<PAGE>
UAM FUNDS
UAM FUNDS SERVICE CENTER
C/O CHASE GLOBAL FUNDS SERVICES COMPANY
P.O. BOX 2798
BOSTON, MA 02208-2798
1-800-638-7983
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INVESTMENT COUNSELORS OF MARYLAND, INC.
SERVES AS INVESTMENT ADVISER TO THE ICM FIXED INCOME PORTFOLIO
INSTITUTIONAL CLASS SHARES
- --------------------------------------------------------------------------------
PROSPECTUS -- FEBRUARY 29, 1996
AS AMENDED APRIL 1, 1996
INVESTMENT OBJECTIVE
UAM Funds, Inc. (hereinafter defined as "UAM Fund" or the "Fund") is an
open-end, management investment company known as a "mutual fund" and organized
as a Maryland corporation. The Fund consists of multiple series of shares (known
as "Portfolios") each of which has different investment objectives and
investment policies. Several of the Fund's Portfolios offer two separate classes
of shares: Institutional Class Shares and Institutional Service Class Shares.
The ICM Fixed Income Portfolio currently offers only one class of shares. The
securities offered in this Prospectus are Institutional Class Shares of one
diversified, no-load Portfolio of the Fund managed by Investment Counselors of
Maryland, Inc.
ICM FIXED INCOME PORTFOLIO. The objective of the ICM Fixed Income Portfolio
is to provide maximum, long-term total return consistent with reasonable risk to
principal by investing primarily in investment grade fixed income securities of
varying maturities.
There can be no assurance that the Portfolio will meet its stated objective.
ABOUT THIS PROSPECTUS
This Prospectus, which should be retained for future reference, sets forth
concisely information that you should know before you invest. A "Statement of
Additional Information" containing additional information about the Fund has
been filed with the Securities and Exchange Commission. Such Statement is dated
February 29, 1996 and has been incorporated by reference into this Prospectus. A
copy of the Statement may be obtained, without charge, by writing to the Fund or
by calling the telephone number shown above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
FUND EXPENSES
The following table illustrates expenses and fees that a shareholder of the
ICM Fixed Income Portfolio will incur. However, transaction fees may be charged
if you are a customer of a broker-dealer or other financial intermediary who has
established a shareholder servicing relationship with the Fund on behalf of
their customers. Please see "PURCHASE OF SHARES" for further information.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
ICM
FIXED
INCOME
PORTFOLIO
-----------
<S> <C>
Sales Load Imposed on Purchases.............................................. NONE
Sales Load Imposed on Reinvested Dividends................................... NONE
Deferred Sales Load.......................................................... NONE
Redemption Fees.............................................................. NONE
Exchange Fees................................................................ NONE
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
ICM
FIXED
INCOME
PORTFOLIO
-----------
<S> <C>
Investment Advisory Fees..................................................... 0.50%
Administrative Fees.......................................................... 0.54%
12b-1 Fees................................................................... NONE
Distribution Costs........................................................... NONE
Other Expenses............................................................... 0.36%
Advisory Fees Waived and Expenses Assumed.................................... (0.88)%
-----------
Total Operating Expenses (After Fee Waiver and Expenses Assumed)............. 0.52%*
-----------
-----------
</TABLE>
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*Absent fee waivers and expenses assumed by the Adviser, annualized Total
Operating Expenses of the Portfolio for the fiscal year ended October 31, 1995
would have been 1.40%. The annualized Total Operating Expenses excludes the
effect of expense offsets. If expense offsets were included, the annualized
Total Operating Expenses of the Portfolio would be 0.50%.
The purpose of this table is to assist the investor in understanding the
various expenses that an investor in the Portfolio will bear directly or
indirectly. The expenses and fees set forth above are based on the Portfolio's
operations during the fiscal year ended October 31, 1995 except that Advisory
Fees Waived and Expenses Assumed have been restated to reflect the Portfolio's
current expense cap.
Until further notice, the Adviser has voluntarily agreed to waive a portion
of its advisory fees and to assume as the Adviser's own expense operating
expenses otherwise payable by the Portfolio, if necessary, in order to keep the
Portfolio's total annual operating expenses from exceeding 0.50% of its average
daily net assets. The Fund will not reimburse the Adviser for any advisory fees
that are waived or Portfolio expenses that the Adviser may bear on behalf of the
Portfolio.
The following example illustrates the expenses that a shareholder would pay
on a $1,000 investment over various time periods assuming (1) a 5% annual rate
of return and (2) redemption at the end of each time period. As noted in the
table above, the Portfolio charges no redemption fees of any kind.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ICM Fixed Income Portfolio........................ $ 5 $ 17 $ 29 $ 65
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE
SHOWN.
2
<PAGE>
PROSPECTUS SUMMARY
INVESTMENT OBJECTIVE AND POLICIES
The objective of the ICM Fixed Income Portfolio is to provide maximum,
long-term total return consistent with reasonable risk to principal by investing
primarily in investment grade fixed income securities of varying maturities. See
"INVESTMENT OBJECTIVE AND INVESTMENT POLICIES."
INVESTMENT ADVISER
Investment Counselors of Maryland, Inc. (the "Adviser"), an investment
counseling firm founded in 1972, serves as investment adviser to the Portfolio.
The Adviser presently manages over $4 billion in assets for institutional
clients and high net worth individuals. See "INVESTMENT ADVISER."
PURCHASE OF SHARES
The Fund offers shares of common stock of the Portfolio through UAM Fund
Distributors, Inc. (the "Distributor"), to investors without a sales commission
at net asset value next determined after a purchase order is received in proper
form. Share purchases may be made by sending investments directly to the Fund.
The minimum initial investment is $100,000 with certain exceptions as may be
determined from time to time by the officers of the Fund. The minimum for
subsequent investments is $1,000. See "PURCHASE OF SHARES."
DIVIDENDS AND DISTRIBUTIONS
The Portfolio pays dividends from available income quarterly and distributes
available long-term capital gains annually. Distributions will be reinvested in
Fund shares automatically unless an investor elects to receive cash
distributions. See "DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES."
REDEMPTIONS AND EXCHANGES
Shares of the Portfolio may be redeemed at any time, without cost, at the
net asset value of the Portfolio next determined after receipt of the redemption
request. The Portfolio's share price will fluctuate with market and economic
conditions. Therefore, your investment may be worth more or less when redeemed
than when purchased. Institutional Class Shares of the ICM Fixed Income
Portfolio may be exchanged for Institutional Class Shares of any other ICM
Portfolio as well as for Institutional Class Shares of a Portfolio included in
the UAM Funds. See "REDEMPTION OF SHARES" and "SHAREHOLDER SERVICES."
RISK FACTORS
The value of the Portfolio's shares will fluctuate in response to changes in
market and economic conditions as well as the financial conditions and prospects
of the issuers in which the Portfolio invests. Prospective investors should
consider the following factors that could effect the rate of return of the
Portfolio: (1) The fixed income securities held by the Portfolio will be
affected by general changes in interest rates resulting in increases or
decreases in the value of the obligations held by the Portfolio. The value of
the securities held by the Portfolio can be expected to vary inversely to the
changes in prevailing interest rates, i.e, as interest rates decline, market
value tends to increase and vice versa. (2) The Portfolio may invest in the
securities of foreign issuers. (See "INVESTMENT POLICIES.") (3) The Portfolio
may engage in various portfolio strategies to seek to hedge its portfolio
against movements in interest rates and exchange rates between currencies by the
use of derivatives including options, futures and options on futures.
Utilization of options and futures transactions involves the risk of imperfect
correlation in movements in the price of options and futures and movements in
the price of the securities, interest rates or currencies which are the subject
of the hedge. Options and futures transactions in foreign markets are also
subject to the risk factors associated with foreign investments generally. There
can be no assurance that a liquid secondary market for options and futures
contracts will exist at any specific time. (See "FUTURES CONTRACTS AND
OPTIONS.") (4) In addition, the Portfolio may use various investment practices
that involve special consideration, including investing in repurchase
agreements, when-issued, forward delivery and delayed settlement securities and
lending of securities. (See "OTHER INVESTMENT POLICIES.")
3
<PAGE>
FINANCIAL HIGHLIGHTS
The following table provides selected per share data and ratios for a share
outstanding throughout the periods presented and is part of the ICM Fixed Income
Portfolio's Financial Statements included in the Portfolio's 1995 Annual Report
to Shareholders which are incorporated by reference into the Portfolio's
Statement of Additional Information. The following information should be read in
conjunction with the ICM Fixed Income Portfolio's Financial Statements as of
October 31, 1995 which have been examined by Price Waterhouse LLP whose opinion
thereon (which is unqualified) is also incorporated by reference into the
Statement of Additional Information.
<TABLE>
<CAPTION>
YEARS ENDED
OCTOBER 31,
NOVEMBER 3, 1992* --------------------------------------
TO OCTOBER 31, 1993 1994 1995
------------------- ---------------- ----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $ 10.00 $ 10.58 $ 9.55
------- ------- -------
Income from Investment Operations
Net Investment Income+.......................... 0.51 0.52 0.59
Net Realized and Unrealized Gain (Loss)......... 0.51 (0.98) 0.82
------- ------- -------
Total from Investment Operations................ 1.02 (0.46) 1.41
------- ------- -------
Distributions
Net Investment Income........................... (0.44) (0.48) (0.53)
Net Realized Gain............................... -- (0.09) --
------- ------- -------
Total Distributions............................. (0.44) (0.57) (0.53)
------- ------- -------
Net Asset Value, End of Period.................... $ 10.58 $ 9.55 $ 10.43
------- ------- -------
------- ------- -------
Total Return...................................... 10.38%++ (4.43%)++ 15.11%++
------- ------- -------
------- ------- -------
Ratios and Supplemental Data
Net Assets, End of Period (Thousands)............. $12,465 $12,601 $16,765
Ratio of Expenses to Average Net Assets+.......... 0.84%** 0.84% 0.63%#
Ratio of Net Investment Income to Average Net
Assets+.......................................... 5.41%** 5.26% 6.04%
Portfolio Turnover Rate........................... 65% 82% 49%
</TABLE>
- ------------------------
<TABLE>
<C> <S>
* Commencement of Operations.
** Annualized.
+ Net voluntarily waived fees and expenses assumed by the Adviser of $.03,
$.04 and $.08 per share for the period ended October 31, 1993 and the years
ended October 31, 1994 and 1995, respectively.
++ Total return would have been lower had certain fees not been waived and
expenses assumed by the Adviser during the periods indicated.
# The Ratio of Expenses to Average Net Assets excludes the effect of expense
offsets. If expense offsets were included, the Ratio of Expenses to Average
Net Assets would be 0.61%.
</TABLE>
4
<PAGE>
INVESTMENT OBJECTIVE
The objective of the ICM Fixed Income Portfolio is to provide maximum,
long-term total return consistent with reasonable risk to principal. The Adviser
intends to pursue this objective by investing the Portfolio's assets primarily
in investment grade fixed income securities of varying maturities. These include
securities of the U.S. Government and its agencies, corporate bonds,
mortgage-backed securities, asset-backed securities, and various short-term
instruments such as commercial paper, Treasury bills, and certificates of
deposit. Income return is expected to be a predominant portion of the
Portfolio's total return. Any capital return on the Portfolio is dependent upon
interest rate movements. The capital return from the Portfolio will vary
according to, among other factors, interest rate changes and the average
weighted maturity (duration) of the Portfolio.
INVESTMENT POLICIES
Generally, for all of its accounts, including the Portfolio, the Adviser
employs a conservative fixed income investment strategy. This strategy is
designed and seeks 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 Adviser's
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. The Adviser has found that relative value
generally exists when a security or sector offers the prospect of superior
rewards for a given amount of risk.
The Portfolio seeks to achieve its objective by investing primarily in
investment grade fixed income securities of varying maturities. These include
securities of the U.S. Government and its agencies, corporate bonds,
mortgage-backed securities, asset-backed securities, and various short-term
instruments such as commercial paper, Treasury bills, and certificates of
deposit.
The Portfolio will invest in investment grade bonds having one of the three
highest grades assigned by Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa,
A) or Standard & Poor's Corporation ("S&P") (AAA, AA, A). The Adviser will seek
to achieve the Portfolio's objective by investing in the following securities:
mortgage-backed securities including collateralized mortgage obligations
("CMOs") and asset-backed securities which are deemed by the Adviser and the
rating agencies cited above to be of investment grade quality; variable rate and
fixed rate debt securities which at the time of purchase are rated as
"investment grade"; short-term securities deemed by the Adviser to have
comparable ratings; and securities of, or guaranteed by, the U.S. Government,
its agencies or instrumentalities.
It is the Adviser's intention that the Portfolio's investments will be
limited to the investment grade securities described above. However, the Adviser
reserves the right to retain securities which are downgraded by one or both of
the rating agencies if, in the Adviser's judgment, the retention of the
securities is warranted. In addition, the Adviser may invest up to 10% of the
Portfolio's assets in fixed income securities split rated by Moody's and by S&P,
with one service an A, the other Baa/BBB (or which, if unrated, are in the
Adviser's opinion of comparable quality or better), preferred stocks and
convertible securities. In the case of convertible securities, the conversion
privilege may be exercised, but the common stocks received will be sold.
Securities which are rated Baa or lower by Moody's or BBB or lower by S&P are
considered to be more speculative with regard to the payment of interest and
principal (according to the terms of the indenture) than securities in the three
highest rating categories. Such securities normally carry with them a greater
degree of investment risk than securities with higher ratings.
While the Adviser anticipates that the majority of the assets in the
Portfolio will be U.S. dollar denominated securities, it reserves the right to
purchase obligations of foreign governments, agencies, or corporations
denominated either in U.S. dollars or foreign currencies. The credit quality
standards applied to foreign obligations are the same as those applied to the
selection of U.S. based securities.
5
<PAGE>
Investors should recognize that investing in foreign companies involves
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 and the Portfolio may temporarily hold uninvested reserves
in bank deposits in foreign currencies, the Portfolio will 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 non-U.S. companies are not generally subject to uniform accounting,
auditing and financial reporting standards and practices comparable to those
applicable to U.S. companies, there may be less publicly available information
about certain foreign companies than about U.S. companies. Securities of some
non-U.S. companies may be less liquid and more volatile than securities of
comparable U.S. companies. There is generally less government supervision and
regulation of foreign stock exchanges, brokers and listed companies than in the
U.S. Many foreign securities markets have substantially less volume than United
States national securities exchanges, and securities of some foreign issuers are
less liquid and more volatile than securities of comparable domestic issuers.
Brokerage commissions and other transactions costs on foreign securities
exchanges are generally higher than in the United States. In addition, with
respect to certain foreign countries, there is the possibility of expropriation
or confiscatory taxation, political or social instability, diplomatic
developments or the possible adoption of foreign governmental restrictions such
as exchange controls which could affect U.S. investments in those countries.
It is the policy of the Portfolio to invest, under normal circumstances, at
least 80% of its assets in fixed income securities. For temporary defensive
purposes, the Portfolio may reduce its holdings of fixed income securities and
increase, up to 100%, its holdings in short-term investments. The Adviser may
employ a defensive investment posture either when it anticipates that prevailing
interest rates will rise or that the spread between treasuries and other fixed
income securities will widen. When the Portfolio is in a defensive mode, it is
not pursuing long-term total return.
OTHER INVESTMENT POLICIES
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
Mortgage-backed securities in which the Portfolio will invest either carry a
guaranty from an agency of the U.S. Government or a private issuer of the timely
payment of principal and interest or are sufficiently seasoned to be considered
by the Adviser to be of investment grade quality. Mortgage-backed securities
differ from bonds in that the principal is paid back by the borrower over the
length of the loan rather than returned in a lump sum at maturity.
Mortgage-backed securities are called "Pass-Through" securities because both
interest and principal payments (including pre-payments) are passed through to
the holder of the security. When prevailing interest rates rise, the value of a
mortgage-backed security may decrease as do other types of debt securities. When
prevailing interest rates decline, however, the value of mortgage-backed
securities may not rise on a comparable basis with other debt securities because
of the prepayment feature. Additionally, if a mortgage-backed security is
purchased at a premium above its principal value because its fixed rate of
interest exceeds the prevailing level of yields, the decline in price to par may
result in a loss of the premium in the event of prepayment.
CMOs are securities which are collateralized by mortgage pass-through
securities. Cash flows from the mortgage pass-through are allocated to various
tranches in a predetermined, specified order. Each tranch has a "stated
maturity"--the latest date by which the tranch can be completely repaid,
assuming no prepayments--and has an "average life"--the average time to receipt
of a principal payment weighted by the size of the principal payment. The
average life is typically used as a proxy for maturity because the debt is
amortized, rather than being paid off entirely at maturity, as would be the case
in a straight debt instrument.
Asset-backed securities are collateralized by shorter term loans such as
automobile loans, computer leases, or credit card receivables. The payments from
the collateral are passed through to the security holder.
6
<PAGE>
The collateral behind asset-backed securities tends to have prepayment rates
that do not vary with interest rates. In addition, the short-term nature of the
loans reduces the impact of any change in prepayment level. Due to amortization,
the average life for these securities is also the conventional proxy for
maturity.
RISKS: Due to the possibility that prepayments (on home mortgages,
automobile loans and other collateral) will alter the cash flow on CMOs and
asset-backed securities, it is not possible to determine in advance the actual
final maturity date or average life. Faster prepayment will shorten the average
life, and slower prepayments will lengthen it. However, it is possible to
determine what the range of that movement could be and to calculate the effect
that it will have on the price of the security. In selecting these securities,
the Adviser will look for those securities that offer a higher yield to
compensate for any variation in average maturity.
SHORT-TERM INVESTMENTS
From time to time, the Portfolio may invest a portion of its assets in the
following money market instruments, consistent with the Portfolio's investment
policies as set forth above. All money market instruments purchased by the
Portfolio must have a maturity date of two years or less from the date of
purchase, and the average dollar-weighted maturity of the money market
instruments in aggregate in the Portfolio must be one year or less. The
Portfolio may invest in:
(1) Time deposits, certificates of deposit (including marketable variable
rate certificates of deposit) and bankers' acceptances issued by a
commercial bank or savings and loan association. Time deposits are
non-negotiable deposits maintained in a banking institution for a
specified period of time at a stated interest rate. Time deposits
maturing in more than seven days will not be purchased by a Portfolio,
and time deposits maturing from two business days through seven calendar
days will not exceed 10% of the total assets of the Portfolio.
Certificates of deposit are negotiable short-term obligations issued by
commercial banks or savings and loan associations collateralized by funds
deposited in the issuing institution. 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. 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 Portfolio will not invest in any security issued by a commercial
bank unless (i) the bank has total assets of at least $1 billion, or the
equivalent in other currencies, (ii) in the case of U.S. banks, it is a
member of the Federal Deposit Insurance Corporation, and (iii) in the
case of foreign branches of U.S. banks, the security is, in the opinion
of the Adviser, of an investment quality comparable with other debt
securities which may be purchased by the Portfolio;
(2) Commercial paper rated A-1 or A-2 by S&P or Prime-1 or Prime-2 by
Moody's or, if not rated, issued by a corporation having an outstanding
unsecured debt issue rated A or better by Moody's or by S&P;
(3) Short-term corporate obligations rated A or better by Moody's or by S&P;
(4) U.S. Government obligations including bills, notes, bonds and other debt
securities issued by the U.S. Treasury. These are direct obligations of
the U.S. Treasury, supported by the full faith and credit pledge of the
U.S. Government and differ mainly in interest rates, maturities and dates
of issue;
(5) U.S. Government agency securities issued or guaranteed by U.S.
Government sponsored instrumentalities and Federal agencies. Generally,
such securities are evaluated on the creditworthiness of their issuing
agency or guarantor and are not backed by the direct full faith and
credit pledge of the U.S. Government. These include securities issued by
the Federal Home Loan Banks, Federal Land Bank, Farmers Home
Administration, Federal Farm Credit Banks, Federal Intermediate Credit
Bank, Federal National Mortgage Association, Federal Financing Bank, the
Tennessee Valley Authority, and others; and
7
<PAGE>
(6) Repurchase agreements collateralized by securities listed above.
The Fund has applied to the Securities and Exchange Commission (the
"Commission") for permission to deposit the daily uninvested cash balances of
the Fund's Portfolios, as well as cash for investment purposes, into one or more
joint accounts and to invest the daily balance of the joint accounts in the
following short-term investments: fully collateralized repurchase agreements,
interest-bearing or discounted commercial paper including dollar-denominated
commercial paper of foreign issuers, and any other short-term money market
instruments including variable rate demand notes and other tax-exempt money
market instruments. By entering into these investments on a joint basis, it is
expected that a Portfolio may earn a higher rate of return on investments
relative to what it could earn individually. While the Fund expects to receive
permission from the Commission, there can be no assurance that the requested
relief will be granted.
The Fund has applied to the Commission for permission to allow each of its
Portfolios to invest the greater of 5% of its total assets or $2.5 million in
the Fund's DSI Money Market Portfolio for cash management purposes. (See
"INVESTMENT COMPANIES.") While the Fund expects to receive permission from the
Commission, there can be no assurance that the requested relief will be granted.
REPURCHASE AGREEMENTS
For temporary, liquidity or short-term investment purposes, the Portfolio
may invest in repurchase agreements collateralized by U.S. Government
securities, certificates of deposit, and certain bankers' acceptances and other
securities outlined above under "Short-Term Investments". In a repurchase
agreement, a Portfolio purchases a security and simultaneously commits to resell
that security at a future date to the seller (a qualified bank or securities
dealer) at an agreed upon price plus an agreed upon market rate of interest
(itself unrelated to the coupon rate or date of maturity of the purchased
security). The seller under a repurchase agreement will be required to maintain
the value of the securities subject to the agreement at not less than (1) the
repurchase price if such securities mature in one year or less, or (2) 101% of
the repurchase price if such securities mature in more than one year. The
Administrator and the Adviser will mark to market daily the value of the
securities purchased, and the Adviser will, if necessary, require the seller to
maintain additional securities to ensure that the value is in compliance with
the previous sentence. The Adviser will consider the creditworthiness of a
seller in determining whether a Portfolio should enter into a repurchase
agreement.
In effect, by entering into a repurchase agreement, a Portfolio is lending
its funds to the seller at the agreed upon interest rate, and receiving a
security as collateral for the loan. Such agreements can be entered into for
periods of one day ("overnight repo") or for a fixed term ("term repo").
Repurchase agreements are a common way to earn interest income on short-term
funds.
The use of repurchase agreements involves certain risks. For example, if the
seller of the agreement defaults on its obligation to repurchase the underlying
securities at a time when the value of these securities has declined, a
Portfolio may incur a loss upon disposition of them. If the seller of the
agreement becomes insolvent and subject to liquidation or reorganization under
the Bankruptcy Code or other laws, a bankruptcy court may determine that the
underlying securities are collateral not within the control of a Portfolio and
therefore subject to sale by the trustee in bankruptcy. Finally, it is possible
that a Portfolio may not be able to substantiate its interest in the underlying
securities. While the Adviser acknowledges these risks, it is expected that they
can be controlled through stringent security selection criteria and careful
monitoring procedures. Credit screens will be established and maintained for
dealers and dealer-banks before portfolio transactions are executed.
The Fund has applied to the Commission for permission to pool the daily
uninvested cash balances of the Fund's Portfolios in order to invest in
repurchase agreements on a joint basis. By entering into repurchase agreements
on a joint basis, it is expected that a Portfolio will incur lower transactions
costs and potentially obtain higher rates of interest on such repurchase
agreements. Each Portfolio's participation in the income from jointly purchased
repurchase agreements will be based on that Portfolio's percentage share in the
total repurchase agreement. While the Fund expects to receive permission from
the Commission, there can be no assurance that the requested relief will be
granted.
8
<PAGE>
LENDING OF SECURITIES
The 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. A Portfolio will not loan
portfolio securities to the extent that greater than one-third of its assets at
fair market value, would be committed to loans. 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. A 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 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 (which may include the Portfolio investing any cash collateral in interest
bearing short-term investments). As with other extensions of credit, there are
risks of delay in recovery or even loss of rights in the securities loaned if
the borrower of the securities fails financially. These risks are similar to the
ones involved with repurchase agreements as discussed above. 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 Fund's Board of 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 Board of Directors. The Portfolio will continue to
retain any voting rights with respect to the loaned securities. If a material
event occurs affecting an investment on a loan, the loan must be called and the
securities voted.
DURATION
Duration is a measure of the expected timing of the cash flows (principal
and interest) of a fixed income security that was developed as a more precise
alternative to the concept of "term to maturity". Duration incorporates a bond's
yield, coupon interest payments, final maturity and call features into one
measure. Most debt obligations provide interest ("coupon") payments in addition
to a final ("par") payment at maturity. Some obligations also have call
provisions. Depending on the relative magnitude of these payments, the market
values of debt obligations may respond differently to changes in the level and
structure of interest rates.
