<PAGE>
As filed with the Securities and
Exchange Commission on November 25, 1998
Securities Act File No. 33-25355
Investment Company Act of 1940 File No. 811-5683
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
POST-EFFECTIVE AMENDMENT NO. 53 /X/
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 55 /X/
UAM FUNDS, INC.
(Exact Name of Registrant as specified in Charter)
c/o United Asset Management Corporation
One International Place
Boston, Massachusetts 02110
(Address of Principal Executive Offices)
Registrant's Telephone Number (617) 330-8900
Michael E. DeFao, Secretary
UAM Fund Services, Inc.
211 Congress Street
Boston, Massachusetts 02110
(Name and Address of Agent for Service)
---------------------------------------
COPY TO:
Audrey C. Talley, Esq.
Drinker Biddle & Reath LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3469
IT IS PROPOSED THAT THIS FILING BECOME EFFECTIVE
(CHECK APPROPRIATE BOX):
[_] Immediately upon filing pursuant to Paragraph (b)
[_] on August 24, 1998 pursuant to Paragraph (b)
[X] 60 days after filing pursuant to paragraph (a) (1)
[_] on _________ pursuant to paragraph (a) (1)
[_] 75 days after filing pursuant to Paragraph (a) (2)
[_] on (date) pursuant to Paragraph (a) (2) of Rule 485.
<PAGE>
PART A
UAM FUNDS, INC.
The following prospectuses are included in Post-Effective Amendment No. 53,
filed on November __, 1998:
. Acadian Emerging Markets Portfolio Institutional Class Shares.
. The C&B Portfolios Institutional Class Shares.
. The DSI Portfolios Institutional Class Shares.
. DSI Disciplined Value Portfolio Institutional Service Class Shares.
. FMA Small Company Portfolio Institutional Class Shares.
. FMA Small Company Portfolio Institutional Service Class Shares
. ICM Fixed Income Portfolio Institutional Class Shares.
. ICM Small Company & ICM Equity Portfolios Institutional Class Shares.
. The McKee Portfolios Institutional Class Shares.
. The NWQ Portfolios Institutional Class Shares.
. The NWQ Portfolios Institutional Service Class Shares.
. Rice, Hall, James Small Cap Portfolio and Rice, Hall, James Small/Mid
Cap Portfolio Institutional Class Shares.
. SAMI Preferred Stock Income Portfolio Institutional Class Shares.
. Sirach Portfolios Institutional Class Shares.
. Sirach Portfolios Institutional Service Class Shares.
. Sterling Partners' Portfolios Institutional Class Shares.
. Sterling Partners' Portfolios Institutional Service Class Shares.
. The TS&W Portfolios Institutional Class Shares.
<PAGE>
UAM FUNDS
Funds for the Informed Investor
ACADIAN EMERGING MARKETS PORTFOLIO
Institutional Class Prospectus , 199_
[LOGO]
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
Table Of Contents
<TABLE>
<S> <C>
PORTFOLIO SUMMARY.................................................... 1
What is the Objective of the Portfolio?......................... 1
What are the Principal Investment Strategies of the Portfolio?.. 1
What are the Principal Risks of the Portfolio?.................. 1
How has the Portfolio Performed?................................ 2
What are the Portfolio's Fees and Expenses?..................... 3
INVESTING WITH THE UAM FUNDS......................................... 4
Buying Shares................................................... 4
Redeeming Shares................................................ 5
Exchanging Shares............................................... 5
Transaction Policies............................................ 5
ACCOUNT POLICIES..................................................... 9
Small Accounts.................................................. 9
Distributions................................................... 9
Federal Taxes................................................... 9
FUND DETAILS......................................................... 11
Principal Investments and Risks of the Portfolio................ 11
Other Investment Practices and Strategies....................... 13
Year 2000....................................................... 14
Investment Management........................................... 14
Shareholder Servicing Arrangements.............................. 15
FINANCIAL HIGHLIGHTS................................................. 17
</TABLE>
<PAGE>
PORTFOLIO SUMMARY
WHAT IS THE OBJECTIVE OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
Acadian Emerging Markets Portfolio seeks long-term capital appreciation by
investing primarily in common stocks of emerging country issuers. Acadian
Emerging Markets Portfolio cannot guarantee it will meet its investment
objectives. The portfolio may not change its investment objective without
shareholder approval.
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
The following is a brief description of the principal investment strategies
of Acadian Emerging Markets Portfolio. For more information see "PRINCIPAL
INVESTMENTS AND RISKS OF THE PORTFOLIO."
The portfolio will invest primarily common stocks and securities
convertible into or exercisable for common stock of issuers that:
. Have their principal securities trading market in an emerging country.
. Alone or on a consolidated basis derive 50% or more of annual revenue
from goods produced, sales made or services performed in emerging
countries.
. Are organized under the laws of, and have a principal office in, an
emerging country.
An "emerging country" is any country that the adviser believes the
International Bank for Reconstruction and Development (World Bank) and the
International Finance Corporation would consider to be an emerging or developing
country. Typically, emerging markets are in countries that are in the process of
industrialization, with lower gross national products (GNP) than more developed
economies.
WHAT ARE THE PRINCIPAL RISKS OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
The following is a summary of the principal risks associated with investing
in the portfolio. For more information see "PRINCIPAL INVESTMENTS AND RISKS
OF THE PORTFOLIO."
RISKS COMMON TO ALL MUTUAL FUNDS
At any time, your investment in a mutual fund may be worth more or less
than the price you originally paid for it. You may lose money by investing
in any mutual fund because:
. The value of the securities it owns changes, sometimes rapidly and
unpredictably.
1
<PAGE>
. The mutual fund is not successful in reaching its goal because of its
strategy or because it did not implement its strategy properly.
. Unforeseen occurrences in the securities markets negatively affect the
mutual fund.
ACADIAN EMERGING MARKETS PORTFOLIO
Since the portfolio invests in mainly equity securities, its principal
risks are those of investing in equity securities, which may include
sudden, unpredictable drops in value or long periods of decline in value.
Equity securities may lose value because of factors affecting the
securities markets generally, an entire industry or a particular company.
Foreign securities, especially those of companies in emerging markets, can
be riskier and more volatile than domestic securities. Adverse political
and economic developments or changes in the value of foreign currency can
make it harder for a portfolio to sell its securities and could reduce the
value of your shares. Differences in tax and accounting standards and
difficulties in obtaining information about foreign companies can
negatively affect investment decisions.
The portfolio is a "non-diversified" mutual fund and therefore is not
required to meet any diversification requirements under the Investment
Company Act of 1940. Since it may invest in a smaller number of issuers,
changes in financial condition or market assessment of a single issuer may
negatively affect the value of its shares more than other mutual funds.
HOW HAS THE PORTFOLIO PERFORMED?
- --------------------------------------------------------------------------------
The bar chart and table below illustrate how the performance of the
portfolio has varied from year to year. The following bar charts show the
investment returns of the portfolio since its inception. The table
following each bar chart compares the portfolio's average annual returns
for the periods indicated to those of a broad-based securities market
index. Past performance does not guarantee future results.
ACADIAN EMERGING MARKETS PORTFOLIO
[CHART APPEARS HERE]
*From the portfolio's inception (6/17/93) through 12/31/92.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_)
2
<PAGE>
Average annual return 1 Year 5 Years Since
Inception
--------------------------------------------------------------------------
Acadian Emerging Markets Portfolio
--------------------------------------------------------------------------
Benchmark
WHAT ARE THE PORTFOLIO'S FEES AND EXPENSES?
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM THE ASSETS OF A
PORTFOLIO)
This table describes the fees and expenses that you may pay if you buy and
hold shares of a portfolio. This table is presented in the format required
by the Securities and Exchange Commission (SEC) and may not reflect the
actual expenses you would have paid as a shareholder in the portfolio.
---------------------------------------------------------------------------
Management fees
---------------------------------------------------------------------------
Other Expenses
---------------------------------------------------------------------------
Total Annual Fund Operating Expenses
=============================+=============================================
ACTUAL FEES AND EXPENSES
The ratios stated in the table above are higher than the expenses you would
have actually paid as an investor in the portfolio. Due to certain expense
limits by the adviser and expense offsets, investors in the portfolio
actually paid _% of average net assets during the fiscal year October 31,
1998.
EXAMPLE
This example can help you to compare the cost of investing in the portfolio
to the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the portfolio for the periods shown and then redeem all of your
shares at the end of those periods. It also assumes a 5% return on your
investment each year and that the portfolio's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
---------------------------------------------------------------------------
1 Year
---------------------------------------------------------------------------
3 Years
---------------------------------------------------------------------------
5 Years
---------------------------------------------------------------------------
10 Years
3
<PAGE>
INVESTING WITH THE UAM FUNDS
BUYING SHARES
- --------------------------------------------------------------------------------
TO OPEN AN ACCOUNT TO BUY MORE SHARES
---------------------------------------------------------------------------
By Mail Send a check or Send a check and, if
money order and possible, the "Invest by
your account Mail" stub that
application to the accompanied your
UAM Funds. Make statement to the UAM
checks payable to Funds. Be sure your
"UAM Funds" (the check identifies clearly
UAM Funds will not your name, account
accept third-party number and the
checks for payment portfolio into which
of its shares). you want to invest.
------------------------------------------------------------------------
By Wire Call the UAM Funds Call the UAM Funds to
for an account get a wire control
number and wire number and wire your
control number and money to the UAM
then send your Funds.
completed account
application to the
UAM Funds.
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: portfolio name/account number/
account name/wire control number
------------------------------------------------------------------------
By Automatic Not Available To set up a plan,
Investment mail a completed
Plan (Via application to the
ACH) UAM Funds. To
cancel or change a
plan, write to the
UAM Funds. Allow
up to 15 days to
create the plan and
3 days to cancel or
change it.
------------------------------------------------------------------------
Minimum $2,500, except $100
Investments IRAs ($500)
and spousal
IRAs ($250)
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
4
<PAGE>
REDEEMING SHARES
- --------------------------------------------------------------------------------
By Mail Send a letter signed by all registered parties on the
account to UAM Funds specifying the portfolio, the account
number and the dollar amount or number of shares you wish to
redeem. Certain types of accounts may have to include
additional documents (please call the UAM Funds if you have
any questions).
---------------------------------------------------------------------------
By You must first establish the telephone
Telephone redemption privilege (and, if desired, the wire
redemption privilege) by completing the appropriate sections
of the account application.
Call 1-877-UAM-Link to redeem your shares. Based on your
instructions, the UAM Funds will mail your proceeds to you
or wire them to your bank.
---------------------------------------------------------------------------
By If your account balance is at least $10,000, you
Systematic may transfer as little as $100 per month from your
Withdrawal UAM account to your financial institution.
Plan (Via
ACH) To participate in this service, you must complete
the appropriate sections of the account application and mail
it to the UAM Funds.
EXCHANGING SHARES
- --------------------------------------------------------------------------------
At no charge, you may exchange shares of one portfolio for shares of the
same class of any other UAM Fund by writing to or calling the UAM Funds.
Before exchanging your shares, read the prospectus of the portfolio for
which you want to exchange, which you may obtain from the UAM Funds. You
may not exchange shares represented by certificates over the telephone. You
may only exchange shares between accounts with identical registrations
(i.e., the same names and addresses).
TRANSACTION POLICIES
- --------------------------------------------------------------------------------
CALCULATING YOUR SHARE PRICE
You may buy, sell or exchange shares of a UAM Fund at a price equal to its
net asset value (NAV) next computed after it receives your order. The
portfolio calculates its NAV as of the close of trading on the New York
Stock Exchange (NYSE) (generally 4:00 p.m. Eastern Time) on each day the
NYSE is open. Therefore, to receive the NAV on any given day, the UAM Funds
must accept your order by the close of trading on the NYSE that day.
Otherwise, you will receive the NAV that is calculated on the close of
trading on the following day. The UAM Funds are open for business on the
same days as the NYSE, which is closed on weekends and certain holidays.
Securities that are traded on foreign exchanges may trade on days when the
portfolio does not price its shares. Consequently, the value of the
portfolio
5
<PAGE>
may change on days when you are unable to purchase or redeem shares of the
portfolio.
BUYING OR SELLING SHARES THROUGH A FINANCIAL INTERMEDIARY
You may buy, exchange or redeem shares of the UAM Funds through a financial
intermediary (such as a financial planner or adviser). Generally, to buy or
sell shares at the NAV of any given day your financial intermediary must
receive your order by the close of trading on the NYSE that day. Your
financial intermediary is responsible for transmitting all subscription and
redemption requests, investment information, documentation and money to the
UAM Funds on time.
Certain financial intermediaries have agreements with the UAM Funds that
allow them to enter confirmed purchase or redemption orders on behalf of
clients and customers. Under this arrangement, the financial intermediary
must send your payment to the UAM Funds by the time they price their shares
on the following day. If your financial intermediary fails to do so, it may
be responsible for any resulting fees or losses.
CALCULATING NAV
The UAM Funds calculate their NAV by adding the total value of their
assets, subtracting their liabilities and then dividing the result by the
number of shares outstanding. The UAM Funds value their investments with
readily available market quotations at market value. Investments that do
not have readily available market quotations are valued at fair value,
according to guidelines established by the UAM Funds. The UAM Funds may
also value securities at fair value when events occur that make established
valuation methods (such as stock exchange closing prices) unreliable. The
UAM Funds value debt securities that will mature in 60 days or less at
amortized cost, which approximates market value.
IN-KIND TRANSACTIONS
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares of a portfolio with securities instead of cash. In addition, the UAM
Funds may pay all or part of your redemption proceeds with securities
instead of cash.
PAYMENT OF REDEMPTION PROCEEDS
The UAM Funds will pay for all shares redeemed within seven days after they
receive a redemption request in proper order. If you redeem shares that
were purchased by check, you will not receive your redemption proceeds
until the check has cleared, which may take up to 15 days. You may avoid
these delays by paying for shares with a certified check, bank check or
money order.
6
<PAGE>
SIGNATURE GUARANTEE
You must have your signature guaranteed when (1) you want the proceeds from
your redemption sent to a person or address different from that registered
on the account, or (2) you request a transfer of your shares.
You may obtain a signature guarantee from most banks, savings institutions,
securities dealers, national securities exchanges, registered securities
associations, clearing agencies and other guarantor institutions. A notary
public cannot guarantee a signature.
TELEPHONE TRANSACTIONS
The UAM Funds will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine; they may be liable for
any losses if they fail to do so. The UAM Funds will be responsible for any
loss, liability, cost or expense for following instructions received by
telephone that it reasonably believes to be genuine.
RIGHTS RESERVED BY THE UAM FUNDS
PURCHASES
At any time and without notice, the UAM Funds may:
. Stop offering shares of a portfolio.
. Reject any purchase order.
. Bar an investor engaged in a pattern of excessive trading from buying
shares of any portfolio. (Excessive trading can hurt the performance
of a portfolio by disrupting its management and by increasing its
expenses.)
REDEMPTIONS
The UAM Funds may suspend your right to redeem if:
. An emergency exists and a portfolio cannot dispose of its investments
or fairly determine their value.
. Trading on the NYSE is restricted.
. The SEC tells the UAM Funds to delay redemptions.
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail.
EXCHANGES
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders.
. Reject any request for an exchange.
7
<PAGE>
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
8
<PAGE>
ACCOUNT POLICIES
SMALL ACCOUNTS
- --------------------------------------------------------------------------------
The UAM Funds may redeem your shares without your permission if the value
of your account falls below 50% of the required minimum initial investment,
but not because of a drop in the value of your shares caused by market
fluctuations. This provision does not apply to retirement accounts and
certain other accounts.
DISTRIBUTIONS
- --------------------------------------------------------------------------------
Normally, the portfolio distributes its net investment and any net capital
gains once a year. The UAM Funds will automatically reinvest dividends and
distributions in additional shares of the portfolio, unless you elect on
your account application to receive them in cash.
FEDERAL TAXES
- --------------------------------------------------------------------------------
The following is a summary of the federal income tax consequences of
investing in these portfolios. You may also have to pay state and local
taxes on your investment. You should always consult your tax advisor for
specific guidance regarding the tax effect of your investment in the UAM
Funds.
TAXES ON DISTRIBUTIONS
The distributions of the portfolios will generally be taxable to
shareholders as ordinary income or capital gains (which may be taxable at
different rates depending on the length of time the portfolio held the
relevant assets). You will be subject to income tax on these distributions
regardless of whether they are paid in cash or reinvested in additional
shares. Once a year UAM Funds will send you a statement showing the types
and total amount of distributions you received during the previous year.
You should note that if you purchase shares just before a distribution, the
purchase price would reflect the amount of the upcoming distribution. In
this case, you would be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply
constitutes a return of your investment. This is known as "buying into a
dividend" and should be avoided.
TAXES ON EXCHANGES AND REDEMPTIONS
When you redeem or exchange shares in any portfolio, you may recognize a
gain or loss for income tax purposes. This gain or loss will be based on
the difference between your tax basis in the shares and the amount you
receive for them. (To aid in computing your tax basis, you generally should
retain your account statements for the periods during which you held
shares.) Any loss
9
<PAGE>
realized on shares held for six months or less will be treated as a long-
term capital loss to the extent of any capital gain dividends that were
received with respect to the shares.
The one major exception to these tax principles is that distributions on,
and sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable, but they may be taxable
at some time in the future.
To the extent a portfolio invests in foreign securities, it may be subject
to foreign withholding taxes with respect to dividends or interest the
portfolios received from sources in foreign countries. The portfolios may
elect to treat some of those taxes as a distribution to shareholders, which
would allow shareholders to offset some of their U.S. federal income tax.
BACKUP WITHHOLDING
By law, the UAM Funds must withhold 31% of your distributions and proceeds
if you have not provided complete, correct taxpayer information.
10
<PAGE>
FUND DETAILS
PRINCIPAL INVESTMENTS AND RISKS OF THE PORTFOLIO
- --------------------------------------------------------------------------------
The following is a brief description of the principal investment strategies
Acadian Emerging Markets Portfolio may employ in seeking its objectives.
This discussion is in addition to the discussion set forth in the
"PORTFOLIO SUMMARY." For more information concerning these investment
practices and their associated risks, please read the "PORTFOLIO SUMMARY"
and the statement of additional information (SAI). You can find information
on the portfolio's recent strategies and holdings in its current
annual/semiannual report. The portfolio may change these strategies without
shareholder approval.
The portfolio will invest primarily common stocks, but also may invest in
preferred stocks, securities convertible or exchangeable into common stock
and rights or warrants to purchase common stocks. Normally, the portfolio
invests at least 65% its total assets in securities of issuers that:
. Have their principal securities trading market in an emerging country.
. Alone or on a consolidated basis derive 50% or more of annual revenue
from goods produced, sales made or services performed in emerging
countries.
. Are organized under the laws of, and have a principal office in, an
emerging country.
An "emerging country" is any country that the adviser believes the
International Bank for Reconstruction and Development (World Bank) and the
International Finance Corporation would consider to be an emerging or
developing country. Typically, emerging markets are in countries that are
in the process of industrialization, with lower gross national products
(GNP) than more developed countries. There are over 130 countries that the
international financial community generally considers to be emerging or
developing countries, approximately 40 of which currently have stock
markets. These countries generally include every nation in the world except
the United States, Canada, Japan, Australia, New Zealand and most nations
located in Western Europe. The portfolio will focus its investments on
those emerging market countries that it believes have developing economies
and where the markets are becoming more sophisticated, including some or
all of the following:
Argentina Czech Israel Nigeria Sri Lanka
Botswana Republic Jamaica Pakistan Taiwan
Brazil Egypt Jordan Peru Thailand
Chile Greece Kenya Philippines Turkey
China Hungary Korea Poland Venezuela
Columbia India Malaysia South Africa Zimbabwe
Indonesia Mexico
11
<PAGE>
The portfolio may also invest in equity or debt securities of issuers
located in industrialized countries. As markets in other countries develop,
the portfolio expects to expand and further diversify the emerging
countries in which it invests.
The portfolio also may invest debt securities of issuers located in
emerging countries when the adviser believes that such debt securities
offer opportunities for long-term capital appreciation. In making such
investment decisions, the adviser generally considers the relative
potential for capital appreciation of equity securities, interest rate
levels, economic trends, currency trends and prospects, and, specifically,
the prospects for appreciation of selected debt issues. The portfolio may
invest up to 10% of its total assets (measured at the time of the
investment) in debt securities that are rated below investment-grade,
otherwise known as "junk bonds".
RISKS OF EQUITY INVESTING
Equity securities may lose value because of factors affecting the
securities markets generally, such as adverse changes in economic
conditions, the general outlook for corporate earnings, interest rates or
investor sentiment. These circumstances may lead to long periods of poor
performance, such as during a "bear market." Equity securities may also
lose value because of factors affecting an entire industry, such as
increases in production costs, or factors directly related to that company,
such as decisions made by its management.
RISKS OF FOREIGN SECURITIES
Foreign securities, foreign currencies, and securities issued by U.S.
entities with substantial foreign operations may involve significant risks
in addition to the risks inherent in U.S. investments.
Local political, economic, regulatory or social instability, military
action or unrest, or adverse diplomatic developments may affect the value
of foreign investments. A foreign government may act adversely to the
interests of U.S. investors. Such actions may include expropriation or
nationalization of assets, confiscatory taxation and other restrictions on
U.S. investment.
The securities of foreign companies are often denominated in foreign
currencies. Since the portfolio's net asset value is denominated in U.S.
dollars, changes in foreign currency rates and in exchange control
regulations may positively or negatively affect the value of its
securities. In January 1999, certain European nations will begin to use the
new European common currency, called the Euro. The nations that use the
Euro will have the same monetary policy regardless of their domestic
economy, which could have adverse effects on those economies. In addition,
the method by which the conversion to the Euro is implemented could
negatively affect the investments of a portfolio.
Foreign stock markets, while growing in volume and sophistication, are
generally not as developed as those in the U.S. and securities of some
foreign issuers may be less liquid and more volatile than securities of
comparable U.S.
12
<PAGE>
issuers. In addition, the costs associated with foreign investments,
including withholding taxes, brokerage commissions and custodial costs, are
generally higher than with U.S. investments.
Foreign countries have different legal systems and different regulations
concerning financial disclosure, accounting and auditing standards than the
U.S. This could make corporate financial information more difficult to
obtain or understand and less reliable than information about U.S.
companies.
Investing in emerging markets may magnify the risks of foreign investing.
Security prices in emerging markets can be significantly more volatile than
those in more developed markets, reflecting the greater uncertainties of
investing in less established markets and economies. In particular,
countries with emerging markets may have relatively unstable governments,
may present the risks of nationalization of businesses, restrictions on
foreign ownership and prohibitions on the repatriation of assets. They also
may protect property rights less than more developed countries. The
economies of countries with emerging markets may be based on only a few
industries, may be highly vulnerable to changes in local or global trade
conditions and may suffer from extreme and volatile debt burdens or
inflation rates. Local securities markets may trade a small number of
securities and may be unable to respond effectively to increases in trading
volume, potentially making prompt liquidation of holdings difficult or
impossible at times.
OTHER INVESTMENT PRACTICES AND STRATEGIES
- --------------------------------------------------------------------------------
As described below, the portfolios may invest in derivatives and may
deviate from their investment strategies from time to time. In addition,
they may employ investment practices that are not described in this
prospectus, such as repurchase agreements, when-issued and forward
commitment transactions, lending of securities, borrowing and other
techniques. For more information concerning the risks associated with these
investment practices, you should read the SAI.
DERIVATIVES
The portfolio may buy and sell derivatives, including futures and options.
Derivatives are often more volatile than other investments and may magnify
a portfolio's gains or losses. A portfolio may lose money if the adviser:
. Fails to predict correctly the direction in which the underlying asset
or economic factor will move.
. Judges market conditions incorrectly.
. Employs a strategy that does not correlate well with the investments
of the portfolio.
SHORT-TERM INVESTING
At times, the adviser may decide to suspend the normal investment
activities of a portfolio by investing up to 100% of its assets in a
variety of securities, such
13
<PAGE>
as U.S. government and other high quality and short-term debt obligations.
The adviser may temporarily adopt a defensive position to reduce changes in
the value of a portfolio's shares that may result from adverse market,
economic, political or other developments.
When the adviser pursues a defensive strategy, a portfolio may not profit
from favorable developments that it would have otherwise profited from if
it were pursuing its normal strategies. Likewise, these strategies may
prevent a portfolio from achieving its stated objectives.
YEAR 2000
- --------------------------------------------------------------------------------
Many computer programs in use today cannot distinguish the year 2000 from
the year 1900 because of the way they encode and calculate dates.
Consequently, these programs may not be able to perform necessary functions
and could disrupt the operations of the UAM Funds or financial markets in
general. The year 2000 issue affects all companies and organizations,
including those that provide services to the UAM Funds and those in which
the UAM Funds invest.
The UAM Funds and their advisers, administrator, distributor and transfer
agent are taking steps they believe are reasonably necessary to address any
portfolio-related year 2000-related computer problems. They are actively
working on necessary changes to their own computer systems to prepare for
the year 2000 and expect that their systems will be adapted before that
date. They are also requesting information on each service provider's state
of readiness and contingency plan. However, at this time the degree to
which the year 2000 issue will affect the UAM Funds' investments or
operations cannot be predicted. Any negative consequences could adversely
affect your investment in the UAM Funds.
INVESTMENT MANAGEMENT
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Acadian Asset Management, Inc., a Massachusetts corporation located at Two
International Place, Boston, Massachusetts 02110, is the investment adviser
to the portfolio. Acadian Asset Management manages and supervises the
investment of the portfolio's assets on a discretionary basis. Acadian
Asset Management, an affiliate of United Asset Management Corporation, has
provided investment management services to corporations, pension and
profit-sharing plans, 401(k) and thrift plans, trusts, estates and other
institutions and individuals since 1986.
The adviser has voluntarily agreed to limit the expenses of the portfolio
to 2.50% of its average net assets. To maintain this expense limit, the
adviser may waive a portion of its advisory fee and/or reimburse certain
expenses of the portfolio. The adviser intends to continue its expense
limitation until further notice. During the last fiscal year, the portfolio
paid the adviser __% of the portfolio's average daily net assets.
14
<PAGE>
For more information on Acadian Asset Management investment services,
please call (617) 946-3500.
PORTFOLIO MANAGERS
Listed below are the investment professionals of the adviser who are
primarily responsible for the day-to-day management of the portfolio and a
description of their business experience during the past five years.
