<PAGE>
UAM FUNDS
ICM PORTFOLIOS
INSTITUTIONAL CLASS SHARES
SUPPLEMENT DATED JANUARY 25, 1996
TO THE STATEMENT OF ADDITIONAL INFORMATION DATED
FEBRUARY 28, 1995 AS REVISED JUNE 15, 1995 AND
AS SUPPLEMENTED OCTOBER 31, 1995
ICM FIXED INCOME PORTFOLIO
The following information supplements the "Investment Objectives and
Policies" section:
PORTFOLIO OVERVIEW:
In addition, exchange traded interest rate futures and options are used to
increase or reduce interest rate exposure resulting from market changes or
cash flow variations. Futures and options also allow the efficient
implementation of strategies to hedge U.S. positions with currency-hedged
foreign interest rate exposure.
The following information supplements the "Investment Adviser" section:
PHILOSOPHY/STYLE:
ICM employs a conservative fixed income investment strategy. It is
designed to provide superior, risk-adjusted returns with an emphasis on
consistently outperforming the broad intermediate-term market as interest
rates climb and participating in market rallies as rates fall. The
investment process is largely driven by independent research on relative
value along the yield curve and a view on interest rate trends. The
Adviser considers events affecting both the U.S. and international capital
markets in its analysis. Market models developed in-house and other
internal systems quantify and monitor a broad set of risk measures used to
identify relative value between sectors and within security groups.
Relative value generally exists when a security or sector offers the
prospect of superior rewards for a given amount of risk.
REPRESENTATIVE INSTITUTIONAL CLIENTS:
- State of Maryland
- Johns Hopkins (Hospital)
- State of Kentucky
- NYNEX
- TRW Corp.
- Major League Baseball Players
- Wisconsin Power & Light
It is not known whether the listed clients approve or disapprove of the
Adviser or the advisory services provided. The Adviser used objective
criteria in compiling the client list, such as account size, geographic
location and client classification. The Adviser did not use any performance
based criteria.
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PART B
THE REGIS FUND, INC.
ICM FIXED INCOME PORTFOLIO
ICM INTERMEDIATE-TERM FIXED INCOME PORTFOLIO
ICM SHORT-INTERMEDIATE-TERM FIXED INCOME PORTFOLIO
INSTITUTIONAL CLASS SHARES
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 28, 1995, AS REVISED JUNE 15, 1995
This Statement is not a Prospectus but should be read in conjunction
with the Fund's Prospectus relating to the ICM Fixed Income, ICM
Intermediate-Term Fixed Income and the ICM Short-Intermediate-Term Fixed
Income Portfolios' Institutional Class Shares dated February 28, 1995. To
obtain the Prospectus, please call The Regis Service Center:
1-800-638-7983
TABLE OF CONTENTS
PAGE
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Investment Objectives and Policies 1
Purchase of Shares 4
Redemption of Shares 4
Shareholder Services 5
Investment Limitations 6
Management of the Fund 7
Investment Adviser 7
Portfolio Transactions 8
Administrative Services 8
Performance Calculations 8
General Information 11
Financial Statements 11
Appendix - Description of Securities and Ratings A-1
INVESTMENT OBJECTIVES AND POLICIES
The following policies supplement the investment policies of the ICM
Fixed Income, ICM Intermediate-Term Fixed Income and ICM
Short-Intermediate-Term Fixed Income Portfolios as set forth in the
Portfolios' Prospectus:
SECURITIES LENDING
Each Portfolio may lend its investment securities to qualified
institutional investors who need to borrow securities in order to complete
certain transactions, such as covering short sales, avoiding failures to
deliver securities or completing arbitrage operations. By lending its
investment securities, a Portfolio attempts to increase its income through
the receipt of interest on the loan. Any gain or loss in the market price
of the securities loaned that might occur during the term of the loan would
be for the account of the Portfolio. Each Portfolio may lend its investment
securities to qualified brokers, dealers, domestic and foreign banks or
other financial institutions, so long as the terms, the structure and the
aggregate amount of such loans are not inconsistent with the Investment
Company Act of 1940, as amended, (the "1940 Act") or the rules and
regulations or interpretations of the Securities and Exchange Commission
(the "Commission") thereunder, which currently require that (a) the
borrower pledge and maintain with the Portfolio collateral consisting of
cash, an irrevocable letter of credit issued by a domestic U.S. bank, or
securities issued or guaranteed by the United States Government having a
value at all times not less than 100% of the value of the securities
loaned, (b) the borrower add to such collateral whenever the price of the
securities loaned rises (i.e., the borrower "marks to the market" on a
daily basis), (c) the loan be made subject to termination by the Portfolio
at any time, and (d) the Portfolio receives reasonable interest on the loan
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(which may include the Portfolio investing any cash collateral in interest
bearing short-term investments), any distribution on the loaned securities
and any increase in their market value. All relevant facts and
circumstances, including the creditworthiness of the broker, dealer or
institution, will be considered in making decisions with respect to the
lending of securities, subject to review by the Directors.
At the present time, the Staff of the Commission does not object if an
investment company pays reasonable negotiated fees in connection with
loaned securities, so long as such fees are set forth in a written contract
and approved by the investment company's Directors. The Portfolios will
continue to retain any voting rights with respect to the loaned securities.
If a material event occurs affecting an investment on loan, the loan must
be called and the securities voted.
FUTURES CONTRACTS
Each Portfolio may enter into futures contracts, options, and options
on futures contracts for the purposes of remaining fully invested and
reducing transactions costs. Futures contracts provide for the future sale
by one party and purchase by another party of a specified amount of a
specific security at a specified future time and at a specified price.
Futures contracts which are standardized as to maturity date and underlying
financial instrument are traded on national futures exchanges. Futures
exchanges and trading are regulated under the Commodity Exchange Act by the
Commodity Futures Trading Commission ("CFTC"), a U.S. Government agency.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities, in most cases the contracts are
closed out before the settlement date without the making or taking of
delivery. Closing out an open futures position is done by taking an
opposite position ("buying" a contract which has previously been "sold" or
"selling" a contract previously "purchased") in an identical contract to
terminate the position. Brokerage commissions are incurred when a futures
contract is bought or sold.
Futures traders are required to make a good faith margin deposit in
cash or government securities with a broker or custodian to initiate and
maintain open positions in futures contracts. A margin deposit is intended
to assure completion of the contract (delivery or acceptance of the
underlying security) if it is not terminated prior to the specified
delivery date. Minimal initial margin requirements are established by the
futures exchange and may be changed. Brokers may establish deposit
requirements which are higher than the exchange minimums. Futures contracts
are customarily purchased and sold on margin that may range upward from
less than 5% of the value of the contract being traded.
After a futures contract position is opened, the value of the contract
is marked to market daily. If the futures contract price changes to the
extent that the margin on deposit does not satisfy margin requirements,
payment of additional "variation" margin will be required. Conversely,
change in the contract value may reduce the required margin, resulting in a
repayment of excess margin to the contract holder. Variation margin
payments are made to and from the futures broker for as long as the
contract remains open. The Fund expects to earn interest income on its
margin deposits.