Traditionally, a debt security's "term to maturity" has been used as a proxy
for the sensitivity of the security's price to changes in interest rates (which
is the "interest rate risk" or "volatility" of the security). However, "term to
maturity" measures only the time until a debt security provides its final
payment, taking no account of the pattern of the security's payments prior to
maturity. Duration is a measure of the expected timing of the cash flows of a
fixed income security on a present value basis. Duration takes the length of the
time intervals between the present time and the time that the interest and
principal payments are scheduled or, in the case of a callable bond, expected to
be received, and weights them by the present values of the cash to be received
at each future point in time. For any fixed income security with interest
payments occurring prior to the payment of principal, duration is always less
than maturity. In general, all other things being the same, the lower the stated
or coupon rate of interest of a fixed income security, the longer the duration
of the security; conversely, the higher the stated or coupon rate of interest of
a fixed income security, the shorter the duration of the security.
Futures have durations which, in general, are closely related to the
duration of the securities which underlie them. Holding long futures will
lengthen a Portfolio's duration by approximately the same amount
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that holding an equivalent amount of the underlying securities would. Short
futures positions have durations roughly equal to the negative duration of the
securities that underlie those positions and have the effect of reducing
portfolio duration by approximately the same amount that selling an equivalent
amount of the underlying securities would.
The standard duration calculation does not properly reflect the interest
rate exposure of mortgage pass-through securities. The stated final maturity of
such securities is generally 30 years, but current prepayment rates are more
critical in determining the securities' interest rate exposure. In the case of
most mortgage securities, duration must be estimated because the nature and
amount of prepayments made by mortgage borrowers varies from time to time.
Prepayment forecasts will be utilized to limit their impact on a Portfolio. In
these and other similar situations, the Adviser will use sophisticated
analytical techniques that incorporate the economic life of a security into the
determination of its interest rate exposure.
PORTFOLIO TURNOVER
Generally, the Portfolio will not trade in securities for short-term
profits, but, when circumstances warrant, securities may be sold without regard
to length of time held. It should be understood that the rate of portfolio
turnover will depend upon market and other conditions, and it will not be a
limiting factor when the Adviser believes that portfolio changes are
appropriate. However, it is expected that the annual portfolio turnover rate for
the Portfolio will not exceed 80%. A rate of turnover of 100% would occur, for
example, if all the securities held by the Portfolio were replaced within a
period of one year. The Portfolio will normally not engage in short-term trading
but reserves the right to do so. The table set forth in "Financial Highlights"
presents the Portfolio's historical portfolio turnover ratios.
WHEN-ISSUED AND FORWARD DELIVERY SECURITIES
The Portfolio may purchase and sell securities on a "when-issued," or
"forward delivery" basis. "When-issued" or "forward delivery" refers to
securities whose terms and indenture are available, and for which a market
exists, but which are not available for immediate delivery. When-issued or
forward delivery transactions may be expected to occur a month or more before
delivery is due. No payment or delivery is made by a Portfolio until it receives
payment or delivery from the other party to any of the above transactions. The
Portfolio will maintain a separate account of cash, U.S. Government securities
or other high grade debt obligations at least equal to the value of purchase
commitments until payment is made. Such segregated securities will either mature
or, if necessary, be sold on or before the settlement date. Typically, no income
accrues on securities purchased on a delayed delivery basis prior to the time
delivery of the securities is made, although the Portfolio may earn income on
securities it has deposited in a segregated account.
The Portfolio may engage in when-issued transactions to obtain what is
considered to be an advantageous price and yield at the time of the transaction.
When the Portfolio engages in when-issued or forward delivery transactions, it
will do so for the purpose of acquiring securities consistent with its
investment objective and policies and not for the purposes of investment
leverage.
FUTURES CONTRACTS, FORWARD CONTRACTS AND OPTIONS
FUTURES CONTRACTS AND OPTIONS ON FUTURES. In order to hedge its portfolio
against adverse movements of the market, remain fully invested and reduce
transaction costs or implement its investment strategies, the Portfolio may
purchase and sell futures and related options on such futures in connection with
the securities in which it invests (such as bond futures and options, interest
rate futures and options and foreign currency futures and options) traded on
both U.S. or foreign exchanges or board of trade, or similar entity, or quoted
on an automated quotation system. Such futures contracts are third-party
contracts (i.e., performance of the parties' obligations is guaranteed by an
exchange or clearing corporation) which, in general, have standardized strike
prices and expiration dates.
In order to remain fully exposed to the movements of the market, while
maintaining liquidity to meet potential shareholder redemptions, the Portfolio
may invest a portion of its assets in futures contracts. As these contracts only
require a small initial margin deposit, the Portfolio would then be able to keep
a cash reserve available to meet potential redemptions while at the same time
being effectively fully invested. In addition, as an alternative means of
implementing the Portfolio's investment strategies the Portfolio may use
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futures contracts and options to simulate or replicate other types of
investments. For example, the Portfolio may utilize foreign interest rate
futures contracts as an alternative to investing directly in a foreign bond or
fixed income security. Also, because transaction costs associated with futures
and options may be lower than the costs of investing in a security directly, it
is expected that the use of futures and options for these purposes may reduce
the Portfolio's overall transaction costs.
Although certain risks are involved in options and futures transactions (as
discussed below), the Adviser believes that, because the Portfolio will engage
in options and futures transactions generally only for hedging purposes, the
options and futures portfolio strategies of the Portfolio will not subject it to
the risks frequently associated with the speculative use of options and futures
transactions. While the Portfolio's use of hedging strategies is intended to
reduce the volatility of the net asset value of Portfolio shares, the
Portfolio's net asset value will fluctuate. There can be no assurance that the
Portfolio's hedging transactions will be effective. Also, the Portfolio may not
necessarily be engaging in hedging activities when movements in any particular
market occur.
The Portfolio may purchase and sell futures contracts as a hedge against
adverse changes in the market value of its portfolio securities as described
below. A futures contract is an agreement between two parties which obligates
the purchaser of the futures contract to buy and the seller of a futures
contract to sell a security for a set price on a future date. Transactions by
the Portfolio in futures are subject to limitation as described below under
"Restrictions on the Use of Futures Transactions."
The Portfolio may sell futures contracts in anticipation of or during a
market decline to attempt to offset the decrease in market value of its
securities portfolio that might otherwise result. When the Portfolio is not
fully invested in the securities markets and anticipates a significant market
advance, it may purchase futures in order to gain rapid market exposure that may
in part or entirely offset increases in the cost of securities that the
Portfolio intends to purchase. As such purchases are made, an equivalent amount
of futures contracts will be terminated by offsetting sales. The Adviser does
not consider purchases of futures contracts to be a speculative practice under
these circumstances. It is anticipated that, in a substantial majority of these
transactions, the Portfolio will purchase such securities upon termination of
the long futures position, whether the long position is the purchase of a
futures contract or the purchase of a call option but under unusual
circumstances (e.g., the Portfolio experiences a significant amount of
redemptions), a long futures position may be terminated without the
corresponding purchase of securities.
The Portfolio also has authority to purchase call and put options on futures
contracts in connection with its hedging activities. Generally, these strategies
are utilized under the same market and market sector conditions (i.e.,
conditions relating to specific types of investments) in which the Portfolio
enters into futures transactions. The Portfolio may purchase put options on
futures contracts rather than selling the underlying futures contract in
anticipation of a decrease in the market value of its securities. Similarly, the
Portfolio may purchase call options on futures contracts as a substitute for the
purchase of such futures to hedge against the increased cost resulting from an
increase in the market value of securities which the Portfolio intends to
purchase.
As a means of reducing the risks associated with investing in securities
denominated in foreign currencies, the Portfolio may enter into contracts for
the future acquisition or delivery of foreign currencies and may purchase
foreign currency options. These investment techniques are designed primarily to
hedge against anticipated future changes in currency prices which otherwise
might adversely affect the value of the Portfolio's securities. The Portfolio
will incur brokerage fees when it purchases or sells futures contracts or
options, and it will be required to maintain margin deposits.
RESTRICTIONS ON THE USE OF FUTURES TRANSACTIONS. The Portfolio will only
enter into futures contracts or futures options which are standardized and
traded on a U.S. or foreign exchange or board of trade, or similar entity, or
quoted on an automated quotation system. The Portfolio will use futures
contracts and related options only for "bona fide hedging" purposes, as such
term is defined in applicable regulations of the Commodity Futures Trading
Commission ("CFTC"), or, with respect to positions in financial futures and
related options that do not qualify as "bona fide hedging" positions, will enter
such non-hedging positions
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only to the extent that aggregate initial margin deposits plus premiums paid by
it for open futures option positions, less the amount by which any such
positions are "in-the-money," would not exceed 5% of the Portfolio's total net
assets.
RISK FACTORS IN FUTURES AND OPTIONS TRANSACTIONS. Utilization of options
and futures transactions to hedge the Portfolio involves the risk of imperfect
correlation in movements in the price of options and futures and movements in
the price of the securities or currencies which are the subject of the hedge. If
the price of the options or futures moves more or less than the price of the
hedged securities or currencies, the Portfolio will experience a gain or loss
which will not be completely offset by movements in the price of the subject of
the hedge. The successful use of options and futures also depends on the
Adviser's ability to predict correctly price movements in the market involved in
a particular options or futures transaction. In addition, options and futures
transactions in foreign markets are subject to the risk factors associated with
foreign investments generally. See "INVESTMENT POLICIES."
The Portfolio intends to enter into options and futures transactions, only
if there appears to be a liquid secondary market for such options or futures.
There can be no assurance, however, that a liquid secondary market will exist at
any specific time. Thus, it may not be possible to close an options or futures
position. The inability to close options and futures positions also could have
an adverse impact on the Portfolio's ability to hedge effectively. There is also
the risk of loss by the Portfolio of margin deposits or collateral in the event
of bankruptcy of a broker with whom the Portfolio has an open position in an
option, a futures contract or related option.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Portfolio may enter into
forward foreign currency exchange contracts. Forward foreign currency exchange
contracts provide for the purchase or sale of an amount of a specified foreign
currency at a future date. The general purpose of these contracts is both to put
currencies in place to settle trades and to generally protect the United States
dollar value of securities held by the Portfolio against exchange rate
fluctuation. While such forward contracts may limit losses to the Portfolio as a
result of exchange rate fluctuation, they will also limit any gains that may
otherwise have been realized. The Portfolio will enter into such contracts only
to protect against the effects of fluctuating rates of currency exchange and
exchange control regulations. See "Investment Objectives and Policies -- Forward
Foreign Currency Exchange Contracts" in the Statement of Additional Information.
OPTIONS ON SECURITIES AND CURRENCIES. The Portfolio may also purchase call
options on securities. One purpose of purchasing call options is to protect
against substantial increases in prices of securities the Portfolio intends to
purchase pending its ability to invest in such securities in an orderly manner.
The Portfolio may purchase put options on securities. One purpose of purchasing
put options is to protect holdings in an underlying or related security against
a substantial decline in market value. The Portfolio may sell ("write") out or
call options it has previously purchased, which could result in a net gain or
loss depending on whether the amount realized on the sale is more or less than
the premium and other transaction costs paid on the put or call option which is
sold. The Portfolio may write a call or put option only if the option is
"covered" by the Portfolio holding a position in the underlying securities or by
other means which would permit immediate satisfaction of the Portfolio's
obligation as a writer of the option. Prior to exercise or expiration, an option
may be closed out by an offsetting purchase or sale of an option of the same
series.
The purchase and writing of options involves certain risks. During the
option period, the covered call writer has, in return for the premium on the
option, given up the opportunity to profit from a price increase in the
underlying securities above the exercise price, but, as long as its obligation
as a writer continues, has retained the risk of loss should the price of the
underlying security decline. The writer of an option has no control over the
time when it may be required to fulfill its obligation as a writer of the
option. Once an option writer has received an exercise notice, it cannot effect
a closing purchase transaction in order to terminate its obligation under the
option and must deliver the underlying securities at the exercise price. If a
put or call option purchased by the Portfolio is not sold when it has remaining
value, and if the market price of the underlying security, in the case of a put,
remains equal to or greater than the exercise price or, in the case of a call,
remains less than or equal to the exercise price, the Portfolio will lose its
entire investment in the option.
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Also, where a put or call option on a particular security is purchased to hedge
against price movements in a related security, the price of the put or call
option may move more or less than the price of the related security. There can
be no assurance that a liquid market will exist when the Portfolio seeks to
close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, the Portfolio may be unable to
close out a position.
The Portfolio may buy or sell put and call options on foreign currencies.
Currency options traded on U.S. or other exchanges may be subject to position
limits which may limit the ability of the Portfolio to reduce foreign currency
risk using such options. Over-the-counter options differ from traded options in
that they are two-party contracts with price and other terms negotiated between
buyer and seller and generally do not have as much market liquidity as
exchange-traded options. The Portfolio may be required to treat as illiquid
over-the-counter options purchased and securities being used to cover certain
written over-the-counter options.
INVESTMENT COMPANIES
As permitted by the 1940 Act, the Portfolio reserves the right to invest up
to 10% of its total assets, calculated at the time of investment, in the
securities of other open-end or closed-end investment companies. No more than 5%
of the investing Portfolio's total assets may be invested in the securities of
any one investment company nor may it acquire more than 3% of the voting
securities of any other investment company. The Portfolio will indirectly bear
its proportionate share of any management fees paid by an investment company in
which it invests in addition to the advisory fee paid by the Portfolio.
The Fund has applied to the Commission for permission to allow each of its
Portfolios to invest the greater of 5% of its total assets or $2.5 million in
the Fund's DSI Money Market Portfolio for cash management purposes provided that
the investment is consistent with the Portfolio's investment policies and
restrictions. Based upon the Portfolio's assets invested in the DSI Money Market
Portfolio, the investing Portfolio's adviser will waive its investment advisory
and any other fees earned as a result of the Portfolio's investment in the DSI
Money Market Portfolio. The investing Portfolio will bear expenses of the DSI
Money Market Portfolio on the same basis as all of its other shareholders. While
the Fund expects to receive permission from the Commission, there can be no
assurance that the requested relief will be granted.
Except as specified above and as described under "Investment Limitations,"
the foregoing investment policies are not fundamental and the Directors may
change such policies without an affirmative vote of a majority of the
outstanding voting securities of the Portfolio, as defined in the 1940 Act.
INVESTMENT LIMITATIONS
The Portfolio has adopted certain limitations designed to reduce its
exposure to specific situations. Some of these limitations are that the
Portfolio will not:
(a) with respect to 75% of its assets, invest more than 5% of its total
assets at the time of purchase in the securities of any single issuer
(other than obligations issued or guaranteed as to principal and interest
by the government of the U.S. or any agency or instrumentality thereof);
(b) with respect to 75% of its assets, purchase more than 10% of any class
of the outstanding voting securities of any issuer;
(c) invest more than 5% of its assets at the time of purchase in the
securities of companies that have (with predecessors) a continuous
operating history of less than 3 years;
(d) 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;
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(e) make loans except (i) by purchasing bonds, debentures or similar
obligations which are publicly distributed, (including repurchase
agreements provided, however, that repurchase agreements maturing in more
than seven days, together with securities which are not readily
marketable, will not exceed 10% of the Portfolio's total assets), 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 and the rules and regulations or interpretations of the
Commission thereunder;
(f) borrow, 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
purchase additional securities when the Portfolio's borrowings exceed 5%
of its total gross assets; and
(g) pledge, mortgage or hypothecate any of its assets to an extent greater
than 10% of its total assets at fair market value.
The investment objective of the Portfolio is fundamental and may be changed
only with the approval of the holders of a majority of the outstanding shares of
the Portfolio. The Portfolio's investment limitations and policies described in
this Prospectus and in the Statement of Additional Information are not
fundamental and may be changed by the Fund's Board of Directors.
INVESTMENT SUITABILITY
The Portfolio was designed principally for the investments of institutional
investors. The Portfolio is available for purchase by individuals and may be
suitable for investors who seek maximum long-term total return consistent with
reasonable risk to principal, by investing primarily in investment grade fixed
income securities of varying maturities. Although no mutual fund can guarantee
that its investment objective will be met.
PURCHASE OF SHARES
Shares of the Portfolio may be purchased without sales commission, at the
net asset value per share next determined after an order is received by the Fund
and payment is received by the Custodian. (See "VALUATION OF SHARES.") The
minimum initial investment required is $100,000, with certain exceptions as may
be determined from time to time by the officers of the Fund.
INITIAL INVESTMENTS BY MAIL
An account may be opened by completing and signing an Account Registration
Form, and mailing it, together with a check payable to "UAM Funds, Inc.", to:
UAM Funds Service Center
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
The carbon copy of the Account Registration Form (manually signed) must be
mailed to:
UAM Fund Distributors, Inc.
211 Congress Street
Boston, MA 02110
Payment for the purchase of shares received by mail will be credited to your
account at the net asset value per share of the Portfolio next determined after
receipt. Such payment need not be converted into Federal Funds (monies credited
to the Fund's Custodian Bank by a Federal Reserve Bank) before acceptance by the
Fund.
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INITIAL INVESTMENTS BY WIRE
Shares of the Portfolio may also be purchased by wiring Federal Funds to the
Fund's Custodian Bank (see instructions below). In order to insure prompt
crediting of the Federal Funds wire, it is important to follow these steps:
(a) Telephone the Fund's Transfer Agent, (toll-free 1-800-638-7983) and
provide the account name, address, telephone number, social security or
taxpayer identification number, the Portfolio selected, the amount being
wired and the name of the bank wiring the funds. (Investors with existing
accounts should also notify the Fund prior to wiring funds.) An account
number will then be provided to you;
(b) Instruct your bank to wire the specified amount to the Fund's
Custodian:
The Bank of New York
New York, NY 10286
ABA #0210-0023-8
DDA Acct. #000-71-438
F/B/O UAM Funds, Inc.
Ref: Portfolio Name ______________
Your Account Number ______________
Your Account Name ______________
(c) A completed Account Registration Form must be forwarded to the UAM
Funds Service Center and UAM Fund Distributors, Inc. at the addresses shown
above as soon as possible. Federal Funds purchases will be accepted only on
a day on which the New York Stock Exchange and the Custodian Bank are open
for business.
ADDITIONAL INVESTMENTS
You may add to your account at any time (minimum additional investment is
$1,000) by purchasing shares at net asset value by mailing a check to the UAM
Funds Service Center (payable to "UAM Funds, Inc".) at the above address or by
wiring monies to the Custodian Bank using the instructions outlined above. It is
very important that your account number, account name, and the Portfolio to be
purchased are specified on the check or wire to insure proper crediting to your
account.
In order to insure that your wire orders are invested promptly, you are
requested to notify the UAM Funds Service Center (toll-free 1-800-638-7983)
prior to the wire date. Mail orders should include, when possible, the "Invest
by Mail" stub which accompanies any Fund confirmation statement.
OTHER PURCHASE INFORMATION
The purchase price of the shares of the Portfolio is the net asset value
next determined after the order and payment is received. (See "VALUATION OF
SHARES.") An order received prior to the close of the New York Stock Exchange
(the "NYSE") will be executed at the price computed on the date of receipt; an
order or payment received not in proper form or after the 4:00 p.m. close of the
NYSE will be executed at the price computed on the next day the NYSE is open
after proper receipt.
The Fund reserves the right, in its sole discretion, to suspend the offering
of shares of its Portfolios or reject purchase orders when, in the judgement of
management, such suspension or rejection is in the best interests of the Fund.
Purchases of the Portfolio's shares will be made in full and fractional
shares of the Portfolio calculated to three decimal places. In the interest of
economy and convenience, certificates for shares will not be issued except at
the written request of the shareholder. Certificates for fractional shares,
however, will not be issued.
Shares of the Portfolio may be purchased by customers of broker-dealers or
other financial intermediaries ("Service Agents") which have established a
shareholder servicing relationship with the Fund
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on behalf of their customers. Service Agents may impose additional or different
conditions on the purchase or redemption of Portfolio shares by their customers
and may charge their customers transaction or other account fees on the purchase
and redemption of Portfolio shares. Each Service Agent is responsible for
transmitting to its customers a schedule of any such fees and information
regarding any additional or different conditions regarding purchases and
redemptions. Shareholders who are customers of Service Agents should consult
their Service Agent for information regarding these fees and conditions. Amounts
paid to Service Agents may include transaction fees and/or service fees paid by
the Fund from the Fund assets attributable to the Service Agent, and which would
not be imposed if shares of the Portfolio were purchased directly from the Fund
or the Distributor. The Service Agents may provide shareholder services to their
customers that are not available to a shareholder dealing directly with the
Fund. A salesperson and any other person entitled to receive compensation for
selling or servicing Portfolio shares may receive different compensation with
respect to one particular class of shares over another in the Fund.
Service Agents may enter confirmed purchase orders on behalf of their
customers. If you buy shares of a Portfolio in this manner, the Service Agent
must receive your investment order before the close of trading on the NYSE, and
transmit it to the Fund's Transfer Agent prior to the close of the Transfer
Agent's business day and to the Distributor to receive that day's share price.
Proper payment for the order must be received by the Transfer Agent no later
than the time when the Portfolio is priced on the following business day.
Service Agents are responsible to their customers, the Fund and the Fund's
Distributor for timely transmission of all subscription and redemption requests,
investment information, documentation and money.
IN-KIND PURCHASES
If accepted by the Fund, shares of the Portfolio may be purchased in
exchange for securities which are eligible for acquisition by the Portfolio as
described in this Prospectus. Securities to be exchanged which are accepted by
the Fund will be valued as set forth under "Valuation of Shares" at the time of
the next determination of net asset value after such acceptance. Shares issued
by a Portfolio in exchange for securities will be issued at net asset value
determined as of the same time. All dividends, interest, subscription, or other
rights pertaining to such securities shall become the property of the Portfolio
whose shares are being acquired and must be delivered to the Fund by the
investor upon receipt from the issuer. Securities acquired through an in-kind
purchase will be acquired for investment and not for immediate resale.
The Fund will not accept securities in exchange for shares of a Portfolio
unless: (l) such securities are, at the time of the exchange, eligible to be
included in the Portfolio whose shares are to be issued and current market
quotations are readily available for such securities; (2) the investor
represents and agrees that all securities offered to be exchanged are not
subject to any restrictions upon their sale by the Portfolio under the
Securities Act of 1933 or otherwise; and (3) the value of any such security
(except U.S. Government securities) being exchanged together with other
securities of the same issuer owned by the Portfolio will not exceed 5% of the
net assets of the Portfolio immediately after the transaction.
A gain or loss for Federal income tax purposes will be realized by investors
who are subject to Federal taxation upon the exchange depending upon the cost of
the securities or local currency exchanged. Investors interested in such
exchanges should contact the Adviser.
REDEMPTION OF SHARES
Shares of the Portfolio may be redeemed by mail or telephone at any time,
without cost, at the net asset value of the Portfolio next determined after
receipt of the redemption request. No charge is made for redemptions. Any
redemption may be more or less than the purchase price of your shares depending
on the market value of the investment securities held by the Portfolio.
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BY MAIL
The Portfolio will redeem its shares at the net asset value next determined
on the date the request is received in "good order". Your request should be
addressed to:
UAM Funds Service Center
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
"Good order" means that the request to redeem shares must include the following
documentation:
(a) The stock certificates, if issued;
(b) A letter of instruction or a stock assignment specifying the number of
shares or dollar amount to be redeemed, signed by all registered owners
of the shares in the exact names in which they are registered;
(c) Any required signature guarantees (see "SIGNATURE GUARANTEES" below);
and
(d) Other supporting legal documents, if required, in the case of estates,
trusts, guardianships, custodianships, corporations, pension and profit
sharing plans and other organizations.
Shareholders who are uncertain of requirements for redemption should call
the UAM Funds Service Center.
SIGNATURE GUARANTEES
To protect your account, the Fund and the Administrator from fraud,
signature guarantees are required for certain redemptions. Signature guarantees
are required for (1) redemptions where the proceeds are to be sent to someone
other than the registered shareowner(s) or the registered address, or (2) share
transfer requests. The purpose of signature guarantees is to verify the identity
of the party who has authorized a redemption.
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. 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.
