALL CAP INDEX. The MSCI EAFE Small Cap Index contains over 1200
stocks of companies that (i) have market capitalizations of between $200 million
and $800 million and (ii) are from any of 20 different countries with Japan,
United Kingdom, France and Germany being the most heavily weighted.
NAREIT EQUITY INDEX. The NAREIT Equity Index consists of all tax-qualified
equity REITs listed on the NYSE, American Stock Exchange and NASDAQ National
Market System.
RUSSELL MIDCAP INDEX. The Russell Midcap Index is comprised of the 800 smallest
of the 1000 largest U.S.-domiciled companies, ranked by market capitalization.
RUSSELL MIDCAP VALUE INDEX. The Russell Midcap Value Index is comprised of those
companies within the 800 smallest of the 1000 largest U.S.-domiciled companies,
with lower price-to-book ratios and lower forecasted growth values.
RUSSELL 1000 INDEX. The Russell 1000 Index is comprised of the 1000 largest
U.S.-domiciled companies, ranked by market capitalization.
RUSSELL 1000 VALUE INDEX. The Russell 1000 Value Index is comprised of those
companies within the 1000 largest U.S.-domiciled companies with lower
price-to-book ratios and lower forecasted growth values.
RUSSELL 2000 INDEX. The Russell 2000 Index is comprised of the 2000 smallest of
the 3000 largest U.S.-domiciled companies, ranked by market capitalization.
RUSSELL 2000 VALUE INDEX. The Russell 2000 Value Index is comprised of those
companies within the 2000 smallest of the 3000 largest U.S.-domiciled companies
with lower price-to-book ratios and lower forecasted growth values.
RUSSELL 2500 INDEX. The Russell 2500 Index is comprised of the 2500 smallest of
the 3000 largest U.S.-domiciled companies, ranked by market capitalization.
RUSSELL 2500 GROWTH INDEX. The Russell 2500 Growth Index is comprised of those
companies within the 2500 smallest of the 3000 largest U.S.-domiciled companies
with higher price-to-book ratios and higher forecasted growth values.
SALOMON BROTHERS 3-MONTH TREASURY BILL INDEX. The Salomon Brothers 3-Month
Treasury Bill Index is used as a proxy for the risk-free total return available
to investors. The returns are the U.S. close quotes, constant maturity Treasury
Bill rates taken from Micropal.
STANDARD & POOR'S/BARRA GROWTH INDEX. The Standard & Poor's/Barra Growth Index
is constructed by ranking the securities in the S&P 500 by price-to-book ratio
and including the securities with the highest price-to-book ratios that
represent approximately half of the market capitalization of the S&P 500.
STANDARD & POOR'S/BARRA VALUE INDEX. The Standard & Poor's/Barra Value Index is
constructed by ranking the securities in the S&P 500 by price-to-book ratio and
including the securities with the lowest price-to-book ratios that represent
approximately half of the market capitalization of the S&P 500.
STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX (the "S&P 500"). The S&P 500
is a market value-weighted and unmanaged index showing the changes in the
aggregate market value of 500 stocks relative to the base period 1941-43. The
S&P 500 is composed almost entirely of common stocks of companies listed on the
NYSE, although the common stocks of a few companies listed on the American Stock
Exchange or traded over-the-counter are included. The 500 companies represented
include 400 industrial, 60 transportation and 40 financial services concerns.
The S&P 500 represents about 80% of the market value of all issues traded on the
NYSE. The S&P 500 is the most common index for the overall U.S. stock market.
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<PAGE> 176
3-MONTH U.S. TREASURY BILLS. 3-month U.S. Treasury bills are direct obligations
of the United States Treasury which are issued with a three month maturity. No
interest is paid on Treasury bills; instead, they are issued at a discount and
repaid at full face value when they mature. They are backed by the full faith
and credit of the United States Government.
WILSHIRE REAL ESTATE SECURITIES INDEX. The Wilshire Real Estate Securities Index
is a market capitalization weighted index of publicly traded real estate
securities (such as REITs, real estate operating companies and partnerships)
which satisfy certain minimum requirements in book value, market capitalization,
percentage of revenue generated from ownership and operation of real estate
assets and liquidity.
Performance information about the Funds will be provided in the Funds' annual
reports to shareholders, which will be available upon request and without
charge. In addition, from time to time, articles about the Funds regarding
performance, rankings and other characteristics of the Funds may appear in
publications including, but not limited to, the publications included in
Appendix A. In particular, the performance of the Funds may be compared in some
or all of these publications to the performance of various indices and
investments for which reliable performance data is available and to averages,
performance rankings, or other information prepared by recognized mutual fund
statistical services. Such publications may also publish their own rankings or
performance reviews of mutual funds, including the Funds. References to or
reprints of such articles may be used in the Funds' promotional literature.
References to articles regarding personnel of the sub-advisers who have
portfolio management responsibility may also be used in the Funds' promotional
literature. For additional information about the Funds' advertising and
promotional literature, see Appendix B.
FINANCIAL STATEMENTS
The Trust's audited financial statements and accompanying notes for the fiscal
year ended August 31, 2000, included in the Trust's Annual Report to
Shareholders and the report of Deloitte & Touche LLP, independent auditors,
appearing in such Annual Report, are hereby incorporated by reference in this
SAI and are so incorporated by reference in reliance upon the authority of
Deloitte & Touche LLP as experts in accounting and auditing. A copy of the
Trust's Annual Report to Shareholders is available without charge upon request
from Undiscovered Managers, LLC, Plaza of the Americas, 700 North Pearl Street,
Suite 1700, Dallas, Texas 75201 or by calling toll free 1-888-242-3514.
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<PAGE> 177
APPENDIX A
PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION
ABC and affiliates
Adam Smith's Money World
America On Line
Anchorage Daily News
Atlanta Journal-Constitution
Arizona Republic
Austin American Statesman
Baltimore Sun
Bank Investment Marketing
Barron's
Bergen County Record (NJ)
Bloomberg Business News
Bloomberg Wealth Manager
Bond Buyer
Boston Business Journal
Boston Globe
Boston Herald
Broker World
Business Radio Network
Business Week
CBS and affiliates
CDA Investment Technologies
CFO
Changing Times
Chicago Sun Times
Chicago Tribune
Christian Science Monitor
Christian Science Monitor News Service
Cincinnati Enquirer
Cincinnati Post
CNBC
CNN
Columbus Dispatch
CompuServe
Dallas Business Journal
Dallas Morning News
Denver Post
Des Moines Register
Detroit Free Press
Donoghues Money Fund Report
Dorman, Dan (syndicated column)
Dow Jones News Service
Economist
FACS of the Week
Fee Adviser
Financial News Network
Financial Planning
Financial Planning on Wall Street
Financial Research Corp.
Financial Services Week
Financial World
Fitch Insights
Forbes
Fort Lauderdale Sun Sentinel
Fort Worth Star-Telegram
Fortune
Fox Network and affiliates
Fund Action
Fund Decoder
Global Finance
(The) Guarantor
Hartford Courant
Houston Chronicle
INC
Indianapolis Star
Individual Investor
Institutional Investor
International Herald Tribune
Internet
Investment Advisor
Investment Company Institute
Investment Dealers Digest
Investment Profiles
Investment Vision
Investor's Business Daily
IRA Reporter
Journal of Commerce
Kansas City Star
KCMO (Kansas City)
KOA-AM (Denver)
LA Times
Leckey, Andrew (syndicated column)
Lear's
Life Association News
Lifetime Channel
Miami Herald
Milwaukee Sentinel
Money Magazine
Money Maker
Money Management Letter
Morningstar
Mutual Fund Market News
Mutual Funds Magazine
National Public Radio
A-1
<PAGE> 178
National Underwriter
NBC and affiliates
New England Business
New England Cable News
New Orleans Times-Picayune
New York Daily News
New York Times
Newark Star Ledger
Newsday
Newsweek
Nightly Business Report
Orange County Register
Orlando Sentinel
Palm Beach Post
Pension World
Pensions and Investments
Personal Investor
Philadelphia Inquirer
Porter, Sylvia (syndicated column)
Portland Oregonian
Prodigy
Public Broadcasting Service
Quinn, Jane Bryant (syndicated column)
Registered Representative
Research Magazine
Resource
Reuters
Rocky Mountain News
Rukeyser's Business (syndicated column)
Sacramento Bee
San Diego Tribune
San Francisco Chronicle
San Francisco Examiner
San Jose Mercury News
Seattle Post-Intelligencer
Seattle Times
Securities Industry Management
Smart Money
St. Louis Post Dispatch
St. Petersburg Times
Standard & Poor's Outlook
Standard & Poor's Stock Guide
Stanger's Investment Advisor
Stockbroker's Register
Strategic Insight
Tampa Tribune
Time
Tobias, Andrew (syndicated column)
Toledo Blade
UPI
US News and World Report
USA Today
USA TV Network
Value Line
Wall Street Journal
Wall Street Letter
Wall Street Week
Washington Post
WBZ
WBZ-TV
WCVB-TV
WEEI
WHDH
Worcester Telegram
World Wide Web
Worth Magazine
WRKO
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<PAGE> 179
APPENDIX B
ADVERTISING AND PROMOTIONAL LITERATURE
Undiscovered Managers Funds' advertising and promotional material may include,
but is not limited to, discussions of the following information:
o Undiscovered Managers Funds' participation in wrap fee and no
transaction fee programs
o Characteristics of the various sub-advisers, including the locations of
offices, investment practices and clients
o Specific and general investment philosophies, strategies, processes and
techniques
o Specific and general sources of information, economic models, forecasts
and data services utilized, consulted or considered in the course of
providing advisory or other services
o Industry conferences at which the various sub-advisers participate
o Current capitalization, levels of profitability and other financial
information
o Identification of portfolio managers, researchers, economists,
principals and other staff members and employees
o The specific credentials of the above individuals, including but not
limited to, previous employment, current and past positions, titles and
duties performed, industry experience, educational background and
degrees, awards and honors
o Specific identification of, and general reference to, current
individual, corporate and institutional clients, including pension and
profit sharing plans
o Current and historical statistics relating to:
-- total dollar amount of assets managed
-- Undiscovered Managers Funds' assets managed in total and by
series
-- the growth of assets
-- asset types managed
References may be included in Undiscovered Managers Funds' advertising and
promotional literature about 401(k) and retirement plans that offer the Trust's
series. The information may include, but is not limited to:
o Specific and general references to industry statistics regarding 401(k)
and retirement plans including historical information and industry
trends and forecasts regarding the growth of assets, numbers or plans,
funding vehicles, participants, sponsors and other demographic data
relating to plans, participants and sponsors, third party and other
administrators, benefits consultants and firms with whom Undiscovered
Managers Funds may or may not have a relationship.
o Specific and general reference to comparative ratings, rankings and
other forms of evaluation as well as statistics regarding the Trust's
series as 401(k) or retirement plan funding vehicles produced by
industry authorities, research organizations and publications.
B-1
<PAGE> 180
[UNDISCOVERED MANAGERS(TM) LOGO]
STATEMENT OF ADDITIONAL INFORMATION
December 28, 2000
for
UM BEHAVIORAL LARGE CAP FUND
UM MERGER & ACQUISITION FUND
Each a Series of
UNDISCOVERED MANAGERS FUNDS
This Statement of Additional Information ("SAI") is not a prospectus but
contains information that may be useful to investors that is not included in the
relevant Prospectus. This SAI relates to the Undiscovered Managers Funds'
Institutional Class Prospectus dated December 28, 2000, of the series of
Undiscovered Managers Funds listed above (the "Funds" and each a "Fund"), and is
only authorized for distribution when accompanied or preceded by such
Prospectus. This SAI should be read together with the aforementioned Prospectus.
A free copy of the aforementioned Prospectus may be obtained by calling
1-888-242-3514 or by sending a request to Undiscovered Managers Funds, Plaza of
the Americas, 700 North Pearl Street, Suite 1700, Dallas, Texas 75201.
<PAGE> 181
TABLE OF CONTENTS
<TABLE>
<S> <C>
Organization and Classification...................................................................................3
Investment Objectives, Policies and Restrictions..................................................................3
Additional Description of Investments, Investment Practices and Risks.............................................5
Management of the Trust...........................................................................................6
Ownership of Shares of the Funds..................................................................................8
Investment Advisory and Other Services............................................................................8
Portfolio Transactions and Brokerage.............................................................................12
Description of the Trust.........................................................................................13
Additional Purchase and Redemption Information...................................................................15
Net Asset Value..................................................................................................19
Income Dividends, Capital Gain Distributions and Tax Status......................................................20
Calculation of Total Return......................................................................................22
Performance Comparisons..........................................................................................23
Appendix A--Publications That May Contain Fund Information......................................................A-1
Appendix B--Advertising and Promotional Literature..............................................................B-1
</TABLE>
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<PAGE> 182
ORGANIZATION AND CLASSIFICATION
Undiscovered Managers Funds (the "Trust") is an open-end management investment
company organized under the laws of Massachusetts as a Massachusetts business
trust by an Agreement and Declaration of Trust dated September 29, 1997 (as
amended, the "Declaration of Trust"). Each Fund is a series of the Trust. The
Trust is authorized to issue an unlimited number of full and fractional shares
of beneficial interest in multiple series. The Trustees of the Trust may,
without shareholder approval, divide the shares of any series into multiple
classes of shares having such preferences and special or relative rights and
privileges as the Trustees of the Trust determine.