Name and Title Experience
--------------------------------------------------------------------------
Dr. Gary L. Bergstrom Perdue University, B.S., M.S., 1963; M.I.T.
President (Sloan School of Management), Ph.D, 1968; founder
of Acadian Asset Management, Inc. in 1977.
--------------------------------------------------------------------------
Ronald D. Frashure Massachusetts Institute of Technology (Sloan
Executive Vice School of Management), B.S., 1964; Harvard
President University, M.B.A., 1970; Portfolio Manager and
Investment Officer, Acadian Asset Management,
Inc., 1988 - Present.
--------------------------------------------------------------------------
Churchill G.Franklin Middlebury College, B.A., 1971; Primary Client
Senior Vice President Liaison and Marketing Officer, Acadian Asset
Management, Inc., 1986 - Present.
--------------------------------------------------------------------------
Richard O. Michaud Northeastern University, B.A., 1963; University
Senior Vice President of Pennsylvania, M.A., 1966; Boston University,
M.A., 1969; Boston University, PhD, 1971;
Quantitative Strategist, Acadian Asset Management,
Inc., 1991 -Present.
--------------------------------------------------------------------------
John R. Chisholm Massachusetts Institute of Technology, B.S., 1984
Senior Vice President and M.S., Business Administration, 1987; Portfolio
Manager and Quantitative Research Analyst, Acadian
Asset Management, Inc., 1984 - Present.
--------------------------------------------------------------------------
Stella M. Hammond Stanford University, B.S., 1966; Yale University,
Senior Vice President M.Phil., 1972; Portfolio Manager, Acadian Asset
Management, Inc., 1990 - Present.
--------------------------------------------------------------------------
Brian K. Wolahan Lehigh University, B.S., 1980; M.I.T. (Sloan
Senior Vice President School of Management), M.S., Business
Administration, 1987; Portfolio Manager and
Quantitative Research Analyst, Acadian Asset
Management, Inc., 1990 - Present.
SHAREHOLDER SERVICING ARRANGEMENTS
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICING
Certain financial intermediaries (service agents) may charge their clients
account fees for buying or redeeming shares of the UAM Funds. These fees
may include transaction fees and/or service fees paid by the UAM Funds from
their assets attributable to the service agent. The UAM Funds do not pay
these fees on shares purchased directly from UAM Fund Distributors. The
service agents may provide shareholder services to their clients that are
not available to a shareholder dealing directly with the UAM Funds. Each
service agent is responsible for transmitting to its clients a schedule of
any such fees and information regarding any additional or different
purchase or redemption conditions. You should consult your service agent
for information regarding these fees and conditions.
The adviser may pay its affiliated companies for referring investors to the
portfolio. The adviser and its affiliates may, at their own expense, pay
qualified service providers for marketing, shareholder servicing, record-
keeping and/or other services performed with respect to the portfolio.
UAM Fund Distributors, the adviser and certain of their other affiliates
also participate, as of the date of this prospectus, in an arrangement with
Salomon
15
<PAGE>
Smith Barney under which Salomon Smith Barney provides certain defined
contribution plan marketing and shareholder services and receives 0.15% of
the portion of the daily net asset value of Institutional Class Shares held
by Salomon Smith Barney's eligible customer accounts in addition to amounts
payable to all selling dealers. The UAM Funds also compensate Salomon Smith
Barney for services it provides to certain defined contribution plan
shareholders that are not otherwise provided by the UAM Funds'
administrator.
The UAM Funds also offer Institutional Service Class shares, which pay
marketing or shareholder servicing fees, and Adviser Class shares, which
impose a sales load and fees for marketing and shareholder servicing, for
certain of its portfolios. Not all of the UAM Funds offer all of these
classes.
16
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
financial performance of the portfolio for the past five years. The financial
highlights table comes from the financial statements of the portfolio and
reflects the financial results for a single portfolio share. The total
returns in the table represent the rate that an investor would have earned on
an investment in the portfolio (assuming reinvestment of all dividends and
distributions). PricewaterhouseCoopers LLP has audited the financial
statements of the portfolio. The financial statements and the unqualified
opinion of PricewaterhouseCoopers LLP are included in the annual report of
the portfolio, which is available upon request.
<TABLE>
<CAPTION>
Fiscal Year Ended October 31, 1998 1997 1996 1995 1994
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 12.12 $ 11.23 $ 14.00 $ 11.34
-------------------------------------------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 0.16 0.13 0.05 (0.03)
Net Gains or losses on Securities
(Realized and Unrealized) (0.85) 0.84 (2.82) 2.74
-------------------------------------------------------------------------------------------------------------------
Total From Investment Operations (0.69) 0.97 (2.77) 2.71
-------------------------------------------------------------------------------------------------------------------
Less Distributions (0.12) (0.02) - -
Net Investment Income
Capital Gains (0.03) (0.06) - (0.05)
-------------------------------------------------------------------------------------------------------------------
Total Distributions (0.15) (0.08) - (0.05)
-------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 11.28 $ 12.12 $ 11.23 $ 14.00
-------------------------------------------------------------------------------------------------------------------
Total Return+ (5.71)% 8.72% (19.79)% 23.97%
-------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Year (Thousands) $80,220 $69,649 $ 33,944 $ 5,558
Ratio of Expenses to Average Net
Assets 1.50% 1.79% 1.78% 2.07%
Ratio of Net Investment Income to Average Net
Assets 1.31% 1.29% 0.86% (0.25)%
Portfolio Turnover Rate 28% 11% 21% 9%
Ratio of Voluntarily Waived Fees and Expenses
Assumed by the Adviser to Average Net Assets - - 0.40% 1.00%
Ratio of Expenses to Average Net Assets
Including Expense Offsets 1.50% 1.79% 1.77% -
</TABLE>
+ Total return would have been lower had certain fees not been waived
during the periods indicated.
17
<PAGE>
ACADIAN EMERGING MARKETS PORTFOLIO
For investors who want more information about Acadian Emerging Markets
Portfolio, the following documents are available upon request.
ANNUAL/SEMI-ANNUAL REPORTS
The anual and semi-annual reports of Acadian Emerging Markets Portfolio
provide additional information about its investments. In the annual report,
you will also find a discussion of the market conditions and investment
strategies that significantly affected the performance of Acadian Emerging
Markets Portfolio during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains additional detailed information about Acadian Emerging
Markets Portfolio and is incorporated by reference into (legally part of)
this prospectus.
Investors can receive free copies of these materials, request other
information about the portfolios and make shareholder inquiries by writing
to or calling:
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
You can review, for a fee, the reports of the portfolio and SAI by writing
to the SEC's Public Reference Section, Washington, D.C. 20459-6009, or by
calling the SEC at 1-800-SEC-0330. You can get copies of this information
for free, on the SEC's Internet site at http://www.sec.gov.
------------------
The portfolio's Investment Company Act of 1940 file is 811-5683
UAM
18
<PAGE>
UAM FUNDS
Funds for the Informed Investor
THE C & B PORTFOLIOS
Investor Class Prospectus , 199_
C & B Equity Portfolio
C & B Equity Portfolio for Taxable Investors
C & B Mid Cap Equity Portfolio
C & B Balanced Portfolio
[LOGO]
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of the prospectus. Any
representation to the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PORTFOLIO SUMMARY................................................. 1
What are the Objectives of the Portfolios?....................... 1
What are the Principal Investment Strategies of the Portfolios?.. 1
What are the Principal Risks of the Portfolios................... 2
How have the Portfolios Performed?............................... 3
What are the Portfolios' Fees and Expenses?...................... 5
INVESTING WITH THE UAM FUNDS...................................... 7
Buying Shares.................................................... 7
Redeeming Shares................................................. 8
Exchanging Shares................................................ 8
Transaction Policies............................................. 8
ACCOUNT POLICIES.................................................. 11
Small Accounts................................................... 11
Distributions.................................................... 11
Federal Taxes.................................................... 11
FUND DETAILS...................................................... 13
Principal Investments and Risks of the Portfolios................ 13
Other Investment Practices and Strategies........................ 16
Year 2000........................................................ 16
Investment Management............................................ 17
Shareholder Servicing Arrangements............................... 18
FINANCIAL HIGHLIGHTS.............................................. 19
C & B Equity Portfolio........................................... 19
C & B Equity Portfolio for Taxable Investors..................... 20
C & B Balanced Portfolio......................................... 20
</TABLE>
<PAGE>
PORTFOLIO SUMMARY
WHAT ARE THE OBJECTIVES OF THE PORTFOLIOS?
- --------------------------------------------------------------------------------
Listed below are the investment objectives of the C & B Portfolios. The C & B
Portfolios cannot guarantee they will meet their investment objectives. A
portfolio may not change its investment objective without shareholder
approval.
C & B EQUITY PORTFOLIO
C & B Equity Portfolio seeks maximum long-term total return with minimal risk
to principal by investing in common stocks which have a consistency and
predictability in their earnings growth.
C & B EQUITY PORTFOLIO FOR TAXABLE INVESTORS
C & B Equity Portfolio for Taxable Investors seeks maximum long-term, after-
tax total return, consistent with minimizing risk to principal.
C & B MID CAP EQUITY PORTFOLIO
C & B Mid Cap Portfolio seeks maximum long-term total return, consistent with
minimizing risk to principal.
C & B BALANCED PORTFOLIO
C & B Balanced Portfolio seeks maximum long-term total return with minimal
risk to principal by investing in a combined portfolio of common stocks which
have a consistency and predictability in their earnings growth and investment
grade debt securities.
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE PORTFOLIOS?
- --------------------------------------------------------------------------------
The following is a brief description of the principal investment strategies of
the C & B Portfolios. For more information SEE "PRINCIPAL INVESTMENTS AND
RISKS OF THE PORTFOLIOS."
C & B EQUITY PORTFOLIO, C & B EQUITY PORTFOLIO FOR TAXABLE INVESTORS AND C & B
MID CAP EQUITY PORTFOLIO
Using the adviser's equity selection process, each portfolio invests primarily
in common stocks of companies that the adviser believes are undervalued and
possess strong financial positions and consistent and predictable earnings
growth.
C & B Equity Portfolio and C & B Equity Portfolio for Taxable Investors may
invest in companies of any size. C & B Mid Cap Equity Portfolio invests in
companies whose market capitalizations are similar to the companies
1
<PAGE>
contained in the S&P MidCap 400 Index, at the time of investment. In addition,
the adviser will try to minimize tax consequences within C & B Equity
Portfolio for Taxable Investors by managing the amount of realized gains. C &
B Equity Portfolio for Taxable Investors may be appropriate for investors who
seek total return and whose tax status under federal and state regulations
increase the importance of such strategies.
C & B BALANCED PORTFOLIO
C & B Balanced Portfolio is designed to provide shareholders with a single
vehicle with which to participate in the adviser's equity and debt strategies,
combined with its asset allocation decisions. The total return of the
portfolio will consist of both income and capital return, although the
relative proportions of which will vary according to the composition of the
portfolio.
The portfolio typically invests approximately 60% of its assets in equity
securities and 40% in debt securities. Using the adviser's equity selection
process, the portfolio may invest in equity securities of companies of any
size. The debt portion of the portfolio will primarily consist of investment-
grade debt securities with varying maturities and interest rate schedules.
WHAT ARE THE PRINCIPAL RISKS OF THE PORTFOLIOS
- --------------------------------------------------------------------------------
RISKS COMMON TO ALL MUTUAL FUNDS
At any time, your investment in a mutual fund may be worth more or less than
the price you originally paid for it. You may lose money by investing in any
mutual fund because:
. The value of the securities it owns changes, sometimes rapidly and
unpredictably.
. The mutual fund is not successful in reaching its goal because of its
strategy or because it did not implement its strategy properly.
. Unforeseen occurrences in the securities markets negatively affect the
mutual fund.
C & B EQUITY PORTFOLIO, C & B EQUITY PORTFOLIO FOR TAXABLE INVESTORS AND C & B
MID CAP EQUITY PORTFOLIO
Since the portfolios invest mainly in equity securities, their principal risks
are those of investing in equity securities, which may include sudden,
unpredictable drops in value or long periods of decline in value. Equity
securities may lose value because of factors affecting the securities markets
generally, an entire industry or a particular company.
Investors in the C & B Mid Cap Equity Portfolio take on additional risks that
come with investing in stocks of smaller companies, which can be riskier than
investing in larger, more mature companies. Smaller companies may be more
vulnerable to adverse developments than larger companies because they tend
2
<PAGE>
to have more narrow product lines and more limited financial resources. Their
stocks may trade less frequently and in limited volume.
C & B BALANCED PORTFOLIO
To the extent C & B Balanced Portfolio invests in equity securities, its
Shareholders that invest in the portfolio take on the risks that come with
investing in equity securities discussed above.
To the extent the portfolio invests in debt securities, the value of its
investments could fall because:
. Of market conditions and economic and political events.
. Interest rates rise, which tends to cause the value of debt securities to
fall.
. A security's credit rating worsens or its issuer becomes unable to honor
its financial obligations.
Investors also run the risk that the portfolio will be more heavily invested
in one type of security when it would be better to invest in the other type of
security.
HOW HAVE THE PORTFOLIOS PERFORMED?
- --------------------------------------------------------------------------------
The bar charts and tables below illustrate how the performance of the
portfolios has varied from year to year. The following bar charts show the
investment returns of each portfolio since its inception. The table following
each bar chart compares each portfolio's average annual returns for the
periods indicated to those of a broad-based securities market index. Past
performance does not guarantee future results.
C & B EQUITY PORTFOLIO
[GRAPH APPEARS HERE]
*From the portfolio's inception (5/15/90) through 12/31/90.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_)
<TABLE>
<CAPTION>
Since
Average annual return for periods ended 12/31/98 1 Year 5 Years Inception
====================================================================================
<S> <C> <C> <C>
C & B Equity Portfolio
====================================================================================
S&P 500 Index
</TABLE>
3
<PAGE>
C & B EQUITY PORTFOLIO FOR TAXABLE INVESTORS
[GRAPH APPEARS HERE]
*From the portfolio's inception (2/12/97) through 12/31/97.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_)
<TABLE>
<CAPTION>
Since
Average annual return for periods ended 12/31/98 1 Year Inception
==============================================================================
<S> <C> <C>
C & B Equity Portfolio for Taxable Investors
- ------------------------------------------------------------------------------
S&P 500 Index
</TABLE>
C & B MID CAP EQUITY PORTFOLIO
[GRAPH APPEARS HERE]
*From the portfolio's inception (__-/__/__) through 112/31/98.
The information in the bar chart above and the table below provides some
indication of the risks of investing in the portfolio by comparing its
performance with a broad measure of market performance.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_)
<TABLE>
<CAPTION>
Since
Average annual return for periods ended 12/31/98 1 Year Inception
============================================================================
<S> <C> <C>
C & B Mid Cap Equity Portfolio
- ----------------------------------------------------------------------------
S&P MidCap 400 Index
</TABLE>
4
<PAGE>
C & B BALANCED PORTFOLIO
[GRAPH APPEARS HERE]
From the portfolio's inception (12/29/89) through 12/31/89.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_)
<TABLE>
<CAPTION>
Since
Average annual return for periods ended 12/31/98 1 Year 5 Years Inception
============================================================================================================
<S> <C> <C> <C>
C & B Balanced Portfolio
------------------------------------------------------------------------------------------------------------
S&P 500 Index
------------------------------------------------------------------------------------------------------------
Lehman Brothers Government/Corporate Index
------------------------------------------------------------------------------------------------------------
Composite Index+
</TABLE>
* The S&P 500 Index is an unmanaged index composite of 400 industrial, 40
financial, 40 utilities and 20 transportation stocks.
# The Lehman Brothers Government/Corporate Index --is an unmanaged index
composed of a combination of public obligations of the U.S. Treasury,
issues of Government agencies, and corporate debt backed by the U.S.
government and investment-grade fixed-rate nonconvertible corporate debt,
Yankee Bonds and nonconvertible debt issued by or guaranteed by foreign or
international governments and agencies.
+ The Composite Index is a hypothetical index of which 60% reflects S&P 500
Index and 40% the Lehman Brother Government/Corporate Index.
WHAT ARE THE PORTFOLIOS' FEES AND EXPENSES?
- -------------------------------------------
FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay if you buy and
hold shares of a portfolio. This table is presented in the format required by
the Securities and Exchange Commission (SEC) and may not reflect the actual
expenses you would have paid as a shareholder in the portfolios.
<TABLE>
<CAPTION>
C & B Equity
Portfolio for C & B Mid C & B
C & B Equity Taxable Cap Equity Balanced
Portfolio Investors Portfolio Portfolio
============================================================================================================
<S> <C> <C> <C> <C>
Shareholder Fees (Fees Paid Directly From Your Account)
Redemption Fee (as
a percentage of
amount redeemed) -- 1.00% -- --
------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses (Expenses That Are Deducted From the Assets of a Portfolio)
Management fees
------------------------------------------------------------------------------------------------------------
Other Expenses
------------------------------------------------------------------------------------------------------------
Total Expenses
============================================================================================================
</TABLE>
5
<PAGE>
ACTUAL FEES AND EXPENSES
The ratios stated in the table are higher than the expenses you would have
actually paid as an investor in these portfolios. Due to certain expense
limits by the adviser and expense offsets, investors in the portfolios
actually paid the following total operating expenses during the fiscal year
ended October 31, 1998:
<TABLE>
<CAPTION>
C & B Equity
Portfolio for C & B Mid Cap C & B
C & B Equity Taxable Equity Balanced
Portfolio Investors Portfolio Portfolio
================================================================================
<S> <C> <C> <C> <C>
Actual Expenses
================================================================================
</TABLE>
EXAMPLE
This example can help you to compare the cost of investing in these portfolios
to the cost of investing in other mutual funds. It assumes that you invest
$10,000 in a portfolio for the periods shown and then redeem all of your
shares at the end of those periods. It also assumes a 5% return on your
investment each year and that the portfolio's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
C & B Equity
Portfolio for C & B
C & B Equity Taxable C & B Mid Cap Balanced
Portfolio Investors Equity Portfolio Portfolio
============================================================================
<S> <C> <C> <C> <C>
If you redeem your shares:
1 Year
----------------------------------------------------------------------------
3 Years
----------------------------------------------------------------------------
5 Years
----------------------------------------------------------------------------
10 Years
----------------------------------------------------------------------------
If you do not redeem your shares:
1 Year
----------------------------------------------------------------------------
3 Year
----------------------------------------------------------------------------
5 Years
----------------------------------------------------------------------------
10 Years
</TABLE>
6
<PAGE>
INVESTING WITH THE UAM FUNDS
BUYING SHARES
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
TO OPEN AN ACCOUNT TO BUY MORE SHARES
--------------------------------------------------------------------
<S> <C> <C>
By Mail Send a check or Send a check and, if
money order and possible, the "Invest
your account by Mail" stub that
application to the accompanied your
UAM Funds. Make statement to the UAM
checks payable to Funds. Be sure your
"UAM Funds" (the check identifies
UAM Funds will not clearly your name,
accept third-party account number and the
checks). portfolio into which
you want to invest.
--------------------------------------------------------------------
By Wire Call the UAM Funds Call the UAM Funds to
for an account get a wire control
number and wire number and wire your
control number and money to the UAM Funds.
then send your
completed account
application to the
UAM Funds.
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: portfolio name/account number/
account name/wire control number
--------------------------------------------------------------------
By Automatic Not Available To set up a plan, mail
Investment a completed application
Plan (Via ACH) to the UAM Funds. To
cancel or change a
plan, write to the UAM
Funds. Allow up to 15
days to create the plan
and 3 days to cancel or
change it.
--------------------------------------------------------------------
Minimum $2,500, except IRAs $100
Investments ($500) and spousal IRAs
($250)
</TABLE>
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
7
<PAGE>
REDEEMING SHARES
- --------------------------------------------------------------------------------
By Mail Send a letter signed by all registered parties on the account
to UAM Funds specifying the portfolio, the account number and
the dollar amount or number of shares you wish to redeem.
Certain shareholders may have to include additional documents.
------------------------------------------------------------------------------
By Telephone You must first establish the telephone redemption privilege
(and, if desired, the wire redemption privilege) by completing
the appropriate sections of the account application.
Call 1-877-UAM-Link to redeem your shares. Based on your
instructions, the UAM Funds will mail your proceeds to you or
wire them to your bank.
------------------------------------------------------------------------------
By If your account balance is at least $10,000, you may transfer
Systematic as little as $100 per month from your UAM account to your
Withdrawal financial institution.
Plan (Via
ACH) To participate in this service, you must complete the
appropriate sections of the account application and mail it to
the UAM Funds.
EXCHANGING SHARES
- --------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the same
class of any other UAM Fund by writing to or calling the UAM Funds. Before
exchanging your shares, read the prospectus of the UAM Fund for which you want
to exchange, which you may obtain from the UAM Funds. You may not exchange
shares represented by certificates over the telephone. You may only exchange
shares between accounts with identical registrations (i.e., the same names and
addresses).
TRANSACTION POLICIES
- --------------------------------------------------------------------------------
CALCULATING YOUR SHARE PRICE
You may buy, sell or exchange shares of a UAM Fund at a price equal to its net
asset value (NAV) next computed after it receives your order. The portfolios
calculate their NAVs as of the close of trading on the New York Stock Exchange
(NYSE) (generally 4:00 p.m. Eastern Time) on each day the NYSE is open.
Therefore, to receive the NAV on any given day, the UAM Funds must accept your
order by the close of trading on the NYSE that day. Otherwise, you will
receive the NAV that is calculated on the close of trading on the following
day. The UAM Funds are open for business on the same days as the NYSE, which
is closed on weekends and certain holidays.
8
<PAGE>
Buying or Selling Shares through a Financial Intermediary
You may buy, exchange or redeem shares of the UAM Funds through a financial
intermediary (such as a financial planner or adviser). Generally, to buy or
sell shares at the NAV on any given day, your financial intermediary must
receive your order by the close of trading on the NYSE that day. Your
financial intermediary is responsible for transmitting all subscription and
redemption requests, investment information, documentation and money to the
UAM Funds on time.
Certain financial intermediaries have agreements with the UAM Funds that allow
them to enter confirmed purchase or redemption orders on behalf of clients and
customers. Under this arrangement, the financial intermediary must send your
payment to the UAM Funds by the time they price their shares on the following
day. If your financial intermediary fails to do so, it may be responsible for
any resulting fees or losses.
CALCULATING NAV
The UAM Funds calculate their NAV by adding the total value of their assets,
subtracting their liabilities and then dividing the result by the number of
shares outstanding. The UAM Funds value their investments with readily
available market quotations at market value. Investments that do not have
readily available market quotations are valued at fair value, according to
guidelines established by the UAM Funds. The UAM Funds may also value
securities at fair value when events occur that make established valuation
methods (such as stock exchange closing prices) unreliable. The UAM Funds
value debt securities that will mature in 60 days or less amortized cost,
which approximates market value.
IN-KIND TRANSACTIONS
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares of a portfolio with securities instead of cash. In addition, the UAM
Funds may pay all or part of your redemption proceeds with securities instead
of cash.
PAYMENT OF REDEMPTION PROCEEDS
The UAM Funds will pay for all shares redeemed within seven days after they
receive a redemption request in proper order. If you redeem shares that were
purchased by check, you will not receive your redemption proceeds until the
check has cleared, which may take up to 15 days. You may avoid these delays
by paying for shares with a certified check, bank check or money order.
SIGNATURE GUARANTEE
You must have your signature guaranteed when (1) you want the proceeds from
your redemption sent to a person or address different from that registered on
the account, or (2) you request a transfer of your shares.
9
<PAGE>
You may obtain a signature guarantee from most banks, savings institutions,
securities dealers, national securities exchanges, registered securities
associations, clearing agencies and other guarantor institutions. A notary
public cannot guarantee a signature.
TELEPHONE TRANSACTIONS
The UAM Funds will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine; they may be liable for any losses if
they fail to do so. The UAM Funds will be responsible for any loss, liability,
cost or expense for following instructions received by telephone that it
reasonably believes to be genuine.
RIGHTS RESERVED BY THE UAM FUNDS
Purchases
At any time and without notice, the UAM Funds may:
. Stop offering shares of a portfolio.
. Reject any purchase order.
. Bar an investor engaged in a pattern of excessive trading from buying
shares of any portfolio. (Excessive trading can hurt the performance of a
portfolio by disrupting its management and by increasing its expenses.)
Redemptions
The UAM Funds may suspend your right to redeem if:
. An emergency exists and a portfolio cannot dispose of its investments or
fairly determine their value.
. Trading on the NYSE is restricted.
. The SEC tells the UAM Funds to delay redemptions.
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail.
Exchanges
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders.
. Reject any request for an exchange.
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
10
<PAGE>
ACCOUNT POLICIES
SMALL ACCOUNTS
- --------------------------------------------------------------------------------
The UAM Funds may redeem your shares without your permission if the value of
your account falls below 50% of the required minimum initial investment, but
not because of a drop in the value of your shares caused by market
fluctuations. This provision does not apply to retirement accounts and certain
other accounts.
DISTRIBUTIONS
- --------------------------------------------------------------------------------
Normally, the portfolios distribute their net investment income quarterly. In
addition, they distribute any net capital gains once a year. The UAM Funds
will automatically reinvest dividends and distributions in additional shares
of the portfolio, unless you elect on your account application to receive them
in cash.
FEDERAL TAXES
- --------------------------------------------------------------------------------
The following is a summary of the federal income tax consequences of investing
in the UAM Funds. You may also have to pay state and local taxes on your
investment. You should always consult your tax advisor for specific guidance
regarding the tax effect of your investment in the UAM Funds.
TAXES ON DISTRIBUTIONS
The distributions of the portfolios will generally be taxable to shareholders
as ordinary income or capital gains (which may be taxable at different rates
depending on the length of time the portfolio held the relevant assets). You
will be subject to income tax on these distributions regardless of whether
they are paid in cash or reinvested in additional shares. Once a year UAM
Funds will send you a statement showing the types and total amount of
distributions you received during the previous year.
You should note that if you purchase shares just before a distribution, the
purchase price would reflect the amount of the upcoming distribution. In this
case, you would be taxed on the entire amount of the distribution received,
even though, as an economic matter, the distribution simply constitutes a
return of your investment. This is known as "buying into a dividend" and
should be avoided.