Traders in futures contracts may be broadly classified as either
"hedgers" or "speculators". Hedgers use the futures markets primarily to
offset unfavorable changes in the value of securities otherwise held for
investment purposes or expected to be acquired by them. Speculators are
less inclined to own the securities underlying the futures contracts which
they trade, and use futures contracts with the expectation of realizing
profits from a fluctuation in interest rates. Each Portfolio intends to use
futures contracts only for hedging purposes.
Regulations of the CFTC applicable to the Fund require that all of its
futures transactions constitute bona fide hedging transactions or that the
Fund's commodity futures and option positions be for other purposes, to the
extent that the aggregate initial margins and premiums required to
establish such non-hedging positions do not exceed 5% of the liquidation
value of a Portfolio. A Portfolio will only sell futures contracts to
protect securities it owns against price declines or purchase contracts to
protect against an increase in the price of securities it intends to
purchase. As evidence of this hedging interest, each Portfolio expects that
approximately 75% of its futures contracts purchases will be "completed";
that is, equivalent amounts of related securities will have been purchased
or are being purchased by the Portfolio upon sale of open futures
contracts.
Although techniques other than the sale and purchase of futures
contracts could be used to control a Portfolio's exposure to market
fluctuations, the use of futures contracts may be a more effective means of
hedging this exposure. While a Portfolio will incur commission expenses in
both opening and closing out futures positions, these costs are lower than
transaction costs incurred in the purchase and sale of the underlying
securities.
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RESTRICTIONS ON THE USE OF FUTURES CONTRACTS
A Portfolio will not enter into futures contract transactions to the
extent that, immediately thereafter, the sum of its initial margin deposits
on open contracts exceeds 5% of the market value of its total assets. In
addition, a Portfolio will not enter into futures contracts to the extent
that its outstanding obligations to purchase securities under these
contracts would exceed 20% of its total assets.
RISK FACTORS IN FUTURES TRANSACTIONS
A Portfolio will minimize the risk that it will be unable to close out
a futures contract by only entering into futures which are traded on
national futures exchanges and for which there appears to be a liquid
secondary market. However, there can be no assurance that a liquid
secondary market will exist for any particular futures contract at any
specific time. Thus, it may not be possible to close a futures position. In
the event of adverse price movements, a Portfolio would continue to be
required to make daily cash payments to maintain its required margin. In
such situations, if the Portfolio has insufficient cash, it may have to
sell Portfolio securities to meet daily margin requirements at a time when
it may be disadvantageous to do so. In addition, the Portfolio may be
required to make delivery of the instruments underlying futures contracts
it holds. The inability to close options and futures positions also could
have an adverse impact on the Portfolio's ability to effectively hedge.
The risk of loss in trading futures contracts in some strategies can
be substantial, due both to the low margin deposits required, and the
extremely high degree of leverage involved in futures pricing. As a result,
a relatively small price movement in a futures contract may result in
immediate and substantial loss (as well as gain) to the investor. For
example, if at the time of purchase, 10% of the value of the futures
contract is deposited as margin, a subsequent 10% decrease in the value of
the futures contracts would result in a total loss of the margin deposit,
before any deduction for the transaction costs, if the account were then
closed out. A 15% decrease would result in a loss equal to 150% of the
original margin deposit if the contract were closed out. Thus, a purchase
or sale of a futures contract may result in excess of the amount invested
in the contract. However, because the futures strategies of each Portfolio
is engaged in only for hedging purposes, the Adviser does not believe that
the Portfolios are subject to the risks of loss frequently associated with
futures transactions. A Portfolio would presumably have sustained
comparable losses if, instead of the futures contract, it had invested in
the underlying financial instrument and sold it after the decline.
Utilization of futures transactions by a Portfolio does involve the
risk of imperfect or no correlation where the securities underlying futures
contracts have different maturities than the Portfolio securities being
hedged. It is also possible that the Portfolio could lose money on futures
contracts and also experience a decline in value of Portfolio securities.
There is also the risk of loss by the Portfolio of margin deposits in the
event of bankruptcy of a broker with whom the Portfolio has an open
position in a futures contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end
of a trading session. Once the daily limit has been reached in a particular
type of contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular
trading day and therefore does not limit potential losses, because the
limit may prevent the liquidation of unfavorable positions. Futures
contract prices have occasionally moved to the daily limit for several
consecutive trading days, with little or no trading, thereby preventing
prompt liquidation of futures positions and subjecting some futures traders
to substantial losses.
Futures contracts, and options on futures contracts, may be traded on
foreign exchanges. Such transactions are subject to the risk of
governmental actions affecting trading in or the prices of foreign
currencies or securities. The value of such positions also could be
adversely affected by (i) other complex foreign political and economic
factors, (ii) lesser availability than in the United States of data on
which to make trading decisions, (iii) delays in a Portfolio's ability to
act upon economic events occurring in foreign markets during nonbusiness
hours in the United States, (iv) the imposition of different exercise and
settlement terms and procedures and margin requirements than in the United
States, and (v) lesser trading volume.
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FEDERAL TAX TREATMENT OF FUTURES CONTRACTS
Except for transactions a Portfolio has identified as hedging
transactions, the Portfolio is required for Federal income tax purposes to
recognize as income for each taxable year its net unrealized gains and
losses on regulated futures contracts as of the end of the year as well as
those actually realized during the year. In most cases, any gain or loss
recognized with respect to a futures contract is considered to be 60%
long-term capital gain or loss and 40% short-term capital gain or loss,
without regard to the holding period of the contract. Furthermore, sales of
futures contracts which are intended to hedge against a change in the value
of securities held by the Portfolio may affect the holding period of such
securities and, consequently, the nature of the gain or loss on such
securities upon disposition.
In order for a Portfolio to continue to qualify for Federal income tax
treatment as a regulated investment company, at least 90% of its gross
income for a taxable year must be derived from qualifying income:
i.e., dividends, interest, income derived from loans of securities, and
gains from the sale of securities or foreign currencies, or other income
derived with respect to its business of investing in such securities or
currencies. In addition, gains realized on the sale or other disposition of
securities held for less than three months must be limited to less than 30%
of a Portfolio's annual gross income. It is anticipated that any net gain
realized from the closing out of futures contracts will be considered a
gain from the sale of securities and therefore will be qualifying income
for purposes of the 90% requirement. In order to avoid realizing excessive
gains on securities held for less than three months, a Portfolio may be
required to defer the closing out of futures contracts beyond the time when
it would otherwise be advantageous to do so. It is anticipated that
unrealized gains on futures contracts, which have been open for less than
three months as of the end of a Portfolio's fiscal year and which are
recognized for tax purposes, will not be considered gains on securities
held for less than three months for the purposes of the 30% test.
Each Portfolio will distribute to shareholders annually any net
capital gains which have been recognized for Federal income tax purposes
(including unrealized gains at the end of the Portfolio's fiscal year) on
futures transactions. Such distributions will be combined with
distributions of capital gains realized on the Portfolio's other
investments, and shareholders will be advised on the nature of the
payments.
PURCHASE OF SHARES
Shares of each Portfolio may be purchased without a sales commission,
at the net asset value per share next determined after an order is received
in proper form by the Fund, and payment is received by the Fund's
Custodian. The minimum initial investment required is $100,000 with certain
exceptions as may be determined from time to time by officers of the Fund.