Each Fund is a "diversified" fund, as defined in the Investment Company Act of
1940 (the "1940 Act"). With respect to 75% of its assets, a diversified fund may
not invest more than 5% of its total assets in the securities of any one issuer
(except U.S. government securities) while the remaining 25% of its total assets
are not subject to such restriction.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
The investment objective and policies of each Fund are summarized in the
Prospectus under "The Funds." The investment policies of each Fund set forth in
the Prospectus and in this SAI may be changed by the Fund's adviser, subject to
review and approval by the Trust's Board of Trustees, without shareholder
approval except that any Fund policy explicitly identified as "fundamental" may
not be changed without the approval of the holders of a majority of the
outstanding shares of the Fund (which in the Prospectus and this SAI means the
lesser of (i) 67% of the shares of the Fund represented at a meeting at which at
least 50% of the outstanding shares are represented or (ii) more than 50% of the
outstanding shares).
INVESTMENT RESTRICTIONS--UM BEHAVIORAL LARGE CAP FUND AND UM MERGER &
ACQUISITION FUND.
The following investment restrictions are fundamental policies of UM Behavioral
Large Cap Fund (the "Behavioral Large Cap Fund") and UM Merger & Acquisition
Fund (the "Merger & Acquisition Fund").
Each Fund will not:
1. Borrow money in excess of 33 1/3% of the value of its total assets (not
including the amount borrowed) at the time the borrowing is made.
2. Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments,
it may be deemed to be an underwriter under certain federal securities
laws.
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<PAGE> 183
3. Purchase or sell real estate, although it may purchase securities of
issuers which deal in real estate, securities which are secured by
interests in real estate, and securities which represent interests in
real estate, and it may acquire and dispose of real estate or interests
in real estate acquired through the exercise of its rights as a holder
of debt obligations secured by real estate or interests therein.
4. Purchase or sell commodities or commodity contracts, except that the
Fund may purchase and sell financial futures contracts and options, and
may enter into swap agreements, foreign exchange contracts and other
financial transactions not involving physical commodities.
5. Make loans, except by purchase of debt obligations in which the Fund
may invest consistent with its investment policies, by entering into
repurchase agreements, or by lending its portfolio securities.
6. Purchase securities (other than securities of the U.S. government, its
agencies or instrumentalities) if, as a result of such purchase, more
than 25% of the Fund's total assets would be invested in any one
industry.
7. Issue any class of securities which is senior to the Fund's shares of
beneficial interest, except for permitted borrowings.
Although the Funds are permitted to borrow money to a limited extent, no Fund
currently intends to do so.
In addition to the foregoing fundamental investment restrictions, it is contrary
to each Fund's present policy, which may be changed without shareholder
approval, to:
Invest in (a) securities which at the time of such investment are not readily
marketable, (b) securities restricted as to resale (excluding securities
determined by the Trustees of the Trust (or the person designated by the
Trustees to make such determinations) to be readily marketable), and (c)
repurchase agreements maturing in more than seven days, if, as a result, more
than 15% of the Fund's net assets (taken at current value) would be invested in
securities described in (a), (b) and (c) above.
All percentage limitations on investments will apply at the time of the making
of an investment (except for the non-fundamental restriction set forth in the
immediately preceding paragraph) and shall not be considered violated unless an
excess or deficiency occurs or exists immediately after and as a result of such
investment.
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<PAGE> 184
ADDITIONAL DESCRIPTION OF INVESTMENTS,
INVESTMENT PRACTICES AND RISKS
The following is an additional description of certain investments, investment
practices and risks of certain of the Funds.
REPURCHASE AGREEMENTS
Any assets of the Funds not invested in common stocks or other equity securities
will generally be held in the form of cash or in repurchase agreements. Under a
repurchase agreement, a Fund buys securities from a seller, usually a bank or
brokerage firm, with the understanding that the seller will repurchase the
securities at a higher price at a later date. If the seller fails to repurchase
the securities, the Fund has rights to sell the securities to third parties.
Repurchase agreements can be regarded as loans by the Fund to the seller,
collateralized by the securities that are the subject of the agreement.
Repurchase agreements afford an opportunity for the Fund to earn a return on
available cash at relatively low credit risk, although the Fund may be subject
to various delays and risks of loss if the seller fails to meet its obligation
to repurchase. The staff of the Securities and Exchange Commission is currently
of the view that repurchase agreements maturing in more than seven days are
illiquid securities.
LOANS OF SECURITIES
The Funds may lend their portfolio securities, provided that cash or equivalent
collateral equal to at least 100% of the market value of the securities loaned
is continuously maintained by the borrower with the Funds. During the time
securities are on loan, the borrower will pay the Fund an amount equivalent to
any dividends or interest paid on such securities, and the Fund may invest the
cash collateral and earn additional income, or it may receive an agreed upon
amount of interest income from the borrower who has delivered equivalent
collateral. These loans are subject to termination at the option of the Fund or
the borrower. A Fund may pay reasonable administrative and custodial fees in
connection with a loan and may pay a negotiated portion of the interest earned
on the cash or equivalent collateral to the borrower or placing broker. It is
not currently anticipated that either Fund will have on loan at any given time
securities totaling more than one-third of its net assets. A Fund runs the risk
that the counterparty to a loan transaction will default on its obligation and
that the value of the collateral received may be insufficient to cover the
securities loaned as a result of an increase in the value of the securities or
decline in the value of the collateral.
LEVERAGE
Although it is not the current intention of either of the Funds to engage in
borrowing, each Fund may borrow money provided that the total amount borrowed
and outstanding at the time the borrowing is made does not exceed 33 1/3% of the
value of such Fund's total assets (not including the amount borrowed). The use
of leverage through borrowing creates an opportunity for increased net income,
but, at the same time, creates special risks. There can be no assurance that a
leveraging strategy will be successful during any period in which it is
employed. The intent of using leverage would be to provide the holders of a
Fund's shares with a potentially higher return. Leverage creates risks for a
Fund, including the likelihood of greater volatility of the net asset value and
market price of the Fund's shares. To the extent the income derived from
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<PAGE> 185
securities purchased with funds received from leverage exceeds the cost of
leverage, a Fund's return will be greater than if leverage had not been used.
Conversely, if the income from the securities purchased with such funds is not
sufficient to cover the cost of leverage, the return to a Fund will be less than
if leverage had not been used, and therefore the amounts available for
distribution to such Fund's shareholders as dividends and other distributions
will be reduced or eliminated. In the latter case, a Fund's sub-adviser in its
best judgment nevertheless may determine to maintain the Fund's leveraged
position if it deems such action to be appropriate under the circumstances.
During periods in which a Fund is using leverage, the fees paid by such Fund to
Undiscovered Managers, LLC ("Undiscovered Managers"), for investment advisory
and administrative services will be higher than if the Fund did not use leverage
because the fees paid will be calculated on the basis of the Fund's total net
assets, including the amount borrowed.
MANAGEMENT OF THE TRUST
The Trustees of the Trust are responsible for generally overseeing the conduct
of the Trust's business. Subject to such policies as the Trustees of the Trust
may determine, Undiscovered Managers, the Funds' investment adviser, has
responsibility for the management of the Funds' affairs. Each Fund's investment
portfolio is managed on a day-to-day basis by that Fund's sub-adviser, under the
general oversight of Undiscovered Managers and the Trustees of the Trust.
The Trustees and officers of the Trust, their ages, addresses and principal
occupations during the past five years are as follows:
*MARK P. HURLEY (42)--Trustee and President. President and Chief Executive
Officer of Undiscovered Managers since September, 1997; formerly Managing
Director of Merrill Lynch & Company from February, 1996 to January, 1997;
formerly Vice President of Goldman, Sachs & Co. from August, 1992 to February,
1996.
ROGER B. KEATING (39)--Trustee. 22000 AOL Way - 46A:A01, Dulles, Virginia 20166;
Senior Vice President of America On Line since December, 2000; President and
Chief Executive Officer of Zatso (formerly known as ReacTV), an online news
broadcasting firm, from March, 1998 to November, 2000; Senior Vice President of
Online Division of Comcast Cable Communications from May, 1996 to March, 1998;
Area Vice President and General Manager of West Florida area of Comcast Cable
Communications from August, 1993 to May, 1996.
MATTHEW J. KILEY (38)--Trustee. 849 Foxfield Road, Lower Gwynedd, Pennsylvania
19002; self-employed; formerly Executive Vice President of Campus Services at
ARAMARK from May, 1998 to October, 1999 and Executive Vice President of Sports
and Entertainment and Vice President of Global Food and Support Services at
ARAMARK Corp. from September, 1996 to May, 1998; formerly Manager at McKinsey &
Company from January, 1990 to September, 1996.
ROBERT P. SCHMERMUND (45)--Trustee. 900 19th Street, N.W., Suite 400,
Washington, D.C. 20006; Communications Director of America's Community Bankers
since January, 1993.
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<PAGE> 186
BRIAN J. O'NEILL (32)--Treasurer. 3200 Horizon Drive, King of Prussia,
Pennsylvania 19406; Director of Financial Reporting Department for PFPC Inc.,
since June, 1994.
PATRICIA L. DUNCAN (38)--Secretary. Vice President-Fund Operations of
Undiscovered Managers since January, 2000; Registered Marketing Administrator of
Undiscovered Managers from December, 1997 to January, 2000; Executive Secretary
at Prentiss Properties Trust from April, 1994 to December, 1997.
----------
* Trustees who are "interested persons" (as defined in the 1940 Act) of the
Trust or of Undiscovered Managers.
The address of each Trustee and officer of the Trust affiliated with
Undiscovered Managers is Plaza of the Americas, 700 North Pearl Street, Dallas,
Texas 75201.
The Trust pays no compensation to any of its officers or to the Trustees listed
above who are officers or employees of Undiscovered Managers. Each Trustee who
is not an officer or employee of Undiscovered Managers is compensated at the
rate of $10,000 per annum. The Trust provides no pension or retirement benefits
to the Trustees but has adopted a deferred payment arrangement under which each
Trustee who is to receive fees from the Trust 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 such fees would have if they had been invested in one or more of the
Funds or the other investment portfolios of the Trust on the normal payment date
for such fees. As a result of this method of calculating the deferred payments,
each Fund, upon making the deferred payments, will be in the same financial
position as if the fees had been paid on the normal payment dates.
The following table sets forth information covering the total compensation paid
(or deferred in lieu of current payment) by the Trust during its fiscal year
ended August 31, 2000 to the persons who served as Trustees during such period:
<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE COMPENSATION FROM TRUST AND
PERSON FROM TRUST FUND COMPLEX*
------ ---------- -------------
<S> <C> <C>
Mark P. Hurley $0 $0
Roger B. Keating $10,000(1) $10,000
Matthew J. Kiley $10,000 $10,000
Robert P. Schmermund $10,000 $10,000
</TABLE>
----------
* No Trustee received any compensation from any mutual fund affiliated
with Undiscovered Managers, other than the Trust.
(1) Roger B. Keating deferred receipt of $10,000 of such compensation
pursuant to the fee deferral arrangements described above.
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<PAGE> 187
OWNERSHIP OF SHARES OF THE FUNDS
As of November 30, 2000, (i) Undiscovered Managers owned of record and
beneficially 100% of the outstanding shares of the Merger & Acquisition Fund,
and as a result, may be deemed to "control" the Fund as that term is defined in
the 1940 Act, and (ii) there were no outstanding shares of the Behavioral Large
Cap Fund. As of such date, the Trustees and officers of the Trust did not own
beneficially any shares of the Funds except for such ownership that may be
attributed to Mark Hurley, a Trustee and the President of the Trust, through
Undiscovered Managers' ownership of shares of the Merger & Acquisition Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER AND SUB-ADVISERS
As described in the Prospectus, Undiscovered Managers is the investment adviser
of each Fund and as such, has responsibility for the management of each Fund's
affairs, under the supervision of the Trust's Board of Trustees. Each Fund's
investment portfolio is managed on a day-to-day basis by that Fund's
sub-adviser, under the general oversight of Undiscovered Managers and the Board
of Trustees. See "The Funds" in the Prospectus. Undiscovered Managers is a
limited liability company organized under the laws of Delaware. Mark P. Hurley
and AMRESCO, Inc., a publicly traded corporation engaged in residential mortgage
banking, commercial mortgage banking, asset management and commercial finance,
each own beneficially more than 25% of the voting securities of Undiscovered
Managers and therefore may be regarded to control Undiscovered Managers for
purposes of the 1940 Act. As disclosed in this SAI under the heading "Management
of the Trust," (i) Mark P. Hurley is a Trustee and the President of the Trust as
well as the President and Chief Executive Officer and a controlling member of
Undiscovered Managers, and (ii) Patricia L. Duncan is the Secretary of the Trust
as well as Vice President-Fund Operations of Undiscovered Managers. Undiscovered
Managers is further affiliated with the Merger & Acquisition Fund through its
ownership as of November 30, 2000, of 100% of the outstanding shares of that
Fund.