TAXES ON EXCHANGES AND REDEMPTIONS
When you redeem or exchange shares in any portfolio, you may recognize a gain
or loss for income tax purposes. This gain or loss will be based on the
difference between your tax basis in the shares and the amount you receive for
them. (To aid in computing your tax basis, you generally should retain your
11
<PAGE>
account statements for the periods during which you held shares.) Any loss
realized on shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividends that were received
with respect to the shares.
The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other tax-
qualified plan) will not be currently taxable, but they may be taxable at some
time in the future.
BACKUP WITHHOLDING
By law, the UAM Funds must withhold 31% of your distributions and proceeds if
you have not provided complete, correct taxpayer information.
12
<PAGE>
FUND DETAILS
PRINCIPAL INVESTMENTS AND RISKS OF THE PORTFOLIOS
- --------------------------------------------------------------------------------
The following is a brief description of the principal investment strategies
the C & B Portfolios may employ in seeking their objectives. This discussion
is in addition to the discussion set forth in the "PORTFOLIO SUMMARY." For
more information concerning these investment practices and their associated
risks, please read the "PORTFOLIO SUMMARY" and the statement of additional
information (SAI). You can find more information on each portfolio's recent
strategies and holdings in the current annual/semiannual report. The portfolio
may change these strategies without shareholder approval.
C & B EQUITY PORTFOLIO, C & B EQUITY PORTFOLIO FOR TAXABLE INVESTORS AND C & B
MID CAP EQUITY PORTFOLIO
C & B Equity Portfolio and C & B Equity Portfolio for Taxable Investors may
invest in companies of any size. C & B Mid Cap Equity Portfolio invests in
companies whose market capitalizations are similar to the companies contained
in the S&P MidCap 400 Index, at the time of investment. As of December 31,
1998, the S&P MidCap 400 Index had a weighted average market capitalization of
$____ billion and was comprised of companies with market capitalizations
ranging from $____ million to $____ billion. Each portfolio may invest in
common stocks, preferred stocks, securities convertible or exchangeable into
common stock and rights or warrants to purchase common stocks.
C & B Equity Portfolio for Taxable Investors attempts to minimize the
frequency with which it buys and sells securities (i.e., portfolio turnover).
A rate of turnover of 100% would occur, for example, if the portfolio replaced
all of the securities it held within one year. As discussed under "Federal
Taxes," taxable gains realized from the sale of securities are distributed to
investors every year. The adviser attempts to reduce the amount of such
taxable gains by minimizing portfolio turnover. It is impossible to predict
the impact of such a strategy on the realization of gains or losses for the
portfolio. For example, the portfolio may forego the opportunity to realize
gains or reduce losses because of this policy. The adviser intends to balance
these tax considerations with portfolio trading needs and reserves the right
to engage in short-term trading if market conditions warrant such trading.
EQUITY SECURITY SELECTION PROCESS
The adviser selects equity securities based on its analysis of a company's
financial characteristics, an assessment of the quality of a company's
management, and the implementation of valuation discipline. The adviser
determines which companies are acceptable for investment by screening criteria
such as:
13
<PAGE>
. High return on equity.
. Strong balance sheets.
. Industry leadership position.
. An ability to generate excess cash flow, and opportunities to reinvest that
cash at attractive rates of return.
. Excellent fixed cost coverage ratios.
. A dividend and/or share repurchase policy that is beneficial to investors.
The adviser further narrows the universe of acceptable investments by
undertaking intensive on-site research, including interviews with top
management, to identify companies with strong management.
The adviser bases a common stock's value on the payment of a future stream of
anticipated dividends. Using a dividend discount analysis, the adviser
determines those stocks with the most attractive returns from this universe.
The adviser then compares the expected internal rate of return for each
company to the rate of return from a relatively riskless asset (intermediate
term--U.S. Treasury notes). To purchase a company's stock, the expected rate
of return generally must exceed the riskless rate by 6%. Generally, the
adviser will sell existing stock holdings if the internal rate of return based
on the dividend discount model has narrowed to less than 2% over the riskless
rate.
The adviser believes that the companies that survive its rigorous evaluation
process are high-quality, well-managed companies, which may be less volatile
than the stock market in difficult economic environments. Generally, the
adviser prefers to hold a smaller number of securities in the portfolios,
e.g., stocks of 25 to 40 companies. In this manner, the adviser seeks to
provide adequate diversification while allowing the composition of the
portfolios and performance to behave differently than the overall market.
Adherence to this philosophy has resulted in a pattern of results quite
different from that of the market. The adviser believes that its emphasis on
quality and low risk will protect the portfolios' assets in down markets,
while its insistence on stability of earnings and dividends growth, financial
strength, leadership position and strong cash flow will produce competitive
results in all but the most speculative markets. Over the long term, the
adviser believes these factors should result in superior returns with reduced
risk.
RISKS OF INVESTING IN EQUITY SECURITIES
Equity securities may lose value because of factors affecting the securities
markets generally, such as adverse changes in economic conditions, the general
outlook for corporate earnings, interest rates or investor sentiment. These
circumstances may lead to long periods of poor performance, such as during a
"bear market." Equity securities may also lose value because of factors
affecting an entire industry, such as increases in production costs, or
factors directly related to that company, such as decisions made by its
management.
14
<PAGE>
C & B BALANCED PORTFOLIO
C & B Balanced Portfolio is designed to provide shareholders with a single
vehicle with which to participate in the adviser's equity and debt strategies
combined with its asset allocation decisions. Typically, the portfolio will
invest 60% of its assets in equity securities and 40% in debt securities,
although the adviser may vary the composition of the portfolio as market
conditions warrant. The total return of the portfolio will consist of both
income and capital return, although the relative proportions of each will vary
according to the composition of the portfolio.
The adviser selects equity securities for the portfolio using the process
described above for the three other C&B Portfolios. C & B Balanced Portfolio
may invest in equity securities of companies of any size.
The debt portion of the portfolio will primarily consist of investment-grade
debt securities. Debt securities are securities issued by the U.S. government
and its agencies, corporate debt securities, mortgage-backed and asset-backed
securities, commercial paper and certificates of deposit. These securities
may have varying interest rate schedules and maturities (dates when debt
securities are due and payable). Asset-backed and mortgage-backed securities
are securities that are backed by pools of loans or mortgages assembled for
sale to investors by various governmental agencies and private issuers.
Mortgage-backed securities may generally take two forms: pass-throughs and
collateralized mortgage obligations (CMOs).
RISKS OF INVESTING IN DEBT SECURITIES
The value of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up the value of the bond will go
down, and vice versa). Interest rate changes may cause people to pay off
mortgage-backed and asset-backed securities earlier or later than expected,
which may shorten or lengthen the average maturity. Variations to average
maturity may cause the portfolio's share price and yield to fall.
The credit rating or financial condition of an issuer may affect the value of
a debt security. Generally, the lower the quality rating of a security, the
greater the risks that the issuer will fail to pay interest and return
principal. To compensate investors for taking on increased risk, issuers with
lower credit ratings usually offer their investors higher interest rates. If
an issuer defaults or becomes unable to honor its financial obligations, the
bond may lose some or all of its value.
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade. The adviser may retain securities that are downgraded, if
it believes that keeping those securities is warranted.
15
<PAGE>
OTHER INVESTMENT PRACTICES AND STRATEGIES
- --------------------------------------------------------------------------------
As described below, the portfolios may invest in derivatives and may deviate
from their investment strategies from time to time. In addition, they may
employ investment practices that are not described in this prospectus, such as
foreign securities, repurchase agreements, when-issued and forward commitment
transactions, lending of securities, borrowing and other techniques. For more
information concerning the risks associated with these investment practices,
you should read the SAI.
DERIVATIVES
Each portfolio may buy and sell derivatives, including futures and options.
Derivatives are often more volatile than other investments and may magnify a
portfolio's gains or losses. A portfolio may lose money if the adviser:
. Fails to predict correctly the direction in which the underlying asset or
economic factor will move.
. Judges market conditions incorrectly.
. Employs a strategy that does not correlate well with the investments of the
portfolio.
SHORT-TERM INVESTING
At times, the adviser may decide to suspend the normal investment activities
of a portfolio by investing up to 100% of its assets in a variety of
securities, such as U.S. government and other high quality and short-term debt
obligations. The adviser may temporarily adopt a defensive position to reduce
changes in the value of a portfolio's shares that may result from adverse
market, economic, political or other developments.
When the adviser pursues a defensive strategy, a portfolio may not profit from
favorable developments that it would have otherwise profited from if it were
pursuing its normal strategies. Likewise, these strategies may prevent a
portfolio from achieving its stated objectives.
YEAR 2000
- --------------------------------------------------------------------------------
Many computer programs in use today cannot distinguish the year 2000 from the
year 1900 because of the way they encode and calculate dates. Consequently,
these programs may not be able to perform necessary functions and could
disrupt the operations of the UAM Funds or financial markets in general. The
year 2000 issue affects all companies and organizations, including those that
provide services to the UAM Funds and those in which the UAM Funds invest.
The UAM Funds and their advisers, administrator, distributor and transfer
agent are taking steps they believe are reasonably necessary to address any
portfolio-related year 2000-related computer problems. They are actively
working on necessary changes to their own computer systems to prepare for the
year 2000 and expect that their systems will be adapted before that date.
16
<PAGE>
They are also requesting information on each service provider's state of
readiness and contingency plan. However, at this time the degree to which the
year 2000 issue will affect the UAM Funds' investments or operations cannot be
predicted. Any negative consequences could adversely affect your investment in
the UAM Funds.
INVESTMENT MANAGEMENT
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Cooke & Bieler, Inc., a Pennsylvania corporation located at 1700 Market
Street, Philadelphia, PA 19103, is the investment adviser to each of the
portfolios. The adviser manages and supervises the investment of each
portfolio's assets on a discretionary basis. The adviser, an affiliate of
United Asset Management Corporation, has provided investment management
services to corporations, foundations, endowments, pension and profit sharing
plans, trusts, estates and other institutions and individuals since 1951.
The adviser has voluntarily agreed to limit the expenses of the portfolios to
1.00% of their average net assets. To maintain this expense limit, the
adviser may waive a portion of its advisory fee and/or reimburse certain
expenses of the portfolios. The adviser intends to continue its expense
limitation until further notice. During the fiscal year ended October 31,
1998, the portfolios paid the adviser the following fees, which are expressed
as a percentage of average net assets:
<TABLE>
<CAPTION>
C & B Equity
C & B Equity Portfolio for C & B Mid Cap C & B Balanced
Portfolio Taxable Investors Equity Portfolio Portfolio
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
% % % %
</TABLE>
For more information on Cooke & Bieler's investment services, please call
(215) 567-1101.
PORTFOLIO MANAGERS
A team of investment professionals is primarily responsible for the day-to-day
management of the portfolios. Listed below are the investment professionals
of the adviser that comprise the team and a description of their business
experience during the past five years.
<TABLE>
<CAPTION>
Name & Title Experience
- ------------------------------------------------------------------------------------------------------
<S> <C>
R. James O'Neil B.A., cum laude, Colby College.
Principal M.B.A., Harvard University.
He is a Chartered Financial Analyst and has been a member of the
firm since 1988. He has managed the portfolios since inception.
- ------------------------------------------------------------------------------------------------------
Peter A. Thompson B.A., Princeton University
Principal M.B.A., Colgate Darden School of Business Administration.
He has been a member of the adviser since 1989 and has managed the
portfolios since inception.
- ------------------------------------------------------------------------------------------------------
Michael M. Meyer B.A., cum laude, Davidson College.
Principal M.B.A., The Wharton School of Finance, University of Pennsylvania.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Name & Title Experience
- ------------------------------------------------------------------------------------------------------
<S> <C>
He has been a member of the adviser since 1993
- ------------------------------------------------------------------------------------------------------
Kermit S. Eck B.S., Montana State University.
Principal M.B.A., Stanford University.
He is a Chartered Financial Analyst and has been a member of the
firm since 1993.
- ------------------------------------------------------------------------------------------------------
James R. Norris B.A.S., Guilford College.
Principal M.B.A., University of North Carolina.
Mr. Norris joined the adviser in March 1998. Mr. Norris was
co-chief Investment Officer from September 1997 to March 1998 at
Sturdivant & Co. From May 1998 to September 1997, he was a Senior
Vice President of Equity Portfolio Management at Sterling capital
Management.
- ------------------------------------------------------------------------------------------------------
Mehul Trivedi B.S. and B.A., University of Pennsylvania.
Research Associate M.B.A., The Wharton School of Business, University of Pennsylvania.
</TABLE>
SHAREHOLDER SERVICING ARRANGEMENTS
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICING
Certain financial intermediaries (service agents) may charge their clients
account fees for buying or redeeming shares of the UAM Funds. These fees may
include transaction fees and/or service fees paid by the UAM Funds from their
assets attributable to the service agent. The UAM Funds do not pay these fees
on shares purchased directly from UAM Fund Distributors. The service agents
may provide shareholder services to their clients that are not available to a
shareholder dealing directly with the UAM Funds. Each service agent is
responsible for transmitting to its clients a schedule of any such fees and
information regarding any additional or different purchase or redemption
conditions. You should consult your service agent for information regarding
these fees and conditions.
The adviser may pay its affiliated companies for referring investors to the
portfolio. The adviser and its affiliates may, at their own expense, pay
qualified service providers for marketing, shareholder servicing, record-
keeping and/or other services performed with respect to the portfolios.
UAM Fund Distributors, the adviser and certain of their other affiliates also
participate, as of the date of this prospectus, in an arrangement with Salomon
Smith Barney under which Salomon Smith Barney provides certain defined
contribution plan marketing and shareholder services and receives 0.15% of the
portion of the daily net asset value of Institutional Class Shares held by
Salomon Smith Barney's eligible customer accounts in addition to amounts
payable to all selling dealers. The UAM Funds also compensate Salomon Smith
Barney for services it provides to certain defined contribution plan
shareholders that are not otherwise provided by the UAM Funds' administrator.
The UAM Funds also offer Institutional Service Class shares, which pay
marketing or shareholder servicing fees, and Adviser Class shares, which
impose a sales load and fees for marketing and shareholder servicing, for
certain of its portfolios. Not all of the UAM Funds offer all of these
classes.
18
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
financial performance of each portfolio for the past five years. The financial
highlights table comes from the financial statements of the portfolio and
reflects the financial results for a single portfolio share. The total returns
in the table represent the rate that an investor would have earned on an
investment in the portfolio (assuming reinvestment of all dividends and
distributions). PricewaterhouseCoopers LLP has audited the financial
statements of the portfolio and the financial statements and the unqualified
opinion of PricewaterhouseCoopers, LLP are included in the annual report of
the portfolios, which is available upon request.
C & B EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal Year Ended October 31, 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 17.89 $ 15.68 $ 13.13 $ 13.06
- -------------------------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 0.25 0.36 0.34 0.31
Net Gains or Losses on
Securities (Realized and
Unrealized) 3.82 2.94 2.55 0.28
- -------------------------------------------------------------------------------------------------
Total From Investment
Operations 4.07 3.30 2.89 0.59
- -------------------------------------------------------------------------------------------------
Less Distributions
Net Investment Income (0.26) (0.35) (0.34) (0.30)
Capital Gains (4.99) (0.74) -- (0.18)
- -------------------------------------------------------------------------------------------------
In Excess of Net Realized Gain -- -- -- (0.04)
- -------------------------------------------------------------------------------------------------
Total Distributions (5.25) (1.09) (0.34) (0.52)
- -------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 16.71 $ 17.89 $ 15.68 $ 13.13
=================================================================================================
Total Return+ 30.43% 21.99% 22.28% 4.67%
=================================================================================================
Ratios/Supplemental Data
Net Assets, End of Year
(Thousands) $ 149,848 $ 169,044 $ 245,813 $ 208,937
Ratio of Expenses to Average
Net Assets 0.83% 0.81% 0.79% 0.82%
Ratio of Net Investment Income to Average
Net Assets 1.47% 1.92% 2.35% 2.39%
Portfolio Turnover Rate 55% 29% 42% 46%
Ratio of Expenses to Average
Net Assets Including Expense
Offsets 0.83% 0.80% 0.78% --
</TABLE>
+ Total return would have been lower had certain fees not been waived and
assumed during the periods indicated.
19
<PAGE>
C & B EQUITY PORTFOLIO FOR TAXABLE INVESTORS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal Year Ended October 31, 1998 1997#
-------------------------------------------------------------
<S> <C>
Net Asset Value, Beginning of Year $10.00
-------------------------------------------------------------
Income from Investment Operations
Net Investment Income 0.11
Net Gains or Losses on Securities
(Realized and Unrealized) 1.44
-------------------------------------------------------------
Total From Investment Operations 1.55
-------------------------------------------------------------
Less Distributions
Net Investment Income (0.10)
-------------------------------------------------------------
Total Distributions (0.10)
-------------------------------------------------------------
Net Asset Value, End of Year $11.45
=============================================================
Total Return+ $15.54%**
=============================================================
Ratios/Supplemental Data
Net Assets, End of Year (Thousands) $993
Ratio of Expenses to Average Net Assets 1.00%*
Ratio of Net Investment Income to Average Net 1.57%
Assets
Portfolio Turnover Rate 3%
Ratio of Voluntarily Waived Fees and
Expenses Assumed by the Adviser to
Average Net Assets 17.45%*
Ratio of Expenses to Average Net Assets 1.00%*
Including Expense Offsets
</TABLE>
C & B BALANCED PORTFOLIO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal Year Ended October 31, 1998 1997 1996 1995 1994
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $12.94 $13.13 $11.86 $12.68
-----------------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 0.42 0.45 0.52 0.48
Net Gains or Losses on Securities
(Realized and Unrealized) 1.98 1.29 1.51 (0.39)
-----------------------------------------------------------------------------------------
Total From Investment Operations 2.40 1.74 2.03 0.09
-----------------------------------------------------------------------------------------
Less Distributions
Net Investment Income (0.44) (0.45) (0.52) (0.47)
Capital Gains (1.15) (1.48) (0.24) (0.44)
-----------------------------------------------------------------------------------------
Total Distributions (1.59) (1.93) (0.76) (0.91)
-----------------------------------------------------------------------------------------
Net Asset Value, End of Period $13.75 $12.94 $13.13 $11.86
=========================================================================================
Total Return+ 20.39% 14.70% 17.83% 0.74%
=========================================================================================
Ratios/Supplemental Data
Net Assets, End of Year (Thousands) $24,066 $22,629 $24,146 $32,077
Ratio of Expenses to Average Net
Assets 1.00% 1.00% 1.00% 1.00%
Ratio of Net Investment Income to Average Net
Assets 3.20% 3.51% 3.80% 3.84%
Portfolio Turnover Rate 35% 21% 22% 24%
Ratio of Voluntarily Waived Fees
and Expenses Assumed BY the
Adviser to Average Net Assets 0.24% 0.29% 0.03% 0.01%
Ratio of Expenses to Average Net
Assets Including Expense Offsets 1.00% 1.00% 1.00% --
</TABLE>
# For the period February 12, 1997 (commencement of operations) to
October 31, 1997
+ The turnover rate is higher than normally anticipated due to increased
shareholder activity within the portfolio.
* Annualized.
** Not Annualized.
<PAGE>
THE C & B PORTFOLIOS
For investors who want more information about the C & B Portfolios, the
following documents are available upon request.
ANNUAL/SEMI-ANNUAL REPORTS
The annual and semi-annual reports of C & B Portfolios provide additional
information about their investments. In each annual report, you will also
find a discussion of the market conditions and investment strategies that
significantly affected the performance of the C & B Portfolios during the last
fiscal year.
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains additional detailed information about the C & B Portfolios
and is incorporated by reference into (legally part of) this prospectus.
Investors can receive free copies of these materials, request other
information about the portfolios and make shareholder inquiries by writing to
or calling UAM Fund Service Center at:
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
You can review, for a fee, the reports of the portfolio and SAI by writing to
the SEC's Public Reference Section, D.C. 20549-6009, or by calling the SEC at
1-800-SEC-0330. You can get copies of this information for free, on the SEC's
Internet site at http://www.sec.gov.
------------------
The portfolio's Investment Company Act of 1940 filr is 811-5683.
[LOGO OF UAM APPEARS HERE]
<PAGE>
UAM FUNDS
Funds for the Informed Investor
THE DSI PORTFOLIOS
Institutional Class Prospectus , 199_
DSI Small Cap Value Portfolio
DSI Disciplined Value Portfolio
DSI Balanced Portfolio
DSI Limited Maturity Bond Portfolio
DSI Money Market Portfolio
[LOGO]
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PORTFOLIO SUMMARY.......................................................... 1
What are the Objectives of the Portfolios?.............................. 1
What are the Principal Investment Strategies of the Portfolios?......... 1
What are the Principal Risks of the PortfolioS.......................... 2
How have the Portfolios Performed?...................................... 4
What are the Portfolios' Fees and Expenses?............................. 5
INVESTING WITH THE UAM FUNDS............................................... 7
Buying Shares........................................................... 7
Redeeming Shares........................................................ 8
Exchanging Shares....................................................... 8
Transaction Policies.................................................... 8
ACCOUNT POLICIES........................................................... 11
Small Accounts.......................................................... 11
Distributions........................................................... 11
Federal Taxes........................................................... 11
FUND DETAILS............................................................... 13
Principal Investments and Risks of The Portfolios....................... 13
Other Investment Practices and Strategies............................... 15
Year 2000............................................................... 17
Investment Management................................................... 17
Shareholder Servicing Arrangements...................................... 21
FINANCIAL HIGHLIGHTS....................................................... 22
DSI Disciplined Value Portfolio......................................... 22
DSI Limited Maturity Bond Portfolio..................................... 23
DSI Money Market Portfolio.............................................. 23
</TABLE>
<PAGE>
PORTFOLIO SUMMARY
WHAT ARE THE OBJECTIVES OF THE PORTFOLIOS?
- ---------------------------------------------------------------------------
Listed below are the investment objectives of the DSI Portfolios. The DSI
Portfolios cannot guarantee they will meet their investment objectives. Only
DSI Small Cap Value Portfolio may change its investment objective without
shareholder approval.
DSI SMALL CAP VALUE PORTFOLIO
DSI Small Cap Value Portfolio seeks maximum capital appreciation consistent
with reasonable risk to principal by investing in primarily smaller
capitalized companies.
DSI DISCIPLINED VALUE PORTFOLIO
DSI Disciplined Value Portfolio seeks maximum long-term total return
consistent with reasonable risk to principal through diversified equity
investments.
DSI BALANCED PORTFOLIO
DSI Balanced Portfolio seeks maximum long-term capital growth consistent with
reasonable risk to principal by investing in a diversified portfolio of
equity, primarily investment-grade debt and money market securities.
DSI LIMITED MATURITY BOND PORTFOLIO
DSI Limited Maturity Bond Portfolio seeks maximum total return consistent with
reasonable risk to principal by investing in investment-grade debt securities
DSI MONEY MARKET PORTFOLIO
DSI Money Market Portfolio seeks maximum current income consistent with the
preservation of capital and liquidity by investing in short-term investment-
grade money market obligations issued or guaranteed by financial institutions,
nonfinancial corporations, and the U.S. government, as well as repurchase
agreements collateralized by such securities.
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE PORTFOLIOS?
- ---------------------------------------------------------------------------
The following is a brief description of the principal investment strategies
of the DSI Portfolios. For more information see "PRINCIPAL INVESTMENTS AND
RISKS OF THE PORTFOLIOS."
1
<PAGE>
DSI SMALL CAP VALUE PORTFOLIO
Normally, DSI Small Cap Value Portfolio invests at least 65% of its assets in
equity securities of companies whose market capitalization falls within the
range of the Russell 2000 Index.
DSI DISCIPLINED VALUE PORTFOLIO
DSI Disciplined Value Portfolio invests primarily in common stocks of mid to
large market capitalization companies. The adviser selects securities for the
portfolios using a bottom-up selection process that focuses upon stocks of
statistically undervalued yet sound companies that are likely to show
improving fundamental prospects. The adviser looks for companies that possess
an identifiable catalyst for change.
DSI LIMITED MATURITY BOND PORTFOLIO
DSI Limited Maturity Bond Portfolio invests primarily in investment-grade debt
securities. The adviser expects to manage the portfolio actively by
identifying sectors or securities in the market that are inefficiently valued.
The portfolio will maintain an average weighted maturity of less than six
years.
DSI BALANCED PORTFOLIO
DSI Balanced Portfolio utilizes the equity and debt strategies described
above. The portfolio typically invests 60% of its assets in equity securities
and 40% in debt securities.
DSI Money Market Portfolio
DSI Money Market Portfolio invests in high quality short-term instruments that
(1) the adviser has determined present minimal credit risks and (2) are
eligible securities under Rule 2a-7 of the Investment Company Act of 1940 at
the time of acquisition. The portfolio is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the portfolio seeks to preserve the value of your investment at $1.00
per share, it is possible to lose money by investing in the portfolio.
WHAT ARE THE PRINCIPAL RISKS OF THE PORTFOLIOS
- ----------------------------------------------
The following is a summary of the principal risks associated with investing in
the portfolios. For more information see "PRINCIPAL INVESTMENTS AND RISKS OF
THE PORTFOLIOS."
RISKS COMMON TO ALL MUTUAL FUNDS
At any time, your investment in a mutual fund may be worth more or less than
the price you originally paid for it. You may lose money by investing in any
mutual fund because:
. The value of the securities it owns changes, sometimes rapidly and
unpredictably.
2
<PAGE>
. The mutual fund is not successful in reaching its goal because of its
strategy or because it did not implement its strategy properly.
. Unforeseen occurrences in the securities markets negatively affect the
mutual fund.
DSI DISCIPLINED VALUE AND SMALL CAP VALUE PORTFOLIOS
Since the portfolios invest mainly in equity securities, their principal risks
are those of investing in equity securities, which may include sudden,
unpredictable drops in value or long periods of decline in value. Equity
securities may lose value because of factors affecting the securities markets
generally, an entire industry or a particular company.
DSI Disciplined Value and Small Cap Value Portfolios are value oriented and
may not perform as well as certain other types of equity mutual funds during
periods when value stocks are out of favor.
Investors in DSI Small Cap Value Portfolio take on additional risks that come
with investing in stocks of smaller companies, which can be riskier than
investing in larger, more mature companies. Smaller companies may be more
vulnerable to adverse developments than larger companies because they tend to
have more narrow product lines and more limited financial resources. Their
stocks may trade less frequently and in limited volume.