BY TELEPHONE
Provided you have previously established the telephone redemption privilege
by completing an Account Registration Form, you may request a redemption of your
shares by calling the Fund and requesting the redemption proceeds be mailed to
you or wired to your bank. The Fund and the Fund's Transfer Agent will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine, and they may be liable for any losses if they fail to do so. These
procedures include requiring the investor to provide certain personal
identification at the time an account is opened and prior to effecting each
transaction requested by telephone. In addition, all telephone transaction
requests will be recorded and investors may be required to provide additional
telecopied written instructions of such transaction requests. Neither the Fund
nor the Transfer Agent will be responsible for any loss, liability, cost or
expense for following instructions received by telephone that it reasonably
believes to be genuine.
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To change the name of the commercial bank or the account designated to
receive redemption proceeds, a written request must be sent to the Fund at the
address above. Requests to change the bank or account must be signed by each
shareholder and each signature must be guaranteed. You cannot redeem shares by
telephone if you hold stock certificates for these shares. Please contact one of
the Fund's representatives at the Administrator for further details.
FURTHER REDEMPTION INFORMATION
Normally, the Fund will make payment for all shares redeemed under this
procedure within one business day of receipt of the request, but in no event
will payment be made more than seven days after receipt of a redemption request
in good order. The Fund may suspend the right of redemption or postpone the date
at times when both the NYSE and Custodian Bank are closed, or under any
emergency circumstances as determined by the Commission.
If the Board of Directors determines that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make payment wholly
or partly in cash, the Fund may pay the redemption proceeds in whole or in part
by a distribution in-kind of liquid securities held by the Portfolio in lieu of
cash in conformity with applicable rules of the Commission. Investors may incur
brokerage charges on the sale of portfolio securities so received in payment of
redemptions.
SHAREHOLDER SERVICES
EXCHANGE PRIVILEGE
Institutional Class Shares of the ICM Fixed Income Portfolio may be
exchanged for Institutional Class Shares of the other ICM Portfolios. In
addition, Institutional Class Shares of the ICM Fixed Income Portfolio may be
exchanged for any other Institutional Class Shares of a Portfolio included in
the UAM Funds which is comprised of the Fund and UAM Funds Trust. (See the list
of Portfolios of the UAM Funds-- Institutional Class Shares at the end of this
Prospectus.) Exchange requests should be made by calling the Fund
(1-800-638-7983) or by writing to UAM Funds, UAM Funds Service Center, c/o Chase
Global Funds Services 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 a shareholder's state of residence.
Any such exchange will be based on the respective net assets 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 UAM Funds
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 exchange
received prior to 4:00 p.m. (Eastern Time) will be processed as of the close of
business on the same day. Neither the Fund nor the Administrator 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 additional information regarding responsibility for the authenticity of
telecopied instructions, see "REDEMPTION OF SHARES--BY TELEPHONE" above.
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.
18
<PAGE>
TRANSFER OF REGISTRATION
You may transfer the registration of any of your Fund shares to another
person by writing to the UAM Funds at the above address. As in the case of
redemptions, the written request must be received in good order before any
transfer can be made. (See "REDEMPTION OF SHARES" for a definition of "good
order.")
VALUATION OF SHARES
The net asset value of the Portfolio is determined by dividing the sum of
the total market value of the Portfolio's investments and other assets, less any
liabilities, by the total outstanding shares of the Portfolio. The net asset
value per share of the Portfolio is determined as of the close of the NYSE on
each day that the NYSE is open for business.
Bonds and other fixed income securities are valued according to the broadest
and most representative market, which will ordinarily be the over-the-counter
market. Net asset value includes interest on fixed income securities which is
accrued daily. In addition, bonds and other fixed income securities may be
valued on the basis of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities. The prices
provided by a pricing service are determined without regard to bid or last sale
prices but take into account institutional size trading in similar groups of
securities and any developments related to the specific securities. Securities
not priced in this manner are valued at the mean between the bid and the asked
price, or, when stock exchange valuations are used, at the latest quoted sale
price on the day of valuation. If there is no such reported sale, the latest
quoted bid price will be used. Securities purchased with remaining maturities of
60 days or less are valued at amortized cost, if it approximates market value.
In the event that amortized cost does not approximate market value, market
prices as determined above will be used. The value of other assets and
securities for which no quotations are readily available (including restricted
securities) is determined in good faith at fair value using methods determined
by the Fund's Directors. Foreign securities not denominated in U.S. dollars will
be adjusted for currency fluctuations on a daily basis.
PERFORMANCE CALCULATIONS
The Portfolio may advertise or quote yield data from time to time. The yield
of the Portfolio is computed based on the net income of the Portfolio during a
30-day (or one month) period, which period will be identified in connection with
the particular yield quotation. More specifically, the Portfolio's yield is
computed by dividing the Portfolio's net income per share during a 30-day (or
one month) period by the maximum offering price per share on the last day of the
period and annualizing the result on a semi-annual basis.
The Portfolio may advertise or quote total return data. Total return will be
calculated on an average annual total return basis, and may also be calculated
on an aggregate total return basis, for various periods. Average annual total
return reflects the average annual percentage change in value of an investment
in a Portfolio over a measuring period. Aggregate total return reflects the
total percentage change in value over a measuring period. Both methods of
calculating total return assume that dividends and capital gains distributions
made by a Portfolio during the period are reinvested in Portfolio shares. The
ICM Fixed Income Portfolio's Annual Report to Shareholders for the most recent
fiscal year end contains additional performance information that includes
comparisons with appropriate indices. The Annual Report is available without
charge upon request to the Fund by writing to the address or calling the phone
number on the cover of this Prospectus.
19
<PAGE>
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Fund maintains a consistent distribution policy for its ICM Fixed Income
Portfolio. The Portfolio will normally distribute substantially all of its net
investment income to shareholders in the form of quarterly dividends. If any net
capital gains are realized, the Portfolio will normally distribute such gains
with the last dividend for the fiscal year.
Undistributed net investment income is included in a Portfolio's net assets
for the purpose of calculating net asset value per share. Therefore, on the
"ex-dividend" date, the net asset value per share excludes the dividend (i.e.,
is reduced by the per share amount of the dividend). Dividends paid shortly
after the purchase of shares by an investor, although in effect a return of
capital, are taxable to shareholders.
The Portfolio's dividend and capital gains distributions will be
automatically reinvested in additional shares of the Portfolio unless the Fund
is notified in writing that the shareholder elects to receive distributions in
cash.
FEDERAL TAXES
The Portfolio intends to qualify each year as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended, and if it
qualifies, will not be liable for Federal income taxes to the extent it
distributes its net investment income and net realized capital gains. Dividends,
either in cash or reinvested in shares, paid by the Portfolio from net
investment income will be taxable to shareholders as ordinary income and will
not qualify for the 70% dividends received deduction for corporations.
Whether paid in cash or in additional shares of the Portfolio and regardless
of the length of time the shares in the Portfolio have been owned by the
shareholder, distributions from long-term capital gains are taxable to
shareholders as such, but are not eligible for the dividends received deduction.
Shareholders are notified annually by the Fund as to Federal tax status of
dividends and distributions paid by the Portfolio. Such dividends and
distributions may also be subject to state and local taxes.
Exchanges and redemptions of shares of the Portfolio's shares are taxable
events for Federal income tax purposes. A shareholder may also be subject to
state and local taxes on such exchanges and redemptions.
The Portfolio intends to declare and pay dividend and capital gains
distributions so as to avoid imposition of the Federal Excise Tax. To do so, the
Portfolio expects to distribute an amount equal to (1) 98% of its calendar year
ordinary income, (2) 98% of its capital gains net income (the excess of short
and long-term capital gains over short and long-term capital losses) for the
one-year period ending October 31st, and (3) 100% of any undistributed ordinary
or capital gains net income from the prior year. Dividends declared in October,
November, or December to shareholders of record in such month will be deemed to
have been paid by the Fund and received by the shareholders on December 31st of
such calendar year, provided that the dividends are paid before February 1 of
the following year.
The Fund is required by Federal law to withhold 31% of reportable payments
(which may include dividends, capital gains distributions, and redemptions) paid
to shareholders who have not complied with IRS taxpayer identification
regulations. In order to avoid this withholding requirement, you must certify on
the Account Registration Form or on a separate form supplied by the Fund that
your Social Security or Taxpayer Identification Number provided is correct and
that you are not currently subject to backup withholding or that you are exempt
from backup withholding.
STATE AND LOCAL TAXES
Shareholders may also be subject to state and local taxes on distributions
from the Portfolio. Shareholders should consult with their tax advisers with
respect to the tax status of distributions from the Fund in their state and
locality.
20
<PAGE>
INVESTMENT ADVISER
Investment Counselors of Maryland, Inc. is a Maryland corporation formed in
1972 and is located at 803 Cathedral Street, Baltimore, MD 21201. The Adviser is
a wholly-owned subsidiary of United Asset Management Corporation ("UAM") and
provides investment management services to corporations, pension and profit
sharing plans, trusts, estates and other institutions and individuals. As of the
date of this Prospectus, the Adviser had over $4 billion in assets under
management.
The investment professionals of the Adviser who are primarily responsible
for the day-to-day operations of the Portfolios and a description of their
business experience during the past five years are as follows:
LINDA W. MCCLEARY -- Principal. Ms. McCleary is responsible for the organization
and administration of the Fixed Income Group at the Adviser and manages fixed
income portfolios. She joined the Adviser in 1978 having worked previously as a
Trust Investment Officer at Equitable Trust Company. She is a CUM LAUDE graduate
of Smith College and holds an M.B.A. from Loyola College. Ms. McCleary has
managed the ICM Fixed Income Portfolio since its inception.
DANIEL O. SHACKELFORD -- Senior Vice President. Mr. Shackelford joined the
Adviser in November, 1993 as a fixed income portfolio manager. He has 15 years
of fixed income experience, most recently as a portfolio manager for the
University of North Carolina at Chapel Hill ("UNC") from 1991 through 1993. Mr.
Shackelford is a graduate of UNC and received his M.B.A. from the Fuqua School
of Business at Duke University, which he attended from 1989 to 1991. Mr.
Shackelford is a Chartered Financial Analyst. Prior to 1989, Mr. Shackelford
held the position of portfolio manager at UNC. Mr. Shackelford has managed the
ICM Fixed Income Portfolio since November, 1993.
Additional members of the Adviser's team of professionals are as follows:
CRAIG LEWIS -- Principal and Chief Investment Officer. Prior to founding the
Adviser in 1972, Mr. Lewis was Vice President of Investments at First National
Bank of Maryland. Before that, he served as Vice President and Director of
Research at Robert Garrett & Sons, Inc., a NYSE member firm. Mr. Lewis is a
Chartered Financial Analyst and past President of the Baltimore Security
Analysts Society. He is a graduate of Princeton University.
PAUL L. BORSSUCK -- Principal. Mr. Borssuck heads the Individual Capital
Management Division at ICM. Prior to joining the Adviser, he served as Chairman
of the Investment Policy Committee at Mercantile Safe-Deposit and Trust Company
where he managed the portfolios of high net worth clients. Prior to that, he
headed the institutional funds management section at American Security and Trust
Company in Washington, D.C. Mr. Borssuck earned his B.S. degree and M.B.A. from
Lehigh University. He is a Chartered Financial Analyst.
ROBERT D. MCDORMAN, JR. -- Principal. Mr. McDorman joined the Adviser in June,
1985. His primary responsibilities are the management of the ICM Small Company
Portfolio and related separate accounts and equity security analysis. Prior to
joining the Adviser, Mr. McDorman managed the Financial Industrial Income Fund.
Mr. McDorman earned his B.A. degree at Trinity College and his law degree at the
University of Baltimore. He is a Chartered Financial Analyst.
DAVID E. NELSON -- Principal and Director of Equity Research. Mr. Nelson joined
the Adviser in October, 1989. Prior to that, he was Senior Vice President,
Director of Research for Legg Mason. Mr. Nelson is an honors graduate of
Wesleyan University and received his M.B.A. in Finance from Washington
University in 1976. He is a Chartered Financial Analyst.
ROBERT F. BOYD -- Executive Vice President. Mr. Boyd joined the Adviser in
December, 1995 as a Senior Security and Quantitative Analyst and Portfolio
Manager. Prior to joining the Adviser, he was a Managing Director and Portfolio
Manager at Brandywine Asset Management. Prior to that he was Director of Equity
and Quantitative Research at Mercantile Safe Deposit & Trust Company for 15
years. Mr. Boyd earned his B.S. degree from the University of Virginia and his
M.B.A. from Columbia University. He is a Chartered Financial Analyst.
21
<PAGE>
CHARLES W. NEUHAUSER -- Senior Vice President. Mr. Neuhauser joined the Adviser
in August, 1991 as a security analyst in the Equity Research Department. Prior
to that, he served as a security analyst at Bear, Stearns & Company, Inc. in New
York and then Legg Mason in Baltimore. He began in the investment business as an
analyst with Ruane, Cunniff & Company, managers of the Sequoia Fund. Mr.
Neuhauser is a graduate of Columbia University. He is a Chartered Financial
Analyst.
Under an Investment Advisory Agreement with the Fund dated March 20, 1989,
as amended June 2, 1992, (the "Agreement"), the Adviser, subject to the control
and supervision of the Fund's Board of Directors and in conformance with the
stated investment objective and policies of the Portfolio, manages the
investment and reinvestment of the assets of the Portfolio. In this regard, it
is the responsibility of the Adviser to make investment decisions for the
Portfolio and to place purchase and sales orders for the Portfolio.
As compensation for the services rendered by the Adviser under the
Agreement, the Portfolio pays the Adviser an annual fee, in monthly
installments, calculated by applying the following annual percentage rate to the
Portfolio's average daily net assets for the month:
<TABLE>
<CAPTION>
RATE
---------
<S> <C>
ICM Fixed Income Portfolio.................................................... 0.50%
</TABLE>
The Adviser has voluntarily agreed to waive its advisory fees and to assume
as the Adviser's own expense operating expenses otherwise payable by the
Portfolio, if necessary, in order to reduce the Portfolio's expense ratio. As of
the date of this Prospectus, the Adviser has agreed to keep the Portfolio's
total annual operating expenses from exceeding 0.50% of its average daily net
assets. The Fund will not reimburse the Adviser for any advisory fees that are
waived or Portfolio expenses that the Adviser may bear on behalf of the
Portfolio.
In addition, the Adviser may compensate its affiliated companies for
referring investors to the Portfolios. The Distributor, UAM, the Adviser, or any
of their affiliates, may, at its own expense, compensate a Service Agent or
other person for marketing, shareholder servicing, record-keeping and/or other
services performed with respect to the Fund, a Portfolio or any class of shares
of a Portfolio. The person making such payments may do so out of its revenues,
its profits or any other source available to it. Such services arrangements,
when in effect, are made generally available to all qualified service providers.
ADMINISTRATIVE SERVICES
The Chase Manhattan Bank, N.A., through its subsidiary Chase Global Funds
Services Company, provides the Fund and its Portfolios with administrative, fund
accounting, dividend disbursing and transfer agent services pursuant to a Fund
Administration Agreement dated as of December 16, 1991. The services provided
under the Fund Administration Agreement are subject to the supervision of the
Officers and the Directors of the Fund, and include day-to-day administration of
matters related to the corporate existence of the Fund, maintenance of its
records, preparation of reports, supervision of the Fund's arrangements with its
custodian, and assistance in the preparation of the Fund's registration
statements under Federal and state securities laws. Chase Global Funds Services
Company is located at 73 Tremont Street, Boston, MA 02108. The Chase Manhattan
Corporation ("Chase"), the parent company of The Chase Manhattan Bank, N.A., and
Chemical Banking Corporation ("Chemical"), the parent company of Chemical Bank,
have entered into an Agreement and Plan of Merger which, when completed, will
merge Chase with and into Chemical. Chemical will be the surviving corporation
and will continue its corporate existence under the name "The Chase Manhattan
Corporation." It is anticipated that this transaction will be completed in the
first quarter of 1996 and will not effect the nature nor quality of the services
furnished to the Fund and its Portfolios. Pursuant to the Fund Administration
Agreement, as amended February 1, 1994, the Fund pays Chase Global Funds
Services Company a monthly fee for its services which on an annualized basis
equals: 0.20 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 0.08 of 1% of the aggregate assets in excess of $1 billion but
less than $3 billion; plus 0.06 of 1% of the aggregate assets in excess of $3
billion. The fees are allocated among the Portfolios on the basis of their
relative assets and are subject to a graduated minimum fee schedule per
22
<PAGE>
Portfolio, which rises from $2,000 per month upon inception of a Portfolio to
$70,000 annually after two years. The Fund, with respect to the Fund or any
Portfolio or class of the Fund, may enter into other or additional arrangements
for transfer or subtransfer agency, record-keeping or other shareholder services
with organizations other than the Administrator.
DISTRIBUTOR
UAM Fund Distributors, Inc., a wholly-owned subsidiary of UAM, with its
principal office located at 211 Congress Street, Boston, Massachusetts 02110,
distributes the shares of the Fund. Under the Distribution Agreement (the
"Agreement"), the Distributor, as agent of the Fund, agrees to use its best
efforts as sole distributor of the Fund's shares. The Distributor does not
receive any fee or other compensation under the Agreement with respect to the
ICM Fixed Income Portfolio included in this Prospectus. The Agreement continues
in effect so long as such continuance is approved at least annually by the
Fund's Board of Directors, including a majority of those Directors who are not
parties to such Agreement nor interested persons of any such party. The
Agreement provides that the Fund will bear the costs of the registration of its
shares with the Commission and various states and the printing of its
prospectuses, statements of additional information and reports to stockholders.
PORTFOLIO TRANSACTIONS
The Investment Advisory Agreement authorizes the Adviser to select the
brokers or dealers that will execute the purchases and sales of investment
securities for the Portfolio and directs the Adviser to use its best efforts to
obtain the best available price and most favorable execution with respect to all
transactions for the Portfolio. The Adviser may, however, consistent with the
interests of the Portfolio, select brokers on the basis of the research,
statistical and pricing services they provide to the Portfolio. Information and
research received from such brokers will be in addition to, and not in lieu of,
the services required to be performed by the Adviser under the Investment
Advisory Agreement. A commission paid to such brokers may be higher than that
which another qualified broker would have charged for effecting the same
transaction, provided that such commissions are paid in compliance with the
Securities Exchange Act of 1934, as amended, and that the Adviser determines in
good faith that such commission is reasonable in terms either of the transaction
or the overall responsibility of the Adviser to the Portfolio and the Adviser's
other clients.
It is not the Fund's practice to allocate brokerage or effect principal
transactions with dealers 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 Portfolio or who act as agents
in the purchase of shares of the Portfolio for their clients.
Some securities considered for investment by the Portfolio may also be
appropriate for other clients served by the Adviser. If a purchase or sale of
securities consistent with the investment policies of the 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.
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." On October 31, 1995, the name of the Fund was
changed to "UAM Funds, Inc." The Fund's Articles of Incorporation, as amended,
permit the Directors to issue three billion shares of common stock, with an
$.001 par value. The Directors have the power to designate one or more series
("Portfolios") or classes of shares of common stock
23
<PAGE>
and to classify or reclassify any unissued shares with respect to such
Portfolios, without further action by shareholders. Currently, the Fund is
offering shares of 30 Portfolios. The Board of Directors may create additional
Portfolios and Classes of shares of the Fund in the future at its discretion.
The shares of each Portfolio and Class of the Fund are fully paid and
nonassessable and have no preference as to conversion, exchange, dividends,
retirement or other features and no pre-emptive rights. The shares of each
Portfolio and Class have non-cumulative 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 name on the books of the Fund. Both
Institutional Class and Institutional Service Class Shares represent an interest
in the same assets of a Portfolio and are identical in all respects except that
the Service Class Shares bear certain expenses related to shareholder servicing,
may bear expenses related to the distribution of such shares and have exclusive
voting rights with respect to matters relating to such distribution
expenditures. Information about the Service Class Shares of the Portfolios,
along with the fees and expenses associated with such shares, is available upon
request by contacting the Fund at 1-800-638-7983. Annual meetings will not be
held except as required by the 1940 Act and other applicable laws. The Fund has
undertaken that its Directors will call a meeting of shareholders if such a
meeting is requested in writing by the holders of not less than 10% of the
outstanding shares of the Fund. To the extent required by the undertaking, the
Fund will assist shareholder communications in such matters.
CUSTODIAN
The Bank of New York serves as Custodian of the Fund's assets.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP serves as the independent accountants for the Fund and
audits its financial statements annually.
REPORTS
Shareholders receive unaudited semi-annual financial statements and annual
financial statements audited by Price Waterhouse LLP.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be made by writing to the Fund at the address on
the cover of this Prospectus or by calling 1-800-638-7983.
LITIGATION
The Fund is not involved in any litigation.
24
<PAGE>
DIRECTORS AND OFFICERS
The Officers of the Fund manage its day-to-day operations and are
responsible to the Fund's Board of Directors. The Directors set broad policies
for the Fund and elect its Officers. The following is a list of the Directors
and Officers of the Fund and a brief statement of their present positions and
principal occupations during the past five years.
<TABLE>
<S> <C>
MARY RUDIE BARNEBY* Director and Executive Vice President of the Fund; President of
1133 Avenue of the Americas Regis Retirement Plan Services since 1993; Former President of
New York, NY 10036 UAM Fund Distributors, Inc.; Formerly responsible for Defined
Contribution Plan Services at a division of the Equitable
Companies, Dreyfus Corporation and Merrill Lynch.
JOHN T. BENNETT, JR. Director of the Fund; President of Squam Investment Management
College Road - RFD 3 Company, Inc. and Great Island Investment Company, Inc.;
Meredith, NH 03253 President of Bennett Management Company from 1988 to 1993.
J. EDWARD DAY Director of the Fund; Retired Partner in the Washington office
5804 Brookside Drive of the law firm Squire, Sanders & Dempsey; Director, Medical
Chevy Chase, MD 20815 Mutual Liability Insurance Society of Maryland; Formerly,
Chairman of The Montgomery County, Maryland, Revenue
Authority.
PHILIP D. ENGLISH Director of the Fund; President and Chief Executive Officer of
16 West Madison Street Broventure Company, Inc.; Director of Chektec Corporation and
Baltimore, MD 21201 Cyber Scientific, Inc.
WILLIAM A. HUMENUK Director of the Fund; Partner in the Philadelphia office of the
4000 Bell Atlantic Tower law firm Dechert Price & Rhoads; Director, Hofler Corp.
1717 Arch Street
Philadelphia, PA 19103
NORTON H. REAMER* Director, President and Chairman of the Fund; President, Chief
One International Place Executive Officer and a Director of United Asset Management
Boston, MA 02110 Corporation; Director, Partner or Trustee of each of the
Investment Companies of the Eaton Vance Group of Mutual Funds.
PETER M. WHITMAN, JR.* Director of the Fund; President and Chief Investment Officer of
One Financial Center Dewey Square Investors Corporation ("DSI") since 1988;
Boston, MA 02111 Director and Chief Executive Officer of H.T. Investors, Inc.,
formerly a subsidiary of DSI.
WILLIAM H. PARK* Vice President and Assistant Treasurer of the Fund; Executive
One International Place Vice President and Chief Financial Officer of United Asset
Boston, MA 02110 Management Corporation.
ROBERT R. FLAHERTY* Treasurer of the Fund; Manager of Fund Administration and
73 Tremont Street Compliance of the Administrator since March 1995; formerly
Boston, MA 02108 Senior Manager of Deloitte & Touche LLP from 1985 to 1995.
KARL O. HARTMANN* Secretary of the Fund; Senior Vice President, Secretary and
73 Tremont Street General Counsel of Administrator; Senior Vice President,
Boston, MA 02108 Secretary and General Counsel of Leland, O'Brien, Rubinstein
Associates, Inc. from November 1990 to November 1991.
HARVEY M. ROSEN* Assistant Secretary of the Fund; Senior Vice President of
73 Tremont Street Administrator.
Boston, MA 02108
</TABLE>
- --------------
*These people are deemed to be "interested persons" of the Fund as that term is
defined in the 1940 Act.
25
<PAGE>
UAM FUNDS -- INSTITUTIONAL CLASS SHARES
ACADIAN ASSET MANAGEMENT, INC.
Acadian Emerging Markets Portfolio
Acadian International Equity Portfolio
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC.
BHM&S Total Return Bond Portfolio
CHICAGO ASSET MANAGEMENT COMPANY
Chicago Asset Management Value/Contrarian Portfolio
Chicago Asset Management Intermediate Bond Portfolio
COOKE & BIELER, INC.
C&B Balanced Portfolio
C&B Equity Portfolio
C. S. MCKEE & COMPANY, INC.
McKee U.S. Government Portfolio
McKee Domestic Equity Portfolio
McKee International Equity Portfolio
DEWEY SQUARE INVESTORS CORPORATION
DSI Disciplined Value Portfolio
DSI Limited Maturity Bond Portfolio
DSI Money Market Portfolio
FIDUCIARY MANAGEMENT ASSOCIATES, INC.