An order received in proper form prior to the 4:00 p.m. close of the New
York Stock Exchange ("Exchange") will be executed at the price computed on
the date of receipt; and an order received not in proper form or after the
4:00 p.m. close of the Exchange will be executed at the price computed on
the next day the Exchange is open after proper receipt. The Exchange will
be closed on the following days: Good Friday, April 14, 1995; Memorial Day,
May 29, 1995; Independence Day, July 4, 1995; Labor Day, September 4, 1995;
Thanksgiving Day, November 23, 1995; Christmas Day, December 25, 1995; New
Year's Day, January 1, 1996; and Presidents' Day, February 19, 1996.
Each Portfolio reserves the right in its sole discretion (i) to
suspend the offering of its shares, (ii) to reject purchase orders when in
the judgement of management such rejection is in the best interest of the
Fund, and (iii) to reduce or waive the minimum for initial and subsequent
investment for certain fiduciary accounts such as employee benefit plans or
under circumstances where certain economies can be achieved in sales of a
Portfolio's shares.
REDEMPTION OF SHARES
REDEMPTIONS
Each Portfolio may suspend redemption privileges or postpone the date
of payment (i) during any period that both the Exchange and custodian bank
are closed, or trading on the Exchange is restricted as determined by the
Commission, (ii) during any period when an emergency exists as defined by
the rules of the Commission as a result of which it is not reasonably
practicable for a Portfolio to dispose of securities owned by it, or to
fairly determine the value of its assets, and (iii) for such other periods
as the Commission may permit. The Fund has made an election with the
Commission to pay in cash all redemptions requested by any shareholder of
record limited in amount during any 90-day period to the lesser of $250,000
or 1% of the net assets of the Fund at the beginning of such period. Such
commitment is irrevocable without the prior approval of the Commission.
Redemptions in excess of the above limits may be paid in whole or in part,
in investment securities or in cash, as the Directors may deem advisable;
however, payment will be made wholly in cash unless the Directors believe
that economic or market conditions exist which would make such a practice
detrimental to the best interests of the Fund. If redemptions are paid in
investment securities, such securities will be valued as set forth in the
Portfolios' Prospectus under "Valuation of Shares" and a redeeming
shareholder would normally incur brokerage expenses if these securities
were converted to cash.
<PAGE>
No charge is made by any Portfolio for redemptions. Any redemption may
be more or less than the shareholder's initial cost depending on the market
value of the securities held by the Portfolio.
SIGNATURE GUARANTEES
To protect your account, the Fund and Mutual Funds Service Company
("the Administrator") from fraud, signature guarantees are required for
certain redemptions. The purpose of signature guarantees is to verify the
identity of the person who has authorized a redemption from your account.
Signature guarantees are required in connection with (1) all redemptions
when the proceeds are to be paid to someone other than the registered
owner(s) and/or registered address; or (2) share transfer requests.
Signatures must be guaranteed by an "eligible guarantor institution"
as defined in Rule 17Ad-15 under the Securities Exchange Act of 1934.
Eligible guarantor institutions include banks, brokers, dealers, credit
unions, national securities exchanges, registered securities associations,
clearing agencies and savings associations. A complete definition of
eligible guarantor institutions is available from the Administrator, the
Fund's transfer agent. Broker-dealers guaranteeing signatures must be a
member of a clearing corporation or maintain net capital of at least
$100,000. Credit unions must be authorized to issue signature guarantees.
Signature guarantees will be accepted from any eligible guarantor
institution which participates in a signature guarantee program.
The signature guarantee must appear either: (1) on the written request
for redemption; (2) on a separate instrument for assignment ("stock power")
which should specify the total number of shares to be redeemed; or (3) on
all stock certificates tendered for redemption and, if shares held by the
Fund are also being redeemed, on the letter or stock power.
SHAREHOLDER SERVICES
The following supplements the shareholder services information set
forth in the Portfolios' Prospectus:
EXCHANGE PRIVILEGE
Institutional Class Shares of each ICM Portfolio may be exchanged for
Institutional Class Shares of the other ICM Portfolios. In addition,
Institutional Class Shares of each ICM Portfolio may be exchanged for any
other Institutional Class Shares of a Portfolio included in The Regis
Family of Funds which is comprised of the Fund and The Regis Fund II. (See
the list of Portfolios of The Regis Family of Funds _ Institutional Class
Shares at the end of the Prospectus dated February 28, 1995.) Exchange
requests should be made by calling the Fund (1-800-638-7983) or by writing
to The Regis Fund, Inc., The Regis Service Center, c/o Mutual Funds Service
Company, P.O. Box 2798, Boston, MA 02208-2798. The exchange privilege is
only available with respect to Portfolios that are registered for sale in
the shareholder's state of residence.
Any such exchange will be based on the respective net asset values of
the shares involved. There is no sales commission or charge of any kind.
Before making an exchange into a Portfolio, a shareholder should read its
Prospectus and consider the investment objectives of the Portfolio to be
purchased. You may obtain a Prospectus for the Portfolio(s) you are
interested in by calling The Regis Service Center at 1-800-638-7983.
Exchange requests may be made either by mail or telephone. Telephone
exchanges will be accepted only if the certificates for the shares to be
exchanged are held by the Fund for the account of the shareholder, and the
registration of the two accounts will be identical. Requests for exchanges
received prior to 4:00 p.m. (Eastern time) will be processed as of the
close of business on the same day. Requests received after 4:00 p.m. will
be processed on the next business day. Neither the Fund nor the
Administrator, the Fund's transfer agent, will be responsible for the
authenticity of the exchange instructions received by telephone. Exchanges
may also be subject to limitations as to amounts or frequency and to other
restrictions established by the Board of Directors to assure that such
exchanges do not disadvantage the Fund and its shareholders.
For Federal income tax purposes an exchange between Funds is a taxable
event, and, accordingly, a capital gain or loss may be realized. In a
revenue ruling relating to circumstances similar to the Fund's, an exchange
between series of a Fund was also deemed to be a taxable event. It is
likely, therefore that a capital gain or loss would be realized on an
exchange between Portfolios; you may want to consult your tax adviser for
further information in this regard. The exchange privilege may be modified
or terminated at any time.
TRANSFER OF SHARES
Shareholders may transfer shares of the Fund's Portfolios to another
person or entity by making a written request to the Fund. The request
should clearly identify the account and number of shares to be transferred,
and include the signature of all registered owners and all stock
certificates, if any, which are subject to the transfer. The signature on
<PAGE>
the letter of request, the stock certificate or any stock power must be
guaranteed in the same manner as described under "Redemption of Shares". As
in the case of redemptions, the written request must be received in good
order before any transfer can be made.