DSI LIMITED MATURITY
Since the portfolio invests in debt securities, the value of its investments
could fall because:
. Of market conditions and economic and political events.
. Interest rates rise, which tends to cause the value of debt securities to
fall.
. A security's credit rating worsens or its issuer becomes unable to honor
its financial obligations.
DSI BALANCED PORTFOLIO
To the extent DSI Balanced Portfolio invests in equity and debt securities,
its shareholders will take on the risks that come with investing in those
types of securities. Investors also run the risk that the portfolio will be
more heavily invested in one type of security when it would be better to
invest in the other type of security.
DSI MONEY MARKET PORTFOLIO
The portfolio invests primarily in debt securities. Therefore, the value of
your investment may decline because of a change in interest rates or a default
on a security. The rate of income of the portfolio will vary from day to day
depending on short-term interest rates. The portfolio seeks to maintain a
stable net asset value (NAV) of $1.00 per share, but cannot guarantee that it
you will not lose money.
3
<PAGE>
HOW HAVE THE PORTFOLIOS PERFORMED?
- ---------------------------------------------------------------------------
The bar charts and tables below illustrate how the performance of the
portfolios has varied from year to year. The following bar charts show the
investment returns of each portfolio since its inception. The table following
each bar chart compares each portfolio's average annual returns for the
periods indicated to those of a broad-based securities market index. Past
performance does not guarantee future results.
DSI DISCIPLINED VALUE PORTFOLIO
[GRAPH APPEARS HERE]
*From the portfolio's inception (12/12/89) through 12/31/89.
Highest quarter: __.__% (___ quarter 199-). Lowest quarter: -__.__% (___
quarter 199-.
Since
Average annual return for periods ended 12/31/98 1 Year 5 Years Inception
==============================================================================
DSI Disciplined Value Portfolio
- ------------------------------------------------------------------------------
Benchmark
DSI LIMITED MATURITY BOND PORTFOLIO
[GRAPH APPEARS HERE]
*From the portfolio's inception (12/12/89) through 12/31/89.
Highest quarter: __.__% (___ quarter 199-). Lowest quarter: -__.__% (___
quarter 199-).
Average annual return for periods ended 12/31/98 1 Year 5 Years Since
Inception
==============================================================================
DSI Limited Maturity Bond Portfolio
- ------------------------------------------------------------------------------
Benchmark
4
<PAGE>
DSI Balanced Portfolio
Set forth below is the return of DSI Balanced Portfolio since its inception
compared to that of _________ for the same period. The information provides
some indication of the risks of investing in the portfolio by comparing its
performance with a broad measure of market performance.
Average annual return for periods ended 12/31/98 1 Year Since Inception
=============================================================================
DSI Balanced Portfolio
- -----------------------------------------------------------------------------
Benchmark
DSI MONEY MARKET PORTFOLIO
[GRAPH APPEARS HERE]
*From the portfolio's inception (3/22/96) through 12/31/96.
Highest quarter: __.__% (___ quarter 199-). Lowest quarter: -__.__% (___
quarter 199-).
For the period ended December 31, 1998, the 7-day yield of the portfolio was
____%.
WHAT ARE THE PORTFOLIOS' FEES AND EXPENSES?
- -----------------------------------------------------------------------------
Annual Fund Operating Expenses (Expenses That Are Deducted From the Assets of a
Portfolio)
This table describes the fees and expenses that you may pay if you buy and
hold shares of a portfolio. This table is presented in the format required by
the Securities and Exchange Commission (SEC) and may not reflect the actual
expenses you would have paid as a shareholder in the portfolios.
<TABLE>
<CAPTION>
DSI
DSI Limited DSI
DSI Small Disciplined Maturity DSI Money
Cap Value Value Bond Balanced Market
Portfolio Portfolio Portfolio Portfolio Portfoliio
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Management fees
- --------------------------------------------------------------------------------
Other Expenses
- --------------------------------------------------------------------------------
Total Expenses
================================================================================
</TABLE>
5
<PAGE>
ACTUAL FEES AND EXPENSES
The ratios stated in the table are higher than the expenses you would have
actually paid as an investor in these portfolios. Due to certain expense
limits by the adviser and expense offsets, investors in the portfolios
actually paid the following total operating expenses during the fiscal year
ended October 31, 1998:
<TABLE>
<CAPTION>
DSI
DSI Limited
DSI Small Disciplined Maturity DSI Money
Cap Value Value Bond DSI Balanced Market
Portfolio Portfolio Portfolio Portfolio Portfolio
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ACTUAL EXPENSES
===============================================================================
</TABLE>
EXAMPLE
This example can help you to compare the cost of investing in these portfolios
to the cost of investing in other mutual funds. It assumes that you invest
$10,000 in a portfolio for the periods shown and then redeem all of your
shares at the end of those periods. It also assumes a 5% return on your
investment each year and that the portfolio's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
DSI
DSI Limited
DSI Small Disciplined Maturity DSI Money
Cap Value Value Bond DSI Balanced Market
Portfolio Portfolio Portfolio Portfolio Portfolio
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year
- -------------------------------------------------------------------------------
3 Years
- -------------------------------------------------------------------------------
5 Years
- -------------------------------------------------------------------------------
10 Years
- -------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
INVESTING WITH THE UAM FUNDS
BUYING SHARES
- --------------------------------------------------------------------------
TO OPEN AN ACCOUNT TO BUY MORE SHARES
---------------------------------------------------------------------
By Mail Send a check or Send a check and, if
money order and possible, the "Invest
your account by Mail" stub that
application to the accompanied your
UAM Funds. Make statement to the UAM
checks payable to Funds. Be sure your
"UAM Funds" (the check identifies
UAM Funds will not clearly your name,
accept third-party account number and the
checks). portfolio into which
you want to invest.
---------------------------------------------------------------------
By Wire Call the UAM Funds Call the UAM Funds to
for an account get a wire control
number and wire number and wire your
control number and money to the UAM Funds.
then send your
completed account
application to the
UAM Funds.
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: portfolio
name/account number/
account name/wire
control number
---------------------------------------------------------------------
By Automatic Not Available To set up a plan, mail
Investment a completed application
Plan (Via ACH) to the UAM Funds. To
cancel or change a
plan, write to the UAM
Funds. Allow up to 15
days to create the plan
and 3 days to cancel or
change it.
---------------------------------------------------------------------
Minimum $2,500, except $100
Investments IRAs ($500) and
spousal IRAs ($250)
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
7
<PAGE>
REDEEMING SHARES
- ------------------------------------------------------------------
By Mail Send a letter signed by all registered
parties on the account to UAM Funds
specifying the portfolio, the account
number and the dollar amount or number of
shares you wish to redeem. Certain
shareholders may have to include additional
documents.
----------------------------------------------------------------
By Telephone You must first establish the telephone
redemption privilege (and, if desired, the
wire redemption privilege) by completing
the appropriate sections of the account
application.
Call 1-877-UAM-Link to redeem your shares.
Based on your instructions, the UAM Funds
will mail your proceeds to you or wire them
to your bank.
----------------------------------------------------------------
By If your account balance is at least
Systematic $10,000, you may transfer as little as $100
Withdrawal per month from your UAM account to your
Plan (Via ACH) financial institution.
To participate in this service, you must
complete the appropriate sections of the
account application and mail it to the UAM
Funds.
EXCHANGING SHARES
- ------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for
shares of the same class of any other UAM Fund by writing
to or calling the UAM Funds. Before exchanging your
shares, read the prospectus of the UAM Fund for which you
want to exchange, which you may obtain from the UAM Funds.
You may not exchange shares represented by certificates
over the telephone. You may only exchange shares between
accounts with identical registrations (i.e., the same
names and addresses).
TRANSACTION POLICIES
- ------------------------------------------------------------------
CALCULATING YOUR SHARE PRICE
You may buy, sell or exchange shares of a UAM Fund at a
price equal to its net asset value (NAV) next computed
after it receives your order. The portfolios calculate
their NAVs as of the close of trading on the New York
Stock Exchange (NYSE) (generally 4:00 p.m. Eastern Time)
on each day the NYSE is open. To receive the NAV of DSI
Money Market Portfolio on any given day, the UAM Funds
must accept your order by 12:00 noon (Eastern Time).. To
receive the NAV of any other portfolio on any given day,
the UAM Funds must accept your order by the close of
trading on the NYSE that day. Otherwise, you will receive
the NAV that is calculated on the close of trading on the
following day. The UAM Funds are open for business on the
same days as the NYSE, which is closed on weekends and
certain holidays.
8
<PAGE>
BUYING OR SELLING SHARES THROUGH A FINANCIAL INTERMEDIARY
You may buy, exchange or redeem shares of the UAM Funds through a financial
intermediary (such as a financial planner or adviser). Generally, to buy or
sell shares at the NAV on any given day, your financial intermediary must
receive your order by the close of trading on the NYSE that day. Your
financial intermediary is responsible for transmitting all subscription and
redemption requests, investment information, documentation and money to the
UAM Funds on time.
Certain financial intermediaries have agreements with the UAM Funds that allow
them to enter confirmed purchase or redemption orders on behalf of clients and
customers. Under this arrangement, the financial intermediary must send your
payment to the UAM Funds by the time they price their shares on the following
day. If your financial intermediary fails to do so, it may be responsible for
any resulting fees or losses.
CALCULATING NAV
The UAM Funds calculate their NAV by adding the total value of their assets,
subtracting their liabilities and then dividing the result by the number of
shares outstanding. The UAM Funds value their investments with readily
available market quotations at market value. Investments that do not have
readily available market quotations are valued at fair value, according to
guidelines established by the UAM Funds. The UAM Funds may also value
securities at fair value when events occur that make established valuation
methods (such as stock exchange closing prices) unreliable. The UAM Funds
value debt securities that will mature in 60 days or less amortized cost,
which approximates market value. DSI Money Market Portfolio values its assets
at amortized cost.
IN-KIND TRANSACTIONS
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares of a portfolio with securities instead of cash. In addition, the UAM
Funds may pay all or part of your redemption proceeds with securities instead
of cash.
PAYMENT OF REDEMPTION PROCEEDS
The UAM Funds will pay for all shares redeemed within seven days after they
receive a redemption request in proper order. If you redeem shares that were
purchased by check, you will not receive your redemption proceeds until the
check has cleared, which may take up to 15 days. You may avoid these delays
by paying for shares with a certified check, bank check or money order.
SIGNATURE GUARANTEE
You must have your signature guaranteed when (1) you want the proceeds from
your redemption sent to a person or address different from that registered on
the account, or (2) you request a transfer of your shares.
9
<PAGE>
You may obtain a signature guarantee from most banks, savings institutions,
securities dealers, national securities exchanges, registered securities
associations, clearing agencies and other guarantor institutions. A notary
public cannot guarantee a signature.
TELEPHONE TRANSACTIONS
The UAM Funds will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine; they may be liable for any losses if
they fail to do so. The UAM Funds will be responsible for any loss, liability,
cost or expense for following instructions received by telephone that it
reasonably believes to be genuine.
RIGHTS RESERVED BY THE UAM FUNDS
PURCHASES
At any time and without notice, the UAM Funds may:
. Stop offering shares of a portfolio.
. Reject any purchase order.
. Bar an investor engaged in a pattern of excessive trading from buying
shares of any portfolio. (Excessive trading can hurt the performance of a
portfolio by disrupting its management and by increasing its expenses.)
REDEMPTIONS
The UAM Funds may suspend your right to redeem if:
. An emergency exists and a portfolio cannot dispose of its investments or
fairly determine their value.
. Trading on the NYSE is restricted.
. The SEC tells the UAM Funds to delay redemptions.
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail.
EXCHANGES
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders.
. Reject any request for an exchange.
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
10
<PAGE>
ACCOUNT POLICIES
SMALL ACCOUNTS
- --------------------------------------------------------------------------------
The UAM Funds may redeem your shares without your permission if the value of
your account falls below 50% of the required minimum initial investment, but
not because of a drop in the value of your shares caused by market
fluctuations. This provision does not apply to retirement accounts and certain
other accounts.
DISTRIBUTIONS
- --------------------------------------------------------------------------------
DSI Money Market Portfolio declares daily and distributes monthly its net
investment income. The other DSI Portfolios normally distribute their net
investment income monthly. In addition, all of the DSI Portfolios distribute
any net capital gains once a year. The UAM Funds will automatically reinvest
dividends and distributions in additional shares of the portfolio, unless you
elect on your account application to receive them in cash.
FEDERAL TAXES
- --------------------------------------------------------------------------------
The following is a summary of the federal income tax consequences of investing
in these portfolios. You may also have to pay state and local taxes on your
investment. You should always consult your tax advisor for specific guidance
regarding the tax effect of your investment in the UAM Funds.
TAXES ON DISTRIBUTIONS
The distributions of the portfolios will generally be taxable to shareholders
as ordinary income or capital gains (which may be taxable at different rates
depending on the length of time the portfolio held the relevant assets). You
will be subject to income tax on these distributions regardless of whether
they are paid in cash or reinvested in additional shares. Once a year UAM
Funds will send you a statement showing the types and total amount of
distributions you received during the previous year.
You should note that if you purchase shares just before a distribution, the
purchase price would reflect the amount of the upcoming distribution. In this
case, you would be taxed on the entire amount of the distribution received,
even though, as an economic matter, the distribution simply constitutes a
return of your investment. This is known as "buying into a dividend" and
should be avoided.
TAXES ON EXCHANGES AND REDEMPTIONS
When you redeem or exchange shares in any portfolio, you may recognize a gain
or loss for income tax purposes. This gain or loss will be based on the
difference between your tax basis in the shares and the amount you receive for
11
<PAGE>
them. (To aid in computing your tax basis, you generally should retain your
account statements for the periods during which you held shares.) Any loss
realized on shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividends that were received
with respect to the shares.
The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other tax-
qualified plan) will not be currently taxable, but they may be taxable at some
time in the future.
To the extent a portfolio invests in foreign securities, it may be subject to
foreign withholding taxes with respect to dividends or interest the portfolios
received from sources in foreign countries. The portfolios may elect to treat
some of those taxes as a distribution to shareholders, which would allow
shareholders to offset some of their U.S. federal income tax.
BACKUP WITHHOLDING
By law, the UAM Funds must withhold 31% of your distributions and proceeds if
you have not provided complete, correct taxpayer information.
12
<PAGE>
FUND DETAILS
PRINCIPAL INVESTMENTS AND RISKS OF THE PORTFOLIOS
- --------------------------------------------------------------------------------
The following is a brief description of the principal investment strategies
the DSI Portfolios may employ in seeking their objectives. This discussion is
in addition to the discussion set forth in the "PORTFOLIO SUMMARY." For more
information concerning these investment practices and their associated risks,
please read the "PORTFOLIO SUMMARY" and the statement of additional
information (SAI). You can find information on the portfolio's recent
strategies and holdings in its current annual/semiannual report. The portfolio
may change these strategies without shareholder approval.
DSI SMALL CAP VALUE AND DSI DISCIPLINED VALUE PORTFOLIOS
DSI Small Cap Value Portfolio normally invests at least 65% of its assets in
equity securities of companies whose market capitalization falls within the
range of the Russell 2000 Index. DSI Disciplined Value Portfolio invests
primarily in common stocks of mid to large market capitalization companies.
DSI Disciplined Value Portfolio maintains a high degree of diversification
generally with a representation in all of the Standard & Poor's 500 Composite
Price Stock Index economic sectors. DSI Disciplined Value Portfolio normally
invests at least 80% of its assets in equity securities.
The adviser selects securities for the portfolios using a bottom-up selection
process that focuses upon stocks of statistically undervalued yet sound
companies that are likely to show improving fundamental prospects with an
identifiable catalyst for change. The catalysts may include any of the
following: improving fundamentals; a new product; new management; industry or
company restructuring; a strategic acquisition; regulatory changes, etc. Using
quantitative screening parameters such as relative price/ earnings ratio,
relative dividend yield, relative price to book ratio, debt-adjusted price to
sales and other financial ratios, the advisor identifies potentially
undervalued securities. These securities are also screened by "earnings per
share" revisions, which measure the change in earnings estimate expectations.
The adviser additionally narrows the list of stocks using fundamental security
analysis, which may include on-site visits, outside research and analytical
judgment. As market timing is not an important part of the adviser's
investment strategy, cash reserves will normally represent a small portion of
the portfolio's assets (under 20%).
RISKS OF EQUITY INVESTING
Equity securities may lose value because of factors affecting the securities
markets generally, such as adverse changes in economic conditions, the general
outlook for corporate earnings, interest rates or investor sentiment. These
circumstances may lead to long periods of poor performance, such as during a
"bear market." Equity securities may also lose value because of
13
<PAGE>
factors affecting an entire industry, such as increases in production costs,
or factors directly related to that company, such as decisions made by its
management.
Undervalued companies may have experienced adverse business developments or
other events that have caused their stocks to be out of favor. If the
adviser's assessment of a company is wrong, or if the market does not
recognize the value of the company, the price of its stock may fail to meet
expectations and the portfolio's share price may suffer. A value-oriented
portfolio may not perform as well as certain other types of mutual funds
during periods when value stocks are out of favor.
DSI LIMITED MATURITY BOND PORTFOLIO
DSI Limited Maturity Bond Portfolio seeks to achieve its objective by
investing primarily in investment-grade debt securities,. Debt securities are
securities issued by the U.S. government and its agencies, corporate debt
securities, mortgage-backed and asset-backed securities, Yankee bonds,
commercial paper and certificates of deposit. These securities may have
varying interest rate schedules and maturities (dates when debt securities are
due and payable). Asset-backed and mortgage-backed securities are securities
that are backed by pools of loans or mortgages assembled for sale to investors
by various governmental agencies and private issuers. Mortgage-backed
securities may generally take two forms: pass-throughs and collateralized
mortgage obligations (CMOs).
The portfolio will only invest in municipal bonds when the expected return is
higher than or equivalent to a taxable investment. The portfolio normally
invests at least 80% of its assets in debt securities.
The adviser intends to invest the assets of the portfolio in the investment-
grade debt securities described above. It may also invest up to 10% of the
assets of the portfolio in below investment-grade debt securities, preferred
stocks and convertible securities. In the case of convertible securities, the
portfolio may exercise the conversion privilege, but will sell the common
stocks its receives. The adviser expects to manage the portfolio actively by
identifying sectors or securities in the market that are inefficiently valued.
The portfolio will maintain an average weighted maturity of less than six
years.
RISKS OF INVESTING IN DEBT SECURITIES
The value of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up the value of the bond will go
down, and vice versa). Interest rate changes may cause people to pay off
mortgage-backed and asset-backed securities earlier or later than expected,
which may shorten or lengthen the average maturity. Variations to average
maturity may cause the portfolio's share price and yield to fall.
The credit rating or financial condition of an issuer may affect the value of
a debt security. Generally, the lower the quality rating of a security, the
greater the risks that the issuer will fail to pay interest and return
principal. To compensate investors for taking on increased risk, issuers with
lower credit
14
<PAGE>
ratings usually offer their investors higher interest rates. If an issuer
defaults or becomes unable to honor its financial obligations, the bond may
lose some or all of its value.
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade. The adviser may retain securities that are downgraded, if
it believes that keeping those securities is warranted.
DSI BALANCED PORTFOLIO
DSI Balanced Portfolio seeks to achieve its objective by investing in a
diversified portfolio of equity, primarily investment-grade debt and money
market securities. It is designed to provide shareholders with a single
vehicle with which to participate in the adviser's equity and debt strategies
combined with the adviser's asset allocation decisions.
The portfolio normally invests 40%-75% of its assets in equity securities, 25%
to 60% of its assets in debt-securities and up to 25% in cash and cash
equivalents. Within those ranges, the adviser can vary the composition of the
portfolio as and on average intends to invest 60% of its assets in equity
securities and 40% in debt securities. The portfolio will invest at least 25%
of its total assets in senior debt securities, including preferred stock. The
debt portion of the portfolio will ordinarily maintain an average weighted
maturity of between 3 and 10 years and average duration of between 4 and 7
years.
Equity, debt and money market securities are selected using approaches similar
to those set forth above for DSI Disciplined Value, Limited Maturity Bond and
Money Market Portfolios.
DSI MONEY MARKET PORTFOLIO
DSI Money Market Portfolio invests in securities that (1) the adviser has
determined present minimal credit risks and (2) are eligible securities under
Rule 2a-7 of the Investment Company Act of 1940 at the time of acquisition.
The portfolio will also comply with the diversification requirements of Rule
2a-7. Consequently, the portfolio presently invests in instruments that
mature within 397 days and maintain an average weighted maturity of 90 days or
less. The portfolio will invest in U.S. dollar-denominated certificates of
deposit, and bankers' acceptances, commercial paper (including variable amount
master demand notes), short-term corporate obligations, U.S. government
securities, and repurchase agreements.
OTHER INVESTMENT PRACTICES AND STRATEGIES
- --------------------------------------------------------------------------------
As described below, the portfolios may invest in derivatives and may deviate
from their investment strategies from time to time. In addition, they may
employ investment practices that are not described in this prospectus, such as
15
<PAGE>
repurchase agreements, when-issued and forward commitment transactions,
lending of securities, borrowing and other techniques. For more information
concerning the risks associated with these investment practices, you should
read the SAI.
FOREIGN INVESTMENTS
Each portfolio will invest the majority of its assets in U.S. dollar
denominated securities; however, using the same credit quality standards
applied to domestic securities each portfolio, except DSI Money Market
Portfolio, also may invest in foreign securities. Foreign securities,
especially those of companies in emerging markets, can be riskier and more
volatile than domestic securities. Adverse political and economic
developments or changes in the value of foreign currency can make it harder
for a portfolio to sell its securities and could reduce the value of your
shares. Changes in tax and accounting standards and difficulties obtaining
information about foreign companies can negatively affect investment
decisions.
In January 1999, the new European common currency, called the Euro, will begin
being used. The nations that use the Euro will have the same monetary policy
regardless of their domestic economy, which could have adverse effects on
those economies. In addition, the method by which the conversion to the Euro
is implemented could negatively affect the investments of a portfolio.
DERIVATIVES
Each portfolio, except DSI Money Market Portfolio, may buy and sell
derivatives, including futures and options. Derivatives are often more
volatile than other investments and may magnify a portfolio's gains or losses.
A portfolio may lose money if the adviser:
. Fails to predict correctly the direction in which the underlying asset or
economic factor will move.
. Judges market conditions incorrectly.
. Employs a strategy that does not correlate well with the investments of the
portfolio.
SHORT-TERM INVESTING
At times, the adviser may decide to suspend the normal investment activities
of a portfolio by investing up to 100% of its assets in a variety of
securities, such as U.S. government and other high quality and short-term debt
obligations. The adviser may temporarily adopt a defensive position to reduce
changes in the value of a portfolio's shares that may result from adverse
market, economic, political or other developments.
When the adviser pursues a defensive strategy, a portfolio may not profit from
favorable developments that it would have otherwise profited from if it were
pursuing its normal strategies. Likewise, these strategies may prevent a
portfolio from achieving its stated objectives.
16
<PAGE>
PORTFOLIO TURNOVER
The portfolios may buy and sell investments relatively often. Such a
strategy often involves higher expenses, including brokerage commissions,
and may increase the amount of capital gains (and, in particular, short-
term gains) realized by a portfolio. Shareholders must pay tax on such
capital gains.
YEAR 2000
- --------------------------------------------------------------------------------
Many computer programs in use today cannot distinguish the year 2000 from
the year 1900 because of the way they encode and calculate dates.
Consequently, these programs may not be able to perform necessary functions
and could disrupt the operations of the UAM Funds or financial markets in
general. The year 2000 issue affects all companies and organizations,
including those that provide services to the UAM Funds and those in which
the UAM Funds invest.
The UAM Funds and their advisers, administrator, distributor and transfer
agent are taking steps they believe are reasonably necessary to address any
portfolio-related year 2000-related computer problems. They are actively
working on necessary changes to their own computer systems to prepare for
the year 2000 and expect that their systems will be adapted before that
date. They are also requesting information on each service provider's
state of readiness and contingency plan. However, at this time the degree
to which the year 2000 issue will affect the UAM Funds' investments or
operations cannot be predicted. Any negative consequences could adversely
affect your investment in the UAM Funds.
INVESTMENT MANAGEMENT
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Dewey Square Investors Corporation, located at One Financial Center,
Boston, Massachusetts 02111, is the investment adviser to each of the
portfolios. The adviser manages and supervises the investment of the
portfolio's assets on a discretionary basis. The adviser, an affiliate of
United Asset Management Corporation, has provided investment management
services to corporations, foundations, endowments, pension and profit
sharing plans, trusts, estates and other institutions and individuals since
1984.
The adviser has voluntarily agreed to limit the expenses of these
portfolios. To maintain this expense limit, the adviser may waive a portion
of its advisory fee and/or reimburse certain expenses of the portfolios.
The adviser intends to continue its expense limitation until further
notice. Set forth below are the expense limits of the portfolios and the
amounts they paid to the adviser during the fiscal year ended October 31,
1998, both of which are expressed as a percentage of average net assets.
17
<PAGE>
<TABLE>
<CAPTION>
DSI DSI Limited
DSI Small Disciplined Maturity DSI DSI Money
Cap Value Value Bond Balanced Market
Portfolio Portfolio Portfolio Portfolio Portfolio
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Management fees
-----------------------------------------------------------------------------------------------------------------
Expenses Limit
</TABLE>
PORTFOLIO MANAGERS
Listed below are the investment professionals of the adviser who are
primarily responsible for the day-to-day management of the portfolios and a
description of their business experience during the past five years.
<TABLE>
<CAPTION>
Name & Title Experience
-----------------------------------------------------------------------------------------------------------------
<S> <C>
DSI Small Cap Value Portfolio
Ronald L. McCullough CFA Mr. McCullough is the senior equity strategist and is
Managing Director, Equity Investing responsible for all equity investments. He has 29 years
of investment experience. Prior to joining Dewey Square,
Mr. McCullough was Senior Portfolio Manager and a member
of the Trust Investment Committee at Bank of Boston's
Institutional Investment Division. He has a BA from
Harvard College and is a member of the Boston Security
Analysts Society and the Institute of Chartered
Financial Analysts (CFA).
-----------------------------------------------------------------------------------------------------------------
Robert S. Stephenson, CPA Mr. Stephenson has 26 years of experience in the
Senior Portfolio Manager, Equity investment business and joined Dewey Square in 1991. He
was most recently at The Putnam Management Company from
1978 to 1990 where he managed the Putnam Option Trust.