FMA Small Company Portfolio
INVESTMENT COUNSELORS OF MARYLAND, INC.
ICM Equity Portfolio
ICM Fixed Income Portfolio
ICM Small Company Portfolio
INVESTMENT RESEARCH COMPANY
IRC Enhanced Index Portfolio
MURRAY JOHNSTONE INTERNATIONAL LTD.
MJI International Equity Portfolio
NEWBOLD'S ASSET MANAGEMENT, INC.
Newbold's Equity Portfolio
NWQ INVESTMENT MANAGEMENT COMPANY
NWQ Balanced Portfolio
NWQ Value Equity Portfolio
RICE, HALL JAMES & ASSOCIATES
Rice, Hall James Small Cap Portfolio
SIRACH CAPITAL MANAGEMENT, INC.
Sirach Fixed Income Portfolio
Sirach Growth Portfolio
Sirach Short-Term Reserves Portfolio
Sirach Special Equity Portfolio
Sirach Strategic Balanced Portfolio
SPECTRUM ASSET MANAGEMENT, INC.
SAMI Preferred Stock Income Portfolio
Enhanced Monthly Income Portfolio
STERLING CAPITAL MANAGEMENT COMPANY
Sterling Partners' Balanced Portfolio
Sterling Partners' Equity Portfolio
Sterling Partners' Short-Term Fixed Income Portfolio
THOMPSON, SIEGEL & WALMSLEY, INC.
TS&W Equity Portfolio
TS&W Fixed Income Portfolio
TS&W International Equity Portfolio
26
<PAGE>
UAM FUNDS
UAM FUNDS SERVICE CENTER
C/O CHASE GLOBAL FUNDS SERVICES COMPANY
P.O. BOX 2798
BOSTON, MA 02208-2798
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS
DATED FEBRUARY 29, 1996
AS AMENDED APRIL 1, 1996
Investment Adviser
INVESTMENT COUNSELORS OF MARYLAND, INC.
803 Cathedral Street
Baltimore, Maryland 21201
(410) 539-3838
- --------------------------------------------------------------------------------
Distributor
UAM FUND DISTRIBUTORS, INC.
211 Congress Street
Boston, MA 02110
TABLE OF CONTENTS
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Fund Expenses.................................. 2
Prospectus Summary............................. 3
Financial Highlights........................... 4
Investment Objective........................... 5
Investment Policies............................ 5
Other Investment Policies...................... 6
Investment Limitations......................... 13
Investment Suitability......................... 14
Purchase of Shares............................. 14
Redemption of Shares........................... 16
Shareholder Services........................... 18
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Valuation of Shares............................ 19
Performance Calculations....................... 19
Dividends, Capital Gains
Distributions and Taxes....................... 20
Investment Adviser............................. 21
Administrative Services........................ 22
Distributor.................................... 23
Portfolio Transactions......................... 23
General Information............................ 23
Directors and Officers......................... 25
UAM Funds--Institutional Class Shares.......... 26
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION, IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR ITS REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE FUND IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
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PART B
UAM FUNDS
ICM FIXED INCOME PORTFOLIO
INSTITUTIONAL CLASS SHARES
STATEMENT OF ADDITIONAL INFORMATION
February 29, 1996 as Amended April 1, 1996
This Statement is not a Prospectus but should be read in conjunction with
the Prospectus of UAM Funds, Inc. (the "UAM Funds" or the "Fund") for the ICM
Fixed Income Portfolio's Institutional Class Shares dated February 29, 1996
as amended April 1, 1996. To obtain the Prospectus, please call the UAM Funds
Service Center:
1-800-638-7983
TABLE OF CONTENTS
Page
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Investment Objective and Policies . . . . . . . . . . . . . . . . . . . 2
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Shareholder Services . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Investment Limitations . . . . . . . . . . . . . . . . . . . . . . . . . 10
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . 11
Investment Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . 12
Administrative Services . . . . . . . . . . . . . . . . . . . . . . . . 13
Performance Calculations . . . . . . . . . . . . . . . . . . . . . . . . 13
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Appendix - Description of Securities and Ratings . . . . . . . . . . . . A-1
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INVESTMENT OBJECTIVE AND POLICIES
The following policies supplement the investment policies of the ICM Fixed
Income Portfolio (the "Portfolio") as set forth in the Portfolio's Prospectus:
SECURITIES LENDING
The 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, the 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. The 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 (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 Portfolio 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
The Portfolio may enter into futures contracts, options, and options on
futures contracts for the purposes of remaining fully invested and reducing
transactions costs. In addition, 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. 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, boards of trade, or similar entity or quoted on
an automated quotation system. 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
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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. The Portfolio intends to use futures contracts generally only
for hedging purposes.
Although techniques other than the sale and purchase of futures contracts
could be used to control the Portfolio's exposure to market fluctuations, the
use of futures contracts may be a more effective means of hedging this exposure.
While the 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.
RESTRICTIONS ON THE USE OF FUTURES TRANSACTIONS
The Portfolio will only enter into futures contracts or futures options
which are standardized and traded on a U.S. or foreign exchange or board of
trade, or similar entity, or quoted on an automated quotation system. The
Portfolio will use futures contracts and related options only for "bona fide
hedging" purposes, as such term is defined in applicable regulations of the
CFTC, or, with respect to positions in financial futures and related options
that do not qualify as "bona fide hedging" positions, will enter such
non-hedging positions only to the extent that aggregate initial margin deposits
plus premiums paid by it for open futures option positions, less the amount by
which any such positions are "in-the-money," would not exceed 5% of the
Portfolio's total net assets.
RISK FACTORS IN FUTURES TRANSACTIONS
The 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,
the 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 the
Portfolio are generally engaged in only for hedging purposes, the Adviser does
not believe that the Portfolio is subject to the risks of loss frequently
associated with futures transactions. The 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 the 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
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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
the 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.
OPTIONS
The Portfolio may purchase and sell put and call options on futures
contracts securities and currencies for hedging purposes. Investments in
options involve some of the same considerations that are involved in connection
with investments in futures contracts (e.g., the existence of a liquid secondary
market). In addition, the purchase of an option also entails the risk that
changes in the value of the underlying security or contract will not be fully
reflected in the value of the option purchased. Depending on the pricing of the
option compared to either the futures contract on which it is based or the price
of the securities being hedged, an option may or may not be less risky than
ownership of the futures contract or such securities. In general, the market
prices of options can be expected to be more volatile than the market prices on
the underlying futures contract or securities.
WRITING COVERED OPTIONS
The principal reason for writing call options is to attempt to realize,
through the receipt of premiums, a greater return than would be realized on the
securities alone. By writing covered call options, the Portfolio gives up the
opportunity, while the option is in effect, to profit from any price increase in
the underlying security above the option exercise price. In addition, the
Portfolio's ability to sell the underlying security will be limited while the
option is in effect unless the Portfolio effects a closing purchase transaction.
A closing purchase transaction cancels out the Portfolio's position as the
writer of an option by means of an offsetting purchase of an identical option
prior to the expiration of the option it has written. Covered call options serve
as a partial hedge against the price of the underlying security declining.
The Portfolio writes only covered put options, which means that so long as
a Portfolio is obligated as the writer of the option it will, through its
Custodian, have deposited and maintained cash, cash equivalents, U.S. Government
securities or other high grade liquid debt securities denominated in U.S.
dollars or non-U.S. currencies with a securities depository with a value equal
to or greater than the exercise price of the underlying securities. By writing
a put, a Portfolio will be obligated to purchase the underlying security at a
price that may be higher than the market value of that security at the time of
exercise for as long as the option is outstanding. The Portfolio may engage
in closing transactions in order to terminate put options that it has written.
PURCHASING OPTIONS
The amount of any appreciation in the value of the underlying security will
be partially offset by the amount of the premium paid for the put option and any
related transaction costs. Prior to its expiration, a put option may be sold in
a closing sale transaction and profit or loss from the sale will depend on
whether the amount received is more or less than the premium paid for the put
option plus the related transaction costs. A closing sale transaction cancels
out the Portfolio's position as the purchaser of an option by means of an
offsetting sale of an identical option prior to the expiration of the option it
has purchased. In certain circumstances, the Portfolio may purchase call options
on securities held in its investment portfolio on which it has written call
options or on securities which it intends to purchase.
OPTIONS ON FOREIGN CURRENCIES
The Portfolio may purchase and write options on foreign currencies for
hedging purposes in a manner similar to that in which futures contracts on
foreign currencies, or forward contracts, will be utilized. For example, a
decline in the dollar value of a foreign currency in which portfolio securities
are denominated will reduce the dollar value of such securities, even if their
value
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in the foreign currency remains constant. In order to protect against such
diminution in the value of portfolio securities, the Portfolio may purchase put
options on the foreign currency. If the value of the currency does decline, the
Portfolio will have the right to sell such currency for a fixed amount in
dollars and will thereby offset, in whole or in part, the adverse effect on its
portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Portfolio may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to the Portfolio deriving from purchases of foreign
currency options will be reduced by the amount of the premium and related
transaction costs. In addition, where currency exchange rates do not move in
the direction or to the extent anticipated, the Portfolio could sustain losses
on transaction in foreign currency options which would require it to forego a
portion or all of the benefits of advantageous changes in such rates.
The Portfolio may write options on foreign currencies for the same types of
hedging purposes. For example, where the Portfolio anticipates a decline in the
dollar value of foreign currency denominated securities due to adverse
fluctuations in exchange rates it could, instead of purchasing a put option,
write a call option on the relevant currency. If the anticipated decline
occurs, the option will most likely not be exercised, and the diminution in
value of portfolio securities will be offset by the amount of the premium
received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the
Portfolio could write a put option on the relevant currency which, if rates move
in the manner projected, will expire unexercised and allow the Portfolio to
hedge such increased cost up to the amount of the premium. As in the case of
other types of options, however, the writing of a foreign currency option will
constitute only a partial hedge up to the amount of the premium, and only if
rates move in the expected direction. If this does not occur, the option may be
exercised and the Portfolio would be required to purchase or sell the underlying
currency at a loss which may not be offset by the amount of the premium.
Through the writing of options on foreign currencies, the Portfolio also may be
required to forego all or a portion of the benefits which might otherwise have
been obtained from favorable movements in exchange rates.
The Portfolio intends to write covered call options on foreign currencies.
A call option written on a foreign currency by the Portfolio is "covered" if the
Portfolio owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without additional
cash consideration (or for additional cash consideration held in a segregated
account by the Custodian) upon conversion or exchange of other foreign currency
held in its portfolio. A call option is also covered if the Portfolio has a
call on the same foreign currency and in the same principal amount as the call
written where the exercise price of the call held (a) is equal to or less than
the exercise price of the call written or (b) is greater than the exercise price
of the call written if the difference is maintained by the Portfolio in cash,
U.S. Government securities or other high grade liquid debt securities in a
segregated account with the Custodian.
The Portfolio also intends to write call options on foreign currencies that
are not covered for cross-hedging purposes. A call option on a foreign currency
is for cross-hedging purposes if it is not covered, but is designed to provide a
hedge against a decline in the U.S. dollar value of a security which the
Portfolio owns or has the right to acquire and which is denominated in the
currency underlying the option due to an adverse change in the exchange rate.
In such circumstances, the Portfolio collateralizes the option by maintaining in
a segregated account with the Custodian, cash or U.S. Government securities or
other high grade liquid debt securities in an amount not less than the value of
the underlying foreign currency in U.S. dollars marked to market daily.
RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND OPTIONS ON FOREIGN
CURRENCIES
Options on foreign currencies and forward contracts are not traded on
contract markets regulated by the CFTC or (with the exception of certain foreign
currency options) by the Commission. To the contrary, such instruments are
traded through financial institutions acting as market-makers, although foreign
currency options are also traded on certain national securities exchanges, such
as the Philadelphia Stock Exchange and the Chicago Board Options Exchange,
subject to the regulation of the Commission. Similarly, options on currencies
may be traded over-the-counter. In an over-the-counter trading environment, many
of the protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchase of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
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Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the margin and
collateral requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the Commission, as are other securities traded on
such exchanges. As a result, many of the protections provided to traders on
organized exchanges will be available with respect to such transactions. In
particular, all foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the Options Clearing
Corporation ("OCC"), thereby reducing the risk of counterparty default.
Furthermore, a liquid secondary market in options traded on a national
securities exchange may be more readily available than in the over-the-counter
market, potentially permitting the Portfolio to liquidate open positions at a
profit prior to exercise or expiration, or to limit losses in the event of
adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effect of other
political and economic events. In addition, exchange-traded options of foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions, on exercise.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies 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 the
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.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The U.S. dollar value of the assets of the Portfolio may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Portfolio may incur costs in connection
with conversions between various currencies. The Portfolio will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market, or through
entering into forward foreign currency exchange contracts ("forward contracts")
to purchase or sell foreign currencies. A forward 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 agreed upon by the
parties, at a price set at the time of the contract. These contracts are traded
in the interbank market conducted 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 such
trades.
The Portfolio may enter into forward contracts in several circumstances.
When the Portfolio enters into a contract for the purchase or sale of a security
denominated in a foreign currency, or when the Portfolio anticipates the receipt
in a foreign currency of dividends or interest payments on a security which it
holds, the Portfolio may desire to "lock-in" the U.S. dollar price of the
security or the U.S. dollar equivalent of such dividend or interest payment, as
the case may be. By entering into a forward contract for a fixed amount of
dollars, for the purchase or sale of the amount of foreign currency involved in
the underlying transactions, the Portfolio will be able to protect itself
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar and the subject foreign currency during the period
between the date on which the security is purchased or sold, or on which the
dividend or interest payment is declared, and the date on which such payments
are made or received.
Additionally, when the Portfolio anticipates that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract for a fixed amount of dollars, to
sell the amount of foreign currency approximating the value of some or all of
the Portfolio's securities denominated in such foreign currency. The precise
matching of the forward contract amounts and the value of the securities
involved will not generally be possible since the future value of securities in
foreign currencies will change as a consequence of market movements in the value
of
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these securities between the date on which the forward contract is entered into
and the date it matures. The projection of short-term currency market movement
is extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. The Portfolio does not intend to enter into such
forward contracts to protect the value of portfolio securities on a regular or
continuous basis. The Portfolio will not enter into such forward contracts or
maintain a net exposure to such contracts where the consummation of the
contracts would obligate the Portfolio to deliver an amount of foreign currency
in excess of the value of the Portfolio securities or other assets denominated
in that currency.
Under normal circumstances, consideration of the prospect for currency
parities will be incorporated into the long-term investment decisions made with
regard to overall diversification strategies. However, the Adviser believes
that it is important to have the flexibility to enter into such forward
contracts when it determines that the best interests of the performance of the
Portfolio will thereby be served. The Fund's Custodian will place cash, U.S.
government securities, or high-grade debt securities into a segregated account
in an amount equal to the value of the Portfolio's total assets committed to the
consummation of forward contracts. If the value of the securities placed in the
segregated account declines, additional cash or securities will be placed in the
account on a daily basis so that the value of the account will be equal to the
amount of the Portfolio's commitments with respect to such contracts.
The Portfolio generally will not enter into a forward contract with a term
of greater than one year. At the maturity of a forward contract, the Portfolio
may either sell the security and make delivery of the foreign currency, or it
may retain the security and terminate its contractual obligation to deliver the
foreign currency by purchasing an "offsetting" contract with the same currency
trader obligating it to purchase, on the same maturity date, the same amount of
the foreign currency.
It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the contract. Accordingly,
it may be necessary for the Portfolio to purchase additional foreign currency on
the spot market (and bear the expense of such purchase) if the market value of
the security is less than the amount of foreign currency that the Portfolio is
obligated to deliver and if a decision is made to sell the security and make
delivery of the foreign currency.
If the Portfolio retains the portfolio security and engages in an
offsetting transaction, the Portfolio will incur a gain or loss (as described
below) to the extent that there has been movement in forward contract prices.
Should forward prices decline during the period between the Portfolio entering
into a forward contract for the sale of a foreign currency and the date it
enters into an offsetting contract for the purchase of the foreign currency, the
Portfolio will realize a gain to the extent that the price of the currency it
has agreed to sell exceeds the price of the currency it has agreed to purchase.
Should forward prices increase, the Portfolio would suffer a loss to the extent
that the price of the currency it has agreed to purchase exceeds the price of
the currency it has agreed to sell.
The Portfolio's dealings in forward contracts will be limited to the
transactions described above. Of course, the Portfolio is not required to enter
into such transactions with regard to its foreign currency-denominated
securities. It also should be realized that this method of protecting the value
of portfolio securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange which one can achieve at some future point in
time. Additionally, although such contracts tend to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time, they
tend to limit any potential gain which might result should the value of such
currency increase.
FEDERAL TAX TREATMENT OF FORWARD CURRENCY AND FUTURES CONTRACTS
Except for transactions the 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. Realized gain or loss attributable to a foreign
currency forward contract is treated as 100% ordinary income. 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 the 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 related income including gains from
7
<PAGE>
options, futures and forward contracts, 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 the 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. Qualification as a
regulated investment company also requires that less than 30% of the Portfolio's
gross income be derived from the sale or other disposition of securities,
options, futures or forward contracts (including certain foreign currencies not
directly related to the Portfolio's business of investing in securities) held
less than three months. In order to avoid realizing excessive gains on
securities held for less than three months, the 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 the Portfolio's taxable 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.
The 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 the 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 5, 1996; Memorial Day, May 27, 1996; Independence Day,
July 4, 1996; Labor Day, September 2, 1996; Thanksgiving Day, November 28, 1996;
Christmas Day, December 25, 1996; New Year's Day, January 1, 1997; and
Presidents' Day, February 17, 1997.
The 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 the Portfolio's shares.
REDEMPTION OF SHARES
REDEMPTIONS
The 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 the 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 Portfolio's Prospectus under "Valuation of Shares" and a redeeming
shareholder would normally incur brokerage expenses if these securities were
converted to cash.
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.
8
<PAGE>
SIGNATURE GUARANTEES
To protect your account, the Fund and Chase Global Funds Services 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 Portfolio's Prospectus:
EXCHANGE PRIVILEGE
Institutional Class Shares of the ICM Portfolios may be exchanged for
Institutional Class Shares of the other ICM Portfolios. In addition,
Institutional Class Shares of the ICM Portfolio may be exchanged for any other
Institutional Class Shares of a Portfolio included in the UAM Funds which is
comprised of the Fund and UAM Funds Trust. (See the list of Portfolios of the
UAM Funds - Institutional Class Shares at the end of the Prospectus.) Exchange
requests should be made by calling the Fund (1-800-638-7983) or by writing to
UAM Funds, UAM Funds Service Center, c/o Chase Global Funds Services 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
UAM Funds 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
9
<PAGE>
registered owners and all stock certificates, if any, which are subject to the
transfer. The signature on 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 Portfolio is subject to the following restrictions, which is
non-fundamental, and which may be changed by the Fund's Board of Directors
upon reasonable notice to investors. These restrictions supplement the
investment objective and policies set forth in the Prospectus. The Portfolio
will not:
(1) invest in commodities except that the Portfolio may invest in
futures contracts and options to the extent that not more than 5%
of the 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
1/2 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 the 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 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;
(13) 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
10
<PAGE>
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
(14) write or acquire options or interests in oil, gas or other
mineral exploration or development programs.
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 Portfolio's Prospectus.
As of January 31, 1996, 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 $4,500 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 UAM Funds Trust 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. The following table shows aggregate compensation
paid to each of the Fund's unaffiliated Directors by the Fund and total
compensation paid by the Fund, UAM Funds Trust and AEW Commercial Mortgage
Securities Fund, Inc. (collectively the "Fund Complex") in the fiscal year ended
October 31, 1995.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5)
Pension or Total Compensation
Aggregate Retirement Benefits Estimated Annual from Registrant and
Name of Person, Compensation Accrued as Part of Benefits Upon Fund Complex Paid
Position From Registrant Fund Expenses Retirement to Directors
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John T. Bennett, Jr.
Director $24,435 0 0 $26,750
J. Edward Day
Director $24,435 0 0 $26,750
Philip D. English
Director $24,435 0 0 $26,750
William A. Humenuk
Director $24,435 0 0 $26,750
</TABLE>
PRINCIPAL HOLDERS OF SECURITIES
As of January 31, 1996, the following persons or organizations held of
record or beneficially 5% or more of the shares of the Portfolio:
ICM Fixed Income Portfolio: Finney Trimble & Associates, Profit Sharing
Plan, c/o First National Bank of Maryland, P.O. Box 1596, Baltimore, MD, 22%;
MSTA Pension, Investment Counselors of Maryland, 803 Cathedral Street,
Baltimore, MD, 14%; ICM-UAM Profit Sharing & 401(k) Plan, c/o Investment
Counselors of Maryland, 803 Cathedral Street, Baltimore,
11
<PAGE>
MD, 13%; Bryn Mawr School, c/o Investment Counselors of Maryland, 803
Cathedral Street, Baltimore, MD, 12%; Plitt & Co., c/o First National Bank of
Maryland, P.O. Box, 1596, Baltimore, MD, 8%; Greenhorne & O'Mara, c/o
Investment Counselors of Maryland, 803 Cathedral Street, Baltimore, MD, 7%
and Reliable Contracting Co., Inc., Profit Sharing Plan, c/o Investment
Counselors of Maryland, 803 Cathedral Street, Baltimore, MD, 5%.
The persons or organizations 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.
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 45 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.
PHILOSOPHY AND STYLE
The Adviser 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
As of the date of this Statement of Additional Information, the Adviser's
representative institutional clients included: Georgia Gulf Corp. State of
Maryland, Johns Hopkins Hospital, State of Kentucky, NYNEX, TRW Corp., and
Wisconsin Power & Light.
In compiling this client list, the Adviser used objective criteria such
as account size, geographic location and client classification. The Adviser
did not use any performance based criteria. It is not known whether these
clients approve or disapprove of the Adviser or the advisory services
provided.
ADVISORY FEES
As compensation for services rendered by the Adviser under the Portfolio's
Investment Advisory Agreement, the Portfolio pays the Adviser an annual fee, in
monthly installments, calculated by applying the following annual percentage
rates to the Portfolio's average daily net assets for the month:
Rate
----
ICM Fixed Income Portfolio............................................ 0.50%
For the period November 3, 1992 (commencement of operations) to October 31,
1993, the Portfolio paid advisory fees of approximately $46,000, of which
$33,000 was waived by the Adviser. For the fiscal years ended October 31, 1994
and
12
<PAGE>
October 31, 1995, the Portfolio paid advisory fees of approximately $65,000 and
$0 respectively. During these periods, the Adviser voluntarily waived advisory
fees of approximately $59,000 and $76,000, respectively.
PORTFOLIO TRANSACTIONS
The Investment Advisory Agreement authorizes the Adviser to select the
brokers or dealers that will execute the purchases and sales of investment
securities for the 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, the 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 research, 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 Portfolio for their clients. During the
fiscal years ended, October 31, 1993, 1994 and 1995, the entire Fund paid
brokerage commissions of approximately $1,592,000, $2,402,000 and $2,983,000,
respectively.
Some securities considered for investment by the Portfolio may also be
appropriate for other clients served by the Adviser. If purchases or sales of
securities consistent with the investment policies of the 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
In a merger completed on September 1, 1995, The Chase Manhattan Bank, N.A.
("Chase") succeeded to all of the rights and obligations under the Fund
Administration Agreement between the Fund and United States Trust Company of New
York ("U.S. Trust"), pursuant to which U.S. Trust had agreed to provide certain
administrative services to the Fund. Pursuant to a delegation clause in the
U.S. Trust Administration Agreement, U.S. Trust delegated its administration
responsibilities to Mutual Funds Service Company, which after the merger with
Chase is a subsidiary of Chase known as Chase Global Funds Services Company and
will continue to provide certain administrative services to the Fund. 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 years ended October 31, 1994 and October 31, 1995,
administrative services fees paid to the Administrator by the ICM Fixed Income
Portfolio totaled approximately $65,000 and $82,000. The services provided by
the Administrator and the basis of the fees payable to the Administrator for the
1994 and 1995 fiscal years are described in the Portfolio's 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.
13
<PAGE>
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. The average annual total rates of return for the Portfolio
from inception and for the one year period ended on the date of the Financial
Statements included herein are as follows:
<TABLE>
<CAPTION>
Since Inception
Through Year
One Year Ended Ended Inception
October 31, 1995 October 31, 1995 Date
---------------- ---------------- ---------
<S> <C> <C> <C>
ICM Fixed Income Portfolio 15.11% 6.70% 11/3/92
</TABLE>
These figures are calculated according to the following formula:
P (1 + T)n = 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
investments.