INVESTMENT LIMITATIONS
The Portfolios are subject to the following restrictions which may be
changed by the Fund's Board of Directors upon reasonable notice to
investors. These restrictions supplement the investment objectives and
policies set forth in the Prospectus. The Portfolios will not:
(1) invest in commodities except that each Portfolio
may invest in futures contracts and options to the extent
that not more than 5% of a Portfolio's assets are required
as deposit to secure obligations under futures contracts;
(2) purchase or sell real estate, although it may
purchase and sell securities of companies which deal in real
estate and may purchase and sell securities which are
secured by interests in real estate;
(3) make loans except (i) by purchasing bonds,
debentures or similar obligations (including repurchase
agreements, subject to the limitation described in (10)
below) which are publicly distributed, and (ii) by lending
its portfolio securities to banks, brokers, dealers and
other financial institutions so long as such loans are not
inconsistent with the 1940 Act or the rules and regulations
or interpretations of the Commission thereunder;
(4) purchase on margin or sell short except as
specified in (1) above;
(5) purchase more than 10% of any class of the
outstanding voting securities of any issuer;
(6) with respect as to 75% of its assets, purchase
securities of any issuer (except obligations of the United
States Government and its instrumentalities) if as the
result more than 5% of the Portfolio's total assets, at the
time of purchase, would be invested in the securities of
such issuer;
(7) purchase or retain securities of an issuer if
those officers and Directors of the Fund or its investment
adviser owning more than 12 of 1% of such securities
together own more than 5% of such securities;
(8) borrow money, except from banks and as a temporary
measure for extraordinary or emergency purposes and then, in
no event, in excess of 10% of the Portfolio's gross assets
valued at the lower of market or cost, and a Portfolio may
not purchase additional securities when borrowings exceed 5%
of total gross assets;
(9) pledge, mortgage, or hypothecate any of its assets
to an extent greater than 10% of its total assets at fair
market value;
(10) underwrite the securities of other issuers or
invest more than an aggregate of 10% of the assets of the
Portfolio, determined at the time of investment, in
securities subject to legal or contractual restrictions on
resale or securities for which there are no readily
available markets, including repurchase agreements having
maturities of more than seven days;
(11) invest for the purpose of exercising control over
management of any company;
(12) invest its assets in securities of any investment
company, except in connection with merger, acquisition of
assets or consolidation;
(13) invest more than 5% of its assets at the time of
purchase in the securities of companies that have (with
predecessors) continuous operations consisting of less than
three years;
(14) acquire any securities of companies within one
industry if, as a result of such acquisition, more than 25%
of the value of the Portfolio's total assets would be
invested in securities of companies within such industry;
provided, however, that there shall be no limitation on the
purchase of obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, or
instruments issued by U.S. banks when the Portfolio adopts a
temporary defensive position; and
(15) write or acquire options or interests in oil, gas
or other mineral exploration or development programs.
<PAGE>
MANAGEMENT OF THE FUND
OFFICERS AND DIRECTORS
The Fund's officers, under the supervision of the Board of Directors,
manage the day-to-day operations of the Fund. The Directors set broad
policies for the Fund and choose its officers. A list of the Directors and
officers of the Fund and a brief statement of their present positions and
principal occupations during the past 5 years is set forth in the
Portfolios' Prospectus. As of January 31, 1995, the Directors and officers
of the Fund owned less than 1% of the Fund's outstanding shares.
REMUNERATION OF DIRECTORS AND OFFICERS
The Fund pays each Director, who is not also an officer or affiliated
person, a $150 quarterly retainer fee per active Portfolio which currently
amounts to $4,350 per quarter. In addition, each unaffiliated Director
receives a $2,000 meeting fee which is aggregated for all of the Directors
and allocated proportionately among the Portfolios of the Fund and The
Regis Fund II as well as the AEW Commercial Mortgage Securities Fund, Inc.
and reimbursement for travel and other expenses incurred while attending
Board meetings. Directors who are also officers or affiliated persons
receive no remuneration for their services as Directors. The Fund's
officers and employees are paid by either the Adviser, United Asset
Management Corporation ("UAM"), or the Administrator and receive no
compensation from the Fund.
PRINCIPAL HOLDERS OF SECURITIES
As of January 31, 1995, the following persons or organizations held of
record or beneficially 5% or more of the shares of the ICM Fixed Income
Portfolio:
Smith, Somerville Case Pension Plan, Baltimore, MD, 27.5%; MSTA
Pension, Baltimore, MD, 17.7%; ICM/United Asset Management Corporation
Profit Sharing & 401(k) Plan, Baltimore, MD, 15.0%; Four East Madison
Orthopedic Association Profit Sharing Plan, Baltimore, MD, 11.9%; U.S.
Trust Company of New York, Trustee, Cor-Box, Inc. Profit Sharing & 401(k)
Plan, New York, NY, 8.5%*; and Reliable Contracting Company, Inc. Profit
Sharing Plan, Baltimore, MD, 5.4%.
The persons or organizations listed above as owning 25% or more of the
outstanding shares of a Portfolio may be presumed to "control" (as that
term is defined in the 1940 Act) such Portfolio. As a result, those persons
or organizations could have the ability to vote a majority of the shares of
the Portfolio on any matter requiring the approval of shareholders of such
Portfolio.
___________
*Denotes shares held by a trustee or other fiduciary for which beneficial
ownership is disclaimed or presumed disclaimed.
INVESTMENT ADVISER
CONTROL OF ADVISER
Investment Counselors of Maryland, Inc. (the "Adviser") is a
wholly-owned subsidiary of UAM, a holding company incorporated in Delaware
in December, 1980 for the purpose of acquiring and owning firms engaged
primarily in institutional investment management. Since its first
acquisition in August, 1983, UAM has acquired or organized approximately 42
such wholly-owned affiliated firms (the "UAM Affiliated Firms"). UAM
believes that permitting UAM Affiliated Firms to retain control over their
investment advisory decisions is necessary to allow them to continue to
provide investment management services that are intended to meet the
particular needs of their respective clients. Accordingly, after
acquisition by UAM, UAM Affiliated Firms continue to operate under their
own firm name, with their own leadership and individual investment
philosophy and approach. Each UAM Affiliated Firm manages its own business
independently on a day-to-day basis. Investment strategies employed and
securities selected by UAM Affiliated Firms are separately chosen by each
of them.
ADVISORY FEES
As compensation for services rendered by the Adviser under the
Portfolios' Investment Advisory Agreements, each Portfolio pays the Adviser
an annual fee, in monthly installments, calculated by applying the
following annual percentage rates to the Portfolios' average net assets for
the month:
<TABLE>
<CAPTION>
RATE
----
<S> <C>
ICM Fixed Income Portfolio 0.500%
ICM Intermediate-Term Fixed Income Portfolio 0.500%
ICM Short-Intermediate-Term Fixed Income Portfolio 0.375%
</TABLE>
For the period November 3, 1992 (commencement of operations) to
October 31, 1993, the ICM Fixed Income Portfolio paid advisory fees of
approximately $46,000, of which $33,000 in fees were waived by the Adviser.
<PAGE>
For the fiscal year ended October 31, 1994, the ICM Fixed Income Portfolio
paid advisory fees of approximately $65,000, of which $59,000 in fees were
waived by the Adviser. The ICM Intermediate-Term Fixed Income and ICM
Short-Intermediate-Term Fixed Income Portfolios have had no operations to
date.