He graduated from Rochester Institute of Technology with
a BS and earned an MBA from Columbia University. Mr.
Stephenson has co-managed the DSI Disciplined Value
Portfolio since April 1993.
-----------------------------------------------------------------------------------------------------------------
Charles Glovsky, CFA Mr. Glovsky joined Dewey Square in 1998. Most recently,
Senior Portfolio Manager, Equity he was a Managing Partner of Glovsky-Brown Capital
Management, a firm he co-founded that specialized in
small and mid-capitalization stocks. Prior to that
position, he spent nine years as a portfolio manager and
Senior Vice President at State Street Research where he
was responsible for that firm's small cap stock
portfolios. He has also worked as an analyst for Alex
Brown & Sons and Eppler, Geurin & Turner. He received a
B.A. from Dartmouth College in 1975 and an M.B.A. from
Stanford University. He has 19 years of investment
experience and is a member of the Boston Security
Analysts Society.
-----------------------------------------------------------------------------------------------------------------
DSI Disciplined Value Portfolio
Ronald L. McCullough CFA, Managing Mr. McCullough co-manages DSI Disciplined Value
Director, Equity Investing Portfolio with Mr. Stephenson. You can Find Mr.
McCullough 's biography above under DSI Small Cap Value
Portfolio.
-----------------------------------------------------------------------------------------------------------------
Robert S. Stephenson, CPA, Senior Mr. Stephenson co-manages DSI Disciplined Value
Portfolio Manager, Equity Portfolio with Mr. McCullough. You can Find Mr.
Stephenson 's biography above under DSI Small Cap Value
Portfolio.
-----------------------------------------------------------------------------------------------------------------
DSI Limited Maturity Bond Portfolio and DSI Money Market Portfolio
Frederick C. Meltzer, PHD Mr. Meltzer joined Dewey Square in 1995. Prior to that
Senior Portfolio he was Managing Director of Fixed Income at World Asset
Manager, Fixed Income Management. Previously, he held positions as
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Name & Title Experience
-----------------------------------------------------------------------------------------------------------------
<S> <C>
Senior Manager of Fixed Income at PanAgora Asset
Management and Senior Fixed Income Portfolio
Manager at The Boston Company. He has also held
positions as Director of Research for the Farm Credit
Banks Funding Corporation, Fixed Income Strategist at
Chase Investors, and a staff economist at the Federal
Reserve Bank of New York. He has 24 years of
investment experience. Mr. Meltzer holds a MA in
Economics from John Hopkins University and a Ph.D.
in Economics from the University of Virginia.
-----------------------------------------------------------------------------------------------------------------
David J. Thompson, CFA Mr. Thompson joined Dewey Square in 1997. Prior to
Senior Portfolio Manager, joining Dewey Square, Mr. Thompson was a member of Lord
Fixed-Income Abbett & Company's High Grade Fixed Income Department.
In his role as a Fixed Income Manager there, Mr.
Thompson was responsible for managing $800 million of
assets for a variety of institutional clients including
a 2(a)7 money market mutual fund. Earlier in his
career, David spent three years at Brown Brothers
Harriman & Company as an Assistant Portfolio Manager in
the Global Fixed Income Department. Mr. Thompson has
eight years of investment experience. He earned a BS
degree in finance and economics from Manhattan College.
Mr. Thompson earned his CFA in 1995.
-----------------------------------------------------------------------------------------------------------------
DSI Balanced Portfolio
Ronald L. McCullough CFA Mr. McCullough co-managers the equity portion of DSI
Managing Director, Equity Investing Balanced Portfolio with Ms. Dewitz. You can Find Mr.
McCullough 's biography above under DSI Small Cap Value
Portfolio.
-----------------------------------------------------------------------------------------------------------------
Eva S. Dewitz Ms. Dewitz is part of the team that founded Dewey Square
Senior Portfolio Manager, Equity in 1984. Prior to the formation of Dewey Square, she was
a Portfolio Manager and Research Analyst for the Bank of
Boston's Institutional Investment Division, which she
joined in 1970. She has 28 years of investment
experience. Ms. Dewitz is a member of the Boston
Security Analysts Society. She holds a BA from Smith
College and an MBA from Northeastern University.
-----------------------------------------------------------------------------------------------------------------
David J. Thompson, CFA Mr. Thompson co-manages the debt portion of the DSI
Senior Portfolio Manager, Balanced Portfolio with Mr. Clancy. You can find Mr.
Fixed-Income Thompson's biography above under DSI limited Maturity
Bond and Money Market Portfolios.
Robert P. Clancy Mr. Clancy joined Dewey Square in 1994. Prior to that,
Senior Portfolio Manager, Fixed Income he was a Vice President at Standish, Ayer & Wood
responsible for the management of institutional bond
portfolios, synthetic GICs and quantitative research.
Previously, he worked as a Vice President at First
Boston Company working primarily with insurance company
and structured bond portfolios. Prior to that, Mr.
Clancy worked for State Street Bank and John Hancock
Mutual Life Insurance Company. He has 18 years of
investment experience and is a Fellow of the Society of
Actuaries and a recipient of the Halmstad Prize for his
research paper on options on bonds. Mr. Clancy holds a
BS from Brown University. Mr. Clancy co-manages the
debt portion of the DSI Balanced Portfolio with Mr.
Thompson.
</TABLE>
The Dewey Square Investors Corporation team of professionals also includes:
19
<PAGE>
<TABLE>
<CAPTION>
Name and Title Experience
-----------------------------------------------------------------------------------------------------------------
<S> <C>
Peter M. Whitman, Jr., Mr. Whitman is part of the team that founded Dewey
President, Chief Square in 1984. He was appointed President in 1988 and
Investment Officer and Managing Director was previously Managing Director of Fixed Income, a
Fixed Income position he held for seven years. Prior to the formation
of Dewey Square, he served as Head of Fixed Income for
the Bank of Boston's Institutional Investment Division.
He joined the Bank of Boston in 1971 as a Credit Analyst
and was appointed head of Fixed Income Research in 1975.
He has 30 years of investment experience. Mr. Whitman
holds a BA from Harvard College and an MBA from the New
York University Graduate School of Business. Mr. Whitman
also serves as a Director/Trustee of the UAM Funds,
which are mutual funds managed by various United Asset
Management affiliates. He is a member and former
Director of the Boston Security Analysts Society and a
member and former President of the Boston Economics Club.
William M. Sloan, Jr. Mr. Sloan joined Dewey Square in 1995 after the
Senior Portfolio Manager, consolidation of HT Investors with Dewey Square. He was
Equity President of HT Investors from 1988 through 1995. From
1985 through 1988 he managed the U.S. Equity Portfolio
for Sun Life of Canada. Prior to that he held positions
as a Portfolio Manager for HT Investors and Rhode Island
Hospital Trust National Bank. Mr. Sloan has 28 years of
investment experience. He holds a BA from Princeton
University
</TABLE>
ADVISER'S HISTORICAL PERFORMANCE
The adviser manages separate accounts of equity securities that have the
same investment objectives as DSI Small Cap Value Portfolio. The adviser
manages these accounts using techniques and strategies substantially
similar, though not always identical, to those used to manage the
portfolios. A composite of the performance of all of these separate
accounts are listed below. The performance data for the managed accounts
reflects deductions for all fees and expenses. Because separately managed
accounts may have different fees and expenses than the portfolios, their
investment returns may differ from those of the portfolios. All fees and
expenses of the separate accounts were less than the operating expenses of
the portfolios. If the performance of the managed accounts was adjusted to
reflect fees and expenses of the portfolio, the composites' performance
would have been lower.
The separately managed accounts are not subject to investment limitations,
diversification requirements, and other restrictions imposed by the
Investment Company Act of 1940 and the Internal Revenue Code. If they were,
their returns might have been lower. The performance of these separate
accounts is not intended to predict or suggest the performance of the
portfolio.
20
<PAGE>
<TABLE>
<CAPTION>
Dewey Square
Investors Corporation
-- Small Cap Equity Russell 2000
Composite* Index+
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Annualized Return For Various
Periods Ended 12/31/97 (annualized)
-------------------------------------------------------------------------------------------------
1-year
-------------------------------------------------------------------------------------------------
5-years
-------------------------------------------------------------------------------------------------
10-years
-------------------------------------------------------------------------------------------------
Since inception (__/__/__)
-------------------------------------------------------------------------------------------------
Cumulative Since Inception (__/__/__)
</TABLE>
* The adviser's average annual management fee over the periods shown was
__%. During the period shown the adviser's individual account fees
ranged from ___% to ____%. Net returns to investors varying depending
on the management fee.
+
SHAREHOLDER SERVICING ARRANGEMENTS
- ------------------------------------------------------------------------------
SHAREHOLDER SERVICING
Certain financial intermediaries (service agents) may charge their clients
account fees for buying or redeeming shares of the UAM Funds. These fees
may include transaction fees and/or service fees paid by the UAM Funds from
their assets attributable to the service agent. The UAM Funds do not pay
these fees on shares purchased directly from UAM Fund Distributors. The
service agents may provide shareholder services to their clients that are
not available to a shareholder dealing directly with the UAM Funds. Each
service agent is responsible for transmitting to its clients a schedule of
any such fees and information regarding any additional or different
purchase or redemption conditions. You should consult your service agent
for information regarding these fees and conditions.
The adviser may pay its affiliated companies for referring investors to the
portfolio. The adviser and its affiliates may, at their own expense, pay
qualified service providers for marketing, shareholder servicing, record-
keeping and/or other services performed with respect to the portfolios.
UAM Fund Distributors, the adviser and certain of their other affiliates
also participate, as of the date of this prospectus, in an arrangement with
Salomon Smith Barney under which Salomon Smith Barney provides certain
defined contribution plan marketing and shareholder services and receives
0.15% of the portion of the daily net asset value of Institutional Class
Shares held by Salomon Smith Barney's eligible customer accounts in
addition to amounts payable to all selling dealers. The UAM Funds also
compensate Salomon Smith Barney for services it provides to certain defined
contribution plan shareholders that are not otherwise provided by the UAM
Funds' administrator.
The UAM Funds also offer Institutional Service Class shares, which pay
marketing or shareholder servicing fees, and Adviser Class shares, which
impose a sales load and fees for marketing and shareholder servicing, for
certain of its portfolios. Not all of the UAM Funds offer all of these
classes.
21
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
financial performance of the portfolios for the past five years. The
financial highlight table comes from the financial statement of the
portfolio and reflects the financial results for a single portfolio share.
The total returns in the table represent the rate that an investor would
have earned on an investment in the portfolios (assuming reinvestment of
all dividends and distributions). PricewaterhouseCoopers LLP has audited
the financial statements of the portfolios. The financial statements and
the unqualified opinion of PricewaterhouseCoopers LLP are included in the
annual report of the portfolios. The annual report of the portfolios is
available upon request.
<TABLE>
<CAPTION>
DSI DISCIPLINED VALUE PORTFOLIO
- --------------------------------------------------------------------------------------------------------
Fiscal Year Ended October 31, 1998 1997 1996 1995 1994
===================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $12.99 $17.76 $11.11 $12.72
---------------------------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 0.19 0.23 0.25 0.22
Net Gains or losses on Securities
(Realized and Unrealized) 3.10 2.26 1.70 0.17
---------------------------------------------------------------------------------------------------
Total From Investment Operations 3.29 2.49 1.95 0.39
---------------------------------------------------------------------------------------------------
Less Distributions
Net Investment Income (0.20) (0.22) (0.25) (0.22)
Capital Gains (1.81) (1.04) (1.05) (1.78)
---------------------------------------------------------------------------------------------------
Total Distributions (2.01) (1.26) (1.30) (2.00)
---------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $14.27 $12.99 $11.76 $11.11
===================================================================================================
Total Return+ 28.99% 22.92% 20.12% (3.48)%
===================================================================================================
Ratios/Supplemental Data
Net Assets, End of Year (Thousands) $78,545 $63,596 $47,938 $49,002
Ratio of Expenses to Average Net 1.05% 1.04% 1.00% 1.09%
Assets
Ratio of Net Investment Income to Average 1.42% 1.89%* 2.26% 2.02%
Net Assets
Portfolio Turnover Rate 126% 135% 121% 184%
</TABLE>
+ Total return would have been lower had certain fees not been waived
and expenses assumed by the adviser during the periods.
22
<PAGE>
<TABLE>
<CAPTION>
DSI LIMITED MATURITY BOND PORTFOLIO
- --------------------------------------------------------------------------------------------------------
Fiscal Year Ended October 31, 1998 1997 1996 1995 1994
====================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $9.40 $9.51 $9.31 $9.95
---------------------------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 0.58 0.62 0.69 0.56
Net Gains or Losses on Securities
(Realized and Unrealized) 0.05 (0.13) 0.17 (0.70)
---------------------------------------------------------------------------------------------------
Total From Investment Operations 0.63 0.49 0.86 (0.14)
---------------------------------------------------------------------------------------------------
Less Distributions
Net Investment Income (0.57) (0.60) (0.66) (0.50)
---------------------------------------------------------------------------------------------------
Total Distributions (0.57) (0.60) (0.66) (0.50)
---------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $9.46 $9.40 $9.51 $9.31
===================================================================================================
Total Return 6.93% 5.34% 9.58% (1.39)%
===================================================================================================
Ratios/Supplemental Data
Net Assets, End of Year (Thousands) $32,712 $30,433 $29,294 $30,220
Ratio of Expenses to Average Net
Assets 0.95% 1.00% 0.88% 0.88%
Ratio of Net Investment Income to Average Net
Assets 6.17% 6.55% 7.12% 5.68%
Portfolio Turnover Rate 51% 121% 126% 274%
Ratio of Expenses to Average Net
Assets Including Expense Offsets 0.94% 0.99% 0.87% --
</TABLE>
<TABLE>
<CAPTION>
DSI MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------------------------------
Fiscal Year Ended October 31, 1998 1997 1996 1995 1994+
===================================================================================================
<S> <C> <C> <C> <C> <C>
Fiscal Year Ended October 31, 1998 1997 1996 1995 1994+
---------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $1.000 $1.000 $1.000 $1.000
---------------------------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 0.051 0.051 0.053 0.033
Net Gains or Losses on Securities
(Realized and Unrealized) - - - -
---------------------------------------------------------------------------------------------------
Total From Investment Operations 0.051 0.051 0.053 0.033
---------------------------------------------------------------------------------------------------
Less Distributions
Net Investment Income (0.051) (0.051) (0.053) (0.033)
---------------------------------------------------------------------------------------------------
Total Distributions (0.051) (0.051) (0.053) (0.033)
---------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $1.000 $1.000 $1.000 $1.000
===================================================================================================
Total Return 5.26%+ 5.26%+ 5.48%+ 3.30%
===================================================================================================
Ratios/Supplemental Data
Net Assets, End of Year
(Thousands) $152,216 $220,124 $112,085 $112,085
Ratio of Expenses to Average Net
Assets 0.37% 0.38% 0.50% 0.56%*
Ratio of Net Investment Income to Average
Net Assets 5.14% 5.14% 5.35% 3.07%*
Portfolio Turnover Rate -- -- -- --
Ration of Voluntarily y Waived
Fees and Expenses Assumed by
the Adviser to Average Net Assets 0.23% 0.22% 0.07% --
Ratio of Expenses to Average Net
Assets Including Expense Offsets 0.37% 0.38% 0.49% --
</TABLE>
+ Total return would have been lower had certain expenses not been
waived for the periods indicated.
<PAGE>
THE DSI PORTFOLIOS
For investors who want more information about the DSI Portfolios, the
following documents are available upon request.
ANNUAL/SEMI-ANNUAL REPORTS
The annual and semi-annual reports of the DSI Portfolios provide additional
information about their investments. In each annual report, you will also
find a discussion of the market conditions and investment strategies that
significantly affected the performance of the DSI Portfolios during the
last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains additional detailed information about the DSI Portfolios
and is incorporated by reference into (legally part of) this prospectus.
Investors can receive free copies of these materials, request other
information about the portfolios and make shareholder inquiries by writing
to or calling UAM Fund Service Center at:
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
You can review, for a fee, the reports of the portfolio and SAI by writing
to the SEC's Public Reference Section, Washington, D.C. 20459-6009, or by
calling the SEC at 1-800-SEC-0330. You can get copies of this information
for free, on the SEC's Internet site at http://www.sec.gov.
------------------
The portfolio's Investment Company Act of 1940 file is 811-5683.
[LOGO]
<PAGE>
UAM FUNDS
Funds for the Informed Investor
THE DSI PORTFOLIOS
INSTITUTIONAL SERVICE CLASS PROSPECTUS ,199_
DSI Disciplined Value Portfolio
[LOGO OF UAM APPEARS HERE]
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PORTFOLIO SUMMARY........................................................... 1
WHAT ARE THE OBJECTIVES OF THE PORTFOLIOS?............................... 1
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE PORTFOLIOS?.......... 1
WHAT ARE THE PRINCIPAL RISKS OF THE PORTFOLIOS........................... 2
HOW HAS THE PORTFOLIO PERFORMED?......................................... 2
WHAT ARE THE PORTFOLIO'S FEES AND EXPENSES?.............................. 3
INVESTING WITH THE UAM FUNDS................................................ 4
BUYING SHARES............................................................ 4
REDEEMING SHARES......................................................... 5
EXCHANGING SHARES........................................................ 5
TRANSACTION POLICIES..................................................... 5
ACCOUNT POLICIES............................................................ 8
SMALL ACCOUNTS........................................................... 8
DISTRIBUTIONS............................................................ 8
FEDERAL TAXES............................................................ 8
FUND DETAILS................................................................ 10
PRINCIPAL INVESTMENTS AND RISKS OF THE PORTFOLIOS........................ 10
OTHER INVESTMENT PRACTICES AND STRATEGIES................................ 11
YEAR 2000................................................................ 12
INVESTMENT MANAGEMENT.................................................... 12
SHAREHOLDER SERVICING ARRANGEMENTS....................................... 14
FINANCIAL HIGHLIGHTS........................................................ 16
</TABLE>
<PAGE>
PORTFOLIO SUMMARY
WHAT ARE THE OBJECTIVES OF THE PORTFOLIOS?
- --------------------------------------------------------------------------------
Listed below are the investment objectives of the DSI Portfolios. The DSI
Portfolios cannot guarantee they will meet their investment objectives.
Only DSI Small Cap Value Portfolio may change its investment objective
without shareholder approval.
DSI SMALL CAP VALUE PORTFOLIO
DSI Small Cap Value Portfolio seeks maximum capital appreciation consistent
with reasonable risk to principal by investing in primarily smaller
capitalized companies.
DSI DISCIPLINED VALUE PORTFOLIO
DSI Disciplined Value Portfolio seeks maximum long-term total return
consistent with reasonable risk to principal through diversified equity
investments.
DSI BALANCED PORTFOLIO
DSI Balanced Portfolio seeks maximum long-term capital growth consistent
with reasonable risk to principal by investing in a diversified portfolio
of equity, primarily investment-grade debt and money market securities.
DSI LIMITED MATURITY BOND PORTFOLIO
DSI Limited Maturity Bond Portfolio seeks maximum total return consistent
with reasonable risk to principal by investing in investment-grade debt
securities
DSI MONEY MARKET PORTFOLIO
DSI Money Market Portfolio seeks maximum current income consistent with the
preservation of capital and liquidity by investing in short-term
investment-grade money market obligations issued or guaranteed by financial
institutions, nonfinancial corporations, and the U.S. government, as well
as repurchase agreements collateralized by such securities.
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE PORTFOLIOS?
- --------------------------------------------------------------------------------
The following is a brief description of the principal investment strategies
of the DSI Portfolios. For more information see "PRINCIPAL INVESTMENTS AND
RISKS OF THE PORTFOLIOS."
DSI DISCIPLINED VALUE PORTFOLIO
DSI Disciplined Value Portfolio invests primarily in common stocks of mid
to large market capitalization companies. The adviser selects securities
for the
1
<PAGE>
portfolios using a bottom-up selection process that focuses upon
stocks of statistically undervalued yet sound companies that are likely to
show improving fundamental prospects. The adviser looks for companies that
possess an identifiable catalyst for change.
WHAT ARE THE PRINCIPAL RISKS OF THE PORTFOLIOS
- --------------------------------------------------------------------------------
The following is a summary of the principal risks associated with investing
in the portfolios. For more information see "PRINCIPAL INVESTMENTS AND
RISKS OF THE PORTFOLIO."
RISKS COMMON TO ALL MUTUAL FUNDS
At any time, your investment in a mutual fund may be worth more or less
than the price you originally paid for it. You may lose money by investing
in any mutual fund because:
. The value of the securities it owns changes, sometimes rapidly and
unpredictably.
. The mutual fund is not successful in reaching its goal because of its
strategy or because it did not implement its strategy properly.
. Unforeseen occurrences in the securities markets negatively affect the
mutual fund.
DSI DISCIPLINED VALUE PORTFOLIO
Since the portfolios invest mainly in equity securities, their principal
risks are those of investing in equity securities, which may include
sudden, unpredictable drops in value or long periods of decline in value.
Equity securities may lose value because of factors affecting the
securities markets generally, an entire industry or a particular company.
DSI Disciplined Value Portfolio is value oriented and may not perform as
well as certain other types of equity mutual funds during periods when
value stocks are out of favor.
HOW HAS THE PORTFOLIO PERFORMED?
- --------------------------------------------------------------------------------
The bar chart and table below illustrate how the performance of the
portfolio has varied from year to year. The following bar chart shows the
investment returns of the portfolio since its inception. The table
following each bar chart compares the portfolio's average annual returns
for the periods indicated to those of a broad-based securities market
index.
Past performance does not guarantee future results.
DSI DISCIPLINED VALUE PORTFOLIO
[OBJECT OMITTED]*From the portfolio's inception (12/12/89) through
12/31/89.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_).
2
<PAGE>
Average annual return for periods ended Since
12/31/98 1 Year 5 Years Inception
--------------------------------------------------------------------------
DSI Disciplined Value Portfolio
--------------------------------------------------------------------------
Benchmark
WHAT ARE THE PORTFOLIO'S FEES AND EXPENSES?
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM THE ASSETS OF A
PORTFOLIO)
This table describes the fees and expenses that you may pay if you buy and
hold shares of the portfolio. This table is presented in the format
required by the Securities and Exchange Commission (SEC) and may not
reflect the actual expenses you would have paid as a shareholder in the
portfolios.
--------------------------------------------------------------------------
Management fees
--------------------------------------------------------------------------
Other Expenses
==========================================================================
Total Expenses
==========================================================================
ACTUAL FEES AND EXPENSES
The ratios stated in the table are higher than the expenses you would have
actually paid as an investor in the portfolio. Due to certain expense
limits by the adviser and expense offsets, investors in the portfolio
actually paid __% total expenses during the fiscal year ended October 31,
1998:
EXAMPLE
This example can help you to compare the cost of investing in the portfolio
to the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the portfolio for the periods shown and then redeem all of your
shares at the end of those periods. It also assumes a 5% return on your
investment each year and that the portfolio's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
--------------------------------------------------------------------------
1 Year
--------------------------------------------------------------------------
3 Years
--------------------------------------------------------------------------
5 Years
--------------------------------------------------------------------------
10 Years
3
<PAGE>
INVESTING WITH THE UAM FUNDS
BUYING SHARES
- --------------------------------------------------------------------------------
To open an account To buy more shares
--------------------------------------------------------------------------
By Mail Send a check or money Send a check and, if
order and your account possible, the "Invest by
application to the UAM Mail" stub that accompanied
Funds. Make checks your statement to the UAM
payable to "UAM Funds" Funds. Be sure your check
(the UAM Funds will not identifies clearly your
accept third-party name, account number and
checks). the portfolio into which
you want to invest.
--------------------------------------------------------------------------
By Wire Call the UAM Funds for Call the UAM Funds to get a
an account number and wire control number and
wire control number and wire your money to the UAM
then send your completed Funds.
account application to
the UAM Funds.
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: portfolio name/account number/
account name/wire control number
--------------------------------------------------------------------------
By Automatic Not Available To set up a plan, mail a
Investment Plan completed application to
(Via ACH) the UAM Funds. To cancel
or change a plan, write
to the UAM Funds. Allow
up to 15 days to create
the plan and 3 days to
cancel or change it.
--------------------------------------------------------------------------
Minimum $2,500, except IRAs $100
Investments ($500) and spousal IRAs
($250)
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
4
<PAGE>
REDEEMING SHARES
- --------------------------------------------------------------------------------
By Mail Send a letter signed by all registered parties on the
account to UAM Funds specifying the portfolio, the account
number and the dollar amount or number of shares you wish
to redeem. Certain shareholders may have to include
additional documents.
--------------------------------------------------------------------------
By Telephone You must first establish the telephone
redemption privilege (and, if desired, the wire redemption
privilege) by completing the appropriate sections of the
account application.
Call 1-877-UAM-Link to redeem your shares. Based on your
instructions, the UAM Funds will mail your proceeds to you
or wire them to your bank.
--------------------------------------------------------------------------
By If your account balance is at least $10,000, you
Systematic may transfer as little as $100 per month from your UAM
Withdrawal account to your financial institution.
Plan (Via ACH)
To participate in this service, you must complete the
appropriate sections of the account application and mail
it to the UAM Funds.
EXCHANGING SHARES
- --------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the
same class of any other UAM Fund by writing to or calling the UAM Funds.
Before exchanging your shares, read the prospectus of the UAM Fund for
which you want to exchange, which you may obtain from the UAM Funds. You
may not exchange shares represented by certificates over the telephone.
You may only exchange shares between accounts with identical registrations
(i.e., the same names and addresses).
TRANSACTION POLICIES
- --------------------------------------------------------------------------------
CALCULATING YOUR SHARE PRICE
You may buy, sell or exchange shares of a UAM Fund at a price equal to its
net asset value (NAV) next computed after it receives your order. DSI
Money Market Portfolio calculates it NAV at 12:00 noon (Eastern time) on
each day the New York Stock Exchange (NYSE). The other DSI portfolios
calculate their NAVs as of the close of trading on the NYSE (generally
4:00 p.m. Eastern Time) on each day the NYSE is open. Therefore, to
receive the NAV on any given day, the UAM Funds must accept your order by
the close of trading on the NYSE that day. Otherwise, you will receive the
NAV that is calculated on the close of trading on the following day. The
UAM Funds are open for business on the same days as the NYSE, which is
closed on weekends and certain holidays.