Under each Fund's advisory agreement with Undiscovered Managers, Undiscovered
Managers is entitled to fees, payable monthly, of a certain percentage of the
average daily net asset value of such Fund. For a description of such fees, see
"The Funds -- The Funds' Management" in the Prospectus.
As described in the Prospectus, Undiscovered Managers has contractually agreed
to certain arrangements to limit each Fund's expenses. See "Trust Expenses"
below.
Each Fund's investment portfolio is managed on a day-to-day basis by that Fund's
sub-adviser. Each of the sub-advisers is regarded for purposes of the 1940 Act
as being controlled by the following persons, each of whom is a principal of the
firm and owns more than 25% of the voting securities of the firm: Russell J.
Fuller (Fuller & Thaler Asset Management, Inc.); and James L. Kaplan (J.L.
Kaplan Associates, LLC).
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<PAGE> 188
Under each sub-advisory agreement relating to the Funds between Undiscovered
Managers and such Fund's sub-adviser, the sub-adviser is entitled to fees,
payable monthly by Undiscovered Managers out of the fees Undiscovered Managers
receives, of a certain percentage of the average daily net asset value of such
Fund. For a description of such fees, see "The Funds -- The Funds' Management"
in the Prospectus.
Each Fund's advisory agreement and related sub-advisory agreement provides that
it will continue in effect for two years from its date of execution and
thereafter from year to year if its continuance is approved at least annually
(i) by the Board of Trustees of the Trust or by vote of a majority of the
outstanding voting securities of the relevant Fund and (ii) by vote of a
majority of the Trustees who are not "interested persons" of the Trust,
Undiscovered Managers or, in the case of the related sub-advisory agreement, the
relevant sub-adviser, as that term is defined in the 1940 Act, cast in person at
a meeting called for the purpose of voting on such approval. Any amendment to a
Fund's advisory agreement must be approved by vote of a majority of the
outstanding voting securities of the relevant Fund and by vote of a majority of
the Trustees who are not interested persons, cast in person at a meeting called
for the purpose of voting on such approval. Any amendment to a sub-advisory
agreement relating to a Fund must be approved by vote of a majority of the
outstanding voting securities of such Fund and by vote of a majority of the
Trustees who are not interested persons, cast in person at a meeting called for
the purpose of voting on such approval, unless such approvals are no longer
required by law.
Each Fund's advisory agreement may be terminated without penalty by vote of the
Board of Trustees of the Trust or by vote of a majority of the outstanding
securities of the relevant Fund, upon sixty days' written notice, and by
Undiscovered Managers upon ninety days' written notice, and shall automatically
terminate in the event of its assignment. Each Fund's advisory agreement
provides that Undiscovered Managers owns all rights to and control of the names
"Undiscovered Managers" and UM." Each Fund's advisory agreement will
automatically terminate if the Trust or the relevant Fund shall at any time be
required by Undiscovered Managers to eliminate all reference to the words
"Undiscovered Managers" or the letters "UM," as applicable, in the name of the
Trust or the relevant Fund, unless the continuance of the agreement after such
change of name is approved by a majority of the outstanding voting securities of
the relevant Fund and by a majority of the Trustees who are not interested
persons of the Trust or Undiscovered Managers, cast in person at a meeting
called for the purpose of voting on such approval.
Each sub-advisory agreement relating to a Fund may be terminated without penalty
by Undiscovered Managers, by vote of the Board of Trustees or by vote of a
majority of the outstanding voting securities of the relevant Fund, upon sixty
days' written notice, and each terminates automatically in the event of its
assignment and upon termination of the related advisory agreement. The
sub-advisory agreement relating to the Behavioral Large Cap Fund may be
terminated by Fuller & Thaler Asset Management, Inc. in certain circumstances.
Each Fund's advisory agreement and related sub-advisory agreement provides that
Undiscovered Managers or the applicable sub-adviser shall not be subject to any
liability in connection with the performance of its services thereunder in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties.
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<PAGE> 189
The Trust has applied for an exemptive order from the Securities and Exchange
Commission to permit Undiscovered Managers, subject to the approval of the
Trust's Board of Trustees and certain other conditions, to enter into
sub-advisory agreements with sub-advisers other than the current sub-adviser of
either Fund or of any other investment portfolio of the Trust and amend
sub-advisory agreements with sub-advisers without obtaining shareholder
approval. See "The Funds -- The Funds' Management" in the Prospectus.
TRUST EXPENSES
The Trust pays the compensation of its Trustees who are not officers or
employees of Undiscovered Managers; registration, filing and other fees in
connection with requirements of regulatory authorities; all charges and expenses
of its custodian and transfer agent; the charges and expenses of its independent
accountants; all brokerage commissions and transfer taxes in connection with
portfolio transactions; all taxes and fees payable to governmental agencies; the
cost of any certificates representing shares of the Funds or the other
investment portfolios of the Trust; the expenses of meetings of the shareholders
and Trustees of the Trust; the charges and expenses of the Trust's legal
counsel; interest on any borrowings by the Funds or the other investment
portfolios of the Trust; the cost of services, including services of counsel,
required in connection with the preparation of, and the cost of printing, the
Trust's registration statements and prospectuses, including amendments and
revisions thereto, annual, semiannual and other periodic reports of the Trust,
and notices and proxy solicitation material furnished to shareholders or
regulatory authorities, to the extent that any such materials relate to the
Trust or its shareholders; and the Trust's expenses of bookkeeping, accounting,
auditing and financial reporting, including related clerical expenses.
As described in the Prospectus, Undiscovered Managers has contractually agreed
to reduce its management fees and pay the expenses of each Fund's shares in
order to limit such Funds' expenses (exclusive of brokerage costs, interest,
taxes and extraordinary expenses) to the following annual percentage rates of
their respective average daily net assets, subject to the obligation of each
Fund to repay Undiscovered Managers such Fund's deferred fees and expenses in
future years, if any, when such Fund's expenses (exclusive of brokerage costs,
interest, taxes and extraordinary expenses) fall below the stated percentage
rate, but only to the extent that such repayment would not cause such Fund's
expenses (exclusive of brokerage costs, interest, taxes and extraordinary
expenses) in any such future year to exceed the stated percentage rate, and
provided that such Fund is not obligated to repay any such deferred fees and
expenses more than three years after the end of the fiscal year in which they
were incurred:
<TABLE>
<CAPTION>
FUND EXPENSE LIMITATIONS
---- -------------------
<S> <C>
Behavioral Large Cap Fund 0.99%
Merger & Acquisition Fund 1.30%
</TABLE>
These agreements have a term ending on December 31, 2001 and are renewable year
to year thereafter.
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<PAGE> 190
ADMINISTRATOR
Pursuant to an Administrative Services Agreement between the Trust and
Undiscovered Managers, Undiscovered Managers has agreed to provide all
administrative services to the Funds, including but not limited to corporate
secretarial, treasury, blue sky and fund accounting services. For these
services, each Fund pays Undiscovered Managers a monthly fee at the annual rate
of 0.25% of such Fund's average net asset value.
Undiscovered Managers has entered into an agreement with PFPC Inc. to provide
certain of the foregoing administrative services, at the expense of Undiscovered
Managers.
DISTRIBUTOR
Until January 2, 2001, the Funds' shares will be sold on a continuous basis by
the Trust's distributor, Provident Distributors, Inc. ("Provident
Distributors"), 3200 Horizon Drive, King of Prussia, Pennsylvania 19406, and
commencing on January 2, 2001, the Funds' shares will be sold on a continuous
basis by the Trust's new distributor, PFPC Distributors, Inc. ("PFPC
Distributors" and collectively with Provident Distributors, the "Distributors"),
3200 Horizon Drive, King of Prussia, Pennsylvania 19406. Under the relevant
Distribution Agreement between the Trust and the Distributor, the Distributor is
not obligated to sell any specific amount of shares of the Trust, but will use
efforts deemed appropriate by it to solicit orders for the sale of the Trust's
shares and to undertake such advertising and promotion as it believes reasonable
in connection with such solicitation.
ADDITIONAL ARRANGEMENTS
CUSTODIAL ARRANGEMENTS. The Bank of New York, One Wall Street, New York, New
York 10286, is the custodian for each Fund. The custodian holds in safekeeping
certificated securities and cash belonging to the Funds and, in such capacity,
is the registered owner of securities held in book entry form belonging to the
Funds. Upon instruction, the custodian receives and delivers cash and securities
of the Funds in connection with Fund transactions and collects all dividends and
other distributions made with respect to Fund portfolio securities. The
custodian also maintains certain accounts and records of the Funds.
INDEPENDENT AUDITORS. The Funds' independent auditors are Deloitte & Touche LLP,
116-300 Village Blvd., Princeton, New Jersey 08540. Deloitte & Touche LLP
conducts an annual audit of the Funds' financial statements, assists in the
preparation of the Funds' federal and state income tax returns and consults with
the Funds as to matters of accounting and federal and state income taxation.
TRANSFER AND DIVIDEND PAYING AGENT. PFPC Inc., 4400 Computer Drive, Westborough,
Massachusetts 01581, is the transfer and dividend paying agent of the Funds.
CODE OF ETHICS
The Trust, Undiscovered Managers, the subadvisers of the Funds and the
Distributors have adopted Codes of Ethics pursuant to the requirements of the
1940 Act. These Codes of Ethics permit
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<PAGE> 191
personnel subject to the Codes to invest in securities, including securities
that may be purchased or held by the Funds.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Transactions on stock exchanges and other agency transactions for the account of
the Funds involve the payment by the Funds of negotiated brokerage commissions.
Such commissions vary among different brokers. A particular broker may charge
different commissions according to such factors as the difficulty and size of
the transaction. There is generally no stated commission in the case of
securities traded in the over-the-counter markets, but the price paid by the
Funds usually includes an undisclosed dealer commission, markup or markdown. In
underwritten offerings, the price paid by the Funds includes a disclosed, fixed
commission or discount retained by the underwriter or dealer.
In addition to selecting portfolio investments for the Fund it manages, each
sub-adviser selects brokers or dealers to execute securities purchases and sales
for the Fund's account. Each sub-adviser selects only brokers or dealers which
it believes are financially responsible, will provide efficient and effective
services in executing, clearing and settling an order and will charge commission
rates which, when combined with the quality of the foregoing services, will
produce best price and execution for the transaction. This does not necessarily
mean that the lowest available brokerage commission will be paid. However, the
commissions are believed to be competitive with generally prevailing rates. Each
sub-adviser uses its best efforts to obtain information as to the general level
of commission rates being charged by the brokerage community from time to time
and evaluates the overall reasonableness of brokerage commissions paid on
transactions by reference to such data. In making such evaluation, all factors
affecting liquidity and execution of the order, as well as the amount of the
capital commitment by the broker in connection with the order, are taken into
account.
A sub-adviser's receipt of research services from brokers may sometimes be a
factor in its selection of a broker that it believes will provide best price and
execution for a transaction. These research services include not only a wide
variety of reports on such matters as economic and political developments,
industries, companies, securities, portfolio strategy, account performance,
daily prices of securities, stock and bond market conditions and projections,
asset allocation and portfolio structure, but also meetings with management
representatives of issuers and with other analysts and specialists. Although it
is in many cases not possible to assign an exact dollar value to these services,
they may, to the extent used, tend to reduce the sub-adviser's expenses. Such
services may be used by a sub-adviser in managing other client accounts and in
some cases may not be used with respect to the Funds. Receipt of services or
products other than research from brokers is not a factor in the selection of
brokers. Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc., and subject to seeking best price and execution,
purchases of shares of a Fund by customers of broker-dealers may be considered
as a factor in the selection of broker-dealers to execute the Fund's securities
transactions.