PORTFOLIO TRANSACTIONS
The Investment Advisory Agreements authorize the Adviser to select the
brokers or dealers that will execute the purchases and sales of investment
securities for each Portfolio and directs the Adviser to use its best
efforts to obtain the best execution with respect to all transactions for
the Portfolio. In doing so, a Portfolio may pay higher commission rates
than the lowest rate available when the Adviser believes it is reasonable
to do so in light of the value of the re search, statistical, and pricing
services provided by the broker effecting the transaction. It is not the
Fund's practice to allocate brokerage or principal business on the basis of
sales of shares which may be made through broker-dealer firms. However, the
Adviser may place portfolio orders with qualified broker-dealers who
recommend the Fund's Portfolios or who act as agents in the purchase of
shares of the Portfolios for their clients. During the fiscal years ended,
October 31, 1992, 1993 and 1994, the entire Fund paid brokerage commissions
of approximately $1,248,000, $1,592,000 and $2,402,000, respectively.
Some securities considered for investment by a Portfolio may also be
appropriate for other clients served by the Adviser. If purchases or sales
of securities consistent with the investment policies of a Portfolio and
one or more of these other clients served by the Adviser is considered at
or about the same time, transactions in such securities will be allocated
among the Portfolio and clients in a manner deemed fair and reasonable by
the Adviser. Although there is no specified formula for allocating such
transactions, the various allocation methods used by the Adviser, and the
results of such allocations, are subject to periodic review by the Fund's
Directors.
ADMINISTRATIVE SERVICES
Effective February 1, 1992, the Administrator, an affiliate of United
States Trust Company of New York, provides administrative, fund accounting,
dividend disbursing and transfer agency services to the Fund under an
Administration Agreement. During the fiscal year ended October 31, 1993,
administrative services fees paid to the Administrator by the ICM Fixed
Income Portfolio totaled $28,000. The basis of the fees paid to the
Administrator for the 1993 fiscal year was as follows: the Fund paid a
monthly fee for its services which on an annualized basis equaled 0.16 of
1% of the first $200 million of the aggregate net assets of the Fund; plus
0.12 of 1% of the next $800 million of the aggregate net assets of the
Fund; plus 0.06 of 1% of the aggregate net assets in excess of $1 billion.
The fees were allocated among the Portfolios on the basis of their relative
assets and were subject to a graduated minimum fee schedule per Portfolio,
which rose from $1,000 per month upon inception of a Portfolio to $50,000
annually after two years. During the fiscal year ended October 31, 1994,
administrative services fees paid to the Administrator by the ICM Fixed
Income Portfolio totaled $65,000. The services provided by the
Administrator and the current fees payable to the Administrator are
described in the Portfolios' Prospectus.
PERFORMANCE CALCULATIONS
PERFORMANCE
The Fund may from time to time quote various performance figures to
illustrate the Fund's past performance.
Performance quotations by investment companies are subject to rules
adopted by the Commission, which require the use of standardized
performance quotations or, alternatively, that every non-standardized
performance quotation furnished by the Fund be accompanied by certain
standardized performance information computed as required by the
Commission. Current yield and average annual compounded total return
quotations used by the Fund are based on the standardized methods of
computing performance mandated by the Commission. An explanation of those
and other methods used by the Fund to compute or express performance
follows.
TOTAL RETURN
The average annual total return is determined by finding the average
annual compounded rates of return over 1, 5, and 10 year periods that would
equate an initial hypothetical $1,000 investment to its ending redeemable
value. The calculation assumes that all dividends and distributions are
reinvested when paid. The quotation assumes the amount was completely
redeemed at the end of each 1, 5 and 10 year period and the deduction of
all applicable Fund expenses on an annual basis. From inception and for the
one year period ended on the date of the Financial Statements included
herein, the ICM Fixed Income Portfolio had average annual total returns of
2.72% and -4.43%, respectively.
<PAGE>
These figures are calculated according to the following formula:
n
P (1 + T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the 1, 5, or 10 year periods at the end of the 1, 5,
or 10 year periods (or fractional portion thereof).
YIELD
Current yield reflects the income per share earned by a Portfolio's
investment.
Current yield is determined by dividing the net investment income per
share earned during a 30-day base period by the maximum offering price per
share on the last day of the period and annualizing the result. Expenses
accrued for the period include any fees charged to all shareholders during
the base period. The yield for the ICM Fixed Income Portfolio for the
30-day period ended on October 31, 1994 was 6.73%.
This figure is obtained using the following formula:
6
Yield = 2 [(a - b + 1) - 1]
----
cd
where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
that were entitled to receive income distributions
d = the maximum offering price per share on the last day of the
period.
COMPARISONS
To help investors better evaluate how an investment in a Portfolio of
the Fund might satisfy their investment objective, advertisements regarding
the Fund may discuss various measures of Fund performance as reported by
various financial publications. Advertisements may also compare performance
(as calculated above) to performance as reported by other investments,
indices and averages. The following publications, indices and averages may
be used:
(a) Dow Jones Composite Average or its component averages _ an unmanaged
index composed of 30 blue-chip industrial corporation stocks (Dow
Jones Industrial Average), 15 utilities company stocks and 20
transportation stocks. Comparisons of performance assume reinvestment
of dividends.
(b) Standard & Poor's 500 Stock Index or its component indices _ an
unmanaged index composed of 400 industrial stocks, 40 financial
stocks, 40 utilities stocks and 20 transportation stocks. Comparisons
of performance assume reinvestment of dividend.
(c) The New York Stock Exchange composite or component indices _ unmanaged
indices of all industrial, utilities, transportation and finance
stocks listed on the New York Stock Exchange.
(d) Wilshire 5000 Equity index or its component indices _ represents the
return on the market value of all common equity securities for which
daily pricing is available. Comparisons of performance assume
reinvestment of dividends.
(e) Lipper _ Mutual Fund Performance Analysis and Lipper _ Fixed Income
Fund Performance Analysis _ measures total return and average current
yield for the mutual fund industry. Rank individual mutual fund
performance over specified time periods, assuming reinvestments of all
distributions, exclusive of any applicable sales charges.
(f) Morgan Stanley Capital International EAFE Index and World Index _
respectively, arithmetic, market value-weighted averages of the
performance of over 900 securities listed on the stock exchanges of
countries in Europe, Australia and the Far East, and over 1,400
securities listed on the stock exchanges of these continents,
including North America.
<PAGE>
(g) Goldman Sachs 100 Convertible Bond Index _ currently includes 67 bonds
and 33 preferred. The original list of names was generated by
screening for convertible issues of 100 million or greater in market
capitalization. The index is priced monthly.
(h) Salomon Brothers GNMA Index _ includes pools of mortgages originated
by private lenders and guaranteed by the mortgage pools of the
Government National Mortgage Association.
(i) Salomon Brothers High Grade Corporate Bond Index _ consists of
publicly issued, non-convertible corporate bonds rated AA or AAA. It
is a value-weighted, total return index, including approximately 800
issues with maturities of 12 years or greater.
(j) Salomon Brothers Broad Investment Grade Bond _ is a market-weighted
index that contains approximately 4,700 individually priced investment
grade corporate bonds rated BBB or better, U.S. Treasury/agency issues
and mortgage pass- through securities.