5
<PAGE>
Buying or Selling Shares through a Financial Intermediary
You may buy, exchange or redeem shares of the UAM Funds through a financial
intermediary (such as a financial planner or adviser). Generally, to buy or
sell shares at the NAV on any given day, your financial intermediary must
receive your order by the close of trading on the NYSE that day. Your
financial intermediary is responsible for transmitting all subscription and
redemption requests, investment information, documentation and money to the
UAM Funds on time.
Certain financial intermediaries have agreements with the UAM Funds that
allow them to enter confirmed purchase or redemption orders on behalf of
clients and customers. Under this arrangement, the financial intermediary
must send your payment to the UAM Funds by the time they price their shares
on the following day. If your financial intermediary fails to do so, it may
be responsible for any resulting fees or losses.
CALCULATING NAV
The UAM Funds calculate their NAV by adding the total value of their
assets, subtracting their liabilities and then dividing the result by the
number of shares outstanding. The UAM Funds value their investments with
readily available market quotations at market value. Investments that do
not have readily available market quotations are valued at fair value,
according to guidelines established by the UAM Funds. The UAM Funds may
also value securities at fair value when events occur that make established
valuation methods (such as stock exchange closing prices) unreliable. The
UAM Funds value debt securities that will mature in 60 days or less
amortized cost, which approximates market value.
IN-KIND TRANSACTIONS
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares of a portfolio with securities instead of cash. In addition, the UAM
Funds may pay all or part of your redemption proceeds with securities
instead of cash.
PAYMENT OF REDEMPTION PROCEEDS
The UAM Funds will pay for all shares redeemed within seven days after they
receive a redemption request in proper order. If you redeem shares that
were purchased by check, you will not receive your redemption proceeds
until the check has cleared, which may take up to 15 days. You may avoid
these delays by paying for shares with a certified check, bank check or
money order.
SIGNATURE GUARANTEE
You must have your signature guaranteed when (1) you want the proceeds from
your redemption sent to a person or address different from that registered
on the account, or (2) you request a transfer of your shares.
6
<PAGE>
You may obtain a signature guarantee from most banks, savings institutions,
securities dealers, national securities exchanges, registered securities
associations, clearing agencies and other guarantor institutions. A notary
public cannot guarantee a signature.
TELEPHONE TRANSACTIONS
The UAM Funds will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine; they may be liable for
any losses if they fail to do so. The UAM Funds will be responsible for any
loss, liability, cost or expense for following instructions received by
telephone that it reasonably believes to be genuine.
RIGHTS RESERVED BY THE UAM FUNDS
Purchases
At any time and without notice, the UAM Funds may:
. Stop offering shares of a portfolio.
. Reject any purchase order.
. Bar an investor engaged in a pattern of excessive trading from buying
shares of any portfolio. (Excessive trading can hurt the performance
of a portfolio by disrupting its management and by increasing its
expenses.)
Redemptions
The UAM Funds may suspend your right to redeem if:
. An emergency exists and a portfolio cannot dispose of its investments
or fairly determine their value.
. Trading on the NYSE is restricted.
. The SEC tells the UAM Funds to delay redemptions.
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail.
Exchanges
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders.
. Reject any request for an exchange.
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
7
<PAGE>
ACCOUNT POLICIES
SMALL ACCOUNTS
- --------------------------------------------------------------------------------
The UAM Funds may redeem your shares without your permission if the value
of your account falls below 50% of the required minimum initial investment,
but not because of a drop in the value of your shares caused by market
fluctuations. This provision does not apply to retirement accounts and
certain other accounts.
DISTRIBUTIONS
- --------------------------------------------------------------------------------
Normally, the portfolio distributes its net investment income quarterly. In
addition, it distributes any net capital gains once a year. The UAM Funds
will automatically reinvest dividends and distributions in additional
shares of the portfolio, unless you elect on your account application to
receive them in cash.
FEDERAL TAXES
- --------------------------------------------------------------------------------
The following is a summary of the federal income tax consequences of
investing in this portfolios. You may also have to pay state and local
taxes on your investment. You should always consult your tax advisor for
specific guidance regarding the tax effect of your investment in the UAM
Funds.
TAXES ON DISTRIBUTIONS
The distributions of the portfolios will generally be taxable to
shareholders as ordinary income or capital gains (which may be taxable at
different rates depending on the length of time the portfolio held the
relevant assets). You will be subject to income tax on these distributions
regardless of whether they are paid in cash or reinvested in additional
shares. Once a year UAM Funds will send you a statement showing the types
and total amount of distributions you received during the previous year.
You should note that if you purchase shares just before a distribution, the
purchase price would reflect the amount of the upcoming distribution. In
this case, you would be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply
constitutes a return of your investment. This is known as "buying into a
dividend" and should be avoided.
TAXES ON EXCHANGES AND REDEMPTIONS
When you redeem or exchange shares in any portfolio, you may recognize a
gain or loss for income tax purposes. This gain or loss will be based on
the difference between your tax basis in the shares and the amount you
receive for them. (To aid in computing your tax basis, you generally should
retain your account statements for the periods during which you held
shares.) Any loss
8
<PAGE>
realized on shares held for six months or less will be treated as a long-
term capital loss to the extent of any capital gain dividends that were
received with respect to the shares.
The one major exception to these tax principles is that distributions on,
and sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable, but they may be taxable
at some time in the future.
To the extent a portfolio invests in foreign securities, it may be subject
to foreign withholding taxes with respect to dividends or interest the
portfolios received from sources in foreign countries. The portfolios may
elect to treat some of those taxes as a distribution to shareholders, which
would allow shareholders to offset some of their U.S. federal income tax.
BACKUP WITHHOLDING
By law, the UAM Funds must withhold 31% of your distributions and proceeds
if you have not provided complete, correct taxpayer information.
9
<PAGE>
FUND DETAILS
PRINCIPAL INVESTMENTS AND RISKS OF THE PORTFOLIOS
- --------------------------------------------------------------------------------
The following is a brief description of the principal investment strategies
the DSI Portfolios may employ in seeking their objectives. This discussion
is in addition to the discussion set forth in the "PORTFOLIO SUMMARY." For
more information concerning these investment practices and their associated
risks, please read the "PORTFOLIO SUMMARY" and the statement of additional
information (SAI). You can find information on the portfolio's recent
strategies and holdings in its current annual/semiannual report. The
portfolio may change these strategies without shareholder approval.
DSI DISCIPLINED VALUE PORTFOLIO
DSI Disciplined Value Portfolio invests primarily in common stocks of mid
to large market capitalization companies. DSI Disciplined Value Portfolio
maintains a high degree of diversification generally with a representation
in all of the Standard & Poor's 500 Composite Price Stock Index economic
sectors. DSI Disciplined Value Portfolio normally invests at least 80% of
its assets in equity securities.
The adviser selects securities for the portfolio using a bottom-up
selection process that focuses upon stocks of statistically undervalued yet
sound companies that are likely to show improving fundamental prospects
with an identifiable catalyst for change. The catalysts may include any of
the following: improving fundamentals; a new product; new management;
industry or company restructuring; a strategic acquisition; regulatory
changes, etc. Using quantitative screening parameters such as relative
price/ earnings ratio, relative dividend yield, relative price to book
ratio, debt-adjusted price to sales and other financial ratios, the advisor
identifies potentially undervalued securities. These securities are also
screened by "earnings per share" revisions, which measure the change in
earnings estimate expectations. The adviser additionally narrows the list
of stocks using fundamental security analysis, which may include on-site
visits, outside research and analytical judgment. As market timing is not
an important part of the adviser's investment strategy, cash reserves will
normally represent a small portion of the portfolio's assets (under 20%).
Risks of Equity Investing
Equity securities may lose value because of factors affecting the
securities markets generally, such as adverse changes in economic
conditions, the general outlook for corporate earnings, interest rates or
investor sentiment. These circumstances may lead to long periods of poor
performance, such as during a "bear market." Equity securities may also
lose value because of factors affecting an entire industry, such as
increases in production costs, or
10
<PAGE>
factors directly related to that company, such as decisions made by its
management.
Undervalued companies may have experienced adverse business developments or
other events that have caused their stocks to be out of favor. If the
adviser's assessment of a company is wrong, or if the market does not
recognize the value of the company, the price of its stock may fail to meet
expectations and the portfolio's share price may suffer. A value-oriented
portfolio may not perform as well as certain other types of mutual funds
during periods when value stocks are out of favor.
OTHER INVESTMENT PRACTICES AND STRATEGIES
- --------------------------------------------------------------------------------
As described below, the portfolio may invest in derivatives and foreign
securities and may deviate from its investment strategy from time to time.
In addition, it may employ investment practices that are not described in
this prospectus, such as repurchase agreements, when-issued and forward
commitment transactions, lending of securities, borrowing and other
techniques. For more information concerning the risks associated with these
investment practices, you should read the SAI.
FOREIGN INVESTMENTS [CONSIDER DELETING}
Each portfolio will invest the majority of its assets in U.S. dollar
denominated securities; however, using the same credit quality standards
applied to domestic securities each portfolio, except DSI Money Market
Portfolio, also may invest in foreign securities. Foreign securities,
especially those of companies in emerging markets, can be riskier and more
volatile than domestic securities. Adverse political and economic
developments or changes in the value of foreign currency can make it harder
for a portfolio to sell its securities and could reduce the value of your
shares. Changes in tax and accounting standards and difficulties obtaining
information about foreign companies can negatively affect investment
decisions.
In January 1999, the new European common currency, called the Euro, will
begin being used. The nations that use the Euro will have the same monetary
policy regardless of their domestic economy, which could have adverse
effects on those economies. In addition, the method by which the conversion
to the Euro is implemented could negatively affect the investments of a
portfolio.
DERIVATIVES
The portfolio, may buy and sell derivatives, including futures and options.
Derivatives are often more volatile than other investments and may magnify
a portfolio's gains or losses. A portfolio may lose money if the adviser:
. Fails to predict correctly the direction in which the underlying asset
or economic factor will move.
. Judges market conditions incorrectly.
11
<PAGE>
. Employs a strategy that does not correlate well with the investments
of the portfolio.
SHORT-TERM INVESTING
At times, the adviser may decide to suspend the normal investment
activities of a portfolio by investing up to 100% of its assets in a
variety of securities, such as U.S. government and other high quality and
short-term debt obligations. The adviser may temporarily adopt a defensive
position to reduce changes in the value of a portfolio's shares that may
result from adverse market, economic, political or other developments.
When the adviser pursues a defensive strategy, a portfolio may not profit
from favorable developments that it would have otherwise profited from if
it were pursuing its normal strategies. Likewise, these strategies may
prevent a portfolio from achieving its stated objectives.
PORTFOLIO TURNOVER
The portfolios may buy and sell investments relatively often. Such a
strategy often involves higher expenses, including brokerage commissions,
and may increase the amount of capital gains (and, in particular,
short-term gains) realized by a portfolio. Shareholders must pay tax on
such capital gains.
YEAR 2000
- --------------------------------------------------------------------------------
Many computer programs in use today cannot distinguish the year 2000 from
the year 1900 because of the way they encode and calculate dates.
Consequently, these programs may not be able to perform necessary functions
and could disrupt the operations of the UAM Funds or financial markets in
general. The year 2000 issue affects all companies and organizations,
including those that provide services to the UAM Funds and those in which
the UAM Funds invest.
The UAM Funds and their advisers, administrator, distributor and transfer
agent are taking steps they believe are reasonably necessary to address any
portfolio-related year 2000-related computer problems. They are actively
working on necessary changes to their own computer systems to prepare for
the year 2000 and expect that their systems will be adapted before that
date. They are also requesting information on each service provider's state
of readiness and contingency plan. However, at this time the degree to
which the year 2000 issue will affect the UAM Funds' investments or
operations cannot be predicted. Any negative consequences could adversely
affect your investment in the UAM Funds.
INVESTMENT MANAGEMENT
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Dewey Square Investors Corporation, located at One Financial Center,
Boston, Massachusetts 02111, is the investment adviser to the portfolios.
12
<PAGE>
adviser manages and supervises the investment of the portfolio's assets on
a discretionary basis. The adviser, an affiliate of United Asset Management
Corporation, has provided investment management services to corporations,
foundations, endowments, pension and profit sharing plans, trusts, estates
and other institutions and individuals since 1984.
The adviser has voluntarily agreed to limit the expenses of the portfolio
to __% of its average net assets. To maintain this expense limit, the
adviser may waive a portion of its advisory fee and/or reimburse certain
expenses of the portfolio. The adviser intends to continue its expense
limitation until further notice. During the fiscal year ended October 31,
1998, the portfolio paid the adviser __% of its average net assets in
advisory fees.
PORTFOLIO MANAGERS
Listed below are the investment professionals of the adviser who are
primarily responsible for the day-to-day management of the portfolio and a
description of their business experience during the past five years.
Name & Title Experience
---------------------------------------------------------------------------
Ronald L. McCullough CFA, Mr. McCullough is the senior equity
Managing Director, Equity strategist and is responsible for all
Investing equity investments. He has 29 years of
investment experience. Prior to joining
Dewey Square, Mr. McCullough was Senior
Portfolio Manager and a member of the
Trust Investment Committee at Bank of
Boston's Institutional Investment
Division. He has a BA from Harvard College
and is a member of the Boston Security
Analysts Society and the Institute of
Chartered Financial Analysts (CFA).
---------------------------------------------------------------------------
Robert S. Stephenson, CPA, Mr. Stephenson has 26 years of experience
Senior Portfolio Manager, in the investment business and joined
Equity Dewey Square in 1991. He was most recently
at The Putnam Management Company from 1978
to 1990 where he managed the Putnam Option
Trust. He graduated from Rochester
Institute of Technology with a BS and
earned an MBA from Columbia University.
Mr. Stephenson has co-managed the DSI
Disciplined Value Portfolio since April
1993.
The Dewey Square Investors Corporation team of professionals also includes:
Name and Title Experience
---------------------------------------------------------------------------
Peter M. Whitman, Jr., Mr. Whitman is part of the team that
President, Chief founded Dewey Square in 1984. He was
Investment Officer and appointed President in 1988 and was
Managing Director Fixed previously Managing Director of Fixed
Income Income, a position he held for seven
years. Prior to the formation of Dewey
Square, he served as Head of Fixed Income
for the Bank of Boston's Institutional
Investment Division. He joined the Bank of
Boston in 1971 as a Credit Analyst and was
appointed head of Fixed Income Research in
1975. He has 30 years of investment
experience. Mr. Whitman holds a BA from
Harvard College and an MBA from the New
York University Graduate School of
Business. Mr. Whitman also serves as a
Director/Trustee of the UAM Funds, which
are mutual funds managed by various United
Asset Management affiliates. He is a
member and former Director of the Boston
Security Analysts Society and a member and
former President of the Boston Economics
Club.
13
<PAGE>
Name and Title Experience
---------------------------------------------------------------------------
Frederick C. Meltzer, PHD Mr. Meltzer joined Dewey Square in 1995.
Senior Portfolio Prior to that he was Managing Director of
Manager, Fixed Income Fixed Income at World Asset Management.
Previously, he held positions as Senior
Manager of Fixed Income at PanAgora Asset
Management and Senior Fixed Income
Portfolio Manager at The Boston Company.
He has also held positions as Director of
Research for the Farm Credit Banks Funding
Corporation, Fixed Income Strategist at
Chase Investors, and a staff economist at
the Federal Reserve Bank of New York. He
has 24 years of investment experience. Mr.
Meltzer holds a MA in Economics from John
Hopkins University and a Ph.D. in
Economics from the University of Virginia.
David J. Thompson, CFA Mr. Thompson joined Dewey Square in 1997.
Senior Portfolio Manager, Prior to joining Dewey Square, Mr.
Fixed-Income Thompson was a member of Lord Abbett &
Company's High Grade Fixed Income
Department. In his role as a Fixed Income
Manager there, Mr. Thompson was
responsible for managing $800 million of
assets for a variety of institutional
clients including a 2(a)7 money market
mutual fund. Earlier in his career, David
spent three years at Brown Brothers
Harriman & Company as an Assistant
Portfolio Manager in the Global Fixed
Income Department. Mr. Thompson has eight
years of investment experience. He earned
a BS degree in finance and economics from
Manhattan College. Mr. Thompson earned his
CFA in 1995.
Eva S. Dewitz Ms. Dewitz is part of the team that
Senior Portfolio Manager, founded Dewey Square in 1984. Prior to
Equity the formation of Dewey Square, she was a
Portfolio Manager and Research Analyst for
the Bank of Boston's Institutional
Investment Division, which she joined in
1970. She has 28 years of investment
experience. Ms. Dewitz is a member of the
Boston Security Analysts Society. She
holds a BA from Smith College and an MBA
from Northeastern University.
Robert P. Clancy Mr. Clancy joined Dewey Square in 1994.
Senior Portfolio Manager, Prior to that, he was a Vice President at
Fixed Income Standish, Ayer & Wood responsible for the
management of institutional bond
portfolios, synthetic GICs and
quantitative research. Previously, he
worked as a Vice President at First Boston
Company working primarily with insurance
company and structured bond portfolios.
Prior to that, Mr. Clancy worked for State
Street Bank and John Hancock Mutual Life
Insurance Company. He has 18 years of
investment experience and is a Fellow of
the Society of Actuaries and a recipient
of the Halmstad Prize for his research
paper on options on bonds. Mr. Clancy
holds a BS from Brown University. Mr.
Clancy co-manages the debt portion of the
DSI Balanced Portfolio with Mr. Thompson.
SHAREHOLDER SERVICING ARRANGEMENTS
- --------------------------------------------------------------------------------
DISTRIBUTION PLANS
The UAM Funds have adopted distribution plans and shareholder services
plans under Rule 12b-1 of the Investment Company Act of 1940 that permit
them to pay broker-dealers, financial institutions and other third parties
for marketing, distribution and shareholder services. The UAM Funds' 12b-1
14
<PAGE>
plans allow the portfolio to pay up to 1.00% of its average daily net
assets annually for these services. However, the board of the UAM Funds has
authorized the portfolio to pay only 0.25% per year. Because Institutional
Service Class Shares pay these fees out of their assets on an ongoing
basis, over time, your shares may cost more than if you had paid another
type of sales charge. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by rules of the
National Association of Securities Dealers, Inc.
SHAREHOLDER SERVICING
Certain financial intermediaries (service agents) may charge their clients
account fees for buying or redeeming shares of the UAM Funds, which are not
subject to the Fund's Distribution Plan or Shareholder Servicing Plan.
These fees may include transaction fees and/or service fees paid from the
assets of the UAM Funds attributable to the service agent. The UAM Funds do
not pay these fees on shares purchased directly from UAM Fund Distributors.
The service agents may provide shareholder services to their clients that
are not available to a shareholder dealing directly with the UAM Funds.
Each service agent is responsible for transmitting to its clients a
schedule of any such fees and information regarding any additional or
different purchase or redemption conditions. You should consult your
service agent for information regarding these fees and conditions.
Anyone entitled to receive compensation for selling or servicing shares of
the UAM Funds may receive different compensation with respect to one
particular class of shares over another.
The adviser may pay its affiliated companies for referring investors to a
portfolio. The adviser and its affiliates may, at their own expense, pay
qualified service providers for marketing, shareholder servicing,
record-keeping and/or other services performed with respect to a portfolio.
UAM Fund Distributors, the adviser and certain of their other affiliates
also participate, as of the date of this prospectus, in an arrangement with
Salomon Smith Barney under which Salomon Smith Barney provides certain
defined contribution plan marketing and shareholder services and receives
from such entities an amount equal to up to 33.3% of the portion of the
investment advisory fees attributable to the invested assets of Salomon
Smith Barney's eligible customer accounts without regard to any expense
limitation in addition to amounts payable to all selling dealers. The UAM
Funds also compensate Salomon Smith Barney for services it provides to
certain defined contribution plan shareholders that are not otherwise
provided by the UAM Funds' administrator.
The UAM Funds also offer Institutional Class shares, which do not pay
marketing or shareholder servicing fees, and Advisor Class shares, which
impose a sales load and fees for marketing and shareholder servicing, for
certain of its portfolios. Not all of the UAM Funds offer all of these
classes.
15
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
financial performance of the portfolio for the periods indicated. The
financial highlights table come from the financial statements of the
portfolio and reflects the financial results for a single portfolio share.
The total returns in the table represent the rate that an investor would
have earned on an investment in the portfolio (assuming reinvestment of all
dividends and distributions). PricewaterhouseCoopers LLP has audited the
financial statements of the portfolio. The financial statements and the
unqualified opinion of PricewaterhouseCoopers LLP are included in the
annual report of the portfolio. The annual report of the portfolio is
available upon request.
<TABLE>
<S> <C> <C>
Fiscal Year Ended October 31, 1998 1997+
--------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $13.10
--------------------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 0.07
Net Gains or losses on Securities (Realized and Unrealized) 1.15
--------------------------------------------------------------------------------------------
Total From Investment Operations 1.22
--------------------------------------------------------------------------------------------
Less Distributions
Net Investment Income (0.07)
Capital Gains --
--------------------------------------------------------------------------------------------
Total Distributions (0.07)
--------------------------------------------------------------------------------------------
Net Asset Value, End of Year $14.25
--------------------------------------------------------------------------------------------
Total Return+ 9.31%**
--------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Year (Thousands) $13,444
Ratio of Expenses to Average Net Assets 1.30%*
Ratio of Net Investment Income to Average Net Assets 0.68%*
Portfolio Turnover Rate 126%
Ratio of Expenses to Average Net Assets Including Expense Offsets 1.30%*
</TABLE>
+ for the period May 22, 1997 (commencement of operations) thorough
October 31, 1997.
* Annualized.
** Not annualized.
16
<PAGE>
THE DSI PORTFOLIOS
For investors who want more information about the DSI Portfolios, the
following documents are available upon request.
ANNUAL/SEMI-ANNUAL REPORTS
The annual and semi-annual reports of the DSI Portfolios provide additional
information about their investments. In each annual report, you will also
find a discussion of the market conditions and investment strategies that
significantly affected the performance of the DSI Portfolios during the
last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains additional detailed information about the DSI Portfolios
and is incorporated by reference into (legally part of) this prospectus.
Investors can receive free copies of these materials, request other
information about the portfolios and make shareholder inquiries by writing
to or calling UAM Fund Service Center at:
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
You can review, for a fee, the reports of the portfolio and SAI by writing
to the SEC's Public Reference Section, Washington, D.C. 20459-6009, or by
calling the SEC at 1-800-SEC-0330. You can get copies of this information
for free, on the SEC's Internet site at http://www.sec.gov.
-------------------
The portfolio's Investment Company Act of 1940 file is 811-5683.
[LOGO OF UAM APPEARS HERE]
17
<PAGE>
UAM FUNDS
Funds for the Informed Investor
FMA SMALL COMPANY PORTFOLIO
Institutional Class Prospectus , 199_
UAM
The Seurities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
PORTFOLIO SUMMARY.................................................... 1
What is the Objective of the Portfolio?......................... 1
What are the Principal Investment Strategies of the Portfolio?.. 1
What are the Principal Risks of the Portfolio?.................. 1
How has the Portfolio Performed?................................ 2
What are the Portfolio's Fees and Expenses?..................... 2
INVESTING WITH THE UAM FUNDS......................................... 4
Buying Shares................................................... 4
Redeeming Shares................................................ 5
Exchanging Shares............................................... 5
Transaction Policies............................................ 5
ACCOUNT POLICIES..................................................... 8
Small Accounts.................................................. 8
Distributions................................................... 8
Federal Taxes................................................... 8
FUND DETAILS......................................................... 10
Principal Investments and Risks of the Portfolio................ 10
Other Investment Practices and Strategies....................... 11
Year 2000....................................................... 11
Investment Management........................................... 11
Shareholder Servicing Arrangements.............................. 13
FINANCIAL HIGHLIGHTS................................................. 14
<PAGE>
PORTFOLIO SUMMARY
WHAT IS THE OBJECTIVE OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
FMA Small Company Portfolio seeks maximum, long-term total return,
consistent with reasonable risk to principal, by investing in common stocks
of smaller companies in terms of revenues and/or market capitalization. FMA
Small Company Portfolio cannot guarantee it will meet its investment
objective. The portfolio may not change its investment objective without
shareholder approval.
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
The following is a brief description of the principal investment strategies
of FMA Small Company Portfolio. For more information see "PRINCIPAL
INVESTMENTS AND RISKS OF THE PORTFOLIO."
The portfolio invests primarily in common stocks of smaller, less
established companies in terms of revenues, assets and market
capitalization.
WHAT ARE THE PRINCIPAL RISKS OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
The following is a summary of the principal risks associated with investing
in the portfolio. For more information see "PRINCIPAL INVESTMENTS AND RISKS
OF THE PORTFOLIO."
RISKS COMMON TO ALL MUTUAL FUNDS
At any time, your investment in a mutual fund may be worth more or less
than the price you originally paid for it. You may lose money by investing
in any mutual fund because:
. The value of the securities it owns changes, sometimes rapidly
and unpredictably.
. The mutual fund is not successful in reaching its goal because
of its strategy or because it did not implement its strategy
properly.
. Unforeseen occurrences in the securities markets negatively
affect the mutual fund.
FMA SMALL COMPANY PORTFOLIO
Since the portfolio invests in mainly equity securities, its principal
risks are those of investing in equity securities, which may include
sudden, unpredictable drops in value or long periods of decline in value.
Equity securities may lose value because of factors affecting the
securities markets generally, an entire industry or a particular company.
1
<PAGE>
Investors in the portfolio take on additional risks that come with
investing in stocks of smaller companies, which can be riskier than
investing in larger, more mature companies. Smaller companies may be more
vulnerable to adverse developments than larger companies because they tend
to have more narrow product lines and more limited financial resources.
Their stocks may trade less frequently and in limited volume.
HOW HAS THE PORTFOLIO PERFORMED?
- --------------------------------------------------------------------------------
The bar chart and table below illustrate how the performance of the
portfolio has varied from year to year. The following bar chart shows the
investment returns of the portfolio since its inception. The table
following each bar chart compares the portfolio's average annual returns
for the periods indicated to those of a broad-based securities market
index. Past performance does not guarantee future results.
[CHART APPEARS HERE]
*From the portfolio's inception (7/31/91) through 12/31/91.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_)
Since
Average annual return for periods ended 12/31/98 1 Year 5 Years Inception
---------------------------------------------------------------------------
FMA Small Company Portfolio
---------------------------------------------------------------------------
S&P 500 Index
WHAT ARE THE PORTFOLIO'S FEES AND EXPENSES?