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 Portfolio for the 30-day period ended on October 31, 1995 was
5.96%.
This figure is obtained using the following formula:
Yield = 2 [(a - b + 1)6 - 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:
14
<PAGE>
(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.
(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.
15
<PAGE>
(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
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." On October 31, 1995, the name of the Fund was
changed to "UAM Funds, Inc." The Fund's principal executive office is located
at One International Place, Boston, MA 02110; however, all investor
correspondence should be addressed to the Fund at UAM Funds Service Center, c/o
Chase Global Funds Services 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 30 Portfolios.
The shares of each Portfolio of each 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.
16
<PAGE>
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, 1995 and the Financial Highlights for the respective
periods presented, which appear in the Portfolio's 1995 Annual Report to
Shareholders, and the report thereon of Price Waterhouse LLP, independent
accountants, also appearing therein, which were previously filed electronically
with the Commission (Accession Number: 0000950109-96-000061), are incorporated
by reference.
17
<PAGE>
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 Portfolio. 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 Portfolio 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 Portfolio 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 Portfolio's 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 the 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.
A-1
<PAGE>
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 Portfolio. The compounding effect from reinvestment of monthly payments
received by the 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 Portfolio will, however,
be rated investment grade by Moody's or S&P.
The Portfolio expects 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 Portfolio will, consistent with their investment objective and
policies, consider making investments in such new types of securities.
A-2
<PAGE>
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
The 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 Portfolio's
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.
A-3
<PAGE>
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 Portfolio is 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.
A-4
<PAGE>
SAMI
PREFERRED STOCK
INCOME PORTFOLIO
INSTITUTIONAL CLASS SHARES UAM FUNDS
UAM FUNDS SERVICE CENTER
C/O CHASE GLOBAL FUNDS SERVICES COMPANY
P.O. BOX 2798
BOSTON, MA 02208-2798
1-800-638-7983
SPECTRUM
- ---------------------------------------------------------------------
ASSET MANAGEMENT, INC. - INVESTMENT ADVISER
FOUR HIGH RIDGE PARK - STAMFORD, CT 06905
(203) 322-0189
PROSPECTUS
FEBRUARY 29, 1996
AS AMENDED APRIL 1, 1996
INVESTMENT OBJECTIVE
UAM Funds, Inc. (hereinafter defined as "UAM Funds" or the "Fund") is an
open-end, management investment company known as a "mutual fund" and organized
as a Maryland corporation. The Fund consists of multiple series of shares (known
as "Portfolios"), each of which has different investment objectives and
investment policies. Several of the Fund's Portfolios offer two separate classes
of shares: Institutional Class Shares and Institutional Service Class Shares.
The SAMI Preferred Stock Income Portfolio currently offers only one class of
shares. The securities offered in this Prospectus are Institutional Class Shares
of one diversified, no-load Portfolio of the Fund managed by Spectrum Asset
Management, Inc.
SAMI PREFERRED STOCK INCOME PORTFOLIO. THE OBJECTIVE OF THE PORTFOLIO IS TO
PROVIDE A HIGH LEVEL OF DIVIDEND INCOME CONSISTENT WITH CAPITAL PRESERVATION. TO
ACHIEVE ITS OBJECTIVE, THE PORTFOLIO WILL INVEST PRIMARILY IN A DIVERSIFIED
PORTFOLIO OF UTILITY PREFERRED SECURITIES COMBINED WITH A CONSTANT CROSS-HEDGE
USING U.S. GOVERNMENT SECURITIES FUTURES. THE PORTFOLIO ALSO EXPECTS TO INVEST
SIGNIFICANTLY IN BANK PREFERRED SECURITIES. IN ADDITION, THE PORTFOLIO'S
INVESTMENT ADVISER INTENDS TO MANAGE THE PORTFOLIO TO MAXIMIZE INCOME QUALIFYING
FOR THE DIVIDENDS RECEIVED DEDUCTION UNDER THE INTERNAL REVENUE CODE OF 1986.
There can be no assurance that the Portfolio will meet its stated objective.
A discussion of the risks of investing in the Portfolio, including those of the
use of futures, is included in this Prospectus.
ABOUT THIS PROSPECTUS
This Prospectus, which should be retained for future reference, sets forth
concisely information that you should know before you invest. A "Statement of
Additional Information" containing additional information about the Fund has
been filed with the Securities and Exchange Commission. Such Statement is dated
February 29, 1996 and has been incorporated by reference into this Prospectus. A
copy of the Statement may be obtained, without charge, by writing to the Fund or
by calling the telephone number shown above.
THIS SECURITY HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
FUND EXPENSES
The following table illustrates expenses and fees that a shareholder of the
SAMI Preferred Stock Income Portfolio will incur. However, transaction fees may
be charged if you are a customer of a broker-dealer or other financial
intermediary who has established a shareholder servicing relationship with the
Fund on behalf of their customers. Please see "Purchase of Shares" for further
information.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
SAMI PREFERRED
STOCK INCOME PORTFOLIO
-------------------------
<S> <C>
Sales Load Imposed on Purchases................... NONE
Sales Load Imposed on Reinvested Dividends........ NONE
Deferred Sales Load............................... NONE
Redemption Fees................................... NONE
Exchange Fees..................................... NONE
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
SAMI PREFERRED
STOCK INCOME PORTFOLIO
-------------------------
<S> <C>
Investment Advisory Fees.......................... 0.70%
Administrative Fees............................... 0.14%
12b-1 Fees........................................ NONE
Distribution Costs................................ NONE
Other Expenses.................................... 0.14%
-------------------------
Total Operating Expenses.......................... 0.98%*
------
------
</TABLE>
- ------------
*The annualized Total Operating Expenses excludes the effect of expense offsets.
If expense offsets were included, annualized Total Operating Expenses of the
Portfolio would not significantly differ.
The purpose of this table is to assist the investor in understanding the
various expenses that an investor in the Portfolio will bear directly or
indirectly. The expenses and fees set forth above are based on the Portfolio's
operations during the fiscal year ended October 31, 1995.
The Adviser has voluntarily agreed to waive its advisory fees and to assume
as the Adviser's own expense operating expenses otherwise payable by the
Portfolio, if necessary, in order to reduce the Portfolio's expense ratio. As of
the date of this Prospectus, the Adviser has agreed to keep the Portfolio's
total annual operating expenses, after the effect of expense offset
arrangements, from exceeding 0.99% of its average daily net assets. The Fund
will not reimburse the Adviser for any advisory fees that are waived or
Portfolio expenses that the Adviser may bear on behalf of the Portfolio.
The following example illustrates the expenses that a shareholder would pay
on a $1,000 investment over various time periods assuming (1) a 5% annual rate
of return and (2) redemption at the end of each time period. As noted in the
table above, the Portfolio charges no redemption fees of any kind.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
SAMI Preferred Stock Income Portfolio........ $10 $31 $54 $120
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE
SHOWN.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION APPEARING IN THE BODY OF THIS PROSPECTUS. CROSS-REFERENCES IN THIS
SUMMARY ARE TO HEADINGS IN THE BODY OF THE PROSPECTUS.
<TABLE>
<S> <C> <C>
INVESTMENT OBJECTIVE: High level of dividend income consistent with capital
preservation. See "Investment Objective."
PRINCIPAL INVESTMENTS: Utility and bank preferred securities; combined with a
cross-hedge using U.S. Government securities futures and
options. See "Investment Objective."
KEY POLICIES: Diversified portfolio; concentrates in utility preferred
stocks; seeks to maximize income qualifying for the
dividends received deduction under the Internal Revenue
Code of 1986. See "Investment Objective" and "Investment
Policies."
INVESTOR SUITABILITY: Corporate investors seeking a high level of dividends
received deduction qualified income; other investors such
as non-profit corporations, foundations, endowments,
pension plans and other institutional investors. The
Portfolio is also available for purchase by individuals and
may be suitable for investors who seek a high level of
dividend income consistent with capital preservation, but
willing to assume corresponding higher risk. (See "Risk
Factors.") No mutual fund can guarantee that its investment
objective will be met.
INVESTMENT ADVISER: Spectrum Asset Management, Inc. (the "Adviser"), an
investment counseling firm founded in 1987; the Adviser
presently manages over $750 million in assets for
institutions, pension plans and endowments. See "Investment
Adviser."
SHARES AVAILABLE THROUGH: Spectrum Asset Management, Inc., a selling-dealer, or the
Fund. See "Purchase of Shares."
COMMISSION: No-Load
DIVIDENDS AND DISTRIBUTIONS: Pays dividends from available income monthly; distributes
available capital gains annually.
REINVESTMENT: Distributions will be reinvested in Fund shares
automatically, unless an investor elects to receive cash
distributions.
INITIAL PURCHASE: $2,500 minimum
SUBSEQUENT PURCHASES: $100 minimum
REDEMPTIONS: Available anytime, without cost, at the Portfolio's net
asset value next determined after receipt of a redemption
request. The Portfolio's share price will fluctuate with
market and economic conditions. Therefore, your investment
may be worth more or less when redeemed than when
purchased. See "Redemption of Shares."
RISK FACTORS: As a mutual fund investing principally in preferred
securities, the Portfolio is subject primarily to four
types of risk: market risk, interest rate risk, utilities
industry risks, and manager risk. In addition, the
Portfolio uses futures contracts and options for hedging
purposes, which may entail certain specialized risks. See
"Risk Factors."
</TABLE>
3
<PAGE>
FINANCIAL HIGHLIGHTS
The following table provides selected per share data and ratios for a
share of the SAMI Preferred Stock Income Portfolio outstanding throughout the
periods presented and is part of the Portfolio's Financial Statements which
are included in the Portfolio's 1995 Annual Report to Shareholders and
incorporated by reference into the Portfolio's Statement of Additional
Information. The Portfolio's Financial Statements have been examined by Price
Waterhouse LLP whose opinion thereon (which was unqualified) is also
incorporated by reference into the Portfolio's Statement of Additional
Information. The following information should be read in conjunction with the
Portfolio's 1995 Annual Report to Shareholders.
<TABLE>
<CAPTION>
JUNE 23**, 1992 YEARS ENDED OCTOBER 31,
TO OCTOBER 31, ---------------------------------
1992 1993 1994 1995
--------------- ---------- -------- ---------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period....................... $ 10.00 $ 10.09 $ 9.98 $ 9.29
------- ---------- -------- ---------
Income From Investment
Operations
Net Investment Income..... 0.14+ 0.60+ 0.60 0.67
Net Realized and
Unrealized Gain (Loss)... 0.03 (0.07) (0.71) (0.08)
------- ---------- -------- ---------
Total from Investment
Operations............... 0.17 0.53 (0.11) 0.59
------- ---------- -------- ---------
Distributions
Net Investment Income..... (0.08) (0.61) (0.58) (0.67)
In Excess of Net Realized
Gain..................... -- (0.03) -- --
------- ---------- -------- ---------
Total Distributions....... (0.08) (0.64) (0.58) (0.67)
------- ---------- -------- ---------
Net Asset Value, End of
Period....................... $ 10.09 $ 9.98 $ 9.29 $ 9.21
------- ---------- -------- ---------
------- ---------- -------- ---------
Total Return.................. 1.70%++ 5.47%++ (1.15)% 6.67%
------- ---------- -------- ---------
------- ---------- -------- ---------
Ratios and Supplemental Data
Net Assets, End of Period
(Thousands).................. $23,904 $49,671 $91,221 $33,789
Ratio of Expenses to Average
Net Assets................... 0.97%*+ 0.82%+ 0.89% 0.98%#
Ratio of Net Investment Income
to Average Net Assets........ 6.36%*+ 6.10%+ 6.45% 7.03%
Portfolio Turnover Rate....... 16% 144% 65% 44%
</TABLE>
--------------
* Annualized
** Commencement of Operations.
+ Net of voluntarily waived fees and reimbursed expenses for periods
ended October 31, 1992 and October 31, 1993 of $0.02 and $0.01 per
share, respectively.
++ Total return would have been lower had certain fees not been waived
and expenses assumed by the Adviser during the periods indicated.
# The Ratio of Expenses to Average Net Assets excludes the effect of
expense offsets. If expense offsets were included, the Ratio of
Expenses to Average Net Assets would not significantly differ.
4
<PAGE>
PERFORMANCE CALCULATIONS
The Portfolio may advertise or quote yield data from time to time. The yield
of the Portfolio is computed based on the net income of the Portfolio during a
30-day (or one month) period, which period will be identified in connection with
the particular yield quotation. More specifically, the Portfolio's yield is
computed by dividing the Portfolio's net income per share during a 30-day (or
one month) period by the maximum offering price per share on the last day of the
period and annualizing the result on a semi-annual basis.
The Portfolio may advertise or quote total return data. Total return will be
calculated on an average annual total return basis, and may also be calculated
on an aggregate total return basis, for various periods. Average annual total
return reflects the average annual percentage change in value of an investment
in the Portfolio over a measuring period. Aggregate total return reflects the
total percentage change in value over a measuring period. Both methods of
calculating total return assume that dividends and capital gains distributions
made by the Portfolio during the period are reinvested in Portfolio shares. The
largest component of the Portfolio's total rate of return will be dividend
income. Net capital gains or losses should be minimal as a result of the
cross-hedging techniques employed by the Adviser.
The Portfolio's Annual Report to Shareholders for the most recent fiscal
year end contains additional performance information that includes comparisons
with appropriate indices. The Annual Report is available without charge upon
request to the Fund by writing to the address or calling the phone number on the
cover of this Prospectus.
INVESTMENT OBJECTIVE
SAMI PREFERRED STOCK INCOME PORTFOLIO. The objective of the Portfolio is to
provide a high level of current dividend income consistent with capital
preservation. The Portfolio's Adviser intends to manage the Portfolio to
maximize income qualifying for the dividends received deduction under the
Internal Revenue Code of 1986, as amended (the "Code"). In seeking its
objective, the Portfolio will invest primarily in a professionally managed,
diversified portfolio of investment grade, utility preferred securities which
will be hedged with U.S. Government securities futures to minimize capital
fluctuations of the Portfolio caused by interest rate movements. The Portfolio's
Adviser also expects to invest a significant portion of the Portfolio's assets
in bank preferred securities. The Portfolio's objective is fundamental and may
be changed only upon approval by vote of the holders of the majority of the
Portfolio's shares. Of course, there can be no assurance that the Portfolio will
achieve its objective.
INVESTMENT POLICIES
Spectrum Asset Management, Inc., the Adviser, seeks to achieve the
Portfolio's objective by investing primarily in investment grade, utility
preferred securities of varying maturities. The Portfolio's Adviser also expects
to invest a significant portion of the Portfolio's assets in bank preferred
securities. Investment grade preferred stocks are generally considered to be
those having a rating of at least "Baa3" or higher by Moody's Investors Service,
Inc. ("Moody's") or "BBB-" by Standard & Poor's Corporation ("S&P"). Although
bonds rated Baa3 or BBB- may possess speculative characteristics and may be more
sensitive to changes in the economy and the financial condition of issuers than
higher rated bonds. As a matter of operating policy, the Adviser will invest at
least 60% of the Portfolio's assets in securities rated A or better by at least
one rating agency. In the event of a downgrade of the rating to below investment
grade of a stock held in the Portfolio, the Adviser will attempt to liquidate
the particular issue within a 90 day period. The Portfolio will NOT invest in
securities of companies that have a bond rating below investment grade,
convertible preferred securities, or any type of common stock.
In selecting specific preferred stock issues, the Adviser will consider not
only current yield but all variables that would affect the value of a security
(i.e., sinking fund provisions, call features, redemption characteristics and
credit quality). The Adviser will also carefully analyze the underlying
fundamentals of the issuer, with particular emphasis for utility securities on
interest and dividend coverage, the utility customer mix, regulatory climate,
energy sources, quality of management, non-utility diversification, if any, and
construction expenditures relative to internal cash generation. While the
investment philosophy of the
5
<PAGE>
Adviser is primarily one of buy and hold, the Adviser will seek to optimize
total returns by trading the Portfolio when it believes market, economic or
other conditions make it advantageous to do so, for example, by taking advantage
of market or pricing inefficiencies of certain securities to improve dividend
income without eroding capital. At the time this prospectus was prepared, the
Adviser attempted to structure the Portfolio to take maximum advantage of
potential spread tightening due to the increasing scarcity value of dividend
received deduction ("DRD") qualifying preferred stock. As new preferred types of
securities have been developed, the supply of traditional DRD preferred
securities has decreased. In addition, the Adviser is focusing on issues either
trading at a discount with strong call protection or with attractive yields to
call. Changes in the DRD and preferred securities markets may require
modification of the Portfolio's investment policies from time to time. Investors
will receive advance notice of significant policy changes.
The Adviser will invest at least 65% of the Portfolio's total assets in
utility preferred stocks. As a result, the Portfolio is legally deemed to be
"concentrating" its investments in utility securities, meaning that normally,
under applicable law, at least 25% of the Portfolio's total assets must be
invested in utility securities. Beginning May 1, 1996, the Adviser anticipates
investing a significant portion of the Portfolio's assets in bank preferred
securities. However, investments in bank securities will be limited to less than
25% of the Portfolio's total assets. The utilities industry includes companies
engaged in the manufacture, production, generation, transmission and sale of gas
and electric energy. It also includes issuers engaged in the communications
field, including entities such as telephone, telegraph, satellite, microwave and
other companies providing communication facilities for the public benefit. The
bank industry includes companies that provide financial services to consumers
and industry. Examples of companies in the banking field include commercial
banks, savings and loan associations, and companies that span across these
segments. Under applicable regulations, the Portfolio may not invest more than
5% of its total assets in the equity securities of any company that derives more
than 15% of its revenues from brokerage or investment management activities.
PREFERRED SECURITIES. The Adviser may invest the Portfolio's assets in all
types of preferred securities including fixed-dividend, adjustable-rate
preferred stocks, perpetual preferred stock and private placement fixed-dividend
sinking fund preferred stock. Adjustable rate preferred stock is preferred stock
that has a dividend rate which is adjusted periodically, typically every three
months, to reflect changes in the general level of interest rates. The dividend
rate on an adjustable rate preferred stock is determined by applying an
adjustment formula, established at the time the stock is issued, which generally
involves a fixed relationship to rates on specific classes of debt securities
issued by the U.S. Treasury, with limits on the minimum and maximum dividend
rates that may be paid. Sinking fund preferred stock provides for the issuer to
redeem the outstanding preferred stock according to a predetermined schedule.
Perpetual preferred securities have no sinking fund or maturity features, but
include a call feature. In order to maintain liquidity of the Portfolio, the
Adviser, at its discretion, may from time to time invest a portion of the
Portfolio's assets in U.S. Treasury bills or similar short-term instruments.
(See "Short-Term Investments.") Under normal conditions, short-term investments
may comprise up to 35% of the Portfolio's total assets. For temporary defensive
purposes, when economic, market or other conditions so warrant, the Adviser may
invest up to all of the Portfolio's total assets in short-term investments. Of
course, in such a situation, income dividends paid by the Portfolio qualifying
for the dividends received deduction would be greatly reduced.
Preferred stock has a preference over common stock in liquidation (and
generally dividends as well) but is subordinated to the liabilities of the
issuer in all respects. As a general rule, the market value of preferred stock
with a fixed dividend rate and no conversion element varies inversely with
interest rates and perceived credit risk. Because preferred stock is junior to
debt securities and other obligations of the issuer, deterioration in the credit
quality of the issuer will cause greater changes in the value of a preferred
stock than in a more senior debt security with similar stated yield
characteristics.
CROSS-HEDGING STRATEGY. The Adviser does not make interest rate projections
and seeks to preserve capital by implementing and maintaining a constant
cross-hedge. The Portfolio's preferred and fixed income securities investments
are subject to market fluctuation based largely, but not exclusively on the
securities' sensitivity to changes in interest rates. By maintaining a hedge
consisting of U.S. Government futures contracts, options on such futures
contracts, and options, the Adviser seeks to reduce interest rate related risk.
Futures contracts provide for the sale by one party and purchase by another
party of a specified amount of a security or financial instrument, at a
specified future time and price. An option is a legal contract that
6
<PAGE>
gives the holder the right to buy or sell a specified amount of the underlying
security or futures contract at a fixed or determinable price upon the exercise
of the option. A call option conveys the right to buy and a put option conveys
the right to sell a specified quantity of the underlying security or futures
contract.
The Adviser implements the cross-hedge strategy by monitoring the
correlation between the preferred and fixed income securities and the U.S.
Government futures and options markets. Depending upon the Adviser's analysis,
futures and options can be used in a variety of ways. A typical use is to
establish a short position in Government futures contracts or options to offset
the principal fluctuations of the preferred stock portfolio caused by interest
rate movements. This strategy enables the Adviser to invest across the yield
curve, realizing higher dividend yields, while managing interest rate
volatility. The formula used by the Adviser to analyze and guide its hedging
investments is derived by evaluating the history of price movements in both the
preferred stock, fixed income and U.S. Government securities, futures and
options markets. The Adviser uses sophisticated quantitative analytical
techniques, including regression analyses and price volatility analyses, to
create the necessary statistical data to monitor and adjust the hedging
investments. Naturally, historical price movements may bear no relationship to
future price movements.
The Portfolio's preferred and fixed income securities portfolio and its
futures and options positions are intended to produce offsetting capital gains
and losses as interest rates change. As the goal is to achieve a netting effect
of capital gains and losses, the Portfolio's rate of return should reflect
primarily the dividend and interest income it receives. The hedging positions
that the Portfolio expects to hold normally appreciate in value when interest
rates rise. If any gain on these instruments were realized and used by the
Portfolio to acquire additional preferred stocks, an increase in the Portfolio's
dividend income would result. Conversely, should interest rates decline, these
hedging positions would be expected to decline in value and, if necessary, the
sale of some of the Portfolio's holdings of preferred stocks to finance hedge
losses would cause a decrease in the Portfolio's dividend income. Thus, the
successful use of hedging transactions, combined with the fact that dividend
rates on fixed rate preferred stocks do not change in response to changes in
interest rates, should make the Portfolio's income from the Portfolio's fixed
rate preferred stocks increase in rising interest rate environments while being
relatively resistant to the impact of significant declines in interest rates.
The Portfolio's use of hedging instruments and the availability of gains for
investment in additional shares of preferred stock may be limited by the
restrictions and distribution requirements imposed on the Portfolio in
connection with its qualification as a regulated investment company under the
Code. See "Dividends, Capital Gains Distributions and Taxes." The Adviser does
not believe that these restrictions and requirements will materially adversely
affect the management of the Portfolio or the ability of the Portfolio to
achieve its investment objective.
The Portfolio may enter into futures and options contracts provided that not
more than 5% of the Portfolio's assets are at the time of acquisition required
as margin deposits or premiums to secure obligations under such contracts. The
primary risks associated with the use of futures and options are (1) imperfect
correlation between the change in market value of the securities held by a
Portfolio and the prices of futures and options relating to the stocks or bonds
purchased or sold by the Portfolio; and (2) possible lack of a liquid secondary
market for a futures contract or option and the resulting inability to close a
futures position which could have an adverse impact on the Portfolio's ability
to hedge. In the opinion of the Directors, the risk that the Portfolio will be
unable to close out a futures position or options contract will be minimized by
only entering into futures contracts or options transactions traded on national
exchanges and for which there appears to be a liquid secondary market. For
additional information regarding futures and options contracts, see the
Statement of Additional Information.
The development of hedging techniques and the management of individual
portfolios for institutions have given the Adviser substantial experience in
carrying out this investment strategy. The Adviser will replicate the basic
concepts of its proven strategy in managing the Portfolio.
OTHER INVESTMENT POLICIES
SHORT-TERM INVESTMENTS
From time to time, the Portfolio may invest a portion of its assets in the
following money market instruments, consistent with the Portfolio's investment
policies as set forth above.
7
<PAGE>
(1) Time deposits, certificates of deposit (including marketable variable rate
certificates of deposit) and bankers' acceptances issued by a commercial
bank or savings and loan association. Time deposits are non-negotiable
deposits maintained in a banking institution for a specified period of time
at a stated interest rate. Time deposits maturing in more than seven days
will not be purchased by the Portfolio, and time deposits maturing from two
business days through seven calendar days will not exceed 10% of the total
assets of the Portfolio.
Certificates of deposit are negotiable short-term obligations issued by
commercial banks or savings and loan associations collateralized by funds
deposited in the issuing institution. 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.