(k) Lehman Brothers Aggregate Index _ is a fixed income market
value-weighted index that combines the Lehman Brothers
Government/Corporate Index and the Lehman Brothers Mortgage-Backed
Securities Index. It includes fixed rate issues of investment grade
(BBB) or higher, with maturities of at least one year and outstanding
par values of at least $100 million for U.S. Government issues and
$25 million for others.
(l) Lehman Brothers LONG-TERM Treasury Bond _ is composed of all bonds
covered by the Lehman Brothers Treasury Bond Index with maturities of
10 years or greater.
(m) NASDAQ Industrial Index _ is composed of more than 3,000 industrial
issues. It is a value-weighted index calculated on price change only
and does not include income.
(n) Value Line _ composed of over 1,600 stocks in the Value Line
Investment Survey.
(o) Russell 2000 _- composed of the 2,000 smallest stocks in the Russell
3000, a market value weighted index of the 3,000 largest
U.S. publicly-traded companies.
(p) Composite Indices _ 70% Standard & Poor's 500 Stock Index and 30%
NASDAQ Industrial Index; 35% Standard & Poor's 500 Stock Index and 65%
Salomon Brothers High Grade Bond Index; all stocks on the NASDAQ
system exclusive of those traded on an exchange, and 65% Standard &
Poor's 500 Stock Index and 35% Salomon Brothers High Grade Bond Index.
(q) CDA Mutual Fund Report, published by CDA Investment Technologies,
Inc. _ analyzes price, current yield, risk, total return and average
rate of return (average annual compounded growth rate) over specified
time periods for the mutual fund industry.
(r) Mutual Fund Source Book, published by Morningstar, Inc. _ analyzes
price, yield, risk and total return for equity funds.
(s) Financial publications: Business Week, Changing Times, Financial
World, Forbes, Fortune, Money, Barron's, Consumer's Digest, Financial
Times, Global Investor, Investor's Daily, Lipper Analytical Services,
Inc., Morningstar, Inc., New York Times, Personal Investor, Wall
Street Journal and Weisenberger Investment Companies Service _
publications that rate fund performance over specified time periods.
(t) Consumer Price Index (or cost of Living Index), published by the
U.S. Bureau of Labor Statistics _ a statistical measure of change,
over time in the price of goods and services in major expenditure
groups.
(u) Stocks, Bonds, Bills and Inflation, published by Ibbotson Associates _
historical measure of yield, price and total return for common and
small company stock, long-term government bonds, U.S. Treasury bills
and inflation.
(v) Savings and Loan Historical Interest Rates _ as published in the
U.S. Savings & Loan League Fact Book.
(w) Historical data supplied by the research departments of First Boston
Corporation, the J.P. Morgan companies, Salomon Brothers, Merrill
Lynch, Pierce, Fenner & Smith, Lehman Brothers, Inc.; and Bloomberg
L.P.
In assessing such comparisons of performance, an investor should keep
in mind that the composition of the investments in the reported indices and
averages is not identical to the composition of investments in the Fund's
<PAGE>
Portfolios, that the averages are generally unmanaged, and that the items
included in the calculations of such averages may not be identical to the
formula used by the Fund to calculate its performance. In addition, there
can be no assurance that the Fund will continue this performance as
compared to such other averages.
GENERAL INFORMATION
DESCRIPTION OF SHARES AND VOTING RIGHTS
The Fund was organized under the name "ICM Fund, Inc." as a Maryland
corporation on October 11, 1988. On January 18, 1989, the name of the Fund
was changed to "The Regis Fund, Inc." The Fund's principal executive office
is located at 803 Cathedral Street, Baltimore, MD 21201; however, all
investor correspondence should be addressed to the Fund at The Regis
Service Center, c/o Mutual Funds Service Company, P.O. Box 2798, Boston, MA
02208-2798. The Fund's Articles of Incorporation, as amended, authorize the
Directors to issue 3,000,000,000 shares of common stock, $.001 par value.
The Board of Directors has the power to designate one or more series
(Portfolios) or classes of common stock and to classify or reclassify any
unissued shares with respect to such Portfolios. Currently, the Fund is
offering shares of 29 Portfolios.
The shares of each Portfolio of the Fund, when issued and paid for as
provided for in its Prospectuses, will be fully paid and nonassessable, and
have no preference as to conversion, exchange, dividends, retirement or
other features. The shares of each Portfolio of the Fund have no preemptive
rights. The shares of the Fund have noncumulative voting rights, which
means that the holders of more than 50% of the shares voting for the
election of Directors can elect 100% of the Directors if they choose to do
so. A shareholder is entitled to one vote for each full share held (and a
fractional vote for each fractional share held), then standing in his or
her name on the books of the Fund.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Fund's policy is to distribute substantially all of each
Portfolio's net investment income, if any, together with any net realized
capital gains in the amount and at the times that will avoid both income
(including capital gains) taxes on it and the imposition of the Federal
excise tax on undistributed income and capital gains (see discussion under
"Dividends, Capital Gains Distributions and Taxes" in the Portfolios'
Prospectus). The amounts of any income dividends or capital gains
distributions cannot be predicted.
Any dividend or distribution paid shortly after the purchase of shares
of a Portfolio by an investor may have the effect of reducing the per share
net asset value of that Portfolio by the per share amount of the dividend
or distribution. Furthermore, such dividends or distributions, although in
effect a return of capital, are subject to income taxes as set forth in the
Portfolios' Prospectus.
As set forth in the Portfolios' Prospectus, unless the shareholder
elects otherwise in writing, all dividend and capital gains distributions
are automatically received in additional shares of that Portfolio of the
Fund at net asset value (as of the business day following the record date).
This will remain in effect until the Fund is notified by the shareholder in
writing at least three days prior to the record date that either the Income
Option (income dividends in cash and capital gains distributions in
additional shares at net asset value) or the Cash Option (both income
dividends and capital gains distributions in cash) has been elected. An
account statement is sent to shareholders whenever an income dividend or
capital gains distribution is paid.
Each Portfolio of the Fund will be treated as a separate entity (and
hence as a separate "regulated investment company") for Federal tax
purposes. Any net capital gains recognized by a Portfolio will be
distributed to its investors without need to offset (for Federal income tax
purposes) such gains against any net capital losses of another Portfolio.
CODE OF ETHICS
The Fund has adopted a Code of Ethics which restricts to a certain
extent personal transactions by access persons of the Fund and imposes
certain disclosure and reporting obligations.
FINANCIAL STATEMENTS
The Financial Statements of the ICM Fixed Income Portfolio for the
fiscal period ended October 31, 1994 and the Financial Highlights for the
respective periods presented, which appear in the Portfolio's 1994 Annual
Report to Shareholders, and the report thereon of Price Waterhouse LLP,
independent accountants, also appearing therein, are incorporated by
reference into this Statement of Additional Information. An Annual Report
may be obtained, without charge, by writing the Fund or by calling The
Regis Service Center at 1-800-638-7983.
APPENDIX _ DESCRIPTION OF SECURITIES AND RATINGS
I. DESCRIPTION OF BOND RATINGS
Excerpts from Moody's Investors Service, Inc. ("Moody's") description
of its highest bond ratings: Aaa _ judged to be the best quality; carry the
smallest degree of investment risk: Aa _ judged to be of high quality by
all standards; A _ possess many favorable investment attributes and are to
be considered as higher medium grade obligations; Baa _ considered as lower
medium grade obligations, i.e., they are neither highly protected nor
poorly secured.