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM THE ASSETS OF A
PORTFOLIO)
This table describes the fees and expenses that you may pay if you buy and
hold shares of a portfolio. This table is presented in the format required
by the Securities and Exchange Commission (SEC) and may not reflect the
actual expenses you would have paid as a shareholder in the portfolios.
---------------------------------------------------------------------------
Management fees
---------------------------------------------------------------------------
Other expenses
---------------------------------------------------------------------------
Total expenses
---------------------------------------------------------------------------
2
<PAGE>
ACTUAL FEES AND EXPENSES
The ratios stated in the table above are higher than the expenses you would
have actually paid as an investor in the portfolio. Due to certain expense
limits by the adviser and expense offsets, investors in the portfolio
actually paid __% of average net assets in total operating expenses during
the fiscal year ended October 31, 1998.
EXAMPLE
This example can help you to compare the cost of investing in the portfolio
to the cost of investing in other mutual funds. It assumes that you invest
$10,000 in a portfolio for the periods shown and then redeem all of your
shares at the end of those periods. It also assumes a 5% return on your
investment each year and that the portfolio's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
---------------------------------------------------------------------------
1 Year
---------------------------------------------------------------------------
3 Years
---------------------------------------------------------------------------
5 Years
---------------------------------------------------------------------------
10 Years
3
<PAGE>
INVESTING WITH THE UAM FUNDS
BUYING SHARES
- --------------------------------------------------------------------------------
To open an account To buy more shares
---------------------------------------------------------------------------
By Mail Send a check or money Send a check and, if
order and your account possible, the "Invest
application to the UAM by Mail" stub that
Funds. Make checks payable accompanied your
to "UAM Funds" (the UAM statement to the UAM
Funds will not accept Funds. Be sure your
third-party checks). check identifies clearly
your name, account number
and the portfolio into
which you want to invest.
---------------------------------------------------------------------------
By Wire Call the UAM Funds Call the UAM Funds to get a
for an account number wire control number and
and wire control number wire your money to the UAM
and then send your Funds.
completed account
application to the
UAM Funds.
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: portfolio name/account number/
account name/wire control number
---------------------------------------------------------------------------
By Automatic Not Available To set up a plan, mail a
Investment completed application to
Plan (Via ACH) the UAM Funds. To cancel
or change a plan, write to
the UAM Funds. Allow up
to 15 days to create the
plan and 3 days to cancel
or change it.
---------------------------------------------------------------------------
Minimum $25,000 $1,000
Investments
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
4
<PAGE>
REDEEMING SHARES
- --------------------------------------------------------------------------------
By Mail Send a letter signed by all registered parties on the
account to UAM Funds specifying the portfolio, the account
number and the dollar amount or number of shares you wish to
redeem. Certain shareholders may have to include additional
documents.
---------------------------------------------------------------------------
By You must first establish the telephone redemption privilege
Telephone (and, if desired, the wire redemption privilege) by
completing the appropriate sections of the account
application. Call 1-877-UAM-Link to redeem your shares.
Based on your instructions, the UAM Funds will mail your
proceeds to you or wire them to your bank.
---------------------------------------------------------------------------
By If your account balance is at least $10,000, you may
Systematic transfer as little as $100 per month from your UAM account
Withdrawal to your financial institution.
Plan (Via To participate in this service, you must complete the
ACH) appropriate sections of the account application and mail it
to the UAM Funds.
EXCHANGING SHARES
- --------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the
same class of any other UAM Fund by writing to or calling the UAM Funds.
Before exchanging your shares, read the prospectus of the UAM Fund for
which you want to exchange, which you may obtain from the UAM Funds. You
may not exchange shares represented by certificates over the telephone. You
may only exchange shares between accounts with identical registrations
(i.e., the same names and addresses).
TRANSACTION POLICIES
- --------------------------------------------------------------------------------
CALCULATING YOUR SHARE PRICE
You may buy, sell or exchange shares of a UAM Fund at a price equal to its
net asset value (NAV) next computed after it receives your order. The
portfolios calculate their NAVs as of the close of trading on the New York
Stock Exchange (NYSE) (generally 4:00 p.m. Eastern Time) on each day the
NYSE is open. Therefore, to receive the NAV on any given day, the UAM Funds
must accept your order by the close of trading on the NYSE that day.
Otherwise, you will receive the NAV that is calculated on the close of
trading on the following day. The UAM Funds are open for business on the
same days as the NYSE, which is closed on weekends and certain holidays.
5
<PAGE>
Buying or Selling Shares through a Financial Intermediary
You may buy, exchange or redeem shares of the UAM Funds through a financial
intermediary (such as a financial planner or adviser). Generally, to buy or
sell shares at the NAV on any given day, your financial intermediary must
receive your order by the close of trading on the NYSE that day. Your
financial intermediary is responsible for transmitting all subscription and
redemption requests, investment information, documentation and money to the
UAM Funds on time.
Certain financial intermediaries have agreements with the UAM Funds that allow
them to enter confirmed purchase or redemption orders on behalf of clients and
customers. Under this arrangement, the financial intermediary must send your
payment to the UAM Funds by the time they price their shares on the following
day. If your financial intermediary fails to do so, it may be responsible for
any resulting fees or losses.
CALCULATING NAV
The UAM Funds calculate their NAV by adding the total value of their assets,
subtracting their liabilities and then dividing the result by the number of
shares outstanding. The UAM Funds value their investments with readily
available market quotations at market value. Investments that do not have
readily available market quotations are valued at fair value, according to
guidelines established by the UAM Funds. The UAM Funds may also value
securities at fair value when events occur that make established valuation
methods (such as stock exchange closing prices) unreliable. The UAM Funds
value debt securities that will mature in 60 days or less at amortized cost,
which approximates market value.
IN-KIND TRANSACTIONS
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares of a portfolio with securities instead of cash. In addition, the UAM
Funds may pay all or part of your redemption proceeds with securities instead
of cash.
PAYMENT OF REDEMPTION PROCEEDS
The UAM Funds will pay for all shares redeemed within seven days after they
receive a redemption request in proper order. If you redeem shares that were
purchased by check, you will not receive your redemption proceeds until the
check has cleared, which may take up to 15 days. You may avoid these delays
by paying for shares with a certified check, bank check or money order.
SIGNATURE GUARANTEE
You must have your signature guaranteed when (1) you want the proceeds from
your redemption sent to a person or address different from that registered on
the account, or (2) you request a transfer of your shares.
6
<PAGE>
You may obtain a signature guarantee from most banks, savings institutions,
securities dealers, national securities exchanges, registered securities
associations, clearing agencies and other guarantor institutions. A notary
public cannot guarantee a signature.
TELEPHONE TRANSACTIONS
The UAM Funds will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine; they may be liable for any losses if
they fail to do so. The UAM Funds will be responsible for any loss, liability,
cost or expense for following instructions received by telephone that it
reasonably believes to be genuine.
RIGHTS RESERVED BY THE UAM FUNDS
Purchases
At any time and without notice, the UAM Funds may:
. Stop offering shares of a portfolio.
. Reject any purchase order.
. Bar an investor engaged in a pattern of excessive trading from buying shares
of any portfolio. (Excessive trading can hurt the performance of a portfolio
by disrupting its management and by increasing its expenses.)
Redemptions
The UAM Funds may suspend your right to redeem if:
. An emergency exists and a portfolio cannot dispose of its investments or
fairly determine their value.
. Trading on the NYSE is restricted.
. The SEC tells the UAM Funds to delay redemptions.
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail.
Exchanges
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written notice
to shareholders.
. Reject any request for an exchange.
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
7
<PAGE>
ACCOUNT POLICIES
SMALL ACCOUNTS
- -------------------------------------------------------------------------------
The UAM Funds may redeem your shares without your permission if the value of
your account falls below 50% of the required minimum initial investment, but
not because of a drop in the value of your shares caused by market
fluctuations. This provision does not apply to retirement accounts and certain
other accounts.
DISTRIBUTIONS
- -------------------------------------------------------------------------------
Normally, the portfolio distributes its net investment income quarterly. In
addition, it distributes any net capital gains once a year. The UAM Funds will
automatically reinvest dividends and distributions in additional shares of the
portfolio, unless you elect on your account application to receive them in
cash.
FEDERAL TAXES
- -------------------------------------------------------------------------------
The following is a summary of the federal income tax consequences of investing
in this portfolios. You may also have to pay state and local taxes on your
investment. You should always consult your tax advisor for specific guidance
regarding the tax effect of your investment in the UAM Funds.
TAXES ON DISTRIBUTIONS
The distributions of the portfolios will generally be taxable to shareholders
as ordinary income or capital gains (which may be taxable at different rates
depending on the length of time the portfolio held the relevant assets). You
will be subject to income tax on these distributions regardless of whether
they are paid in cash or reinvested in additional shares. Once a year UAM
Funds will send you a statement showing the types and total amount of
distributions you received during the previous year.
You should note that if you purchase shares just before a distribution, the
purchase price would reflect the amount of the upcoming distribution. In this
case, you would be taxed on the entire amount of the distribution received,
even though, as an economic matter, the distribution simply constitutes a
return of your investment. This is known as "buying into a dividend" and
should be avoided.
TAXES ON EXCHANGES AND REDEMPTIONS
When you redeem or exchange shares in any portfolio, you may recognize a gain
or loss for income tax purposes. This gain or loss will be based on the
difference between your tax basis in the shares and the amount you receive for
them. (To aid in computing your tax basis, you generally should retain your
account statements for the periods during which you held shares.) Any loss
8
<PAGE>
realized on shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividends that were received
with respect to the shares.
The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other tax-
qualified plan) will not be currently taxable, but they may be taxable at some
time in the future.
To the extent a portfolio invests in foreign securities, it may be subject to
foreign withholding taxes with respect to dividends or interest the portfolios
received from sources in foreign countries. The portfolios may elect to treat
some of those taxes as a distribution to shareholders, which would allow
shareholders to offset some of their U.S. federal income tax.
BACKUP WITHHOLDING
By law, the UAM Funds must withhold 31% of your distributions and proceeds if
you have not provided complete, correct taxpayer information.
9
<PAGE>
FUND DETAILS
PRINCIPAL INVESTMENTS AND RISKS OF THE PORTFOLIO
- --------------------------------------------------------------------------------
The following is a brief description of the principal investment strategies
FMA Small Company Portfolio may employ in seeking its objectives. This
discussion is in addition to the discussion set forth in the "PORTFOLIO
SUMMARY." For more information concerning these investment practices and
their associated risks, please read the "PORTFOLIO SUMMARY" and the
statement of additional information (SAI). You can find information on the
portfolio's recent strategies and holdings in its current annual/semiannual
report. The portfolio may change these strategies without shareholder
approval.
The portfolio invests primarily in common stocks of domestic companies that
are smaller or less established in terms of revenues, assets and market
capitalization. Normally, the portfolio invests at least 65% of its total
assets in companies whose market capitalizations range from $50 million to
$1 billion. At any given time, the portfolio may own in a diversified group
of stocks in several industries.
The adviser analyzes and selects investments by looking for market themes
and changes that signal opportunity. The adviser seeks out companies with
lower price to earnings ratios, strong cash flow, good credit lines and
clean or improving balance sheets. To minimize risk and volatility, the
adviser uses initial public offerings sparingly, concentrating instead on
companies with seasoned management or a track record as part of a larger
company.
The adviser follows all stocks owned or being considered for purchase. The
adviser's sell discipline calls for re-evaluation of the fundamentals of
stocks that:
. Meet initial targets of revenue or stock market value growth.
. Decline an absolute 15% in stock market value.
. Grow by 25% in stock market value in a short time.
RISKS OF EQUITY INVESTING
Equity securities may lose value because of factors affecting the
securities markets generally, such as adverse changes in economic
conditions, the general outlook for corporate earnings, interest rates or
investor sentiment. These circumstances may lead to long periods of poor
performance, such as during a "bear market." Equity securities may also
lose value because of factors affecting an entire industry, such as
increases in production costs, or factors directly related to that company,
such as decisions made by its management.
10
<PAGE>
OTHER INVESTMENT PRACTICES AND STRATEGIES
- --------------------------------------------------------------------------------
As described below, the portfolio may deviate from its investment strategy
from time to time. In addition, the portfolio may employ investment
practices that are not described in this prospectus, such as derivatives,
foreign securities, repurchase agreements, when-issued and forward
commitment transactions, lending of securities, borrowing and other
techniques.. For more information concerning the risks associated with
these investment practices, you should read the SAI.
SHORT-TERM INVESTING
At times, the adviser may decide to suspend the normal investment
activities of a portfolio by investing up to 100% of its assets in a
variety of securities, such as U.S. government and other high quality and
short-term debt obligations. The adviser may temporarily adopt a defensive
position to reduce changes in the value of a portfolio's shares that may
result from adverse market, economic, political or other developments.
When the adviser pursues a defensive strategy, a portfolio may not profit
from favorable developments that it would have otherwise profited from if
it were pursuing its normal strategies. Likewise, these strategies may
prevent a portfolio from achieving its stated objectives.
YEAR 2000
- --------------------------------------------------------------------------------
Many computer programs in use today cannot distinguish the year 2000 from
the year 1900 because of the way they encode and calculate dates.
Consequently, these programs may not be able to perform necessary functions
and could disrupt the operations of the UAM Funds or financial markets in
general. The year 2000 issue affects all companies and organizations,
including those that provide services to the UAM Funds and those in which
the UAM Funds invest.
The UAM Funds and their advisers, administrator, distributor and transfer
agent are taking steps they believe are reasonably necessary to address any
portfolio-related year 2000-related computer problems. They are actively
working on necessary changes to their own computer systems to prepare for
the year 2000 and expect that their systems will be adapted before that
date. They are also requesting information on each service provider's state
of readiness and contingency plan. However, at this time the degree to
which the year 2000 issue will affect the UAM Funds' investments or
operations cannot be predicted. Any negative consequences could adversely
affect your investment in the UAM Funds.
INVESTMENT MANAGEMENT
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Fiduciary Management Associates Inc., an Illinois corporation located at 55
Monroe Street, Suite 2550, Chicago, Illinois 60603, is the investment
adviser
11
<PAGE>
to the portfolio. The adviser manages and supervises the investment
of the portfolio's assets on a discretionary basis. Fiduciary Management
Associates, an affiliate of United Asset Management Corporation, has
provided investment management services to corporations, foundations,
endowments, pension and profit sharing plans, trusts, estates and other
institutions as well as individuals since 1980.
The adviser has voluntarily agreed to limit the expenses of the portfolio
to 1.03% of their average net assets. To maintain this expense limit, the
adviser may waive a portion of its advisory fee and/or reimburse certain
expenses of the portfolio. The adviser intends to continue its expense
limitation until further notice. During the fiscal year ended October 31,
1998, the portfolio paid the adviser _% of its average nets assets in
advisory fees.
PORTFOLIO MANAGERS
A team of investment professionals is primarily responsible for the day-to-
day management of the portfolio. Listed below are the investment
professional of the adviser that comprise the team and a description of
their business experience during the past five years.
<TABLE>
<CAPTION>
Name & Title Experience
------------------------------------------------------------------------------------------------------
<S> <C>
Kathryn A. Vorisek Ms. Vorisek joined FMA in 1996 with a broad background in the
Vice President & Portfolio investment field. Previous responsibilities include serving as
Manager Vice President in the fixed income and equity departments at Duff &
Phelps Corporation from 1989 to 1996. Prior to that, she served as
an institutional equity salesperson at Lehman Brothers. After
receiving her B.S. degree in finance from Marquette University, Ms.
Vorisek earned her Masters in Management degree from Northwestern
University in Finance and International Business. She is a member
of the Chicago Energy Analysts Society and the Investment Analysts
Society of Chicago. Ms. Vorisek has managed the portfolio since
April 1996.
------------------------------------------------------------------------------------------------------
Terry B. French - Senior Vice Mr. French joined FMA in 1997 with over 25 years of professional
President & Portfolio Manager investment experience. Previous responsibilities include Senior
Securities Analyst and Team Head for the Technology Group at Stein,
Roe & Farnham from 1988 to 1991. Prior to that, he served as
Senior Securities Analyst and Sector Head in the Trust Department
of Harris Trust and Savings Bank analyzing technology, industrial,
aerospace and capital goods companies. He began his professional
investment career as a Technology Analyst with IDS Financial. He
started his professional career as an aerodynamicist specializing
in the formation and development of applied computer simulation
design techniques for Boeing Company. Mr. French holds BS and MS
degrees in Aeronautical Engineering from the University of
Washington and a M.B.A. in Finance and Accounting from Seattle
University. He has been a member of the Chicago Science Analysts,
the New York Society of Electro-Science Analysts, and the American
Institute of Aeronautics and Astronautics. Ms. French has managed
the portfolio since August 1998.
------------------------------------------------------------------------------------------------------
Douglas G. Madigan, CFA - Mr. Madigan joined FMA in 1998 with over 22 years of professional
Senior Vice President and investment experience. Previous responsibilities included serving
Director of Research as a Mutual Fund Manager with the Harris Investment Management
Group of Harris Bank from 1996 to 1998, and Vice President/Equity
Research Coordinator with the Wealth Management Group of Harris
Bank from 1994 to 1998. While with Harris Bank, Mr. Madigan
managed both large company and small company mutual funds. Prior
to that, Mr. Madigan was Vice
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Name & Title Experience
------------------------------------------------------------------------------------------------------
<S> <C>
President and Senior Portfolio Manager for Continental Bank and a
Senior Securities Analyst for Mellon Bank. Mr. Madigan started his
professional career as an instructor in the Department of Economics
and Finance at Robert Morris College in Pittsburgh, Pennsylvania and
rose to the level of Associate Professor and Department Chairman.
Mr. Madigan received his Ph.D., M.A., and B.A. degrees from the
University of Pittsburgh. He is a Chartered Financial Analyst and a
member of the Investment Analysts Society of Chicago. Mr. Madigan has
managed the portfolio since October 1998.
</TABLE>
SHAREHOLDER SERVICING ARRANGEMENTS
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICING
Certain financial intermediaries (service agents) may charge their clients
account fees for buying or redeeming shares of the UAM Funds. These fees
may include transaction fees and/or service fees paid by the UAM Funds from
their assets attributable to the service agent. The UAM Funds do not pay
these fees on shares purchased directly from UAM Fund Distributors. The
service agents may provide shareholder services to their clients that are
not available to a shareholder dealing directly with the UAM Funds. Each
service agent is responsible for transmitting to its clients a schedule of
any such fees and information regarding any additional or different
purchase or redemption conditions. You should consult your service agent
for information regarding these fees and conditions.
The adviser may pay its affiliated companies for referring investors to the
portfolio. The adviser and its affiliates may, at their own expense, pay
qualified service providers for marketing, shareholder servicing, record-
keeping and/or other services performed with respect to the portfolio.
UAM Fund Distributors, the adviser and certain of their other affiliates
also participate, as of the date of this prospectus, in an arrangement with
Salomon Smith Barney under which Salomon Smith Barney provides certain
defined contribution plan marketing and shareholder services and receives
0.15% of the portion of the daily net asset value of Institutional Class
Shares held by Salomon Smith Barney's eligible customer accounts in
addition to amounts payable to all selling dealers. The UAM Funds also
compensate Salomon Smith Barney for services it provides to certain defined
contribution plan shareholders that are not otherwise provided by the UAM
Funds' administrator.
The UAM Funds also offer Institutional Service Class shares, which pay
marketing or shareholder servicing fees, and Adviser Class shares, which
impose a sales load and fees for marketing and shareholder servicing, for
certain of its portfolios. Not all of the UAM Funds offer all of these
classes.
13
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
financial performance of the portfolio for the past five years. The
financial highlights table comes from the financial statements of the
portfolio and reflects the financial results for a single portfolio share.
The total returns in the table represent the rate that an investor would
have earned on an investment in the portfolio (assuming reinvestment of all
dividends and distributions). PricewaterhouseCoopers LLP has audited the
financial statements of the portfolio. The financial statements and the
unqualified opinion of PricewaterhouseCoopers LLP are included in the
annual report of the portfolio, which is available upon request.
<TABLE>
<CAPTION>
Fiscal Year Ended October 31, 1998 1997 1996 1995 1994
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 14.11 $ 13.19 $ 12.13 $ 14.24
--------------------------------------------------------------------------------------------
Income from Investment Operations 0.06 0.09 0.08 0.01
Net Investment Income
Net Gains or losses on Securities
(Realized and Unrealized) 4.97 2.46 1.47 0.50
--------------------------------------------------------------------------------------------
Total From Investment Operations 5.03 2.55 1.55 0.51
--------------------------------------------------------------------------------------------
Less Distributions
Net Investment Income (0.13) (0.09) (0.08) --
Capital Gains (2.41) (1.60) (0.41) (2.62)
--------------------------------------------------------------------------------------------
Total Distributions (2.54) (1.69) (0.49) (2.62)
--------------------------------------------------------------------------------------------
Capital Contribution -- 0.06 -- --
--------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 16.60 $ 14.11 $ 13.19 $ 12.13
--------------------------------------------------------------------------------------------
Total Return+ 42.33% 22.51% 13.57% 4.54%
--------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Year (Thousands) $ 45,060 $ 20,953 $ 20,847 $ 19,561
Ratio of Expenses to Average Net
Assets 1.03% 1.03% 1.03% 1.03%
Ratio of Net Investment Income to Average Net
Assets 0.50% 0.75% 0.66% 0.06%
Portfolio Turnover Rate 86% 106% 170% 121%
Ratio of Voluntarily Waived Fees
and Expenses Assumed by the
Adviser to Average Net Assets 0.29% 0.48% 0.32% 0.29%
Ratio of Expenses to Average Net
Assets Including Expense Offsets 1.03% 1.03% 1.03% --
</TABLE>
+ Total return would have been lower had certain fees not been waived
and expenses assumed by the adviser during the periods.
14
<PAGE>
FMA SMALL COMPANY PORTFOLIO
For investors who want more information about FMA Small Company Portfolio,
the following documents are available upon request.
ANNUAL/SEMI-ANNUAL REPORTS
The annual and semi-annual reports of FMA Small Company Portfolio provide
additional information about their investments. In the annual report, you
will also find a discussion of the market conditions and investment
strategies that significantly affected the performance of FMA Small Company
Portfolio during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains additional detailed information about FMA Small Company
Portfolio and is incorporated by reference into (legally part of) this
prospectus.
Investors can receive free copies of these materials, request other
information about the portfolio and make shareholder inquiries by writing
to or calling:
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
You can review, for a fee, the reports of the portfolio and SAI by writing
to the SEC's Public Reference Section, Washington, D.C. 20459-6009, or by
calling the SEC at 1-800-SEC-0330. You can get copies of this information
for free, on the SEC's Internet site at http://www.sec.gov.
------------------
The portfolio's Investment Company Act of 1940 file is 811-5683.
[LOGO]
15
<PAGE>
UAM FUNDS
Funds for the Informed Investor
FMA SMALL COMPANY PORTFOLIO
INSTITUTIONAL SERVICE CLASS PROSPECTUS , 199_
[LOGO OF UAM APPEARS HERE]
The Securities and Exchange Commission has now approved or disapproved these
securities or passed upon the adequacy of this prospectus. My representation to
the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PORTFOLIO SUMMARY................................................ 1
What is the Objective of the Portfolio?......................... 1
What are the Principal Investment Strategies of the Portfolio?.. 1
What are the Principal Risks of the Portfolio?.................. 1
How has the Portfolio Performed?................................ 2
What are the Portfolio's Fees and Expenses?..................... 2
INVESTING WITH THE UAM FUNDS..................................... 4
Buying Shares................................................... 4
Redeeming Shares................................................ 5
Exchanging Shares............................................... 5
Transaction Policies5
ACCOUNT POLICIES................................................. 8
Small Accounts.................................................. 8
Distributions................................................... 8
Federal Taxes................................................... 8
FUND DETAILS..................................................... 10
Principal Investments and Risks of the Portfolio................ 10
Other Investment Practices and Strategies....................... 11
Year 2000....................................................... 11
Investment Management........................................... 11
Shareholder Servicing Arrangements.............................. 13
FINANCIAL HIGHLIGHTS............................................. 15
</TABLE>
<PAGE>
PORTFOLIO SUMMARY
WHAT IS THE OBJECTIVE OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
FMA Small Company Portfolio seeks maximum, long-term total return, consistent
with reasonable risk to principal, by investing in common stocks of smaller
companies in terms of revenues and/or market capitalization. FMA Small Company
Portfolio cannot guarantee it will meet its investment objective. The
portfolio may not change its investment objective without shareholder
approval.
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
The following is a brief description of the principal investment strategies of
FMA Small Company Portfolio. For more information see "PRINCIPAL INVESTMENTS
AND RISKS OF THE PORTFOLIO."
The portfolio invests primarily in common stocks of smaller, less established
companies in terms of revenues, assets and market capitalization.
WHAT ARE THE PRINCIPAL RISKS OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
The following is a summary of the principal risks associated with investing in
the portfolio. For more information see "PRINCIPAL INVESTMENTS AND RISKS OF
THE PORTFOLIO."
RISKS COMMON TO ALL MUTUAL FUNDS
At any time, your investment in a mutual fund may be worth more or less than
the price you originally paid for it. You may lose money by investing in any
mutual fund because:
. The value of the securities it owns changes, sometimes rapidly and
unpredictably.
. The mutual fund is not successful in reaching its goal because of its
strategy or because it did not implement its strategy properly.
. Unforeseen occurrences in the securities markets negatively affect the
mutual fund.
FMA SMALL COMPANY PORTFOLIO
Since the portfolio invests in mainly equity securities, its principal risks
are those of investing in equity securities, which may include sudden,
unpredictable drops in value or long periods of decline in value. Equity
securities may lose value because of factors affecting the securities markets
generally, an entire industry or a particular company.
1
<PAGE>
Investors in the portfolio take on additional risks that come with investing
in stocks of smaller companies, which can be riskier than investing in larger,
more mature companies. Smaller companies may be more vulnerable to adverse
developments than larger companies because they tend to have more narrow
product lines and more limited financial resources. Their stocks may trade
less frequently and in limited volume.
HOW HAS THE PORTFOLIO PERFORMED?