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 Portfolio will not invest in any security issued by a commercial bank
unless (i) the bank has total assets of at least $1 billion, or the
equivalent in other currencies, (ii) in the case of U.S. banks, it is a
member of the Federal Deposit Insurance Corporation, and (iii) in the case
of foreign branches of U.S. banks, the security is, in the opinion of the
Adviser, of an investment quality comparable with other debt securities
which may be purchased by the Portfolio;
(2) Commercial paper rated A-1 or A-2 by S&P or Prime-1 or Prime-2 by Moody's
or, if not rated, issued by a corporation having an outstanding unsecured
debt issue rated A or better by Moody's or by S&P;
(3) Short-term corporate obligations rated A or better by Moody's or by S&P;
(4) U.S. Government obligations including bills, notes, bonds and other debt
securities issued by the U.S. Treasury. These are direct obligations of the
U.S. Treasury, supported by the full faith and credit pledge of the U.S.
Government and differ mainly in interest rates, maturities and dates of
issue;
(5) U.S. Government agency securities issued or guaranteed by U.S. Government
sponsored instrumentalities and Federal agencies. Generally, such securities
are evaluated on the creditworthiness of their issuing agency or guarantor
and are not backed by the direct full faith and credit pledge of the U.S.
Government. These include securities issued by the Federal Home Loan Banks,
Federal Land Bank, Farmers Home Administration, Federal Farm Credit Banks,
Federal Intermediate Credit Bank, Federal National Mortgage Association,
Federal Financing Bank, the Tennessee Valley Authority, and others; and
(6) Repurchase agreements collateralized by securities listed above.
The Fund has applied to the Securities and Exchange Commission (the
"Commission") for permission to deposit the daily uninvested cash balances of
the Fund's Portfolios, as well as cash for investment purposes, into one or more
joint accounts and to invest the daily balance of the joint accounts in the
following short-term investments: fully collateralized repurchase agreements,
interest-bearing or discounted commercial paper including dollar-denominated
commercial paper of foreign issuers, and any other short-term money market
instruments including variable rate demand notes and other tax-exempt money
market instruments. By entering into these investments on a joint basis, it is
expected that a Portfolio may earn a higher rate of return on investments
relative to what it could earn individually. While the Fund expects to receive
permission from the Commission, there can be no assurance that the requested
relief will be granted.
Strictly to facilitate investment of the Portfolio's available cash in an
affiliated money market portfolio, as described below, and as permitted by the
1940 Act, each Portfolio reserves the right to invest up to 10% of its total
assets, calculated at the time of investment, in the securities of other
open-end or closed-end investment companies. No more than 5% of the investing
Portfolio's total assets may be invested in the securities of any one investment
company nor may it acquire more than 3% of the voting securities of any other
investment company. The Portfolio will indirectly bear its proportionate share
of any management fees paid by an investment company in which it invests in
addition to the advisory fee paid by the Portfolio.
The Fund has applied to the Commission for permission to allow each of its
Portfolios to invest the greater of 5% of its total assets or $2.5 million in
the Fund's DSI Money Market Portfolio for cash management purposes provided that
the investment is consistent with the Portfolio's investment policies and
8
<PAGE>
restrictions. Based upon the Portfolio's assets invested in the DSI Money Market
Portfolio, the investing Portfolio's adviser will waive its investment advisory
and any other fees earned as a result of the Portfolio's investment in the DSI
Money Market Portfolio. The investing Portfolio will bear expenses of the DSI
Money Market Portfolio on the same basis as all of its other shareholders. While
the Fund expects to receive permission from the Commission, there can be no
assurance that the requested relief will be granted.
REPURCHASE AGREEMENTS
The Portfolio may invest in repurchase agreements collateralized by U.S.
Government securities, certificates of deposit, and certain bankers' acceptances
and other securities outlined above under "Short-Term Investments." In a
repurchase agreement, the Portfolio purchases a security and simultaneously
commits to resell that security at a future date to the seller (a qualified bank
or securities dealer) at an agreed upon price plus an agreed upon market rate of
interest (itself unrelated to the coupon rate or date of maturity of the
purchased security). The seller under a repurchase agreement will be required to
maintain the value of the securities subject to the agreement at not less than
(1) the repurchase price if such securities mature in one year or less, or (2)
101% of the repurchase price if such securities mature in more than one year.
The Administrator and the Adviser will mark to market daily the value of the
securities purchased, and the Adviser will, if necessary, require the seller to
maintain additional securities to ensure that the value is in compliance with
the previous sentence. The Adviser will consider the creditworthiness of a
seller in determining whether the Portfolio should enter into a repurchase
agreement.
In effect, by entering into a repurchase agreement, the Portfolio is lending
its funds to the seller at the agreed upon interest rate, and receiving a
security as collateral for the loan. Such agreements can be entered into for
periods of one day ("overnight repo") or for a fixed term ("term repo").
Repurchase agreements are a common way to earn interest income on short-term
funds.
The use of repurchase agreements involves certain risks. For example, if the
seller of the agreement defaults on its obligation to repurchase the underlying
securities at a time when the value of these securities has declined, the
Portfolio may incur a loss upon disposition of them. If the seller of the
agreement becomes insolvent and subject to liquidation or reorganization under
the Bankruptcy Code or other laws, a bankruptcy court may determine that the
underlying securities are collateral not within the control of the Portfolio and
therefore subject to sale by the trustee in bankruptcy. Finally, it is possible
that the Portfolio may not be able to substantiate its interest in the
underlying securities. While the Adviser acknowledges these risks, it is
expected that they can be controlled through stringent security selection
criteria and careful monitoring procedures. Credit screens will be established
and maintained for dealers and dealer-banks before portfolio transactions are
executed.
The Fund has applied to the Commission for permission to pool the daily
uninvested cash balances of the Fund's Portfolios in order to invest in
repurchase agreements on a joint basis. By entering into repurchase agreements
on a joint basis, it is expected that a Portfolio will incur lower transactions
costs and potentially obtain higher rates of interest on such repurchase
agreements. Each Portfolio's participation in the income from jointly purchased
repurchase agreements will be based on that Portfolio's percentage share in the
total repurchase agreement. While the Fund expects to receive permission from
the Commission, there can be no assurance that the requested relief will be
granted.
SECURITIES LENDING
The 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. The Portfolio will not loan
portfolio securities to the extent that greater than one-third of its assets at
fair market value, would be committed to loans. By lending its investment
securities, the 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. The 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 Commission
thereunder, which currently require that (a) the borrower pledge and maintain
with the Portfolio collateral
9
<PAGE>
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 (which may include the
Portfolio investing any cash collateral in interest bearing short-term
investments). As with other extensions of credit, there are risks of delay in
recovery or even loss of rights in the securities loaned if the borrower of the
securities fails financially. These risks are similar to the ones involved with
repurchase agreements as discussed above. 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 Fund's Board of 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 Board of Directors. The Portfolio will continue to
retain any voting rights with respect to the loaned securities. If a material
event occurs affecting an investment on a loan, the loan must be called and the
securities voted.
PORTFOLIO TURNOVER
Generally, the Portfolio will not trade in securities for short-term
profits, but, when circumstances warrant, securities may be sold without regard
to length of time held. It should be understood that the rate of portfolio
turnover will depend upon market and other conditions, and it will not be a
limiting factor when the Adviser believes that portfolio changes are
appropriate. A rate of turnover of 100% would occur, for example, if all the
securities held by the Portfolio were replaced within a period of one year. The
Portfolio will normally not engage in short-term trading, but reserves the right
to do so. The table set forth in "Financial Highlights" presents the Portfolio's
historical portfolio turnover ratios.
High rates of portfolio turnover necessarily result in correspondingly
heavier brokerage and portfolio trading costs which are paid by the Portfolio.
In addition to portfolio trading costs, higher rates of portfolio turnover may
result in the realization of capital gains. To the extent net short-term capital
gains are realized, any distributions resulting from such gains are considered
ordinary income for federal income tax purposes. See "Dividends, Capital Gains
Distributions and Taxes" for more information on taxation.
WHEN-ISSUED, FORWARD DELIVERY AND DELAYED SETTLEMENT SECURITIES
The Portfolio may purchase and sell securities on a "when-issued," "delayed
settlement," or "forward delivery" basis. "When-issued" or "forward delivery"
refers to securities whose terms and indenture are available, and for which a
market exists, but which are not available for immediate delivery. When-issued
or forward delivery transactions may be expected to occur a month or more before
delivery is due. Delayed settlement is a term used to describe the settlement of
a securities transaction in the secondary market, which will occur sometime in
the future. No payment or delivery is made by the Portfolio until it receives
payment or delivery from the other party to any of the above transactions. The
Portfolio will maintain a separate account of cash, U.S. Government securities
or other high grade debt obligations at least equal to the value of purchase
commitments until payment is made. Such segregated securities will either mature
or, if necessary, be sold on or before the settlement date. Typically, no income
accrues on securities purchased on a delayed delivery basis prior to the time
delivery of the securities is made although the Portfolio may earn income on
securities it has deposited in a segregated account. The Portfolio may engage in
when-issued transactions to obtain what is considered to be an advantageous
price and yield at the time of the transaction; however, the Portfolio does not
receive income on such investments until actual issuance of the securities. When
the Portfolio engages in when-issued or forward delivery transactions, it will
do so for the purpose of acquiring securities consistent with its investment
objective and policies and NOT for the purposes of investment leverage, which
otherwise could make a portfolio's net asset value more volatile.
Except as specified above and as described under "Investment Limitations,"
the foregoing investment policies are not fundamental and the Fund's Directors
may change such policies without an affirmative vote of a "majority of the
outstanding voting securities of the Portfolio," as defined in the 1940 Act.
10
<PAGE>
RISK FACTORS
The Portfolio's Adviser intends to hedge a major portion of the Portfolio's
preferred and fixed income securities investments through the use of derivatives
including futures contracts, options on futures contracts and options on U.S.
Government securities to substantially reduce the price volatility of the
Portfolio generally due to interest rate changes.
The Adviser has successfully operated an investment program similar to the
Portfolio's for its individual institutional clients since its inception in
1987. It should be emphasized that a portfolio of preferred stocks hedged with
U.S. Government securities futures and options is a "cross" hedge and not a
"perfect" hedge, and, therefore, an absolute correlation does not exist between
the price volatility of the portfolio of preferred securities and the hedging
instruments. Preferred securities prices may change more or less rapidly than
bond or note futures prices causing a distortion in the price relationship. This
is referred to as "basis risk". The hedge formula to be used will depend
primarily on the correlation between each underlying investment and the
appropriate U.S. Government securities futures and options. The Adviser will
continuously analyze a variety of factors including average investment rates,
premium and discount prices of the preferred stocks, the underlying credits of
the issuer, as well as market volatility and basis risk. Accordingly, in light
of the attendant risks, the use of futures and options might result in a poorer
overall performance for the Portfolio than if it had not engaged in such
transactions.
Prospective investors should also consider two other factors that could
affect the rate of return of the Portfolio. By concentrating its investments in
the utilities industry, the Portfolio is exposed to changes in and possible
adverse economic and industry conditions over time, including e.g., changes in
government regulations, resource depletion, changing technologies, and credit
market constraints. Banks and the bank industry are subject to extensive
governmental regulation which may limit both the amounts and types of loans and
other financial commitments they can make and the interest rates and fees they
can charge. Their profitability is largely dependent on the availability and
cost of capital funds, and can fluctuate significantly when interest rates
change. In addition, general economic conditions are important to the operations
of these concerns, with exposure to credit losses resulting from possible
financial difficulties of borrowers potentially having an adverse effect. The
financial services area, including the bank industry, is currently undergoing
relatively rapid change as existing distinctions between financial service
segments become less clear. For instance, recent business combinations have
included traditional banking, insurance, finance, and securities brokerage under
single ownership. Some primarily retail corporations have expanded into
securities and insurance fields. Moreover, the federal laws generally separating
commercial and investment banking are currently being studied by Congress.
Also, during the past few years, the U.S. Congress has proposed and enacted
legislation designed to reduce the dividends received deduction, as a result of
which the deduction has declined from 85% in 1986 to its current level of 70%.
There can be no guarantee that future Congressional action would not further
reduce the dividends received deduction, which could adversely affect the value
of the Portfolio's holdings of preferred securities.
Prospective investors in the Portfolio should also consider the following
factors: (1) The Portfolio may invest in repurchase agreements which entail a
risk of loss should the seller default on its transaction. See "Repurchase
Agreements." (2) The Portfolio may purchase securities on a when-issued basis.
Securities purchased on a when-issued basis may decline or appreciate in market
value prior to their actual delivery to the Portfolio. See "When-Issued, Forward
Delivery and Delayed Settlement Securities." (3) The Portfolio may lend its
investment securities which entails a risk of loss should the borrower fail
financially. See "Securities Lending."
INVESTMENT LIMITATIONS
The Portfolio has adopted certain limitations designed to reduce its
exposure to specific situations. Some of these limitations are that the
Portfolio will not:
(a) with respect to 75% of its assets, invest more than 5% of its total
assets at the time of purchase in the securities of any single issuer
(other than obligations issued or guaranteed as to principal and interest
by the government of the U.S. or any agency or instrumentality thereof);
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<PAGE>
(b) with respect to 75% of its assets, purchase more than 10% of any class
of the outstanding voting securities of any issuer;
(c) invest more than 5% of its assets at the time of purchase in the
securities of companies that have (with predecessors or parent companies)
a continuous operating history of less than 3 years;
(d) make loans except (i) by purchasing bonds, debentures or similar
obligations which are publicly distributed, (including repurchase
agreements provided, however, that repurchase agreements maturing in more
than seven days, together with securities which are not readily
marketable, will not exceed 10% of a Portfolio's total assets), 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;
(e) borrow, 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
purchase additional securities when the Portfolio's borrowings exceed 5%
of its total gross assets; and
(f) pledge, mortgage or hypothecate any of its assets to an extent greater
than 10% of its total assets at fair market value.
PURCHASE OF SHARES
Shares of the Portfolio may be purchased without sales commission, at the
net asset value per share next determined after an order is received by the Fund
and payment is received by the Custodian. (See "Valuation of Shares.") The
minimum initial investment required is $2,500, with certain exceptions as may be
determined from time to time by the officers of the Fund. Generally, purchases
should be made through Spectrum Asset Management, Inc., which is a selling
dealer in addition to being the Portfolio's Adviser. Purchases may also be made
directly through the UAM Funds Service Center or UAM Fund Distributors, Inc.
(the "Distributor").
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<PAGE>
INITIAL INVESTMENTS BY MAIL
An account may be opened by completing and signing an Account Registration
Form, and mailing it, together with a check payable to "UAM FUNDS, INC.", to:
UAM Funds Service Center
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
The carbon copy of the Account Registration Form (manually signed) must be
delivered to:
UAM Fund Distributors, Inc.
211 Congress Street
Boston, Massachusetts 02110
NOTE: If purchases are made through Spectrum Asset Management, Inc., the
appropriate copies automatically will be forwarded to UAM Fund Distributors,
Inc..
Payment for the purchase of shares received by mail will be credited to your
account at the net asset value per share of the Portfolio next determined after
receipt. Such payment need not be converted into Federal Funds (monies credited
to the Fund's Custodian Bank by a Federal Reserve Bank) before acceptance by the
Fund.
INITIAL INVESTMENTS BY WIRE
Shares of the Portfolio may also be purchased by wiring Federal Funds to the
Fund's Custodian Bank (see instructions below). In order to insure prompt
crediting of the Federal Funds wire, it is important to follow these steps:
(a) Telephone the Fund's Transfer Agent (toll-free 1-800-638-7983) and
provide the account name, address, telephone number, social security or
taxpayer identification number, the Portfolio selected, the amount being
wired and the name of the bank wiring the funds. (Investors with existing
accounts should also notify the Fund prior to wiring funds.) An account
number will then be provided to you;
(b) Instruct your bank to wire the specified amount to the Fund's
Custodian;
The Bank of New York
New York, NY 10286
ABA #0210-0023-8
DDA Acct. #001-44-896
F/B/O UAM Funds, Inc.
Ref: SAMI Preferred Stock Income Portfolio
Your Account Number _________
Your Account Name _________
(c) A completed Account Registration Form must be forwarded to the UAM
Funds Service Center and UAM Fund Distributors, Inc. at the addresses shown
above as soon as possible. For wire purchases arranged through Spectrum
Asset Management, Inc., properly completed Account Registration Forms may be
submitted through Spectrum. Federal Funds purchases will be accepted only on
a day on which the New York Stock Exchange and the Custodian Bank are open
for business.
ADDITIONAL INVESTMENTS
You may add to your account at any time (minimum additional investment $100)
by purchasing shares at net asset value by mailing a check to the UAM Funds
Service Center (payable to "UAM FUNDS, INC.") at
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<PAGE>
the above address or by wiring monies to the Custodian Bank using the
instructions outlined above. It is very important that your account number,
account name, and the Portfolio to be purchased are specified on the check or
wire to insure proper crediting to your account.
In order to insure that your wire orders are invested promptly, you are
requested to notify the UAM Funds Service Center (toll-free 1-800-638-7983)
prior to the wire date. Mail orders should include, when possible, the "Invest
by Mail" stub which accompanies any Fund confirmation statement.
OTHER PURCHASE INFORMATION
The purchase price of the shares of the Portfolio is the net asset value
next determined after the order and payment is received. (See "Valuation of
Shares.") An order received prior to the close of the New York Stock Exchange
(the "NYSE") will be executed at the price computed on the date of receipt; an
order received after the close of the NYSE will be executed at the price
computed on the next day the NYSE is open.
The Fund reserves the right, in its sole discretion, to suspend the offering
of shares of the Portfolio or reject purchase orders when, in the judgment of
management, such suspension or rejection is in the best interests of the Fund.
Purchases of shares will be made in full and fractional shares of the
Portfolio calculated to three decimal places. In the interest of economy and
convenience, certificates for shares will not be issued except at the written
request of the shareholder. Certificates for fractional shares, however, will
not be issued.
Shares of the Portfolio may be purchased by customers of broker-dealers or
other financial intermediaries ("Service Agents") which have established a
shareholder servicing relationship with the Fund on behalf of their customers.
Service Agents may impose additional or different conditions on the purchase or
redemption of Portfolio shares by their customers and may charge their customers
transaction or other account fees on the purchase and redemption of Portfolio
shares. Each Service Agent is responsible for transmitting to its customers a
schedule of any such fees and information regarding any additional or different
conditions regarding purchases and redemptions. Shareholders who are customers
of Service Agents should consult their service agent for information regarding
these fees and conditions. Amounts paid to Service Agents may include
transaction fees and/or service fees paid by the Fund from the Fund assets
attributable to the Service Agent, and which would not be imposed if shares of
the Portfolio were purchased directly from the Fund or the Distributor. The
Service Agents may provide shareholder services to their customers that are not
available to a shareholder dealing directly with the Fund. A salesperson and any
other person entitled to receive compensation for selling or servicing Portfolio
shares may receive different compensation with respect to one particular class
of shares over another in the Fund.
Service Agents may enter confirmed purchase orders on behalf of their
customers. If you buy shares of a Portfolio in this manner, the Service Agent
must receive your investment order before the close of trading on the NYSE, and
transmit it to the Fund's Transfer Agent prior to the close of the Transfer
Agent's business day and to the Distributor to receive that day's share price.
Proper payment for the order must be received by the Transfer Agent no later
than the time when the Portfolio is priced on the following business day.
Service Agents are responsible to their customers, the Fund and the Fund's
Distributor for timely transmission of all subscription and redemption requests,
investment information, documentation and money.
REDEMPTION OF SHARES
Shares of the Portfolio may be redeemed by mail or telephone, at any time,
without cost, at the net asset value of the Portfolio next determined after
receipt of the redemption request. No charge is made for redemptions. Any
redemption may be more or less than the purchase price of your shares depending
on the market value of the investment securities held by the Portfolio.
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<PAGE>
BY MAIL
The Portfolio will redeem its shares at the net asset value next determined
on the date the request is received in "good order". Your request should be
addressed to:
UAM Funds Service Center
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, Massachusetts 02208-2798
"Good order" means that the request to redeem shares must include the
following documentation:
(a) The stock certificates, if issued:
(b) A letter of instruction or a stock assignment specifying the number of
shares or dollar amount to be redeemed, signed by all registered owners
of the shares in the exact names in which they are registered;
(c) Any required signature guarantees (see "Signature Guarantees" below);
and
(d) Other supporting legal documents, if required, in the case of estates,
trusts, guardianships, custodianships, corporations, pension and profit
sharing plans and other organizations.
Shareholders who are uncertain of requirements for redemption should call
the UAM Funds Service Center.
SIGNATURE GUARANTEES
To protect your account, the Fund and the Administrator from fraud,
signature guarantees are required for certain redemptions. Signature guarantees
are required for (1) redemptions where the proceeds are to be sent to someone
other than the registered shareowner(s) or the registered address, or (2) share
transfer requests. The purpose of signature guarantees is to verify the identity
of the party who has authorized a redemption.
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 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.
BY TELEPHONE
Provided you have previously established the telephone redemption privilege
by completing an Account Registration Form, you may request a redemption of your
shares by calling the Fund and requesting the redemption proceeds be mailed to
you or wired to your bank. The Fund and the Fund's Transfer Agent will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine, and they may be liable for any losses if they fail to do so. These
procedures include requiring the investor to provide certain personal
identification at the time an account is opened and prior to effecting each
transaction requested by telephone. In addition, all telephone transaction
requests will be recorded and investors may be required to provide additional
telecopied written instructions of such transaction requests. Neither the Fund
nor the Transfer Agent will be responsible for any loss, liability, cost or
expense for following instructions received by telephone that it reasonably
believes to be genuine.
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<PAGE>
To change the name of the commercial bank or the account designated to
receive redemption proceeds, a written request must be sent to the Fund at the
address above. Requests to change the bank or account must be signed by each
shareholder and each signature must be guaranteed. You cannot redeem shares by
telephone if you hold stock certificates for these shares. Please contact one of
the Fund's representatives at the Administrator for further details.
FURTHER REDEMPTION INFORMATION
Normally, the Fund will make payment for all shares redeemed under this
procedure within one business day of receipt of the request, but in no event
will payment be made more than seven days after receipt of a redemption request
in good order. The Fund may suspend the right of redemption or postpone the date
at times when both the NYSE and Custodian Bank are closed, or under any
emergency circumstances as determined by the Commission.
If the Board of Directors determines that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make payment wholly
or partly in cash, the Fund may pay the redemption proceeds in whole or in part
by a distribution in-kind of liquid securities held by the Portfolio in lieu of
cash in conformity with applicable rules of the Commission. Investors may incur
brokerage charges on the sale of portfolio securities so received in payment of
redemptions.
SHAREHOLDER SERVICES
EXCHANGE PRIVILEGE
Institutional Class Shares of the SAMI Preferred Stock Income Portfolio may
be exchanged for Institutional Class Shares of the Enhanced Monthly Income
Portfolio, which is also managed by Spectrum Asset Management, Inc. In addition,
Institutional Class Shares of the SAMI Preferred Stock Income Portfolio may be
exchanged for any other Institutional Class Shares of a Portfolio included in
the UAM Funds which is comprised of the Fund and UAM Funds Trust. (See the list
of Portfolios of the UAM Funds-- Institutional Class Shares at the end of this
Prospectus.) Exchange requests should be made by calling the Fund
(1-800-638-7983) or by writing to UAM Funds, UAM Funds Service Center, c/o Chase
Global Funds Services 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
UAM Funds 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 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 additional information regarding responsibility for the authenticity of
telephone instructions, see "Redemption of Shares--By Telephone" above.
For Federal income tax purposes an exchange between Portfolios 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.
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<PAGE>
TRANSFER OF REGISTRATION
You may transfer the registration of any of your Fund shares to another
person by writing to the UAM Funds Service Center, at the above address. As in
the case of redemptions, the written request must be received in good order
before any transfer can be made. (See "Redemption of Shares" for a definition of
"good order.")
VALUATION OF SHARES
The net asset value of the Portfolio is determined by dividing the sum of
the total market value of the Portfolio's investments and other assets, less any
liabilities, by the total outstanding shares of the Portfolio. The net asset
value per share of the Portfolio is determined as of the close of the NYSE on
each day that the NYSE is open for business.
Exchange listed preferred securities for which market quotations are readily
available may be valued at the last quoted sales price as of the close of
business on the day the valuation is made by the primary exchange on which the
securities are traded.