A sub-adviser may cause a Fund to pay a broker-dealer that provides brokerage
and research services to the sub-adviser an amount of commission for effecting a
securities transaction for that Fund in excess of the amount another
broker-dealer would have charged for effecting that
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<PAGE> 192
transaction. The sub-adviser must determine in good faith that such greater
commission is reasonable in relation to the value of the brokerage and research
services provided by the executing broker-dealer viewed in terms of that
particular transaction or the sub-adviser's overall responsibilities to the Fund
and its other clients. The sub-adviser's authority to cause a Fund to pay
greater commissions is also subject to such policies as the Trustees of the
Trust may adopt from time to time.
Transactions in unlisted securities are carried out through broker-dealers who
make the primary market for such securities unless, in the judgment of each
sub-adviser, a more favorable price can be obtained by carrying out such
transactions through other brokers or dealers.
DESCRIPTION OF THE TRUST
As stated previously, the Trust was organized as a Massachusetts business trust
by the Declaration of Trust dated September 29, 1997. The Declaration of Trust
currently permits the Trustees to issue an unlimited number of full and
fractional shares of each investment portfolio of the Trust (a "series"). The
Funds are two such series. Each share of each Fund represents an equal
proportionate interest in such Fund with each other share of that Fund and is
entitled to a proportionate interest in the dividends and distributions from
that Fund. The shares of each Fund do not have any preemptive rights. Upon
termination of a Fund, whether pursuant to liquidation of the Trust or
otherwise, shareholders of that Fund are entitled to share pro rata in the net
assets of that Fund available for distribution to shareholders. Shares are
freely transferable, are not convertible and may be redeemed in accordance with
the terms and provisions in the Prospectus. The Declaration of Trust permits the
Trustees to charge shareholders directly for custodial, transfer agency and
servicing expenses.
The Declaration of Trust also permits the Trustees, without shareholder
approval, to subdivide any series of shares into various classes of shares with
such preferences and other rights as the Trustees may designate. The Trustees
may also, without shareholder approval, establish one or more additional
separate portfolios for investments in the Trust. Shareholders' investments in
such an additional portfolio would be evidenced by a separate series of shares
(i.e., a new "Fund").
The Declaration of Trust provides for the perpetual existence of the Trust. The
Trust or a Fund, however, may be terminated at any time by vote of at least
two-thirds of the outstanding shares of each Fund affected. The Declaration of
Trust further provides that the Trustees may also terminate the Trust or a Fund
upon written notice to the shareholders.
Currently, the Funds only offer Institutional Class shares. In general, expenses
of each Fund are borne by all the shares in such Fund, regardless of class, on a
pro rata basis relative to the net assets of each class.
VOTING RIGHTS
Shareholders are entitled to one vote for each full share held (with fractional
votes for each fractional share held) and may vote (to the extent provided in
the Declaration of Trust) on the election of Trustees and the termination of the
Trust and on other matters submitted to the vote of shareholders.
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<PAGE> 193
The Declaration of Trust provides that on any matter submitted to a vote of all
Trust shareholders, all Trust shares entitled to vote shall be voted together
irrespective of series or class unless the rights of a particular series or
class would be adversely affected by the vote, in which case a separate vote of
that series or class shall be required to decide the question. Also, a separate
vote shall be held whenever required by the 1940 Act or any rule thereunder.
Rule 18f-2 under the 1940 Act provides in effect that a series or class shall be
deemed to be affected by a matter unless it is clear that the interests of each
series or class in the matter are substantially identical or that the matter
does not affect any interest of such series or class. On matters affecting an
individual series or class, only shareholders of that series or class are
entitled to vote. Consistent with the current position of the Securities and
Exchange Commission, shareholders of all series and classes vote together,
irrespective of series or class, on the election of Trustees and the selection
of the Trust's independent accountants, but shareholders of each series vote
separately on other matters requiring shareholder approval, such as certain
changes in investment policies of that series or the approval of the investment
advisory and sub-advisory agreements relating to that series.
There will normally be no meetings of shareholders for the purpose of electing
Trustees except that, in accordance with the 1940 Act, (i) the Trust will hold a
shareholders' meeting for the election of Trustees at such time as less than a
majority of the Trustees holding office have been elected by shareholders, and
(ii) if, as a result of a vacancy on the Board of Trustees, less than two-thirds
of the Trustees holding office have been elected by the shareholders, that
vacancy may be filled only by a vote of the shareholders. In addition, Trustees
may be removed from office by a written consent signed by the holders of
two-thirds of the outstanding shares and filed with the Trust's custodian or by
a vote of the holders of two-thirds of the outstanding shares at a meeting duly
called for that purpose, which meeting shall be held upon the written request of
the holders of not less than 10% of the outstanding shares.
Upon written request by 10 shareholders of record, who have been such for at
least six months preceding the date of such request and who hold shares in the
aggregate having a net asset value of at least one percent (1%) of the
outstanding shares, stating that such shareholders wish to communicate with the
other shareholders for the purpose of obtaining the signatures necessary to
demand a meeting to consider removal of a Trustee, the Trust has undertaken to
provide a list of shareholders or to disseminate appropriate materials (at the
expense of the requesting shareholders).
Except as set forth above, the Trustees shall continue to hold office and may
appoint successor Trustees. Voting rights are not cumulative.
No amendment may be made to the Declaration of Trust without the affirmative
vote of a majority of the outstanding shares of the Trust, except (i) to change
the Trust's name or to cure technical problems in the Declaration of Trust and
(ii) to establish, change or eliminate the par value of any shares (currently
all shares have no par value).
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims shareholder liability for
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<PAGE> 194
acts or obligations of each Fund and requires that notice of such disclaimer be
given in each agreement, obligation or instrument entered into or executed by
the Trust or the Trustees relating to the Fund. The Declaration of Trust
provides for indemnification out of assets of a Fund or assets attributable to
the particular class of a Fund for all loss and expense of any shareholder held
personally liable for the obligations of such Fund or such class. Thus, the risk
of a shareholder incurring financial loss on account of shareholder liability is
considered remote since it is limited to circumstances in which the disclaimer
is inoperative and the Fund itself would be unable to meet its obligations.
The Declaration of Trust further provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, nothing in the
Declaration of Trust protects a Trustee against any liability to which the
Trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office. The By-Laws of the Trust provide for indemnification by the Trust of
the Trustees and officers of the Trust except with respect to any matter as to
which any such person is found after final adjudication in an action, suit or
proceeding not to have acted in good faith in the reasonable belief that such
action was in the best interests of the Trust. No officer or Trustee may be
indemnified against any liability to the Trust or the Trust's shareholders to
which such person would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
HOW TO BUY SHARES
Subject to minimum initial investment requirements and certain other conditions,
an investor may make an initial purchase of shares of a Fund by submitting a
completed application form and payment to:
Undiscovered Managers Funds
4400 Computer Drive
P.O. Box 5181
Westborough, MA 01581-5181
The procedures for purchasing shares of a Fund are summarized in "Your
Investment -- Buying Shares" in the Prospectus. The Prospectus also explains
total offering price of the shares.
As described in the Prospectus, shares of a Fund may be purchased by exchanging
securities on deposit with a custodian acceptable to Undiscovered Managers. Such
a purchase is subject in each case to the determination by Undiscovered Managers
that the securities to be exchanged are acceptable for purchase by the Fund. In
all cases, Undiscovered Managers reserves the right to reject any securities
that are proposed for exchange. Securities accepted by Undiscovered Managers in
exchange for Fund shares will be valued in the same manner as the Fund's assets
as of the time of the Fund's next determination of net asset value after such
acceptance. All dividends and subscription or other rights which are reflected
in the market price of accepted securities at the time
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<PAGE> 195
of valuation become the property of the Fund and must be delivered to the Fund
upon receipt by the investor from the issuer. Generally, a gain or loss for
federal income tax purposes would be realized upon the exchange of securities by
an investor that is subject to federal income taxation, depending upon the
investor's basis in the securities tendered.
Undiscovered Managers will not approve the acceptance of securities in exchange
for shares of a Fund unless (1) Undiscovered Managers and the applicable
sub-adviser in their discretion, believes the securities are appropriate
investments for the Fund; (2) the investor represents and agrees that all
securities offered to the Fund can be resold by the Fund without restriction
under the Securities Act of 1933, as amended, or otherwise; and (3) the
securities are eligible to be acquired under the Fund's investment policies and
restrictions. No investor owning 5% or more of a Fund's shares may purchase
additional shares of that Fund by an exchange of securities.
OFFERING PRICE
The public offering price of shares of a Fund is the net asset value of such
Fund. On each purchase of shares, the net asset value is invested in the
applicable Fund. Shares are purchased at the public offering price next
determined after PFPC Inc. or another agent or sub-agent of the Fund receives
the investor's order in proper form. If PFPC Inc. or another agent or sub-agent
of the Fund receives an order in proper form before the close of regular trading
on the New York Stock Exchange (the "NYSE"), the investor will pay or receive
that day's net asset value. If PFPC Inc. or another agent or sub-agent of the
Fund receives an order in proper form after the close of regular trading on the
NYSE, the investor will pay or receive the next day's net asset value.
SHAREHOLDER SERVICES
OPEN ACCOUNTS
A shareholder's investment in a Fund is automatically credited to an open
account maintained for the shareholder by PFPC Inc. Following each transaction
in the account, a shareholder will receive an account statement disclosing the
current balance of shares owned and the details of recent transactions in the
account. After the close of each fiscal year PFPC Inc. will send each
shareholder a statement providing federal tax information on dividends and
distributions paid to the shareholder during the year. This statement should be
retained as a permanent record. Shareholders will be charged a fee for duplicate
information. The open account system permits the purchase of full and fractional
shares and, by making the issuance and delivery of certificates representing
shares unnecessary, eliminates the problems of handling and safekeeping
certificates and the cost and inconvenience of replacing lost, stolen, mutilated
or destroyed certificates.
The costs of maintaining the open account system are borne by the Trust, and no
direct charges are made to shareholders. Although the Trust has no present
intention of making such direct charges to shareholders, it reserves the right
to do so. Shareholders will receive prior notice before any such charges are
made.
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<PAGE> 196
SYSTEMATIC WITHDRAWAL PLAN
A Systematic Withdrawal Plan, referred to in the Prospectus under "Your
Investment -- General Shareholder Services," provides for monthly, quarterly,
semiannual or annual withdrawal payments of $1,000 or more from the account of a
shareholder provided that the account has a value of at least $25,000 at the
time the plan is established.
Payments will be made either to the shareholder or to any other person
designated by the shareholder. If payments are issued to an individual other
than the registered owner(s), a medallion signature guarantee will be required
on the Plan application. Income dividends and capital gain distributions will be
reinvested at the net asset value determined as of the close of regular trading
on the NYSE on the record date for the dividend or distribution.
Since withdrawal payments represent proceeds from liquidation of shares, the
shareholder should recognize that withdrawals may reduce and possibly exhaust
the value of the account, particularly in the event of a decline in net asset
value. Accordingly, the shareholder should consider whether a Systematic
Withdrawal Plan and the specified amounts to be withdrawn are appropriate in the
circumstances. The Trust makes no recommendations or representations in this
regard. It may be appropriate for the shareholder to consult a tax adviser
before establishing such a plan. See "Redemptions" and "Income Dividends,
Capital Gain Distributions and Tax Status" below for certain information as to
federal income taxes.
EXCHANGE PRIVILEGE
Shareholders may redeem their shares of a Fund and have the proceeds applied on
the same day to purchase the same class of shares of the other Fund or any other
investment portfolio of the Trust. The value of shares exchanged must be at
least $1,000 and all exchanges are subject to the minimum investment requirement
of the Fund or other investment portfolio of the Trust into which the exchange
is being made. This option is summarized in the Prospectus under "Your
Investment -- General Shareholder Services."
Exchanges may be effected by (1) making a telephone request by calling
1-800-667-1224, provided that a special authorization form is on file with PFPC
Inc., or (2) sending a written exchange request to PFPC Inc. accompanied by an
account application for the appropriate Fund or other investment portfolio of
the Trust. The Trust reserves the right to modify this exchange privilege
without prior notice.
An exchange constitutes a sale of the shares for federal income tax purposes on
which the investor may realize a capital gain or loss.
IRAS
Under "Your Investment -- General Shareholder Services," the Prospectus refers
to IRAs established under a prototype plan made available by the Trust's
Distributor. These plans may be funded with shares of either Fund. All income
dividends and capital gain distributions of plan participants must be
reinvested. Plan documents and further information can be obtained from the
Trust's Distributor.
Check with your financial or tax adviser as to the suitability of Fund shares
for your retirement plan.
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REDEMPTIONS
The procedures for redemption of shares of any class of a Fund are summarized in
the Prospectus under "Your Investment -- Selling Shares."