Excerpts from Standard & Poor's Corporation ("S&P") description of its
highest bond ratings: AAA _ highest grade obligations; possess the ultimate
degree of protection as to principal and interest; AA _ also qualify as
high grade obligations, and in the majority of instances differs from AAA
issues only in small degree; A _ regarded as upper medium grade; have
considerable investment strength but are not entirely free from adverse
effects of changes in economic and trade conditions. Interest and principal
are regarded as safe; BBB _ regarded as borderline between definitely sound
obligations and those where the speculative element begins to predominate;
this group is the lowest which qualifies for commercial bank investment.
II. DESCRIPTION OF MORTGAGE-BACKED SECURITIES
Mortgage-backed securities represent an ownership interest in a pool
of residential mortgage loans. These securities are designed to provide
monthly payments of interest and principal to the investor. The mortgagor's
monthly payments to his/her lending institution are "passed-through" to
investors such as the ICM Fixed Income, ICM Intermediate-Term Fixed Income
or ICM Short-Intermediate-Term Fixed Income Portfolios. Most issuers or
poolers provide guarantees of payments, regardless of whether or not the
mortgagor actually makes the payment. The guarantees made by issuers or
poolers are supported by various forms of credit, collateral, guarantees or
insurance, including individual loan, title, pool and hazard insurance
purchased by the issuer. There can be no assurance that the private issuers
can meet their obligations under the policies. Mortgage-backed securities
issued by private issuers, whether or not such securities are subject to
guarantees, may entail greater risk. If there is no guarantee provided by
the issuer, mortgage-backed securities purchased by the ICM Fixed Income,
ICM Intermediate-Term Fixed Income or ICM Short- Intermediate-Term Fixed
Income Portfolios will be rated investment grade by Moody's or S&P.
UNDERLYING MORTGAGES
Pools consist of whole mortgage loans or participants in loans. The
majority of these loans are made to purchasers of 1-4 family homes. The
terms and characteristics of the mortgage instruments are generally uniform
within a pool but may vary among pools. For example, in addition to
fixed-rate, fixed-term mortgages, the ICM Fixed Income, ICM
Intermediate-Term Fixed Income and ICM Short-Intermediate-Term Fixed Income
Portfolios may purchase pools of variable rate mortgages (VRM), growing
equity mortgages (GEM), graduated payment mortgages (GPM) and other types
where the principal and interest payment procedures vary. VRMs are
mortgages which reset the mortgage's interest rate with changes in open
market interest rates. The Portfolios' interest income will vary with
changes in the applicable interest rate on pools of VRMs. GPM and GEM pools
maintain constant interest rates, with varying levels of principal
repayment over the life of the mortgage. These different interest and
principal payment procedures should not impact a Portfolio's net asset
value since the prices at which these securities are valued each day will
reflect the payment procedure.
All poolers apply standards for qualification to local lending
institutions which originate mortgages for the pools. Poolers also
establish credit standards and underwriting criteria for individual
mortgages included in the pools. In addition, many mortgages included in
pools are insured through private mortgage insurance companies.
AVERAGE LIFE
The average life of pass-through pools varies with the maturities of
the underlying mortgage instruments. In addition, a pool's term may be
shortened by unscheduled or early payments of principal and interest on the
underlying mortgages. The occurrence of mortgage prepayment is affected by
factors including the level of interest rates, general economic conditions,
the location and age of the mortgage and other social and demographic
conditions.
As prepayment rates of individual pools vary widely, it is not
possible to accurately predict the average life of a particular pool. For
pools of fixed-rate 30-year mortgages, common industry practice is to
assume that prepayments will result in a 12-year average life. Pools of
mortgages with other maturities of different characteristics will have
varying assumptions for average life.
RETURNS ON MORTGAGE-BACKED SECURITIES
Yields on mortgage-backed pass-through securities are typically quoted
on the maturity of the underlying instruments and the associated average
life assumption. Actual prepayment experience may cause the yield to differ
from the assumed average life yield. Reinvestment of prepayments may occur
at higher or lower interest rates than the original investment, thus
affecting the yields of the Portfolios. The compounding effect from
reinvestment of monthly payments received by a Portfolio will increase its
yield to shareholders, compared to bonds that pay interest semiannually.
ABOUT MORTGAGE-BACKED SECURITIES
Interests in pools of mortgage-backed securities differ from other
forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified
call dates. Instead, these securities provide a monthly payment which
consists of both interest and principal payments. In effect, these payments
are a "pass-through" of the monthly payments made by the individual
borrowers on their residential mortgage loans, net of any fees paid to the
issuer or guarantor of such securities. Additional payments are caused by
repayments resulting from the sale of the underlying residential property,
refinancing or foreclosure net of fees or costs which may be incurred. Some
mortgage-backed securities are described as "modified pass-through". These
securities entitle the holders to receive all interest and principal
payments owed on the mortgages in the pool, net of certain fees, regardless
of whether or not the mortgagors actually make the payment.
Residential mortgage loans are pooled by the Federal Home Loan
Mortgage Corporation (FHLMC). FHLMC is a corporate instrumentality of the
U.S. Government and was created by Congress in 1970 for the purpose of
increasing the availability of mortgage credit for residential housing. Its
stock is owned by the twelve Federal Home Loan Banks. FHLMC issues
Participation Certificates ("PC's") which represent interests in mortgages
from FHLMC's national portfolio. FHLMC guarantees the timely payment of
interest and ultimate collection of principal.
The Federal National Mortgage Association (FNMA) is a Government
sponsored corporation owned entirely by private stockholders. It is subject
to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases residential mortgages from a list of approved
seller/services which include state and federally-chartered savings and
loan associations, mutual savings banks, commercial banks and credit unions
and mortgage bankers. Pass-through securities issued by FNMA are guaranteed
as to timely payment of principal and interest by FNMA.
The principal Government guarantor of mortgage-backed securities is
the Government National Mortgage Association (GNMA). GNMA is a wholly-owned
U.S. Government corporation within the Department of Housing and Urban
Development. GNMA is authorized to guarantee, with the full faith and
credit of the U.S. Government, the timely payment of principal and interest
on securities issued by approved institutions and backed by pools of
FHA-insured or VA-guaranteed mortgages.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers
also create pass-through pools of conventional residential mortgage loans.
Pools created by such non-governmental issuers generally offer a higher
rate of interest than Government and Government-related pools because there
are no direct or indirect Government guarantees of payments in the former
pools. However, timely payment of interest and principal of these pools is
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance purchased by the issuer. The
insurance and guarantees are issued by Governmental entities, private
insurers and the mortgage poolers. There can be no assurance that the
private insurers can meet their obligations under the policies.
Mortgage-backed securities purchased for the ICM Fixed Income, ICM
Intermediate-Term Fixed Income and ICM Short- Intermediate-Term Fixed
Income Portfolios will, however, be rated investment grade by Moody's or
S&P.