Fixed income securities and most fixed-dividend preferred securities are
valued according to the broadest and most representative market which will
ordinarily be the over-the-counter market. If there is no actively quoted market
price, the securities may be valued based on a matrix system which considers
such factors as security prices, yields and maturities. Net asset value includes
interest on fixed income securities, which is accrued daily. In addition, bonds
and other fixed income securities may be valued on the basis of prices provided
by a pricing service when such prices are believed to reflect the fair market
value of such securities. The prices provided by a pricing service are
determined without regard to bid or last sale prices but take into account
institutional size trading in similar groups of securities and any developments
related to the specific securities. Securities not priced in this manner are
valued at the most recent quoted bid price, or, when stock exchange valuations
are used, at the latest quoted sale price on the day of valuation. If there is
no such reported sale, the latest quoted bid price will be used. Securities
purchased with remaining maturities of 60 days or less are valued at amortized
cost, if it approximates market value. In the event that amortized cost does not
approximate market value, market prices as determined above will be used. The
value of other assets and securities for which no quotations are readily
available (including restricted securities) is determined in good faith at fair
value using methods determined by the Fund's Directors.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Net capital gains or losses should be minimal as a result of the
cross-hedging techniques used by the Portfolio. The Portfolio will normally
distribute substantially all of its available net investment income to
shareholders in the form of monthly dividends. If any net capital gains are
realized, the Portfolio will normally distribute such gains with the last
dividend for the fiscal year.
Undistributed net investment income is included in the Portfolio's net
assets for the purpose of calculating net asset value per share. Therefore, on
the "ex-dividend" date, the net asset value per share excludes the dividend
(i.e., is reduced by the per share amount of the dividend). Dividends paid
shortly after the purchase of shares by an investor, although in effect a return
of capital, are taxable to shareholders.
The Portfolio's dividend and capital gains distributions will be
automatically reinvested in additional shares of the Portfolio unless the Fund
is notified in writing that the shareholder elects to receive distributions in
cash.
FEDERAL TAXES
The Portfolio intends to qualify each year as a "regulated investment
company" under the Code, and if it qualifies, will not be liable for Federal
income taxes to the extent it distributes its net investment income and net
realized capital gains. Dividends, either in cash or reinvested in shares, paid
by the Portfolio from net
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investment income will be taxable to shareholders as ordinary income and will
generally qualify in part for the 70% dividends received deduction for
corporations, but the portion of the dividends so qualified depends on the ratio
of the aggregate taxable qualifying dividend income received by the Portfolio
from domestic (U.S.) sources to the total taxable income of the Portfolio,
exclusive of long-term capital gains.
No portion of the income generated by a hybrid preferred securities
investment is eligible for the dividends received deduction. Therefore, no
portion of such income can be designated by the Portfolio as eligible for the
dividends received deduction for corporate investors. From time to time,
proposals are made in Congress to significantly alter the nature and benefits of
the dividends received deduction. The Portfolio may qualify for the dividends
received deduction. Corporate investors are advised to consult with their tax
advisers on their eligibility for the dividends received deduction with respect
to dividends received from the Portfolio.
Whether paid in cash or additional shares of the Portfolio and regardless of
the length of time the shares in the Portfolio have been owned by the
shareholder, distributions from long-term capital gains are taxable to
shareholders as such but are not eligible for the dividends received deduction.
Shareholders are notified annually by the Fund as to Federal tax status of
dividends and distributions paid by the Portfolio. Such dividends and
distributions may also be subject to state and local taxes.
Redemptions of shares in the Portfolio are taxable events for Federal income
tax purposes. A shareholder may also be subject to state and local taxes on such
redemptions.
The Portfolio intends to declare and pay dividend and capital gains
distributions so as to avoid imposition of the Federal Excise Tax. To do so, the
Portfolio expects to distribute an amount equal to (1) 98% of its calendar year
ordinary income, (2) 98% of its capital gains net income (the excess of short
and long-term capital gains over short and long-term capital losses) for the
one-year period ending October 31st, and (3) 100% of any undistributed ordinary
or capital gains net income from the prior year. Dividends declared in October,
November, or December to shareholders of record in such month will be deemed to
have been paid by the Fund and received by the shareholders on December 31st of
such calendar year, provided that the dividends are paid before February 1 of
the following year.
The Fund is required by Federal law to withhold 31% of reportable payments
(which may include dividends, capital gains distributions, and redemptions) paid
to shareholders who have not complied with IRS taxpayer identification
regulations. In order to avoid this withholding requirement, you must certify on
the Account Registration Form or on a separate form supplied by the Fund that
your Social Security or Taxpayer Identification Number provided is correct and
that you are not currently subject to backup withholding, or that you are exempt
from backup withholding.
STATE AND LOCAL TAXES
Shareholders may also be subject to state and local taxes on distributions
from the Portfolio. Shareholders should consult with their tax advisers with
respect to the tax status of distributions from the Fund in their state and
locality.
INVESTMENT ADVISER
Spectrum Asset Management, Inc. (the "Adviser") is a Connecticut corporation
formed in 1987 and is located at Four High Ridge Park, Stamford, CT 06905. The
Adviser is a wholly-owned subsidiary of United Asset Management Corporation and
provides investment management services to corporations, pension plans, and
endowments. As of the date of this Prospectus, the Adviser had in excess of $750
million in assets under management. Since its inception, the Adviser has
concentrated its advisory services in the management of diversified portfolios
of fixed-dividend, preferred stocks for its clients. Most portfolios have been
hedged with U.S. Government securities futures and options to minimize principal
fluctuations of the portfolios caused by interest rate changes.
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The Adviser is registered as a broker-dealer and investment adviser with the
Commission and is a member firm of the National Association of Securities
Dealers, Inc. The Adviser is also registered with the Commodity Futures Trading
Commission and the National Futures Association and operates as a commodity
trading adviser and introducing broker.
Under an Investment Advisory Agreement (the "Agreement") with the Fund,
dated as of May 18, 1992, the Adviser, subject to the control and supervision of
the Fund's Board of Directors and in conformance with the stated investment
objective and policies of the Portfolio, manages the investment and reinvestment
of the assets of the Portfolio. In this regard, it is the responsibility of the
Adviser to make investment decisions for the Portfolio and to place purchase and
sale orders for the Portfolio's investments.
As compensation for the services rendered by the Adviser under the
Agreement, the Portfolio pays the Adviser an annual fee, in monthly
installments, calculated by applying the following annual percentage rate to the
Portfolio's average daily net assets for the month: 0.70%.
The Adviser may, from time to time, waive its advisory fees and assume as
the Adviser's own expense operating expenses otherwise payable by the Portfolio,
if necessary, in order to reduce the Portfolio's expense ratio. As of the date
of this Prospectus, the Adviser has voluntarily agreed to keep the Portfolio's
total annual operating expenses from exceeding 0.99% of its average daily net
assets. THE FUND WILL NOT REIMBURSE THE ADVISER FOR ANY ADVISORY FEES THAT ARE
WAIVED OR PORTFOLIO EXPENSES THAT THE ADVISER MAY BEAR ON BEHALF OF THE
PORTFOLIO.
In addition, the Adviser may compensate its affiliated companies for
referring investors to the Portfolio. The Distributor, UAM, the Adviser, or any
of their affiliates, may, at its own expense, compensate a Service Agent or
other person for marketing, shareholder servicing, record-keeping and/or other
services performed with respect to the Fund, a Portfolio or any Class of Shares
of a Portfolio. The person making such payments may do so out of its revenues,
its profits or any other source available to it. Such service arrangements, when
in effect, are made generally available to all qualified service providers.
PROFESSIONAL STAFF
All members of the Adviser's Professional Staff must have at minimum a
bachelor's degree from a duly accredited institution of higher education and
must, within a reasonable period of time from employment, receive passing grades
on the following exams:
<TABLE>
<S> <C>
1. General Securities Representative............................. Series 7
2. Commodity Futures Associated Person--NFA...................... Series 3
3. Uniform Securities Agent (Blue Sky Law)....................... Series 63
</TABLE>
Below is a list of the professional staff of the Adviser.
SCOTT T. FLEMING--Chairman of the Board of Directors, Chief Financial
Officer, and one of the principals of Spectrum Asset Management, Inc. Mr.
Fleming was a Director and Principal of DBL Preferred Management, Inc., a
wholly-owned subsidiary of Drexel Burnham Lambert, Inc. Prior to joining DBL,
Mr. Fleming was a financial analyst with EG&G, Inc., where he was responsible
for all outside money managers as well as managing a significant Adjustable Rate
Preferred Stock portfolio. He is currently licensed as a Financial/Operations
Principal (Series 27), a General Securities Principal (Series 24), Securities
Registered Representative (Series 7), Blue Sky Law (Series 63), and registered
with the NFA as an Associated Person (Series 3) with Spectrum Asset Management,
Inc., CTA. M.B.A. Finance, Babson College, B.S. Accounting, Bentley College.
MARK A. LIEB--Director, President, Chief Executive Officer, and one of the
principals of Spectrum Asset Management, Inc. Director of the parent company,
United Asset Management Corporation. Mr. Lieb was a Founder, Director and
Partner of DBL Preferred Management, Inc., a wholly owned corporate cash
management subsidiary of Drexel Burnham Lambert, Inc. He was instrumental in the
formation, continual development and execution of all aspects of the subsidiary
including portfolio management. Mr. Lieb's prior
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employment included the development of the preferred stock trading desk at
Mosley Hallgarten & Estabrook. He is a licensed Securities Representative
(Series 7), Blue Sky Law (Series 63), General Securities Principal (Series 24),
and registered with the NFA as an Associated Person (Series 3) with Spectrum
Asset Management, Inc., CTA. M.B.A. Finance, University of Hartford; B.A.
Economics, Central Connecticut State College.
BERNARD M. SUSSMAN--Senior Vice President of Spectrum Asset Management, Inc.
Prior to joining Spectrum, Mr. Sussman was with Goldman Sachs & Co. for over 17
years. Mr. Sussman was a General Partner from 1990 to 1994, and managed their
Preferred Stock Department. He was responsible for all sales and trading of
fixed and adjustable rate preferred stocks, auction preferreds, and all other
preferred products. Mr. Sussman coordinated Goldman Sachs & Co.'s effort through
preferred specialists, including the general sales force. Additionally, Mr.
Sussman interacted with the corporate finance department in developing and
marketing new issues. Mr. Sussman continues to be a Limited Partner of Goldman
Sachs & Co. He is a licensed Securities Representative (Series 7), Blue Sky Law
(Series 63), General Securities Principal (Series 24), General Securities Sales
Supervisor, Branch Office Manager (Series 8), and registered with the NFA as an
Associated Person (Series 3) with Spectrum Asset Management, Inc., CTA. M.B.A.
Finance and B.S. Industrial Relations, Cornell University.
L. PHILIP JACOBY, IV--Vice President--Portfolio Management of Spectrum Asset
Management, Inc. Prior to joining Spectrum, Mr. Jacoby was a Senior Investment
Officer at USL Capital Corporation (a subsidiary of Ford Motor Corporation) and
was a co-manager of a $600 million preferred stock portfolio and Vice President,
Institutional Sales at E.F. Hutton, Inc. He is currently licensed as a General
Securities Representative (Series 7), Blue Sky Law (Series 63), a General
Securities Principal (Series 24), a Municipal Securities Principal (Series 53)
and registered with the NFA as an Associated Person (Series 3) with Spectrum
Asset Management, Inc., CTA. B.S, B.A., Finance, Boston University.
PATRICK G. HURLEY--Hedge Manager. Mr. Hurley came to Spectrum Asset
Management, Inc. from James Money Management, Inc. where he served as a
Government Securities Trader and Computer Specialist. Prior to joining James,
Mr. Hurley was with Oppenheimer & Co., Inc. where he held positions as an
Assistant Trader -- Fixed Income and Programmer/Analyst. In both positions at
Oppenheimer, he was an integral part of the fixed income arbitrage group which
concentrated on the hedged trading of U.S. Treasury Bond and Note Futures. He is
currently a licensed General Securities Representative (Series 7), Blue Sky Law
(Series 63), and registered with the NFA as an Associated Person (Series 3) with
Spectrum Asset Management, Inc., CTA. B.S. Electrical Engineering (Computer
Concentration), University of Notre Dame.
JEAN M. ORLANDO--Assistant Vice President--Controller. Ms. Orlando came to
Spectrum Asset Management, Inc. from DBL Preferred Management, Inc. where she
was operations manager. Prior to joining DBL Preferred Management, Ms. Orlando
was employed by Drexel Burnham Lambert, Inc. where she acted as supervisor of a
private commodity trading operation. She is currently licensed as a Securities
Registered Representative (Series 7), Blue Sky Law (Series 63), and registered
with the NFA as an Associated Person (Series 3) with Spectrum Asset Management,
Inc., CTA. B.B.A. Public Accounting with honors, Baruch College.
MELISSA D. COPE--Technical Analyst--Special Projects. Ms. Cope came to
Spectrum Asset Management, Inc. from Mount Holyoke College where she spent two
years of her undergraduate career as a Computer Consultant. Prior to that, Ms.
Cope was a Database Consultant at Scanline Office Interiors in Honolulu, Hawaii.
Other prior work experience includes administrative and programming positions at
Hawaiian Telephone and Hawaiian Electric. She is currently licensed as a
Securities Registered Representative (Series 7) and Blue Sky Law (Series 63)
with Spectrum Asset Management, Inc., CTA. A.B. Psychology with honors, Mount
Holyoke College.
LESLIE SWEEM--Account Executive. Prior to her association with Spectrum
Asset Management, Inc., Ms. Sweem was a top Preferred Stock Specialist with
Salomon Brothers Inc. in New York. Prior to joining Salomon Brothers Inc., she
was an Assistant Vice President at Republic Bank Dallas where she was a
20
<PAGE>
Fortune 1000 lending officer. She is currently licensed as a Securities
Registered Representative (Series 7), Blue Sky Law (Series 63) and registered
with the NFA as an Associated Person (Series 3) with Spectrum Asset Management,
Inc., CTA. B.S. Business Administration, Kansas University.
TAMARA S. CROUSE--Compliance Manager and Office Manager. Ms. Crouse came to
Spectrum Asset Management, Inc. from Saugatuck Associates, a venture capital
firm, where she served as an Assistant (August 1992 to January 1994). Prior to
Saugatuck Associates, Ms. Crouse was employed by Service Corporation
International where she served as a Marketing Assistant and Financial Analyst
(August 1989 to August 1992). She is currently licensed as a Securities
Representative (Series 7), Blue Sky Law (Series 63) and registered with the NFA
as an Associated Person (Series 3) with Spectrum Asset Management, Inc., CTA.
M.B.A. Finance, University of Bridgeport; B.S. Geology (Concentration in
Chemistry), State College of New York at Oneonta.
NANCY KRUG DRAY--Part-Time Compliance Officer and Assistant to Portfolio
Manager. Ms. Dray came to Spectrum Asset Management, Inc. in July 1987. From
July 1987 through May 1989, Ms. Dray was Assistant Vice President -- Trading for
Spectrum Asset Management, Inc. She is currently licensed as a Securities
Representative (Series 7), Blue Sky Law (Series 63), Municipal Securities
Principal (Series 53), and registered with the NFA as an Associated Person
(Series 3) with Spectrum Asset Management, Inc., CTA. B.S., Plattsburgh State
University.
Scott Fleming, Mark Lieb, Bernard Sussman, L. Phillip Jacoby, IV and Patrick
Hurley are primarily responsible for the day-to-day investment management of the
Portfolio. Scott Fleming and Mark Lieb have been primarily responsible since its
commencement of operations. Bernard Sussman, L. Phillip Jacoby, IV and Patrick
Hurley have been responsible since April 1995, January 1995 and May 1994,
respectively.
ADMINISTRATIVE SERVICES
The Chase Manhattan Bank, N.A., through its subsidiary, Chase Global Funds
Services Company, located at 73 Tremont Street, Boston, MA 02108, provides the
Fund and its Portfolios with administrative, fund accounting, dividend
disbursing and transfer agent services pursuant to a Fund Administration
Agreement dated as of December 16, 1991. The services provided under this
Agreement are subject to the supervision of the Officers and the Directors of
the Fund, and include day-to-day administration of matters related to the
corporate existence of the Fund, maintenance of its records, preparation of
reports, supervision of the Fund's arrangements with its custodian, and
assistance in the preparation of the Fund's registration statements under
Federal and state securities laws. The Chase Manhattan Corporation ("Chase"),
the parent company of The Chase Manhattan Bank, N.A., and Chemical Banking
Corporation ("Chemical"), the parent company of Chemical Bank, have entered into
an Agreement and Plan of Merger which, when completed, will merge Chase with and
into Chemical. Chemical will be the surviving corporation and will continue its
corporate existence under the name "The Chase Manhattan Corporation." It is
anticipated that this transaction will be completed in the first quarter of 1996
and will not effect the nature nor quality of the services furnished to the Fund
and its Portfolios. Pursuant to the Fund Administration Agreement, as amended
February 1, 1994, the Fund pays Chase Global Funds Services Company a monthly
fee for its services which on an annualized basis equals: 0.20 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 0.08 of 1%
of the aggregate assets in excess of $1 billion but less than $3 billion, plus
0.06 of 1% of the aggregate assets in excess of $3 billion. The fees are
allocated among the Portfolios on the basis of their relative assets and are
subject to a graduated minimum fee schedule per Portfolio, which rises from
$2,000 per month upon inception of a Portfolio to $70,000 annually after two
years. The Fund, with respect to the Fund or any Portfolio or Class of the Fund,
may enter into other or additional arrangements for transfer or subtransfer
agency, record-keeping or other shareholder services with organizations other
than the Administrator.
21
<PAGE>
DISTRIBUTOR
UAM Fund Distributors, Inc., a wholly-owned subsidiary of United Asset
Management Corporation, with its principal office located at 211 Congress
Street, Boston, Massachusetts 02110, distributes the shares of the Fund. Under
the Distribution Agreement (the "Agreement"), the Distributor, as agent of the
Fund, agrees to use its best efforts as sole distributor of the Fund's shares.
The Distributor does not receive any fee or other compensation under the
Agreement with respect to the SAMI Preferred Stock Income Portfolio. The
Agreement continues in effect so long as such continuance is approved at least
annually by the Fund's Board of Directors, including a majority of those
Directors who are not parties to such Agreement nor interested persons of any
such party. The Agreement provides that the Fund will bear the costs of the
registration of its shares with the Commission and various states and the
printing of its prospectuses, statements of additional information and reports
to stockholders. Shares of the Portfolio are also sold through the Adviser's
brokerage division pursuant to a selling-dealer agreement with the Distributor.
The Adviser does not receive any compensation under the Agreement.
PORTFOLIO TRANSACTIONS
The Investment Advisory Agreement authorizes the Adviser to select the
brokers or dealers that will execute the purchases and sales of investment
securities for the Portfolio and directs the Adviser to use its best efforts to
obtain the best available price and most favorable execution with respect to all
transactions for the Portfolio. The Adviser may use its own brokerage facilities
under procedures designed to ensure that the charges for the transactions do not
exceed usual and customary levels. Such transactions and the procedures are
supervised by the Fund's Board of Directors.
The Adviser may, however, consistent with the interests of the Portfolio,
select brokers on the basis of the research, statistical and pricing services
they provide to the Portfolio. Information and research received from such
brokers will be in addition to, and not in lieu of, the services required to be
performed by the Adviser under the Investment Advisory Agreement. A commission
paid to such brokers may be higher than that which another qualified broker
would have charged for effecting the same transaction, provided that such
commissions are paid in compliance with the Securities Exchange Act of 1934, as
amended, and that the Adviser determines in good faith that such commission is
reasonable in terms either of the transaction or the overall responsibility of
the Adviser to the Portfolio and the Adviser's other clients.
It is not the Fund's practice to allocate brokerage or effect principal
transactions with dealers 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 Portfolio or who act as agents
in the purchase of shares of the Portfolio for their clients.
Some securities considered for investment by the Portfolio may also be
appropriate for other clients served by the Adviser. If a purchase or sale of
securities consistent with the investment policies of the 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 Directors.
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." On October 31, 1995, the name of the Fund was
changed to "UAM Funds, Inc." The Fund's Articles of Incorporation, as amended,
permit the Directors to issue three billion shares of common stock, with an
$.001 par value. The Directors have the power to designate one or more series
("Portfolios") or classes of shares of common stock
22
<PAGE>
and to classify or reclassify any unissued shares with respect to such
Portfolios, without further action by shareholders. Currently the Fund is
offering shares of 30 Portfolios. The Board of Directors may create additional
Portfolios and Classes of shares of the Fund in the future at its discretion.
The shares of each Portfolio and Class of the Fund are fully paid and
nonassessable, have no preference as to conversion, exchange, dividends,
retirement or other features and have no pre-emptive rights. The shares of each
Portfolio and Class have non-cumulative 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. As of January 31, 1996,
Kansas City Power & Light Company, Kansas City, MO held of record 27% of the
outstanding shares of the Portfolio. Also, as of January 31, 1996, Amsouth Bank,
N.A., Trustee for Drummond Co. Revised Pension Plan, Birmingham, AL held of
record 33% and Continental Trust Company, Trustee for the Sisters of St. Francis
Health Services Inc. Retirement Trust, Chicago, IL held of record 28% of the
outstanding shares of the Portfolio for which beneficial ownership is disclaimed
or presumed disclaimed. The persons or organizations 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. 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 name on
the books of the Fund. Both Institutional Class and Institutional Service Class
Shares represent an interest in the same assets of a Portfolio and are identical
in all respects except that the Service Class Shares bear certain expenses
related to shareholder servicing, may bear expenses related to the distribution
of such shares and have exclusive voting rights with respect to matters relating
to such distribution expenditures. Information about the Service Class Shares of
the Portfolios, along with the fees and expenses associated with such shares, is
available upon request by contacting the Fund at 1-800-638-7983. Annual meetings
will not be held except as required by the 1940 Act and other applicable laws.
The Fund has undertaken that its Directors will call a meeting of shareholders
if such a meeting is requested in writing by the holders of not less than 10% of
the outstanding shares of the Fund. To the extent required by the undertaking,
the Fund will assist shareholder communications in such matters.
CUSTODIAN
The Bank of New York serves as Custodian of the Fund's assets.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP serves as the independent accountants for the Fund and
audits its financial statements annually.
REPORTS
Shareholders receive unaudited semi-annual financial statements and annual
financial statements audited by Price Waterhouse LLP.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be made by writing to the Fund at the address
listed on the cover of this Prospectus or by calling 1-800-638-7983.
LITIGATION
The Fund is not involved in any litigation.
23
<PAGE>
DIRECTORS AND OFFICERS
The Officers of the Fund manage its day-to-day operations and are
responsible to the Fund's Board of Directors. The Directors set broad policies
for the Fund and elect its Officers. The following is a list of the Directors
and Officers of the Fund and a brief statement of their present positions and
principal occupations during the past five years.
<TABLE>
<S> <C>
MARY RUDIE BARNEBY* Director and Executive Vice President of the Fund;
1133 Avenue of the Americas President of Regis Retirement Plan Services, since
New York, NY 10036 1993; Former President of UAM Fund Distributors,
Inc.; Formerly responsible for Defined Contribution
Plan Services at a division of the Equitable
Companies, Dreyfus Corporation and Merrill Lynch.
JOHN T. BENNETT, JR. Director of the Fund; President of Squam Investment
College Road--RFD 3 Management Company, Inc. and Great Island Investment
Meredith, NH 03253 Company, Inc.; President of Bennett Management
Company from 1988 to 1993.
J. EDWARD DAY Director of the Fund; Retired Partner in the
5804 Brookside Drive Washington office of the law firm Squire, Sanders &
Chevy Chase, MD 20815 Dempsey; Director, Medical Mutual Liability Insurance
Society of Maryland; Formerly, Chairman of The
Montgomery County, Maryland, Revenue Authority.
PHILIP D. ENGLISH Director of the Fund; President and Chief Executive
16 West Madison Street Officer of Broventure Company, Inc.; Chairman of the
Baltimore, MD 21201 Board of Chektec Corporation, and Cyber Scientific,
Inc.
WILLIAM A. HUMENUK Director of the Fund; Partner in the Philadelphia
4000 Bell Atlantic Tower office of the law firm Dechert Price & Rhoads;
1717 Arch Street Director, Hofler Corp.
Philadelphia, PA 19103
NORTON H. REAMER* Director, President and Chairman of the Fund;
One International Place President, Chief Executive Officer and a Director of
Boston, MA 02110 United Asset Management Corporation; Director,
Partner or Trustee of each of the Investment
Companies of the Eaton Vance Group of Mutual Funds.
PETER M. WHITMAN, JR.* Director of the Fund; President and Chief Investment
One Financial Center Officer of Dewey Square Investors Corporation ("DSI")
Boston, MA 02111 since 1988; Director and Chief Executive Officer of
H.T. Investors, Inc., formerly a subsidiary of DSI.