Except as noted below, signatures on redemption requests must be guaranteed by a
medallion signature guarantor. A medallion signature guarantee may be obtained
from a domestic bank or trust company, broker, dealer, clearing agency, savings
association, or other financial institution which is participating in a
medallion program recognized by the Securities Transfer Association. The three
recognized medallion programs are Securities Transfer Agents Medallion Program
(STAMP), Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange,
Inc. Medallion Signature Program (NYSE MSP). Signature guarantees from financial
institutions which are not participating in one of these programs will not be
accepted. Signature guarantees by notaries public are not acceptable. However,
as noted in the Prospectus, a medallion signature guarantee will not be required
if the proceeds of the redemption do not exceed $50,000 and the proceeds check
is made payable to the registered owner(s) and mailed to the record address.
If a shareholder selects the telephone redemption service in the manner
described in the next paragraph, Fund shares may be redeemed by making a
telephone call directly to Undiscovered Managers at 1-800-667-1224. When a
telephonic redemption request is received, the proceeds are wired to the bank
account previously chosen by the shareholder and a nominal wire fee (currently
$5.00) is deducted. Telephonic redemption requests must be received by
Undiscovered Managers prior to the close of regular trading on the NYSE on a day
when the NYSE is open for business. Requests made after that time or on a day
when the NYSE is not open for business cannot be accepted by Undiscovered
Managers and a new request will be necessary.
In order to redeem shares by telephone, a shareholder must either select this
service when completing the Fund application or must do so subsequently on the
Service Options Form available from PFPC Inc. When selecting the service, a
shareholder must designate a bank account to which the redemption proceeds
should be wired. Any change in the bank account so designated must be made by
furnishing to PFPC Inc. a completed Service Options Form with a signature
guarantee. Whenever the Service Options Form is used, the shareholder's
signature must be guaranteed as described above. Telephone redemptions may only
be made if an investor's bank is a member of the Federal Reserve System or has a
correspondent bank that is a member of the System. If the account is with a
savings bank, it must have only one correspondent bank that is a member of the
System. The Trust, PFPC Inc., the Trust's Distributor, Undiscovered Managers and
the sub-advisers are not responsible for the authenticity of withdrawal
instructions received by telephone. In the event that reasonable procedures are
not followed in the verification of withdrawal instructions, the foregoing
parties may be liable for any losses due to unauthorized instructions.
The redemption price will be the net asset value per share next determined after
the redemption request and any necessary special documentation are received by
PFPC Inc. or an approved broker-dealer or its authorized designee in proper
form. Proceeds resulting from a written redemption request will normally be
mailed to you within seven days after receipt of your request in good order.
Telephonic redemption proceeds will normally be wired on the first business day
following receipt
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of a proper redemption request. In those cases where you have recently purchased
your shares by check and your check was received less than fifteen days prior to
the redemption request, the Fund may withhold redemption proceeds until your
check has cleared.
Each Fund will normally redeem shares for cash; however, each Fund reserves the
right to pay the redemption price wholly or partly in kind if the Board of
Trustees of the Trust determines it to be advisable in the interest of the
remaining shareholders. If portfolio securities are distributed in lieu of cash,
the shareholder will normally incur brokerage commissions upon subsequent
disposition of any such securities. However, the Trust has elected to be
governed by Rule 18f-1 under the 1940 Act pursuant to which the Trust is
obligated to redeem shares solely in cash for any shareholder during any 90-day
period up to the lesser of $250,000 or 1% of the total net asset value of the
Trust at the beginning of such period.
A redemption constitutes a sale of shares for federal income tax purposes on
which the investor may realize a long- or short-term capital gain or loss. See
"Income Dividends, Capital Gain Distributions and Tax Status."
NET ASSET VALUE
As indicated in the Prospectus, the net asset value of each Fund is determined
and the shares of each Fund are priced as of the earlier of 4:00 p.m., Eastern
Time, or the close of regular trading on the NYSE, on each Business Day. A
"Business Day" is any day the NYSE is open for regular business. Currently the
NYSE is closed in observance of the following holidays: New Year's Day, Martin
Luther King, Jr. Day, President's Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
Valuations of securities purchased by the Funds are supplied by independent
pricing services used by PFPC Inc., as sub-administrator. Equity securities
which are listed or admitted to trading on a national securities exchange or
other market trading system which reports actual transaction prices on a
contemporaneous basis will be valued at the last sales price on the exchange on
which the security is principally traded. Equity securities for which there is
no sale on that day and equity securities traded only in the over-the-counter
market will be valued at their closing bid prices obtained from one or more
dealers making markets for such securities or, if market quotations are not
readily available, at their fair value as determined in good faith by or under
the direction of the Board of Trustees of the Trust.
Generally, trading in foreign securities markets is substantially completed each
day at various times prior to the close of regular trading on the NYSE.
Occasionally, events affecting the value of equity securities of non-U.S.
issuers not traded on a U.S. exchange may occur between the completion of
substantial trading of such securities for the day and the close of regular
trading on the NYSE. If events materially affecting the value of a Fund's
portfolio securities of non-U.S. issuers occur during such period, then these
securities will be valued at their fair value as determined in good faith by or
in accordance with procedures approved by the Board of Trustees.
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INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS
As described in the Prospectus under "Dividends, Distributions and Taxes" it is
the policy of each Fund to pay its shareholders, as dividends, substantially all
net investment income and to distribute at least annually all net realized
capital gains, if any, after offsetting any capital loss carryovers.
Income dividends and capital gain distributions are payable in full and
fractional shares of the particular Fund based upon the net asset value
determined as of the close of regular trading on the NYSE on the record date for
each dividend or distribution. Shareholders, however, may elect to receive their
income dividends or capital gain distributions, or both, in cash. The election
may be made at any time by submitting a written request directly to PFPC Inc. In
order for a change to be in effect for any dividend or distribution, it must be
received by PFPC Inc. on or before the record date for such dividend or
distribution.
As required by federal law, detailed federal tax information will be furnished
to each shareholder for each calendar year on or before January 31 of the
succeeding year.
Each Fund intends to qualify each year as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986 (the "Code") and to qualify
for the special tax treatment accorded regulated investment companies and their
shareholders. In order so to qualify, the Fund must, among other things, (i)
derive at least 90% of its gross income from dividends, interest, payments with
respect to certain securities loans, gains from the sale of stock, securities or
foreign currencies, or other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies; (ii) distribute with respect
to each taxable year at least 90% of the sum of its taxable net investment
income, its net tax-exempt income (if any), and the excess, if any, of net
short-term capital gains over net long-term capital losses for such year; and
(iii) at the end of each quarter maintain at least 50% of the value of its total
assets in cash, cash items (including receivables), government securities,
securities of other regulated investment companies, and other securities of
issuers which represent, with respect to each issuer, no more than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and with no more than 25% of the value of its total assets invested
in the securities (other than those of the U.S. government or other regulated
investment companies) of any one issuer or of two or more issuers which the Fund
controls and which are engaged in the same, similar or related trades and
businesses. If it qualifies for treatment as a regulated investment company that
is accorded special tax treatment, the Fund will not be subject to federal
income tax on income paid to its shareholders in the form of dividends or
capital gain distributions. If the Fund does not qualify for taxation as a
regulated investment company for any taxable year, the Fund's income will be
subject to corporate income taxes imposed at the Fund level, and all
distributions from earnings and profits, including distributions of net
exempt-interest income and net capital gain, will be taxable to shareholders as
ordinary income. In addition, in order to requalify for taxation as a regulated
investment company, the Fund may be required to recognize unrealized gains, pay
substantial taxes and interest, and make certain distributions.
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An excise tax at the rate of 4% will be imposed on the excess, if any, of each
Fund's "required distribution" over its actual distributions in any calendar
year. Generally, the "required distribution" is an amount at least equal to the
sum of 98% of the Fund's ordinary income for the calendar year plus 98% of its
capital gain net income recognized during the one-year period ending on October
31 plus undistributed amounts from prior years. Each Fund intends to make
distributions sufficient to avoid imposition of the excise tax. Distributions
declared by a Fund during October, November or December to shareholders of
record on a date in any such month and paid by the Fund during the following
January will be treated for federal tax purposes as paid by the Fund and
received by shareholders on December 31 of the year in which declared.
Dividends and distributions on a Fund's shares are generally subject to federal
income tax as described herein to the extent they do not exceed the Fund's
realized income and gains, even though such dividends and distributions may
economically represent a return of a particular shareholder's investment. Such
distributions are likely to occur in respect of shares purchased at a time when
a Fund's net asset value reflects gains that are either unrealized, or realized
but not distributed. Such realized gains may be required to be distributed even
when a Fund's net asset value also reflects unrealized losses. Shareholders of
each Fund will be subject to federal income taxes on distributions made by the
Fund whether received in cash or additional shares of the Fund. Distributions by
each Fund of net income and short-term capital gains, if any, will be taxable to
shareholders as ordinary income. Distributions of long-term capital gains
(generally subject to a maximum tax rate of 20% for shareholders who are
individuals), if any, will be taxable to shareholders as such, without regard to
how long a shareholder has held shares of the Fund.
In general, sales, redemptions and exchanges of each Fund's shares are taxable
events and, accordingly, shareholders may realize gains and losses on these
transactions. If shares have been held for more than one year, gain or loss
realized will be long-term capital gain or loss, provided the shareholder holds
the shares as a capital asset. If shares have been held for one year or less,
the gain or loss on the sale, redemption or exchange of such shares will be
treated as short-term capital gain or loss. For taxable years beginning after
December 31, 2000, the maximum capital gain tax rates for capital assets
(including Fund shares) held by a non-corporate shareholder for more than 5
years will be 8% and 18% (rather than 10% and 2%). The 18% rate applies only to
assets the holding period for which begins after December 31, 2000 (including by
way of an election to mark the asset to the market, and to pay the tax on any
gain thereon, as of January 2, 2001). The mark-to-market election may be
disadvantageous from a federal tax perspective, and shareholders should consult
their tax advisors before making such an election.
In general, if a shareholder sells Fund shares at a loss within six months after
purchasing the shares, the loss will be treated as a long-term capital loss to
the extent of any long-term capital gain distributions received by the
shareholder. Furthermore, no loss will be allowed on the sale of Fund shares to
the extent the shareholder acquired other shares of the same Fund within 30 days
prior to the sale of the loss shares or 30 days after such sale.
The foregoing is a general and abbreviated summary of the applicable provisions
of the Code and regulations currently in effect. For the complete provisions,
reference should be made to the
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pertinent Code sections and regulations. The Code and regulations are subject to
change by legislative or administrative action.
Dividends and distributions also may be subject to state and local taxes.
Shareholders are urged to consult their tax advisers regarding specific
questions as to federal, state and local taxes.
The foregoing discussion relates solely to U.S. federal income tax law. Non-U.S.
investors should consult their tax advisers concerning the tax consequences of
ownership of shares of a Fund, including the possibility that distributions may
be subject to a 30% U.S. withholding tax (or a reduced rate of withholding
provided by treaty).
A Fund is generally required to withhold and remit to the U.S. Treasury 31% of
the taxable dividends and other distributions paid to any shareholder who fails
to furnish the Fund with a correct taxpayer identification number (TIN), who has
under-reported dividends or interest income, or who fails to certify to the Fund
that he or she is not subject to such withholding.
The Internal Revenue Service recently revised its regulations affecting the
application to foreign investors of the back-up withholding and withholding tax
rules discussed above. The new regulations will generally be effective for
payments made after December 31, 2000. In some circumstances, the new rules will
increase the certification and filing requirements imposed on foreign investors
in order to qualify for exemption from the 31% back-up withholding tax and for
reduced withholding tax rates under income tax treaties. Foreign investors in a
Fund should consult their tax advisers with respect to the potential application
of these new regulations.
CALCULATION OF TOTAL RETURN
Quotations of average annual total return for a Fund will be expressed in terms
of the average annual compounded rate of return of a hypothetical investment in
the Fund or class for periods of one, five, and ten years (or for such shorter
periods as shares of the Fund or class have been offered), calculated pursuant
to the following formula: P (1 + T) [n exponent]= ERV (where P = a hypothetical
initial payment of $1,000, T = the average annual total return, n = the number
of years, and ERV = the ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the period). Except as noted below, all total return
figures reflect the deduction of a proportional share of Fund expenses on an
annual basis, and assume that (i) the maximum sales load (or other charges
deducted from payments) is deducted from the initial $1,000 payment, (ii) any
deferred sales load will be deducted at the times, in the amounts and under the
terms disclosed in the Prospectus and (iii) all dividends and distributions are
reinvested at net asset value on the reinvestment dates during the period. The
ending redeemable value is also determined by assuming a complete redemption at
the end of the relevant periods and the deduction of all non-recurring charges
that would be imposed by the relevant Fund. Quotations of total return may also
be shown for other periods and without the deduction of front-end or contingent
deferred sales charges. Aggregate total return may also be shown and is
calculated in a similar manner, except that the results are not annualized. A
Fund may also, with respect to certain periods of less than one year, provide
total return information for that period that is unannualized. Any such
information would be accompanied by standardized total return information.