The ICM Fixed Income, ICM Intermediate-Term Fixed Income, and ICM
Short-Intermediate-Term Fixed Income Portfolios expect that Governmental or
private entities may create mortgage loan pools offering pass-through
investments in addition to those described above. The mortgages underlying
these securities may be alternative mortgage instruments, that is mortgage
instruments whose principal or interest payment may vary or whose terms to
maturity may be shorter than previously customary. As new types of
mortgage-backed securities are developed and offered to investors, the
Portfolios will, consistent with their investment objective and policies,
consider making investments in such new types of securities.
III. DESCRIPTION OF U.S. GOVERNMENT SECURITIES
The term "U.S. Government Securities" refers to a variety of
securities which are issued or guaranteed by the United States Government,
and by various instrumentalities which have been established or sponsored
by the United States Government.
U.S. Treasury securities are backed by the "full faith and credit" of
the United States. Securities issued or guaranteed by Federal agencies and
U.S. Government sponsored instrumentalities may or may not be backed by the
full faith and credit of the United States.
In the case of securities not backed by the full faith and credit of
the United States, the investor must look principally to the agency or
instrumentality issuing or guaranteeing the obligation for ultimate
repayment, and may not be able to assess a claim against the United States
itself in the event the agency or instrumentality does not meet its
commitment. Agencies which are backed by the full faith and credit of the
United States include the Export-Import Bank, Farmers Home Administration,
Federal Financing Bank, and others. Certain agencies and instrumentalities,
such as the GNMA are, in effect, backed by the full faith and credit of the
United States through provisions in their charters that they may make
"indefinite and unlimited" drawings on the U.S. Treasury, if needed to
service its debt. Debt from certain other agencies and instrumentalities,
including the Federal Home Loan Bank and FNMA, is not guaranteed by the
United States, but those institutions are protected by the discretionary
authority of the U.S. Treasury to purchase certain amounts of their
securities to assist the institution in meeting its debt obligations.
Finally, other agencies and instrumentalities, such as the Farm Credit
System and the FHLMC, are federally chartered institutions under Government
supervision, but their debt securities are backed only by the
creditworthiness of those institutions, not the U.S. Government.
Some of the U.S. Government agencies that issue or guarantee
securities include the Export-Import Bank of the United States, Farmers
Home Administration, Federal Housing Administration, Maritime
Administration, Small Business Administration, and the Tennessee Valley
Authority.
IV. DESCRIPTION OF COMMERCIAL PAPER
Each Portfolio may invest in commercial paper (including variable
amount master demand notes) rated A-1 or better by S&P or Prime-1 by
Moody's or by S&P. Commercial paper refers to short-term, unsecured
promissory notes issued by corporations to finance short-term credit needs.
Commercial paper is usually sold on a discount basis and has a maturity at
the time of issuance not exceeding nine months. Variable amount master
demand notes are demand obligations that permit the investment of
fluctuating amounts at varying market rates of interest pursuant to
arrangement between the issuer and a commercial bank acting as agent for
the payees of such notes whereby both parties have the right to vary the
amount of the outstanding indebtedness on the notes. As variable amount
master demand notes are direct lending arrangements between a lender and a
borrower, it is not generally contemplated that such instruments will be
traded, and there is no secondary market for these notes, although they are
redeemable (and thus immediately repayable by the borrower) at face value,
plus accrued interest, at any time. In connection with the Portfolios'
investment in variable amount master demand notes, the Adviser's investment
management staff will monitor, on an ongoing basis, the earning power, cash
flow and other liquidity ratios of the issuer and the borrower's ability to
pay principal and interest on demand.
Commercial paper rated A-1 by S&P has the following characteristics:
(1) liquidity ratios are adequate to meet cash requirements; (2) long-term
senior debt is rated "A" or better; (3) the issuer has access to at least
two additional channels of borrowing; (4) basic earnings and cash flow have
an upward trend with allowance made for unusual circumstances;
(5) typically, the issuer's industry is well established, and the issuer
has a strong position within the industry; and (6) the reliability and
quality of management are unquestioned. Relative strength or weakness of
the above factors determine whether the issuer's commercial paper is A-1,
A-2 or A-3. The rating Prime-1 is the highest commercial paper rating
assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer;
(2) economic evaluation of the issuer's industry or industries and the
appraisal of speculative-type risks which may be inherent in certain areas;
(3) evaluation of the issuer's products in relation to completion and
customer acceptance; (4) liquidity; (5) amount and quality of long term
debt; (6) trend of earnings over a period of ten years; (7) financial
strength of a parent company and the relationships which exist with the
issuer; and (8) recognition by the management of issuer of obligations
which may be present or may arise as a result of public interest questions
and preparations to meet such obligations.
V. BANK OBLIGATIONS
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate.
Certificates of deposit are negotiable short-term obligations of commercial
banks. Variable rate certificates of deposit are certificates of deposit on
which the interest rate is periodically adjusted prior to their stated
maturity based upon a specified market rate. As a result of these
adjustments, the interest rate on these obligations may increase or
decrease periodically. Frequently, dealers selling variable rate
certificates of deposit to the Portfolio will agree to repurchase such
instruments, at the Portfolio's option, at par on or near the coupon dates.
The dealers' obligations to repurchase these instruments are subject to
conditions imposed by various dealers. Such conditions typically are the
continued credit standing of the issuer and the existence of reasonably
orderly market conditions. The Portfolios are also able to sell variable
rate certificates of deposit in the secondary market. Variable rate
certificates of deposit normally carry a higher interest rate than
comparable fixed rate certificates of deposit. A banker's acceptance is a
time draft drawn on a commercial bank by a borrower usually in connection
with an international commercial transaction to finance the import, export,
transfer or storage of goods. The borrower is liable for payment as well as
the bank which unconditionally guarantees to pay the draft at its face
amount on the maturity date. Most acceptances have maturities of six months
or less and are traded in the secondary markets prior to maturity.
VI. DESCRIPTION OF FOREIGN INVESTMENTS
Investors should recognize that investing in foreign companies
involves certain special considerations which are not typically associated
with investing in U.S. companies. Since the securities of foreign companies
are frequently denominated in foreign currencies, the Fund's Portfolios may
be affected favorably or unfavorably by changes in currency rates and in
exchange control regulations, and may incur costs in connection with
conversions between various currencies.
As foreign companies are not generally subject to uniform accounting,
auditing and financial reporting standards and they may have policies that
are not comparable to those of domestic companies, there may be less
information available about certain foreign companies than about domestic
companies. Securities of some foreign companies are generally less liquid
and more volatile than securities of comparable domestic companies. There
is generally less government supervision and regulation of stock exchanges,
brokers and listed companies than in the U.S. In addition, with respect to
certain foreign countries, there is the possibility of expropriation or
confiscatory taxation, political or social instability, or diplomatic
developments which could affect U.S. investments in those countries.
Although the Fund will endeavor to achieve the most favorable
execution costs in its Portfolio transactions, fixed commissions on many
foreign stock exchanges are generally higher than negotiated commissions on
U.S. exchanges.
Certain foreign governments levy withholding taxes on dividend and
interest income. Although in some countries a portion of these taxes are
recoverable, the non-recoverable portion of foreign withholding taxes will
reduce the income received from the companies comprising the Fund's
Portfolios. However, these foreign withholding taxes are not expected to
have a significant impact.