WILLIAM H. PARK* Vice President and Assistant Treasurer of the Fund;
One International Place Executive Vice President and Chief Financial Officer
Boston, MA 02110 of United Asset Management Corporation.
ROBERT R. FLAHERTY* Treasurer of the Fund; Manager of Fund Administration
73 Tremont Street and Compliance of the Administrator since March 1995;
Boston, MA 02108 formerly Senior Manager of Deloitte & Touche LLP from
1985 to 1995.
KARL O. HARTMANN* Secretary of the Fund; Senior Vice President and
73 Tremont Street General Counsel of Administrator; Senior Vice
Boston, MA 02108 President, Secretary and General Counsel of Leland,
O'Brien, Rubinstein Associates, Inc. from November
1990 to November 1991.
HARVEY M. ROSEN* Assistant Secretary of the Fund; Senior Vice
73 Tremont Street President of Administrator.
Boston, MA 02108
</TABLE>
- ------------
*These people are deemed to be "interested persons" of the Fund as that term is
defined in the 1940 Act.
24
<PAGE>
UAM FUNDS -- INSTITUTIONAL CLASS SHARES
ACADIAN ASSET MANAGEMENT, INC.
Acadian Emerging Markets Portfolio
Acadian International Equity Portfolio
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC.
BHM&S Total Return Bond Portfolio
CHICAGO ASSET MANAGEMENT COMPANY
Chicago Asset Management Value/Contrarian Portfolio
Chicago Asset Management Intermediate Bond Portfolio
COOKE & BIELER, INC.
C&B Balanced Portfolio
C&B Equity Portfolio
C. S. MCKEE & COMPANY, INC.
McKee U.S. Government Portfolio
McKee Domestic Equity Portfolio
McKee International Equity Portfolio
DEWEY SQUARE INVESTORS CORPORATION
DSI Disciplined Value Portfolio
DSI Limited Maturity Bond Portfolio
DSI Money Market Portfolio
FIDUCIARY MANAGEMENT ASSOCIATES, INC.
FMA Small Company Portfolio
INVESTMENT COUNSELORS OF MARYLAND, INC.
ICM Equity Portfolio
ICM Fixed Income Portfolio
ICM Small Company Portfolio
INVESTMENT RESEARCH COMPANY
IRC Enhanced Index Portfolio
MURRAY JOHNSTONE INTERNATIONAL LTD.
MJI International Equity Portfolio
NEWBOLD'S ASSET MANAGEMENT, INC.
Newbold's Equity Portfolio
NWQ INVESTMENT MANAGEMENT COMPANY
NWQ Balanced Portfolio
NWQ Value Equity Portfolio
RICE, HALL JAMES & ASSOCIATES
Rice, Hall James Small Cap Portfolio
SIRACH CAPITAL MANAGEMENT, INC.
Sirach Fixed Income Portfolio
Sirach Growth Portfolio
Sirach Short-Term Reserves Portfolio
Sirach Special Equity Portfolio
Sirach Strategic Balanced Portfolio
SPECTRUM ASSET MANAGEMENT, INC.
SAMI Preferred Stock Income Portfolio
Enhanced Monthly Income Portfolio
STERLING CAPITAL MANAGEMENT COMPANY
Sterling Partners' Balanced Portfolio
Sterling Partners' Equity Portfolio
Sterling Partners' Short-Term Fixed Income Portfolio
THOMPSON, SIEGEL & WALMSLEY, INC.
TS&W Equity Portfolio
TS&W Fixed Income Portfolio
TS&W International Equity Portfolio
25
<PAGE>
SAMI
PREFERRED STOCK
INCOME PORTFOLIO
UAM FUNDS
UAM FUNDS SERVICE CENTER
C/O CHASE GLOBAL FUNDS SERVICES COMPANY
P.O. BOX 2798
BOSTON, MA 02208-2798
1-800-638-7983
SPECTRUM
- ---------------------------------------------------------------------
ASSET MANAGEMENT, INC. - INVESTMENT ADVISER
FOUR HIGH RIDGE PARK - STAMFORD, CT 06905
(203) 322-0189
PROSPECTUS
FEBRUARY 29, 1996
AS AMENDED APRIL 1, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Fund Expenses.................................. 2
Prospectus Summary............................. 3
Financial Highlights........................... 4
Performance Calculations....................... 5
Investment Objective........................... 5
Investment Policies............................ 5
Other Investment Policies...................... 8
Risk Factors................................... 11
Investment Limitations......................... 12
Purchase of Shares............................. 12
Redemption of Shares........................... 15
<CAPTION>
PAGE
---------
<S> <C>
Shareholder Services........................... 16
Valuation of Shares............................ 17
Dividends, Capital Gains
Distributions and Taxes...................... 18
Investment Adviser............................. 19
Administrative Services........................ 22
Distributor.................................... 22
Portfolio Transactions......................... 22
General Information............................ 23
Directors and Officers......................... 25
UAM Funds--Institutional Class Shares.......... 26
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION, IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR ITS REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE FUND IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
<PAGE>
PART B
UAM FUNDS
SAMI PREFERRED STOCK INCOME PORTFOLIO
ENHANCED MONTHLY INCOME PORTFOLIO
INSTITUTIONAL CLASS SHARES
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 29, 1996 AS AMENDED APRIL 1, 1996
This Statement is not a Prospectus but should be read in conjunction
with the Prospectus of the UAM Funds, Inc. (the "UAM Funds" or the "Fund")
for the SAMI Preferred Stock Income Portfolio's Institutional Class Shares
dated February 29, 1996 as amended April 1, 1996 and the Prospectus for the
Enhanced Monthly Income Portfolio's Institutional Class Shares dated
February 29, 1996. To obtain the Prospectuses, please call the UAM Funds
Service Center:
1-800-638-7983
TABLE OF CONTENTS
PAGE
----
Investment Objectives and Policies . . . . . . . . . . . . . . 2
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . 4
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . 5
Shareholder Services . . . . . . . . . . . . . . . . . . . . . 6
Investment Limitations . . . . . . . . . . . . . . . . . . . . 6
Management of the Fund . . . . . . . . . . . . . . . . . . . . 7
Investment Adviser . . . . . . . . . . . . . . . . . . . . . . 8
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . 9
Administrative Services. . . . . . . . . . . . . . . . . . . . 9
Performance Calculations . . . . . . . . . . . . . . . . . . . 10
General Information. . . . . . . . . . . . . . . . . . . . . . 13
Financial Statements . . . . . . . . . . . . . . . . . . . . . 14
Appendix - Description of Securities and Ratings . . . . . . . A-1
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The following discussion supplements the discussion of the investment
objective and policies of the SAMI Preferred Stock Income Portfolio and the
Enhanced Monthly Income Portfolio (the "Portfolios") as set forth in the
Portfolios' Prospectuses:
SECURITIES LENDING
The Portfolios may lend their investment securities to qualified
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 (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.
RISKS PARTICULAR TO THE PUBLIC UTILITIES INDUSTRY
The public utilities industries are subject to various uncertainties,
including: difficulty in obtaining adequate returns on invested capital;
frequent difficulty in obtaining approval of rate increases by public service
commissions; increased costs, delays and restrictions as a result of
environmental considerations; difficulty and delay in securing financing of
large construction projects; difficulties of the capital markets in absorbing
utility debt and equity securities; difficulties in obtaining fuel for electric
generation at reasonable prices; difficulty in obtaining natural gas for resale;
special risks associated with the construction and operation of nuclear power
generating facilities, including technical and cost factors of such construction
and operation and the possibility of imposition of additional governmental
requirements for construction and operation; and the effects of energy
conservation and the effects of regulatory changes, such as the possible adverse
effects on profits of recent increased competition among telecommunications
companies and the uncertainties resulting from such companies' diversification
into new domestic and international businesses, as well as agreements by many
such companies linking future rate increases to inflation or other factors not
directly related to the actual operating profits of the enterprise.
FUTURES CONTRACTS
The Portfolios may enter into futures contracts, options and options on
futures contracts for the purposes of hedging, 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
2
<PAGE>
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. The Portfolios intend to use futures contracts only for
hedging purposes.
Regulations of the CFTC applicable to the Fund require that all of its
futures transactions constitute bonafide 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 five percent 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, the 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 the Portfolios' exposure to market fluctuations, the
use of futures contracts may be a more effective means of hedging this exposure.
While the Portfolios 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.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS
The Portfolios 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. Each
Portfolio's outstanding obligations to purchase securities under these contracts
may be 100% of its total assets.
RISK FACTORS IN FUTURES TRANSACTIONS
The Portfolios will minimize the risk that they 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,
the Portfolios would continue to be required to make daily cash payments to
maintain its required margin. In such situations, if the Portfolios have
insufficient cash, they 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 Portfolios may be required to make delivery of the instruments
underlying futures contracts they hold. The inability to close futures positions
also could have an adverse impact on a 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
3
<PAGE>
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 a Portfolio are 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. The Portfolios would presumably have sustained
comparable losses if, instead of the futures contract, they had invested in
the underlying financial instrument and sold it after the decline.
Utilization of futures transactions by the Portfolios 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 Portfolios 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 Portfolios of margin deposits in the event of bankruptcy of a broker
with whom the Portfolios have an open position in a futures contract.
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.
FEDERAL TAX TREATMENT OF FUTURES CONTRACTS
Except for transactions the Portfolios have identified as hedging
transactions, the Portfolios are required for Federal income tax purposes to
recognize as income for each taxable year their 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 gains 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 losses, 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
Portfolios 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 the Portfolios to continue to qualify for Federal income tax
treatment as a regulated investment company under the Internal Revenue Code of
1986, as amended (the "Code"), at least 90% of their 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 of
foreign currencies, or other income derived with respect to its business
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 the Portfolios' 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.
The Portfolios 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 Portfolios' fiscal year) on futures
transactions. Such distribution will be combined with distributions of capital
gains realized on the Portfolios' 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 for each Portfolio is $2,500 with certain
exceptions as may be determined from time to time by the officers of the Fund.
An order received in proper form prior to the 4:00 p.m. close of the New York
Stock Exchange (the
4
<PAGE>
"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 5, 1996; Memorial Day, May 27, 1996; Independence Day,
July 4, 1996; Labor Day, September 2, 1996; Thanksgiving Day, November 28, 1996;
Christmas Day, December 25, 1996; New Year's Day, January 1, 1997; and
Presidents' Day, February 17, 1997.
Each Portfolio reserves the right in its sole discretion (1) to suspend the
offering of its shares, (2) to reject purchase orders when in the judgment of
management such rejection is in the best interest of the Fund, and (3) 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 (1) during any period that both the Exchange and custodian bank are
closed, or trading on the Exchange is restricted as determined by the
Commission, (2) 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 (3) 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 Prospectus under "Valuation of Shares" and a redeeming shareholder would
normally incur brokerage expenses if these securities were converted to cash.
No charge is made by the Portfolios 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 Portfolios.
SIGNATURE GUARANTEES - To protect your account, the Fund and Chase Global
Funds Services 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 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.
5
<PAGE>
SHAREHOLDER SERVICES
The following supplements the information set forth under "Shareholder
Services" in the SAMI Preferred Stock Income Portfolio and under "Buying Selling
and Exchanging Shares" in the Enhanced Monthly Income Portfolio Prospectus:
EXCHANGE PRIVILEGE
Institutional Class Shares of each Portfolio may be exchanged for
Institutional Class Shares of the other Portfolio. In addition, Institutional
Class Shares of each Portfolio may be exchanged for any other Institutional
Class Shares of a Portfolio included in the UAM Funds which is comprised of the
Fund and UAM Funds Trust. (See the list of Portfolios of the UAM Funds -
Institutional Class Shares at the end of the Prospectus.) Exchange requests
should be made by calling the Fund (1-800-638-7983) or by writing to the UAM
Funds, UAM Funds Service Center, c/o Chase Global Funds Services 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 UAM Funds 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 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 Portfolios 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 Portfolios to another person 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 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 SAMI Preferred Stock Income Portfolio and the Enhanced Monthly Income
Portfolio are subject to the following restrictions, which are non-fundamental,
and 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 each Portfolio's Prospectus. Each Portfolio will not:
(1) invest in commodities, except for hedging, liquidity and
related purposes as provided in the Prospectus and herein;
(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) purchase on margin or sell short;
6
<PAGE>
(4) purchase or retain securities of an issuer if those Officers
and Directors of the Fund or its investment adviser owning more than
of 1% of such securities together own more than 5% of such
securities;
(5) underwrite the securities of other issuers or invest more
than an aggregate of: (i) 10% of the total assets of the SAMI
Preferred Stock Income Portfolio, determined at the time of
investment, in securities subject to legal or contractual restrictions
on resale and for which there are no readily available markets,
including repurchase agreements having maturities of more than seven
days (until further notice, as an undertaking for state securities
registration purposes in Wisconsin, the SAMI Preferred Stock Income
Portfolio will limit such investments to 5% or less of its total
assets, determined at the time of investment); and (ii) 15% of the
total assets of the Enhanced Monthly Income Portfolio, determined at
the time of investment, in securities subject to legal or contractual
restrictions on resale and for which there are no readily available
markets, including repurchase agreements having maturities of more
than seven days;
(6) invest for the purpose of exercising control over management
of any company;
(7) acquire any securities of companies within one industry,
other than the utilities industry, if, as a result of such
acquisition, more than 25% of the value of a 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 a Portfolio adopts a temporary defensive position; and
(8) write or acquire options or interests in oil, gas or other
mineral exploration or development programs.
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 each Prospectus. As of
January 31, 1996, 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 $4,500 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 UAM Funds Trust 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 service 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. The following table shows aggregate compensation
paid to each of the Fund's unaffiliated Directors by the Fund and total
compensation paid by the Fund, UAM Funds Trust and AEW Commercial Mortgage
Securities Fund, Inc. (collectively the "Fund Complex") in the fiscal year ended
October 31, 1995.
7
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5)
Pension or Total Compensation
Aggregate Retirement Benefits Estimated Annual from Registrant and
Name of Person, Compensation Accrued as Part of Benefits Upon Fund Complex Paid
Position From Registrant Fund Expenses Retirement to Directors
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John T. Bennett, Jr.
Director $24,435 0 0 $26,750
J. Edward Day
Director $24,435 0 0 $26,750
Philip D. English
Director $24,435 0 0 $26,750
William A. Humenuk
Director $24,435 0 0 $26,750
</TABLE>
PRINCIPAL HOLDERS OF SECURITIES
As of January 31, 1995, the following persons or organizations owned of
record or beneficially 5% or more of the shares of a Portfolio, as noted:
SAMI PREFERRED STOCK INCOME PORTFOLIO: Amsouth Bank, N.A., Trustee for
Drummond Co., Revised Pension Plan, Birmingham, AL, 33%*; Continental Trust
Company, Trustee for Sisters of St. Francis Health Services Inc., Retirement
Trust Chicago, IL, 28%*; Kansas City Power & Light Company, Kansas City, MO,
27%; Intercoast Capital Company, Wilmington, DE, 17% and Intercoast Capital
Company, Wilmington, DE, 13%.
ENHANCED MONTHLY INCOME PORTFOLIO: Robert T. and Angela J. Degavre, Mercer
Island, NY, 58%; Bernard M. and Phyllis N. Sussman, Warren, NJ, 26%; Mark A. and
Kathy J. Lieb, Greenwich, CT, 9% and Scott T. Fleming, New Canaan, CT, 5%.
The persons or organizations 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
Spectrum Asset Management, 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 45 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.
8
<PAGE>
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.
PHILOSOPHY AND STYLE
The Adviser has been managing diversified hedged preferred stock portfolios
for major institutional investors since 1987. Focused exclusively on preferred
stocks, Spectrum's three senior executives have a total of nearly 50 years of
experience in this specialized market. The firm uses sophisticated, proprietary
pricing and hedging models, in addition to the expertise of its investment
professionals, to develop strategies which take advantage of market
inefficiencies and opportunities while mitigating the effect of interest rate
movements on the capital value of the Portfolio.
ADVISORY FEES
For the period from June 23, 1992 (commencement of operations) to
October 31, 1992, the SAMI Preferred Stock Income Portfolio paid no advisory
fees. During this period, the Adviser voluntarily waived advisory fees of
approximately $34,000. For the fiscal year ended October 31, 1993 the SAMI
Preferred Stock Income Portfolio paid approximately $244,000 in advisory fees.
During this period, the Adviser voluntarily waived advisory fees of
approximately $61,000. For the fiscal years ended October 31, 1994 and 1995 the
SAMI Preferred Stock Income Portfolio paid advisory fees of $535,000 and
$385,000, respectively. As of October 31, 1995, the Enhanced Monthly Income
Portfolio had not commenced operations.
PORTFOLIO TRANSACTIONS
The Investment Advisory Agreement authorizes the Adviser to select the
brokers or dealers that will execute the purchases and sales of investment
securities for the Portfolios and directs the Adviser to use its best efforts to
obtain the best execution with respect to all transactions for the Portfolios.
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 research, 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, 1993, 1994 and 1995 the entire Fund paid
brokerage commissions of approximately $1,592,000, $2,402,000 and $2,983,000,
respectively.
A Portfolio may place a portion of its portfolio transactions with the
Adviser, which is a registered broker. Transactions placed with the Adviser are
subject to procedures adopted and supervised by the Board of Directors. For the
fiscal years ended October 31, 1993, 1994 and 1995, the entire Fund paid
commissions of approximately $209,000, $177,000 and $58,000, respectively, to
the Adviser for transactions placed through its brokerage facilities.
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
In a merger completed on September 1, 1995, The Chase Manhattan Bank, N.A.
("Chase") succeeded to all of the rights and obligations under the Fund
Administration Agreement between the Fund and United States Trust Company of New
York ("U.S. Trust"), pursuant to which U.S. Trust had agreed to provide certain
administrative services to the Fund. Pursuant to a delegation clause in the
U.S. Trust Administration Agreement, U.S. Trust delegated its administration
responsibilities to Mutual Funds Service Company, which after the merger with
Chase is a subsidiary of Chase know as Chase Global Funds Services Company and
will continue to provide certain administrative services to the Fund. During
the fiscal year ended October 31, 1993, administrative services fees paid to the
Administrator by the SAMI Preferred Stock Income Portfolio totaled approximately
$56,000. The basis of the fees paid to the Administrator for the 1993 fiscal
year
9
<PAGE>
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 years
ended October 31, 1994 and October 31, 1995, administrative services fees
paid to the Administrator by the SAMI Preferred Stock Income Portfolio
totaled $90,000 and $78,000, respectively. As of October 31, 1995, the
Enhanced Monthly Income Portfolio had not commenced operations. The services
provided by the Administrator and the basis of the fees for the 1994 and 1995
fiscal years fees payable to the Administrator are described in each
Portfolio's Prospectus.
PERFORMANCE CALCULATIONS
PERFORMANCE
The Portfolio may from time to time quote various performance figures to
illustrate 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 to compute or express performance
follows.
TOTAL RETURN
The average annual total return of each Portfolio 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. The average annual total rates of
return for the SAMI Preferred Stock Income Portfolio from inception and for the
one year period ended on the date of the Financial Statements included herein,
are as follows:
<TABLE>
<CAPTION>
SINCE INCEPTION
ONE YEAR ENDED THROUGH YEAR ENDED
OCTOBER 31, 1995 OCTOBER 31, 1995 INCEPTION DATE
---------------- ------------------ --------------
<S> <C> <C> <C>
SAMI Preferred Stock Income Portfolio 6.67% 3.74% 6/23/92
</TABLE>
These figures were 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).
As of October 31, 1995, the Enhanced Monthly Income Portfolio had not
commenced operations.
YIELD
Current yield reflects the income per share earned by a Portfolio's
investment.
10
<PAGE>
The current yield of a Portfolio 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 SAMI Preferred Stock
Income Portfolio for the 30-day period ended October 31, 1995 was 5.32%.
This figure was 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.
As of October 31, 1995, the Enhanced Monthly Income Portfolio had not
commenced operations.
TAXABLE EQUIVALENT YIELD
In addition to its standardized performance quotations, the SAMI Preferred
Stock Income Portfolio may from time to time quote a non-standardized
performance figure for taxable equivalent yield. Taxable equivalent yield
represents the return that a corporate tax-paying investor qualifying for the
70% dividends received deduction would need to earn on a fully taxable
investment in order to achieve an equivalent after-tax yield during a specified
time period. For the twelve months ended October 31, 1995, the SAMI Preferred
Stock Income Portfolio's taxable equivalent yield was 9.63%. This figure was
calculated using the following formula:
A Given Quarter = [(DI x (1 - CT x DRD)/
(1 - CT)) + (I - E) + Net Realized and Unrealized Capital Gains]
- ------------------------------------------------------------------------------
Average Net Assets During Quarter
Taxable Equivalent Yield = [(Q1 + 1) x (Q2 + 1) x (Q3 + 1) x (Q4 + 1)] - 1
where:
DI = dividend income from domestic equity securities subject
to the dividends received deduction for qualifying
investors,
CT = corporate income tax rate,
DRD = dividends received deduction,
I = interest and dividend income not subject to the dividends
received deduction,
E = expenses and fees incurred during the period,
Q1 = 1st Quarter,
Q2 = 2nd Quarter,
Q3 = 3rd Quarter, and
Q4 = 4th Quarter.
The formula used to derive taxable equivalent yield is in accordance with
the acceptable methods set forth by the Association of Investment Management and
Research ("AIMR").
11
<PAGE>
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.
(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) Salomon 1-3 Year Treasury Index - The Salomon 1-3 Year Treasury Index
includes only U.S. Treasury Notes and Bonds with maturities one year or
greater and less than three years.
(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.
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(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 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, 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 by 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
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." On October 31, 1995, the name of the Fund was
changed to "UAM Funds, Inc." The Fund's principal executive office is located
at One International Place, Boston, MA 02110; however, all investor
correspondence should be addressed to the Fund at UAM Funds Service Center, c/o
Chase Global Funds Services 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, without further action by shareholders. Currently, the Fund is
offering shares of 30 Portfolios.
The shares of each Portfolio of the Fund, when issued and paid for as
provided for in its Prospectus, will be fully paid and nonassessable, have no
preference as to conversion, exchange, dividends, retirement or other features
and 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.
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DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Fund's policy is to distribute substantially all of a 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 each 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 the 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 each Prospectus.
As set forth in each Prospectus, unless the shareholder elects otherwise in
writing, all dividend and capital gains distributions are automatically received
in additional shares of the Portfolio 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.
FEDERAL TAXES
In order for each Portfolio to continue to qualify for Federal income tax
treatment as a regulated investment company under the Internal Revenue Code of
1986, as amended (the "Code"), 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.
Each Portfolio will distribute to shareholders annually any net capital
gains which have been recognized for Federal income tax purposes. Shareholders
will be advised on the nature of the payments.
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 SAMI Preferred Stock Income Portfolio for
the fiscal period ended October 31, 1995 and the Financial Highlights for the
respective periods presented, which appear in the Portfolio's 1995 Annual Report
to Shareholders, and the report thereon of Price Waterhouse LLP, independent
accountants, also appearing therein, which were previously filed electronically
with the Commission (Accession Number: 0000950109-96-000061), are incorporated
by reference.
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APPENDIX - DESCRIPTION OF SECURITIES AND RATINGS
I. DESCRIPTION OF CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS:
Aaa - Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation
of protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are condsidered as medium grade obligations,
ie., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements, their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca - Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies the numerical modifiers 1, 2, and 3 in each generic rating
clasification from Aa through B. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue
ranks in the lower end of its generic rating category.
STANDARD & POOR'S CORPORATION CORPORATE BOND RATINGS:
AAA - Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation and indicate an extremely strong capacity to pay
principal and interest.
AA - Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only to a small degree.
A - Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than bonds in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than for debt in higher rated categories.
BB,B,CCC,CC - Debt rated BB,B,CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C - The rating C is reserved for income bonds on which no interest is being
paid.
D - Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
S & P's letter ratings may be modified by the addition of a plus or minus
sign, which is used to show relative standing within the major rating
categories except in the AAA, CC, C, CI and D categories.
II. 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 Government National
Mortgage Association 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 Federal National Mortgage Association, 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 Federal Home Loan Mortgage Corporation, are federally chartered
institutions under government supervision, but their debt securities are backed
only by the credit worthiness 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.
III. DESCRIPTION OF COMMERCIAL PAPER
The 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
A-1
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value, plus accrued interest, at any time. In connection with the Portfolio's
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 issuer; (7) financial strength of a
parent company and the relationships which exist with the issuer; and
(8) recognition by the management of obligations which may be present or may
arise as a result of public interest questions and preparations to meet such
obligations.
IV. DESCRIPTION OF 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 Portfolio is 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 bankers' 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.
A-2