Quotations of investment performance for any period when an expense limitation
was in effect will be greater than if the limitation had not been in effect.
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The Merger & Acquisition Fund commenced investment operations as of October 2,
2000, and the Behavioral Large Cap Fund had not as of the date of this SAI
commenced investment operations.
PERFORMANCE COMPARISONS
TOTAL RETURN. Each Fund may from time to time include its total return
information in advertisements or in information furnished to present or
prospective shareholders. Each Fund may from time to time also include in
advertisements or information furnished to present or prospective shareholders
(i) the ranking of performance figures relative to such figures for groups of
mutual funds categorized by Lipper Analytical Services, Inc. or Micropal, Inc.
as having similar investment objectives, (ii) the rating assigned to the Fund by
Morningstar, Inc. based on the Fund's risk-adjusted performance relative to
other mutual funds in its broad investment class, and/or (iii) the ranking of
performance figures relative to such figures for mutual funds in its general
investment category as determined by CDA/Weisenberger's Management Results.
LIPPER ANALYTICAL SERVICES, INC. ("Lipper") distributes mutual fund rankings
monthly. The rankings are based on total return performance calculated by
Lipper, generally reflecting changes in net asset value adjusted for
reinvestment of capital gains and income dividends. The rankings do not reflect
deduction of any sales charges. Lipper rankings cover a variety of performance
periods, including year-to-date, 1-year, 5-year, and 10-year performance. Lipper
classifies mutual funds by investment objective and asset category.
MICROPAL, INC. ("Micropal") distributes mutual fund rankings weekly and monthly.
The rankings are based upon performance calculated by Micropal, generally
reflecting changes in net asset value that can be adjusted for the reinvestment
of capital gains and dividends. If deemed appropriate by the user, performance
can also reflect deductions for sales charges. Micropal rankings cover a variety
of performance periods, including year-to-date, 1-year, 5-year and 10-year
performance. Micropal classifies mutual funds by investment objective and asset
category.
MORNINGSTAR, INC. ("Morningstar") distributes mutual fund ratings twice a month.
The ratings are divided into five groups: highest, above average, neutral, below
average and lowest. They represent a fund's historical risk/reward ratio
relative to other funds in its broad investment class as determined by
Morningstar. Morningstar ratings cover a variety of performance periods,
including 3-year, 5-year, 10-year and overall performance. The performance
factor for the overall rating is a weighted-average return performance (if
available) reflecting deduction of expenses and sales charges. Performance is
adjusted using quantitative techniques to reflect the risk profile of the fund.
The ratings are derived from a purely quantitative system that does not utilize
the subjective criteria customarily employed by rating agencies such as Standard
& Poor's and Moody's Investors Service, Inc.
CDA/WIESENBERGER'S MANAGEMENT RESULTS ("Wiesenberger") publishes mutual fund
rankings and is distributed monthly. The rankings are based entirely on total
return calculated by Wiesenberger for periods such as year-to-date, 1-year,
3-year, 5-year and 10-year. Mutual funds are ranked in
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general categories (e.g., international bond, international equity, municipal
bond, and maximum capital gain). Wiesenberger rankings do not reflect deduction
of sales charges or fees.
As is discussed in greater detail below, performance information may also be
used to compare the performance of the Funds to certain widely acknowledged
standards or indices for stock market performance, such as those listed below.
CONSUMER PRICE INDEX. The Consumer Price Index, published by the U.S. Bureau of
Labor Statistics, is a statistical measure of changes, over time, in the prices
of goods and services in major expenditure groups.
DOW JONES INDUSTRIAL AVERAGE. The Dow Jones Industrial Average is a market
value-weighted and unmanaged index of 30 large industrial stocks traded on the
NYSE.
RUSSELL 2000 GROWTH INDEX. The Russell 2000 Growth Index is comprised of the
2000 smallest of the 3000 largest U.S.-domiciled companies, with higher
price-to-book ratios and higher forecasted growth values.
STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX (the "S&P 500"). The S&P 500
is a market value-weighted and unmanaged index showing the changes in the
aggregate market value of 500 stocks relative to the base period 1941-43. The
S&P 500 is composed almost entirely of common stocks of companies listed on the
NYSE, although the common stocks of a few companies listed on the American Stock
Exchange or traded over-the-counter are included. The 500 companies represented
include 400 industrial, 60 transportation and 40 financial services concerns.
The S&P 500 represents about 80% of the market value of all issues traded on the
NYSE. The S&P 500 is the most common index for the overall U.S. stock market.
WILSHIRE 5000 TOTAL MARKET INDEX. The Wilshire 5000 Index Total Market Index
includes all publicly traded stocks headquartered in the U.S. and holds over
7,000 stocks.
Performance information about the Funds will be provided in the Funds' annual
reports to shareholders, which will be available upon request and without
charge. In addition, from time to time, articles about the Funds regarding
performance, rankings and other characteristics of the Funds may appear in
publications including, but not limited to, the publications included in
Appendix A. In particular, the performance of the Funds may be compared in some
or all of these publications to the performance of various indices and
investments for which reliable performance data is available and to averages,
performance rankings, or other information prepared by recognized mutual fund
statistical services. Such publications may also publish their own rankings or
performance reviews of mutual funds, including the Funds. References to or
reprints of such articles may be used in the Funds' promotional literature.
References to articles regarding personnel of the sub-advisers who have
portfolio management responsibility may also be used in the Funds' promotional
literature. For additional information about the Funds' advertising and
promotional literature, see Appendix B.
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APPENDIX A
PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION
ABC and affiliates
Adam Smith's Money World
America On Line
Anchorage Daily News
Atlanta Journal-Constitution
Arizona Republic
Austin American Statesman
Baltimore Sun
Bank Investment Marketing
Barron's
Bergen County Record (NJ)
Bloomberg Business News
Bloomberg Wealth Manager
Bond Buyer
Boston Business Journal
Boston Globe
Boston Herald
Broker World
Business Radio Network
Business Week
CBS and affiliates
CDA Investment Technologies
CFO
Changing Times
Chicago Sun Times
Chicago Tribune
Christian Science Monitor
Christian Science Monitor News Service
Cincinnati Enquirer
Cincinnati Post
CNBC
CNN
Columbus Dispatch
CompuServe
Dallas Business Journal
Dallas Morning News
Denver Post
Des Moines Register
Detroit Free Press
Donoghues Money Fund Report
Dorman, Dan (syndicated column)
Dow Jones News Service
Economist
FACS of the Week
Fee Adviser
Financial News Network
Financial Planning
Financial Planning on Wall Street
Financial Research Corp.
Financial Services Week
Financial World
Fitch Insights
Forbes
Fort Lauderdale Sun Sentinel
Fort Worth Star-Telegram
Fortune
Fox Network and affiliates
Fund Action
Fund Decoder
Global Finance
(The) Guarantor
Hartford Courant
Houston Chronicle
INC
Indianapolis Star
Individual Investor
Institutional Investor
International Herald Tribune
Internet
Investment Advisor
Investment Company Institute
Investment Dealers Digest
Investment Profiles
Investment Vision
Investor's Business Daily
IRA Reporter
Journal of Commerce
Kansas City Star
KCMO (Kansas City)
KOA-AM (Denver)
LA Times
Leckey, Andrew (syndicated column)
Lear's
Life Association News
Lifetime Channel
Miami Herald
Milwaukee Sentinel
Money Magazine
Money Maker
Money Management Letter
Morningstar
Mutual Fund Market News
Mutual Funds Magazine
National Public Radio
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<PAGE> 205
National Underwriter
NBC and affiliates
New England Business
New England Cable News
New Orleans Times-Picayune
New York Daily News
New York Times
Newark Star Ledger
Newsday
Newsweek
Nightly Business Report
Orange County Register
Orlando Sentinel
Palm Beach Post
Pension World
Pensions and Investments
Personal Investor
Philadelphia Inquirer
Porter, Sylvia (syndicated column)
Portland Oregonian
Prodigy
Public Broadcasting Service
Quinn, Jane Bryant (syndicated column)
Registered Representative
Research Magazine
Resource
Reuters
Rocky Mountain News
Rukeyser's Business (syndicated column)
Sacramento Bee
San Diego Tribune
San Francisco Chronicle
San Francisco Examiner
San Jose Mercury News
Seattle Post-Intelligencer
Seattle Times
Securities Industry Management
Smart Money
St. Louis Post Dispatch
St. Petersburg Times
Standard & Poor's Outlook
Standard & Poor's Stock Guide
Stanger's Investment Advisor
Stockbroker's Register
Strategic Insight
Tampa Tribune
Time
Tobias, Andrew (syndicated column)
Toledo Blade
UPI
US News and World Report
USA Today
USA TV Network
Value Line
Wall Street Journal
Wall Street Letter
Wall Street Week
Washington Post
WBZ
WBZ-TV
WCVB-TV
WEEI
WHDH
Worcester Telegram
World Wide Web
Worth Magazine
WRKO
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<PAGE> 206
APPENDIX B
ADVERTISING AND PROMOTIONAL LITERATURE
Undiscovered Managers Funds' advertising and promotional material may include,
but is not limited to, discussions of the following information:
o Undiscovered Managers Funds' participation in wrap fee and no
transaction fee programs
o Characteristics of the various sub-advisers, including the locations of
offices, investment practices and clients
o Specific and general investment philosophies, strategies, processes and
techniques
o Specific and general sources of information, economic models, forecasts
and data services utilized, consulted or considered in the course of
providing advisory or other services
o Industry conferences at which the various sub-advisers participate
o Current capitalization, levels of profitability and other financial
information
o Identification of portfolio managers, researchers, economists,
principals and other staff members and employees
o The specific credentials of the above individuals, including but not
limited to, previous employment, current and past positions, titles and
duties performed, industry experience, educational background and
degrees, awards and honors
o Specific identification of, and general reference to, current
individual, corporate and institutional clients, including pension and
profit sharing plans
o Current and historical statistics relating to:
-- total dollar amount of assets managed
-- Undiscovered Managers Funds' assets managed in total and by series
-- the growth of assets
-- asset types managed
References may be included in Undiscovered Managers Funds' advertising and
promotional literature about 401(k) and retirement plans that offer the Trust's
series. The information may include, but is not limited to:
o Specific and general references to industry statistics regarding 401(k)
and retirement plans including historical information and industry
trends and forecasts regarding the growth of assets, numbers or plans,
funding vehicles, participants, sponsors and other demographic data
relating to plans, participants and sponsors, third party and other
administrators, benefits consultants and firms with whom Undiscovered
Managers Funds may or may not have a relationship.
o Specific and general reference to comparative ratings, rankings and
other forms of evaluation as well as statistics regarding the Trust's
series as 401(k) or retirement plan funding vehicles produced by
industry authorities, research organizations and publications.
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Undiscovered Managers Funds
Part C. Other Information
Item 23. Financial Statements and Exhibits
a. Amended and Restated Agreement and Declaration of Trust of
Undiscovered Managers Funds (the "Trust") -- Incorporated by reference
to Pre-Effective Amendment No. 2 to the Trust's Registration Statement
on Form N-1A.
b. By-Laws of the Trust -- Incorporated by reference to Post-Effective
Amendment No. 1 to the Trust's Registration Statement on Form N-1A.
c. See Articles III, V, VI and IX in the Trust's Declaration of Trust
(Exhibit a hereto) and Article XI in the Trust's By-Laws (Exhibit b
hereto).
d. (i) Form of Management Agreement between the Trust and Undiscovered
Managers, LLC ("Undiscovered Managers") -- Incorporated by
reference to the Trust's Registration Statement on Form N-1A.
(ii) Form of Sub-Advisory Agreements between Undiscovered Managers and
each sub-adviser relating to each series of the Trust.
(1) Undiscovered Managers Behavioral Growth Fund (the
"Behavioral Growth Fund"): Fuller & Thaler Asset Management,
Inc. ("Fuller & Thaler") (formerly known as RJF Asset
Management, Inc.) -- Incorporated by reference to the
Trust's Registration Statement on Form N-1A.
(2) Undiscovered Managers Behavioral Value Fund (the "Behavioral
Value Fund"): Fuller & Thaler -- Incorporated by reference
to Post-Effective Amendment No. 3 to the Trust's
Registration Statement on Form N-1A.
(3) Undiscovered Managers Behavioral Long/Short Fund (the
"Behavioral Long/Short Fund"): Fuller & Thaler --
Incorporated by reference to Post-Effective Amendment No. 3
to the Trust's Registration Statement on Form N-1A.
(4) Undiscovered Managers Behavioral Large Cap Fund (the
"Behavioral Large Cap Fund"): Fuller & Thaler --
Incorporated by reference to Post-Effective Amendment No. 8
to the Trust's Registration Statement on Form N-1A.
(5) Undiscovered Managers Special Small Cap Fund (the "Special
Small Cap Fund"): Kestrel Investment Management Corporation
("Kestrel Management") -- Incorporated by reference to Post-
Effective Amendment No. 1 to the Trust's Registration
Statement on Form N-1A.
(6) Undiscovered Managers REIT Fund (the "REIT Fund"): Bay Isle
Financial Corporation ("Bay Isle") -- Incorporated by
reference to the Trust's Registration Statement on Form
N-1A.
(7) Undiscovered Managers Small Cap Value Fund (the "Small Cap
Value Fund") and Undiscovered Managers Hidden Value Fund
(the "Hidden Value Fund"): J.L. Kaplan Associates, LLC
("Kaplan Associates") -- Incorporated by reference to Pre-
Effective Amendment No. 2 to the Trust's Registration
Statement on Form N-1A.
(8) Undiscovered Managers Merger & Acquisition Fund (the "Merger
& Acquisition Fund"): Kaplan Associates -- Incorporated by
reference to Post-Effective Amendment No. 8 to the Trust's
Registration Statement on Form N-1A.
<PAGE> 208
(9) Undiscovered Managers Core Equity Fund (the "Core Equity
Fund"): Waite & Associates, L.L.C. ("Waite") -- Incorporated
by reference to the Trust's Registration Statement on Form
N-1A.
(10) UM International Equity Fund (the "International Equity
Fund"): Unibank Securities, Inc. ("Unibank") - Incorporated
by reference to Post-Effective Amendment No. 3 to the
Trust's Registration Statement on Form N-1A.
(11) UM International Small Cap Equity Fund (the "International
Small Cap Equity Fund"): Unibank -- Incorporated by
reference to Post-Effective Amendment No. 3 to the Trust's
Registration Statement on Form N-1A.
(12) Undiscovered Managers Small Cap Growth Fund (the "Small Cap
Growth Fund"): Mazama Capital Management, Inc. ("Mazama") --
Incorporated by reference to Post-Effective Amendment No. 8
to the Trust's Registration Statement on Form N-1A.
e. (i) Distribution Agreement between the Trust and Provident
Distributors, Inc. -- Incorporated by reference to
Post-Effective Amendment No. 7 to the Trust's Registration
Statement on Form N-1A.
(ii) Distribution Agreement between the Trust and PFPC Distributors,
Inc. is filed herewith.
f. None.
g. (i) Form of Custodian Agreement between the Trust and The Bank of
New York -- Incorporated by reference to Pre-Effective Amendment
No. 2 to the Trust's Registration Statement on Form N-1A.
(ii) Form of Custody Agreement between the Trust and Custodial Trust
Company -- Incorporated by reference to Post-Effective Amendment
No. 4 to the Trust's Registration Statement on Form N-1A.
(iii) Form of Special Custody Account Agreement by and among the
Trust, Custodial Trust Company and Bear, Stearns Securities
Corp. -- Incorporated by reference to Post-Effective Amendment
No. 4 to the Trust's Registration Statement on Form N-1A.
h. (i) Form of Transfer Agency and Services Agreement between the Trust
and PFPC Inc. (formerly known as First Data Investor Services
Group, Inc.) -- Incorporated by reference to Pre-Effective
Amendment No. 2 to the Trust's Registration Statement on Form
N-1A.
(ii) Form of Organizational Expense Reimbursement Agreement between
the Trust and Undiscovered Managers -- Incorporated by reference
to Pre- Effective Amendment No. 2 to the Trust's Registration
Statement on Form N-1A.
(iii) Form of Amended and Restated Expense Deferral Agreement between
the Trust and Undiscovered Managers relating to each of the
Funds. -- Incorporated by reference to Post-Effective Amendment
No. 7 to the Trust's Registration Statement on Form N-1A.
(iv) Form of Administrative Services Agreement between the Trust and
Undiscovered Managers -- Incorporated by reference to
Pre-Effective Amendment No. 2 to the Trust's Registration
Statement on Form N-1A.
(v) (1) Form of Sub-Administration Agreement between Undiscovered
Managers and PFPC Inc. -- Incorporated by reference to
Pre-Effective Amendment No. 2 to the Trust's Registration
Statement on Form N-1A.
<PAGE> 209
(2) Amendment to Sub-Administration Agreement dated November 30,
1999 between Undiscovered Managers and PFPC Inc.
--Incorporated by reference to Post-Effective Amendment No.
7 to the Trust's Registration Statement on Form N-1A.
i. (i) Opinion and Consent of Counsel, dated December 17, 1997 relating
to the Behavioral Growth Fund, the Special Small Cap Fund, the
REIT Fund, the Small Cap Value Fund, the Hidden Value Fund, the
Core Equity Fund and Undiscovered Managers All Cap Value Fund --
Incorporated by reference to Pre-Effective Amendment No. 2 to
the Trust's Registration Statement on Form N-1A.
(ii) Opinion and Consent of Counsel, dated December 18, 1998 relating
to the Behavioral Value Fund, the Behavioral Long/Short Fund,
the International Equity Fund and the International Small Cap
Equity Fund -- Incorporated by reference to Post-Effective
Amendment No. 5 to the Trust's Registration Statement on Form
N-1A.
(iii) Opinion and Consent of Counsel dated October 2, 2000 relating to
the Behavioral Large Cap Fund, the Merger & Acquisition Fund and
the Small Cap Growth Fund is filed herewith.
j. (i) Consent of Independent Auditors is filed herewith.
(ii) Powers of Attorney for each of Roger B. Keating, Matthew J.
Kiley and Robert P. Schmermund, designating Mark P. Hurley, John
J. Burke III, Mary Chris Sayre and Neil Forrest -- Incorporated
by reference to Pre- Effective Amendment No. 2 to the Trust's
Registration Statement on Form N-1A.
(iii) Power of Attorney for Brian O'Neill, designating Mark P. Hurley
and Mary Chris Sayre -- Incorporated by reference to
Post-Effective Amendment No. 6 to the Trust's Registration
Statement on Form N-1A.
k. Omitted Financial Statements -- None.
l. Investment Representation Letter -- Incorporated by reference to
Pre-Effective Amendment No. 2 to the Trust's Registration Statement on
Form N-1A.
m. (i) Service and Distribution Plan relating to Investor Class
Shares-- Incorporated by reference to Post-Effective Amendment
No. 5 to the Trust's Registration Statement on Form N-1A.
(ii) Service and Distribution Plan relating to Class C shares --
Incorporated by reference to Post-Effective Amendment No. 6 to
the Trust's Registration Statement on Form N-1A.
n. Amended Rule 18f-3 Plan is filed herewith.
o. Reserved.
p. Codes of Ethics.
(i) Code of Ethics of the Trust, Undiscovered Managers, Bay Isle,
Fuller & Thaler, Kaplan Associates, Kestrel Management and Waite
-- Incorporated by reference to Post-Effective Amendment No. 8
to the Trust's Registration Statement on Form N-1A.
(ii) Code of Ethics of Unibank -- Incorporated by reference to
Post-Effective Amendment No. 8 to the Trust's Registration
Statement on Form N-1A.
<PAGE> 210
(iii) Code of Ethics of Mazama -- Incorporated by reference to
Post-Effective Amendment No. 8 to the Trust's Registration
Statement on Form N-1A.
(iv) Code of Ethics of Provident Distributors, Inc.-- Incorporated by
reference to Post-Effective Amendment No. 8 to the Trust's
Registration Statement on Form N-1A.
(v) Code of Ethics of PFPC Distributors, Inc. is filed herewith.
Item 24. Persons Controlled by or Under Common Control with the Trust
As of the date of this Amendment to the Registration Statement, there
are no persons controlled by or under common control with the Trust.
Item 25. Indemnification
Article VIII of the Trust's Agreement and Declaration of Trust (Exhibit
a of Item 23 hereto) and Article 4 of the Trust's By- Laws (Exhibit b
of Item 23 hereto) provides for indemnification of its Trustees and
officers. The effect of these provisions is to provide indemnification
for each of the Trust's Trustees and officers against liabilities and
counsel fees reasonably incurred in connection with the defense of any
legal proceeding in which such Trustee or officer may be involved by
reason of being or having been a Trustee or officer, except with
respect to any matter as to which such Trustee or officer shall have
been adjudicated not to have acted in good faith in the reasonable
belief that such Trustee's or officer's action was in the best interest
of the Trust, and except that no Trustee or officer shall be
indemnified against any liability to the Trust or its shareholders to
which such Trustee or officer otherwise would be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such Trustee's or officer's
office.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to Trustees, officers and controlling
persons of the Trust pursuant to the foregoing provisions, or
otherwise, the Trust has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Securities Act of 1933, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Trust of
expenses incurred or paid by a Trustee, officer or controlling person
of the Trust in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling person
in connection with the securities being registered, the Trust will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed
by the final adjudication of such issue.
Item 26. Business and Other Connections of Investment Adviser
(a) Undiscovered Managers is the investment adviser to all series of the
Trust, and its business is summarized in "The Funds -- The Funds'
Management" in the Prospectus. Undiscovered Managers' management
committee members and officers have been engaged during the past two
fiscal years in the following businesses, professions, vocations or
employments of a substantial nature (former affiliations are marked
with an asterisk):
<PAGE> 211
<TABLE>
<CAPTION>
Name and Office with Name and Address of Nature of
Undiscovered Managers Other Affiliations Connection
<S> <C> <C>
Mark P. Hurley None None
President, Chief
Executive Officer and
Management
Committee Member
Randolph E. Brown AMRESCO, INC. President Commercial
Management Committee Plaza of the Americas Finance
Member 700 North Pearl Street
Dallas, Texas 75201
Thomas F. O'Toole None None
Management Committee
Member
Harris Weinstein Covington & Burling Partner
Management Committee 1201 Pennsylvania Avenue
Member 8th Floor
Washington, D.C. 20004
Keith Blackwell AMRESCO, INC. Senior Vice
Management Committee Plaza of the Americas President
Member 700 North Pearl Street General Counsel
Dallas, Texas 75201 & Secretary
R. James Ellis Mill River Corporation President, Secretary
Management Committee 1700 S. El Camino Real, Ste. 502 and Director
Member San Mateo, CA
</TABLE>
(b) Fuller & Thaler is the sub-adviser to the Behavioral Growth,
Behavioral Value, Behavioral Long/Short Funds and Behavior Large Cap
Fund and its business is summarized in "The Funds" in the Prospectus.
Fuller & Thaler's directors and officers have been engaged during the
past two fiscal years in the following businesses, professions,
vocations or employments of a substantial nature (former affiliations
are marked with an asterisk):
<TABLE>
<CAPTION>
Name and Office with Name and Address of Nature of
Fuller & Thaler Other Affiliations Connection
<S> <C> <C>
Russell J. Fuller *Fuller Partners, Ltd. General Partner
Director and President 411 Borel Avenue
Suite 402
San Mateo, CA 94402
Anne Fuller *San Francisco Society of Education Director
Director Security Analysts
P.O. Box 27278
San Francisco, CA 94127
John L. Kling *Fuller Partners, Ltd. General Partner
Director
Senior Vice President Washington State University Professor of Finance
Todd Hall Department of
483 College of Business Finance
and Economics
Pullman, Washington 99164
</TABLE>
<PAGE> 212
<TABLE>
<S> <C> <C>
Frederick W. Stanske None None
Director
Senior Vice President
Richard Thaler University of Chicago Professor of
Director Graduate School of Business Behavioral Science
1101 East 58th Street and Economics
Chicago, Illinois 60637
Crystal Kwok None None
Vice President
Mark Moon *Heidt Capital Group, LLC Chief Investment
Vice President 5657 Wilshire Blvd. Officer
Number 330
Los Angeles, CA 90036
</TABLE>
(c) Kestrel Management is the sub-adviser to the Special Small Cap Fund,
and its business is summarized in "The Funds" in the Prospectus.
Kestrel Management's directors and officers have been engaged during
the past two fiscal years in the following businesses, professions,
vocations or employments of a substantial nature:
<TABLE>
<CAPTION>
Name and Office with Name and Address of Nature of
Kestrel Management Other Affiliations Connection
<S> <C> <C>
Abbott J. Keller None None
Director and President
David J. Steirman None None
Director and Chief
Investment Officer
</TABLE>
d) Bay Isle is the sub-adviser to the REIT Fund, and its business is
summarized in "The Funds" in the Prospectus. Bay Isle's directors and
officers have been engaged during the past two fiscal years in the
following businesses, professions, vocations or employments of a
substantial nature:
<TABLE>
<CAPTION>
Name and Office with Name and Address of Nature of
Bay Isle Other Affiliations Connection
<S> <C> <C>
Gary Pollock None None
Director and President
William Schaff None None
Director and Chief
Investment Officer
Ralph L. Block None None
Director
</TABLE>
(e) Kaplan Associates is the sub-adviser to the Small Cap Value Fund,
Hidden Value Fund and Merger & Acquisition Fund and its business is
summarized in "The Funds" in the Prospectus. The following persons
affiliated with Kaplan Associates have been engaged during the past
two fiscal years in the following businesses, professions, vocations
or employments of a substantial nature:
<PAGE> 213
<TABLE>
<CAPTION>
Name and Office with Name and Address of Nature of
Kaplan Associates Other Affiliations Connection
<S> <C> <C>
James L. Kaplan None None
Member
Paul Weisman None None
Portfolio Manager
</TABLE>
(f) Waite is the sub-adviser to the Core Equity Fund and its business is
summarized in "The Funds" in the Prospectus. Waite's officers have
been engaged during the past two fiscal years in the following
businesses, professions, vocations or employments of a substantial
nature:
<TABLE>
<CAPTION>
Name and Office with Name and Address of Nature of
Waite Other Affiliations Connection
<S> <C> <C>
Leslie A. Waite None None
President
Peter D. Tamny None None
Managing Director
Peter C. Brockett None None
Managing Director
Patrick Westmoreland None None
Managing Director
Diana Calhoun None None
Managing Director
</TABLE>
(g) Unibank is the sub-adviser to the International Equity and
International Small Cap Equity Funds, and its business is summarized
in "The Funds" in the Prospectus. Unibank's directors and officers
have been engaged during the past two fiscal years in the following
businesses, professions, vocations or employments of a substantial
nature:
<TABLE>
<CAPTION>
Name and Office with Name and Address of Nature of
Unibank Other Affiliations Connection
<S> <C> <C>
Henrik Bak None None
Director and President
Peter Vilhelm Caroe Unibank, New York General Manager
Chairman of the Board 13-15 West 54th Street
New York, New York 10019
Peter Egelund Jensen Unibank, New York First Vice President
Chief Financial Officer 13-15 West 54th Street and Comptroller
New York, New York 10019
Christian Clausen Unibank A/S Managing Director
Director 2 Torvegade
DK-1786
Copenhagen, Denmark
Peter Nyegaard Unibank A/S Senior Vice
Chief Financial Officer 2 Torvegade President
DK-1786
Copenhagen, Denmark
</TABLE>
(h) Mazama is the sub-adviser to the Small Cap Growth Fund, and its
business is summarized in "The Funds" in the Prospectus. Mazama's
directors and officers have been engaged during the past two fiscal
years in the following businesses, professions, vocations or
employments of a substantial nature:
<PAGE> 214
<TABLE>
<CAPTION>
Name and Office with Name and Address of Nature of
Mazama Other Affiliations Connection
<S> <C> <C>
Ronald A. Sauer None None
Chairman and President
Jill Ronne Collins None None
Vice President
Brian P. Alfrey None None
Director, Vice President
and Chief Operating Officer
Stephen C. Brink None None
Vice President
Helen M. Degener Fiduciary Trust Co. Intl. Senior Vice
Chief Investment Officer Two World Trade Center President
Contracted Advisor New York, NY 10048-0772
Director
</TABLE>
Item 27.
(a) Provident Distributors, Inc., acts as distributor for the Trust
and as of January 2, 2001, PFPC Distributors, Inc. will act as
distributor of the Trust. Provident Distributors, Inc., also currently
distributes (and as of January 2, 2001 PFPC Distributors will
distribute) the securities of the following investment companies:
International Dollar Reserve Fund I, Ltd., Provident Institutional
Funds Trust, Columbia Common Stock Fund, Inc., Columbia Growth Fund,
Inc., Columbia International Stock Fund, Inc., Columbia Special Fund,
Inc., Columbia Small Cap Fund, Inc., Columbia Real Estate Equity Fund,
Inc., Columbia Balanced Fund, Inc., Columbia Daily Income Company,
Columbia U.S. Government Securities Fund, Inc., Columbia Fixed Income
Securities Fund, Inc., Columbia Municipal Bond Fund, Inc., Columbia
High Yield Fund, Inc., Columbia National Municipal Bond Fund, Inc.,
Columbia Strategic Value Fund, Inc., Columbia Technology Fund, Inc.,
GAMNA Series Funds, Inc., WT Investment Trust, Kalmar Pooled
Investment Trust, The RBB Fund, Inc., Robertson Stephens Investment
Trust, Harris Insight Funds Trust, Alleghany Funds, Deutsche Asset
Management VIT Funds, First Choice Funds Trust, Forward Funds, Inc.,
IBJ Funds Trust, LKCM Funds, Matthews International Funds, McM Funds,
Metropolitan West Funds, New Covenant Funds, Inc., Pictet Funds,
Stratton Growth Fund, Inc., Stratton Monthly Dividend REIT Shares,
Inc., The Stratton Funds, Inc., The Galaxy Fund, The Galaxy VIP Fund,
Galaxy Fund II, Trainer, Wortham First Mutual Funds, Wilshire Target
Funds, Inc., Weiss, Peck & Greer Funds Trust, Weiss, Peck & Greer
International Fund, WPG Growth and Income Fund, WPG Growth Fund, WPG
Tudor Fund, RWB/WPG U.S. Large Stock Fund, Tomorrow Funds Retirement
Trust, The BlackRock Funds, Inc. (Distributed by BlackRock
Distributors, Inc., a wholly owned subsidiary of Provident
Distributors, Inc.), Northern Funds Trust and Northern Institutional
Funds Trust (Distributed by Northern Funds Distributors, LLC., a
wholly owned subsidiary of Provident Distributors, Inc.), The Offit
Investment Fund, Inc. (Distributed by Offit Funds Distributor, Inc., a
wholly owned subsidiary of Provident Distributors, Inc.), The Offit
Variable Insurance Fund, Inc. (Distributed by Offit Funds Distributor,
Inc., a wholly owned subsidiary of Provident Distributors, Inc.), and
ABN AMRO Funds (Distributed by ABN AMRO Distribution Services (USA),
Inc., a wholly owned subsidiary of Provident Distributors, Inc.).
Provident Distributors, Inc. is registered with the Securities and
Exchange Commission as a broker-dealer and is a member of the National
Association of Securities Dealers. Provident Distributors, Inc. is
located at 3200 Horizon Drive, King of Prussia, PA 19406.
<PAGE> 215
PFPC Distributors, Inc. is registered with the Securities and Exchange
Commission as a broker-dealer and is a member of the National
Association of Securities Dealers. PFPC Distributors, Inc. is located
at 4400 Computer Dr., Westborough, Massachusetts 01581.
(b) (i)
<TABLE>
<CAPTION>
Name and Principal Positions and Officers with Positions and
Business Address PFPC Distributors, Inc. Offices with Trust
<S> <C> <C>
Robert Crouse* Director None
Gary Gardner* Director, President and Chief
Executive Officer None
Joseph Gramlich* Chairman of the Board of
Directors None
Francis Koudelka* Director and Vice President None
Rita G. Adler* Chief Compliance Officer None
Craig Stokarski* Treasurer and Financial and
Operations Principal None
Christine Ritch* Chief Legal Officer, Secretary
and Clerk None
Bruno DiStefano* Vice President None
Elizabeth Holtsbery* Vice President None
Susan Moscaritolo* Vice President None
Bradley Stearns* Assistant Secretary and
Assistant Clerk None
Douglas Castagna* Controller and Assistant
Treasurer None
</TABLE>
* The principal business address of each individual is 4400 Computer Dr.,
Westborough, Massachusetts 01581.
(ii)
<TABLE>
<CAPTION>
Name and Principal Positions and Officers with Positions and
Business Address Provident Distributors, Inc. Offices with Trust
<S> <C> <C>
Philip H. Rinnander* President & Treasurer None
Jane Haegele* Director & Secretary None
Jason A. Greim* Vice President None
Barbara A. Rice* Vice President None
Jennifer K Rinnander* Vice President None
Lisa M Buono* Vice President & Compliance None
Officer
</TABLE>
* The principal business address of each individual is 3200 Horizon Drive, King
of Prussia, PA 19406.
(iii) The information required by this Item 27(b) with respect to each
director, officer, or partner of First Data Distributors, Inc.,
a former distributor of the Trust, is incorporated by reference
to Schedule A of Form BD filed by First Data Distributors, Inc.,
with the Securities and Exchange Commission pursuant to the
Securities Act of 1934 (file no. 8-45467).
(c) During the fiscal year ended August 31, 2000, (i) First Data
Distributors, Inc., the principal distributor of the Trust until
November 30, 1999, received, directly or indirectly, from the Trust
$4033.61 in net underwriting discounts and commissions and $310.90 in
<PAGE> 216
compensation on redemptions and repurchases, and (ii) Provident
Distributors, Inc., the principal distributor of the Trust from
December 1, 1999 until January 2, 2001 received, directly or
indirectly, from the Trust $23,186.41 in net underwriting discounts
and commissions and $1,506.63 in compensation on redemptions and
repurchases.
Item 28. Location of Accounts and Records
Persons maintaining physical possession of accounts, books and other
documents required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and the Rules promulgated thereunder are the
Trust's Secretary, Patricia L. Duncan; the Trust's investment adviser,
Undiscovered Managers; the custodian of each Fund except of the
Behavioral Long/Short Fund, The Bank of New York; the custodian of the
Behavioral Long/Short Fund, Custodial Trust Company; and the Trust's
transfer agent, PFPC Inc. The address of the Secretary and the
investment adviser is Plaza of the Americas, 700 North Pearl Street,
Dallas, Texas 75201; the address of The Bank of New York is One Wall
Street, New York, New York 10286; the address of Custodial Trust
Company is 101 Carnegie Center, Princeton, New Jersey 08540; and the
address of the transfer agent is 4400 Computer Drive, Westborough,
Massachusetts 01581.
Item 29. Management Services
There are no management-related service contracts not discussed in
Parts A and B.
Item 30. Undertakings
(a) The undersigned Trust hereby undertakes to call a meeting of
shareholders for the purpose of voting on the removal of a trustee or
trustees when requested in writing to do so by the holders of at least
10% of the Trust's outstanding voting securities and in connection
with such meeting to comply with the provisions of Section 16(c) of
the Investment Company Act of 1940 relating to shareholder
communications.
(b) The Trust hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Trust's latest Annual
Report to shareholders upon request and without charge.
<PAGE> 217
NOTICE
A copy of the Agreement and Declaration of Trust of the Trust is on file with
the Secretary of State of The Commonwealth of Massachusetts and notice is hereby
given that this instrument is executed on behalf of the Trust by an officer of
the Trust as an officer and not individually and the obligations of or arising
out of this instrument are not binding upon any of the Trustees or shareholders
individually but are binding only upon the assets and property of the Trust.
<PAGE> 218
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, Undiscovered Managers Funds, certifies that
it meets all of the requirements for effectiveness of this amendment to its
registration statement under rule 485(b) under the Securities Act of 1933 and
has duly caused this amendment to its registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas, and
State of Texas on the 28th day of December, 2000.
UNDISCOVERED MANAGERS FUNDS
By: /s/ Mark P. Hurley
Mark P. Hurley
Title: President
Pursuant to the requirements of the Securities Act of 1933, this amendment to
the registration statement of Undiscovered Managers Funds has been signed below
by the following persons in the capacities and on the date(s) indicated.
<TABLE>
<CAPTION>
Signatures Title Date
<S> <C> <C>
/s/ Mark P. Hurley President and Trustee December 28, 2000
Mark P. Hurley
/s/ * Mark P. Hurley Trustee December 28, 2000
Roger B. Keating
/s/ * Mark P. Hurley Trustee December 28, 2000
Matthew J. Kiley
/s/ * Mark P. Hurley Trustee December 28, 2000
Robert P. Schmermund
/s/ * Mark P. Hurley Treasurer December 28, 2000
Brian O'Neill
</TABLE>
*Signed by Mark P. Hurley as Attorney-In-Fact
<PAGE> 219
UNDISCOVERED MANAGERS FUNDS
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
(e)(ii) Form of Distribution Agreement between the Trust and PFPC
Distributors, Inc.
(i)(iii) Opinion and Consent of Counsel relating to the Behavioral
Large Cap Fund, the Merger & Acquisition Fund and the Small
Cap Growth Fund.
(j) Consent of Independent Auditors.
(n) Amended Rule 18f-3 Plan.
(p)(v) Code of Ethics of PFPC Distributors, Inc.
</TABLE>