- --------------------------------------------------------------------------------
The bar chart and table below illustrate how the performance of the portfolio
has varied from year to year. The following bar chart shows the investment
returns of the portfolio since its inception. The table following each bar
chart compares the portfolio's average annual returns for the periods
indicated to those of a broad-based securities market index. Past performance
does not guarantee future results.
[GRAPH APPEARS HERE]
*From the portfolio's inception (8/1/97) through 12/31/97.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_)
Average annual return for periods ended 12/31/98 1 Year Since Inception
------------------------------------------------------------------------------
FMA Small Company Portfolio
------------------------------------------------------------------------------
S&P 500 Index
WHAT ARE THE PORTFOLIO'S FEES AND EXPENSES?
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM THE ASSETS OF A
PORTFOLIO)
This table describes the fees and expenses that you may pay if you buy and
hold shares of a portfolio. This table is presented in the format required by
the Securities and Exchange Commission (SEC) and may not reflect the actual
expenses you would have paid as a shareholder in the portfolios.
- --------------------------------------------------------------------------------
Management fees
- --------------------------------------------------------------------------------
Distribution and Service (12b-1) fees 0.40%
- --------------------------------------------------------------------------------
Other expenses
- --------------------------------------------------------------------------------
Total expenses
================================================================================
2
<PAGE>
ACTUAL FEES AND EXPENSES
The ratios stated in the table above are higher than the expenses you would
have actually paid as an investor in the portfolio. Due to certain expense
limits by the adviser and expense offsets, investors in the portfolio
actually paid __% of average net assets in total operating expenses during the
fiscal year ended October 31, 1998.
EXAMPLE
This example can help you to compare the cost of investing in the portfolio to
the cost of investing in other mutual funds. It assumes that you invest
$10,000 in a portfolio for the periods shown and then redeem all of your
shares at the end of those periods. It also assumes a 5% return on your
investment each year and that the portfolio's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
-----------------------------------------------------------------------------
<S> <C>
1 Year
-----------------------------------------------------------------------------
3 Years
-----------------------------------------------------------------------------
5 Years
-----------------------------------------------------------------------------
10 Years
</TABLE>
3
<PAGE>
INVESTING WITH THE UAM FUNDS
<TABLE>
<CAPTION>
BUYING SHARES
- --------------------------------------------------------------------------------
TO OPEN AN ACCOUNT TO BUY MORE SHARES
------------------------------------------------------------------------------
<S> <C> <C>
By Mail Send a check or Send a check and, if
money order and possible, the "Invest
your account by Mail" stub that
application to the accompanied your
UAM Funds. Make statement to the UAM
checks payable to Funds. Be sure your
"UAM Funds" (the check identifies
UAM Funds will not clearly your name,
accept third-party account number and the
checks). portfolio into which
you want to invest.
------------------------------------------------------------------------------
By Wire Call the UAM Funds Call the UAM Funds to
for an account get a wire control
number and wire number and wire your
control number and money to the UAM Funds.
then send your
completed account
application to the
UAM Funds.
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: portfolio name/account number/
account name/wire control number
------------------------------------------------------------------------------
By Automatic Not Available To set up a plan, mail
Investment a completed application
Plan (Via ACH) to the UAM Funds. To
cancel or change a
plan, write to the UAM
Funds. Allow up to 15
days to create the plan
and 3 days to cancel or
change it.
------------------------------------------------------------------------------
Minimum $25,000 $1,000
Investments
</TABLE>
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
4
<PAGE>
REDEEMING SHARES
- --------------------------------------------------------------------------------
By Mail Send a letter signed by all registered parties on the account to
UAM Funds specifying the portfolio, the account number and the
dollar amount or number of shares you wish to redeem. Certain
shareholders may have to include additional
- --------------------------------------------------------------------------------
By Telephone You must first establish the telephone redemption privilege
(and, if desired, the wire redemption privilege) by completing
the appropriate sections of the account application. Call 1-877-
UAM-Link to redeem your shares. Based on your instructions, the
UAM Funds will mail your proceeds to you or wire them to your
bank.
- --------------------------------------------------------------------------------
By If your account balance is at least $10,000, you may transfer
Systematic as little as $100 per month from your UAM account to your
Withdrawal financial institution. To participate in this service, you must
Plan (Via complete the appropriate sections of the account application
ACH) and mail it to the UAM Funds.
EXCHANGING SHARES
- --------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the same
class of any other UAM Fund by writing to or calling the UAM Funds. Before
exchanging your shares, read the prospectus of the UAM Fund for which you want
to exchange, which you may obtain from the UAM Funds. You may not exchange
shares represented by certificates over the telephone. You may only exchange
shares between accounts with identical registrations (i.e., the same names and
addresses).
TRANSACTION POLICIES
- --------------------------------------------------------------------------------
CALCULATING YOUR SHARE PRICE
You may buy, sell or exchange shares of a UAM Fund at a price equal to its net
asset value (NAV) next computed after it receives your order. The portfolios
calculate their NAVs as of the close of trading on the New York Stock Exchange
(NYSE) (generally 4:00 p.m. Eastern Time) on each day the NYSE is open.
Therefore, to receive the NAV on any given day, the UAM Funds must accept your
order by the close of trading on the NYSE that day. Otherwise, you will
receive the NAV that is calculated on the close of trading on the following
day. The UAM Funds are open for business on the same days as the NYSE, which
is closed on weekends and certain holidays.
5
<PAGE>
BUYING OR SELLING SHARES THROUGH A FINANCIAL INTERMEDIARY
You may buy, exchange or redeem shares of the UAM Funds through a financial
intermediary (such as a financial planner or adviser). Generally, to buy or
sell shares at the NAV on any given day, your financial intermediary must
receive your order by the close of trading on the NYSE that day. Your
financial intermediary is responsible for transmitting all subscription and
redemption requests, investment information, documentation and money to the
UAM Funds on time.
Certain financial intermediaries have agreements with the UAM Funds that allow
them to enter confirmed purchase or redemption orders on behalf of clients and
customers. Under this arrangement, the financial intermediary must send your
payment to the UAM Funds by the time they price their shares on the following
day. If your financial intermediary fails to do so, it may be responsible for
any resulting fees or losses.
CALCULATING NAV
The UAM Funds calculate their NAV by adding the total value of their assets,
subtracting their liabilities and then dividing the result by the number of
shares outstanding. The UAM Funds value their investments with readily
available market quotations at market value. Investments that do not have
readily available market quotations are valued at fair value, according to
guidelines established by the UAM Funds. The UAM Funds may also value
securities at fair value when events occur that make established valuation
methods (such as stock exchange closing prices) unreliable. The UAM Funds
value debt securities that will mature in 60 days or less at amortized cost,
which approximates market value.
IN-KIND TRANSACTIONS
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares of a portfolio with securities instead of cash. In addition, the UAM
Funds may pay all or part of your redemption proceeds with securities instead
of cash.
PAYMENT OF REDEMPTION PROCEEDS
The UAM Funds will pay for all shares redeemed within seven days after they
receive a redemption request in proper order. If you redeem shares that were
purchased by check, you will not receive your redemption proceeds until the
check has cleared, which may take up to 15 days. You may avoid these delays
by paying for shares with a certified check, bank check or money order.
SIGNATURE GUARANTEE
You must have your signature guaranteed when (1) you want the proceeds from
your redemption sent to a person or address different from that registered on
the account, or (2) you request a transfer of your shares.
6
<PAGE>
You may obtain a signature guarantee from most banks, savings institutions,
securities dealers, national securities exchanges, registered securities
associations, clearing agencies and other guarantor institutions. A notary
public cannot guarantee a signature.
TELEPHONE TRANSACTIONS
The UAM Funds will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine; they may be liable for any losses if
they fail to do so. The UAM Funds will be responsible for any loss, liability,
cost or expense for following instructions received by telephone that it
reasonably believes to be genuine.
RIGHTS RESERVED BY THE UAM FUNDS
PURCHASES
At any time and without notice, the UAM Funds may:
. Stop offering shares of a portfolio.
. Reject any purchase order.
. Bar an investor engaged in a pattern of excessive trading from buying
shares of any portfolio. (Excessive trading can hurt the performance of a
portfolio by disrupting its management and by increasing its expenses.)
REDEMPTIONS
The UAM Funds may suspend your right to redeem if:
. An emergency exists and a portfolio cannot dispose of its investments or
fairly determine their value.
. Trading on the NYSE is restricted.
. The SEC tells the UAM Funds to delay redemptions.
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail.
EXCHANGES
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders.
. Reject any request for an exchange.
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
7
<PAGE>
ACCOUNT POLICIES
SMALL ACCOUNTS
- --------------------------------------------------------------------------------
The UAM Funds may redeem your shares without your permission if the value of
your account falls below 50% of the required minimum initial investment, but
not because of a drop in the value of your shares caused by market
fluctuations. This provision does not apply to retirement accounts and certain
other accounts.
DISTRIBUTIONS
- --------------------------------------------------------------------------------
Normally, the portfolio distributes its net investment income quarterly. In
addition, it distributes any net capital gains once a year. The UAM Funds will
automatically reinvest dividends and distributions in additional shares of the
portfolio, unless you elect on your account application to receive them in
cash.
FEDERAL TAXES
- --------------------------------------------------------------------------------
The following is a summary of the federal income tax consequences of investing
in this portfolios. You may also have to pay state and local taxes on your
investment. You should always consult your tax advisor for specific guidance
regarding the tax effect of your investment in the UAM Funds.
TAXES ON DISTRIBUTIONS
The distributions of the portfolios will generally be taxable to shareholders
as ordinary income or capital gains (which may be taxable at different rates
depending on the length of time the portfolio held the relevant assets). You
will be subject to income tax on these distributions regardless of whether
they are paid in cash or reinvested in additional shares. Once a year UAM
Funds will send you a statement showing the types and total amount of
distributions you received during the previous year.
You should note that if you purchase shares just before a distribution, the
purchase price would reflect the amount of the upcoming distribution. In this
case, you would be taxed on the entire amount of the distribution received,
even though, as an economic matter, the distribution simply constitutes a
return of your investment. This is known as "buying into a dividend" and
should be avoided.
TAXES ON EXCHANGES AND REDEMPTIONS
When you redeem or exchange shares in any portfolio, you may recognize a gain
or loss for income tax purposes. This gain or loss will be based on the
difference between your tax basis in the shares and the amount you receive for
them. (To aid in computing your tax basis, you generally should retain your
account statements for the periods during which you held shares.) Any loss
8
<PAGE>
realized on shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividends that were received
with respect to the shares.
The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other tax-
qualified plan) will not be currently taxable, but they may be taxable at some
time in the future.
To the extent a portfolio invests in foreign securities, it may be subject to
foreign withholding taxes with respect to dividends or interest the portfolios
received from sources in foreign countries. The portfolios may elect to treat
some of those taxes as a distribution to shareholders, which would allow
shareholders to offset some of their U.S. federal income tax.
BACKUP WITHHOLDING
By law, the UAM Funds must withhold 31% of your distributions and proceeds if
you have not provided complete, correct taxpayer information.
9
<PAGE>
FUND DETAILS
PRINCIPAL INVESTMENTS AND RISKS OF THE PORTFOLIO
- --------------------------------------------------------------------------------
The following is a brief description of the principal investment strategies
FMA Small Company Portfolio may employ in seeking its objectives. This
discussion is in addition to the discussion set forth in the "PORTFOLIO
SUMMARY." For more information concerning these investment practices and their
associated risks, please read the "PORTFOLIO SUMMARY" and the statement of
additional information (SAI). You can find information on the portfolio's
recent strategies and holdings in its current annual/semiannual report. The
portfolio may change these strategies without shareholder approval.
The portfolio invests primarily in common stocks of domestic companies that
are smaller or less established in terms of revenues, assets and market
capitalization. Normally, the portfolio invests at least 65% of its total
assets in companies whose market capitalizations range from $50 million to $1
billion. At any given time, the portfolio may own in a diversified group of
stocks in several industries.
The adviser analyzes and selects investments by looking for market themes and
changes that signal opportunity. The adviser seeks out companies with lower
price to earnings ratios, strong cash flow, good credit lines and clean or
improving balance sheets. To minimize risk and volatility, the adviser uses
initial public offerings sparingly, concentrating instead on companies with
seasoned management or a track record as part of a larger company.
The adviser follows all stocks owned or being considered for purchase. The
adviser's sell discipline calls for re-evaluation of the fundamentals of
stocks that:
. Meet initial targets of revenue or stock market value growth.
. Decline an absolute 15% in stock market value.
. Grow by 25% in stock market value in a short time.
RISKS OF EQUITY INVESTING
Equity securities may lose value because of factors affecting the securities
markets generally, such as adverse changes in economic conditions, the general
outlook for corporate earnings, interest rates or investor sentiment. These
circumstances may lead to long periods of poor performance, such as during a
"bear market." Equity securities may also lose value because of factors
affecting an entire industry, such as increases in production costs, or
factors directly related to that company, such as decisions made by its
management.
10
<PAGE>
OTHER INVESTMENT PRACTICES AND STRATEGIES
- --------------------------------------------------------------------------------
As described below, the portfolio may deviate from its investment strategy
from time to time. In addition, the portfolio may employ investment practices
that are not described in this prospectus, such as derivatives, foreign
securities, repurchase agreements, when-issued and forward commitment
transactions, lending of securities, borrowing and other techniques.. For more
information concerning the risks associated with these investment practices,
you should read the SAI.
SHORT-TERM INVESTING
At times, the adviser may decide to suspend the normal investment activities
of a portfolio by investing up to 100% of its assets in a variety of
securities, such as U.S. government and other high quality and short-term debt
obligations. The adviser may temporarily adopt a defensive position to reduce
changes in the value of a portfolio's shares that may result from adverse
market, economic, political or other developments.
When the adviser pursues a defensive strategy, a portfolio may not profit from
favorable developments that it would have otherwise profited from if it were
pursuing its normal strategies. Likewise, these strategies may prevent a
portfolio from achieving its stated objectives.
YEAR 2000
- --------------------------------------------------------------------------------
Many computer programs in use today cannot distinguish the year 2000 from the
year 1900 because of the way they encode and calculate dates. Consequently,
these programs may not be able to perform necessary functions and could
disrupt the operations of the UAM Funds or financial markets in general. The
year 2000 issue affects all companies and organizations, including those that
provide services to the UAM Funds and those in which the UAM Funds invest.
The UAM Funds and their advisers, administrator, distributor and transfer
agent are taking steps they believe are reasonably necessary to address any
portfolio-related year 2000-related computer problems. They are actively
working on necessary changes to their own computer systems to prepare for the
year 2000 and expect that their systems will be adapted before that date. They
are also requesting information on each service provider's state of readiness
and contingency plan. However, at this time the degree to which the year 2000
issue will affect the UAM Funds' investments or operations cannot be
predicted. Any negative consequences could adversely affect your investment in
the UAM Funds.
INVESTMENT MANAGEMENT
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Fiduciary Management Associates Inc., an Illinois corporation located at 55
Monroe Street, Suite 2550, Chicago, Illinois 60603, is the investment adviser
11
<PAGE>
to the portfolio. The adviser manages and supervises the investment of the
portfolio's assets on a discretionary basis. Fiduciary Management Associates,
an affiliate of United Asset Management Corporation, has provided investment
management services to corporations, foundations, endowments, pension and
profit sharing plans, trusts, estates and other institutions as well as
individuals since 1980.
The adviser has voluntarily agreed to limit the expenses of the portfolio to
1.43% of their average net assets. To maintain this expense limit, the
adviser may waive a portion of its advisory fee and/or reimburse certain
expenses of the portfolio. The adviser intends to continue its expense
limitation until further notice. During the fiscal year ended October 31,
1998, the portfolio paid the adviser _% of its average nets assets in advisory
fees.
PORTFOLIO MANAGERS
A team of investment professionals is primarily responsible for the day-to-day
management of the portfolio. Listed below are the investment professional of
the adviser that comprise the team and a description of their business
experience during the past five years.
<TABLE>
<CAPTION>
NAME & TITLE EXPERIENCE
- -------------------------------------------------------------------------------------------------------
<S> <C>
Kathryn A. Vorisek Ms. Vorisek joined FMA in 1996 with a broad background in the
Vice President & Portfolio Manager investment field. Previous responsibilities include serving as
Vice President in the fixed income and equity departments at Duff &
Phelps Corporation from 1989 to 1996. Prior to that, she served as
an institutional equity salesperson at Lehman Brothers. After
receiving her B.S. degree in finance from Marquette University, Ms.
Vorisek earned her Masters in Management degree from Northwestern
University in Finance and International Business. She is a member
of the Chicago Energy Analysts Society and the Investment Analysts
Society of Chicago. Ms. Vorisek has managed the portfolio since
April 1996.
- -------------------------------------------------------------------------------------------------------
Terry B. French - Senior Vice Mr. French joined FMA in 1997 with over 25 years of professional
President & Portfolio Manager investment experience. Previous responsibilities include Senior
Securities Analyst and Team Head for the Technology Group at Stein,
Roe & Farnham from 1988 to 1991. Prior to that, he served as
Senior Securities Analyst and Sector Head in the Trust Department
of Harris Trust and Savings Bank analyzing technology, industrial,
aerospace and capital goods companies. He began his professional
investment career as a Technology Analyst with IDS Financial. He
started his professional career as an aerodynamicist specializing
in the formation and development of applied computer simulation
design techniques for Boeing Company. Mr. French holds BS and MS
degrees in Aeronautical Engineering from the University of
Washington and a M.B.A. in Finance and Accounting from Seattle
University. He has been a member of the Chicago Science Analysts,
the New York Society of Electro-Science Analysts, and the American
Institute of Aeronautics and Astronautics. Ms. French has managed
the portfolio since August 1998.
- --------------------------------------------------------------------------------------------------------
Douglas G. Madigan, CFA - Senior Mr. Madigan joined FMA in 1998 with over 22 years of professional
Vice President and Director of investment experience. Previous responsibilities included serving
Research as a Mutual Fund Manager with the Harris Investment Management
Group of Harris Bank from 1996 to 1998, and Vice President/Equity
Research Coordinator with the Wealth Management Group of Harris
Bank from 1994 to 1998. While with Harris Bank, Mr. Madigan
managed both large company and small company mutual funds. Prior
to that, Mr. Madigan was Vice
</TABLE>
12
<PAGE>
<TABLE>
NAME & TITLE EXPERIENCE
- -------------------------------------------------------------------------------------------------------
<S> <C>
President and Senior Portfolio
Manager for Continental Bank and a Senior Securities Analyst for
Mellon Bank. Mr. Madigan started his professional career as an
instructor in the Department of Economics and Finance at Robert
Morris College in Pittsburgh, Pennsylvania and rose to the level of
Associate Professor and Department Chairman. Mr. Madigan received
his Ph.D., M.A., and B.A. degrees from the University of
Pittsburgh. He is a Chartered Financial Analyst and a member of
the Investment Analysts Society of Chicago. Mr. Madigan has
managed the portfolio since October 1998.
</TABLE>
SHAREHOLDER SERVICING ARRANGEMENTS
- --------------------------------------------------------------------------------
DISTRIBUTION PLANS
The UAM Funds have adopted distribution plans and shareholder services plans
under Rule 12b-1 of the Investment Company Act of 1940 that permit them to pay
broker-dealers, financial institutions and other third parties for marketing,
distribution and shareholder services. The UAM Funds' 12b-1 plans allow the
portfolio to pay up to 1.00% of its average daily net assets annually for
these services. However, the board of the UAM Funds has currently authorized
the portfolios to pay only 0.40% per year. The board may increase the amounts
the portfolio pays, up to the plan maximum, at any time. Because
Institutional Service Class Shares pay these fees out of their assets on an
ongoing basis, over time, your shares may cost more than if you had paid
another type of sales charge. Long-term shareholders may pay more than the
economic equivalent of the maximum front-end sales charges permitted by rules
of the National Association of Securities Dealers, Inc.
SHAREHOLDER SERVICING
Certain financial intermediaries (service agents) may charge their clients
account fees for buying or redeeming shares of the UAM Funds, which are not
subject to the Fund's Distribution Plan or Shareholder Servicing Plan. These
fees may include transaction fees and/or service fees paid from the assets of
the UAM Funds attributable to the service agent. The UAM Funds do not pay
these fees on shares purchased directly from UAM Fund Distributors. The
service agents may provide shareholder services to their clients that are not
available to a shareholder dealing directly with the UAM Funds. Each service
agent is responsible for transmitting to its clients a schedule of any such
fees and information regarding any additional or different purchase or
redemption conditions. You should consult your service agent for information
regarding these fees and conditions.
Anyone entitled to receive compensation for selling or servicing shares of the
UAM Funds may receive different compensation with respect to one particular
class of shares over another.
The adviser may pay its affiliated companies for referring investors to a
portfolio. The adviser and its affiliates may, at their own expense, pay
qualified service providers for marketing, shareholder servicing, record-
keeping and/or other services performed with respect to a portfolio.
13
<PAGE>
UAM Fund Distributors, the adviser and certain of their other affiliates also
participate, as of the date of this prospectus, in an arrangement with Salomon
Smith Barney under which Salomon Smith Barney provides certain defined
contribution plan marketing and shareholder services and receives from such
entities an amount equal to up to 33.3% of the portion of the investment
advisory fees attributable to the invested assets of Salomon Smith Barney's
eligible customer accounts without regard to any expense limitation in
addition to amounts payable to all selling dealers. The UAM Funds also
compensate Salomon Smith Barney for services it provides to certain defined
contribution plan shareholders that are not otherwise provided by the UAM
Funds' administrator.
The UAM Funds also offer Institutional Class shares, which do not pay
marketing or shareholder servicing fees, and Advisor Class shares, which
impose a sales load and fees for marketing and shareholder servicing, for
certain of its portfolios. Not all of the UAM Funds offer all of these
classes.
14
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
financial performance of the portfolio for the past five years. The financial
highlights table comes from the financial statements of the portfolio and
reflects the financial results for a single portfolio share. The total returns
in the table represent the rate that an investor would have earned on an
investment in the portfolio (assuming reinvestment of all dividends and
distributions). PricewaterhouseCoopers LLP has audited the financial
statements of the portfolio. The financial statements and the unqualified
opinion of PricewaterhouseCoopers, LLP are included in the annual report of
the portfolio, which is available upon request.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER 31, 1998 1997#
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Year $ 14.95
- --------------------------------------------------------------------------------------------
Income from Investment Operations 0.01
Net Investment Income
Net Gains or losses on Securities (Realized and unrealized) 1.64
- --------------------------------------------------------------------------------------------
Total From Investment Operations 1.65
- --------------------------------------------------------------------------------------------
Less Distributions (0.01)
Net Investment Income
Capital Gains --
- --------------------------------------------------------------------------------------------
Total Distributions (0.01)
- --------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 16.59
- --------------------------------------------------------------------------------------------
Total Return+ 11.04%* *
- --------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Year (Thousands) $ 4,314
Ratio of Expenses to Average Net Assets 1.43%*
Ratio of Investment Net Income to Average Net Assets 0.24%*
Portfolio Turnover Rate 100%
Ratio of Voluntarily Waived Fees and Expenses Assumed by the
Adviser to Average Net Assets 0.21%*
Ratio of Expenses to Average Net Assets Including Expense Offsets 1.43%*
</TABLE>
# For the period August 1, 1997 (commencement of operations) to October 31,
1997.
+ Total return would have been lower had certain fees not been waived and
expenses assumed by the adviser during the periods.
** Not annualized.
* Annualized.
15
<PAGE>
FMA SMALL COMPANY PORTFOLIO
For investors who want more information about FMA Small Company Portfolio, the
following documents are available upon request.
ANNUAL/SEMI-ANNUAL REPORTS
The annual and semi-annual reports of FMA Small Company Portfolio provide
additional information about their investments. In the annual report, you
will also find a discussion of the market conditions and investment strategies
that significantly affected the performance of FMA Small Company Portfolio
during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains additional detailed information about FMA Small Company
Portfolio and is incorporated by reference into (legally part of) this
prospectus.
Investors can receive free copies of these materials, request other
information about the portfolio and make shareholder inquiries by writing to
or calling:
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
You can review, for a fee, the reports of the portfolio and SAI by writing to
the SEC's Public Reference Section, Washington, D.C. 20459-6009, or by calling
the SEC at 1-800-SEC-0330. You can get copies of this information for free, on
the SEC's Internet site at http://www.sec.gov.
------------------
The portfolio's Investment Company Act of 1940 file is 811-5683.
UAM
16
<PAGE>
UAM Funds
Funds for the Informed Investor
ICM PORTFOLIOS
Institutional Class Prospectus , 199_
ICM Fixed Income Portfolio
[LOGO]
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PORTFOLIO SUMMARY................................................ 1
What Are the Objectives of the Portfolio?....................... 1
What are the Principal Investment Strategies of the Portfolio?.. 1
What are the Principal Risks of the Portfolio................... 1
How has the Portfolio Performed?................................ 2
What are the Portfolio's Fees and Expenses?..................... 2
INVESTING WITH THE UAM FUNDS..................................... 4
Buying Shares................................................... 4
Redeeming Shares................................................ 5
Exchanging Shares............................................... 5
Transaction Policies............................................ 5
ACCOUNT POLICIES................................................. 8
Small Accounts.................................................. 8
Distributions................................................... 8
Federal Taxes................................................... 8
FUND DETAILS..................................................... 10
Principal Investments and Risks of the Portfolio................ 10
Other Investment Practices and Strategies....................... 11
Year 2000....................................................... 12
Investment Management........................................... 12
Shareholder Servicing Arrangements.............................. 14
FINANCIAL HIGHLIGHTS............................................. 16
</TABLE>
<PAGE>
PORTFOLIO SUMMARY
WHAT ARE THE OBJECTIVES OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
ICM Fixed Income Portfolio seeks maximum, long-term total return consistent
with reasonable risk to principal.. ICM Fixed Income Portfolio cannot
guarantee it will meet its investment objectives. The portfolio may not
change its investment objective without shareholder approval.
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
The following is a brief description of the principal investment strategies
of ICM Fixed Income Portfolio. For more information see "PRINCIPAL
INVESTMENTS AND RISKS OF THE PORTFOLIO."
The portfolio invests primarily in investment-grade fixed-income securities
of varying maturities. The adviser employs a conservative fixed-income
investment strategy that 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.
WHAT ARE THE PRINCIPAL RISKS OF THE PORTFOLIO
- --------------------------------------------------------------------------------
The following is a summary of the principal risks associated with investing
in the portfolio. For more information see "PRINCIPAL INVESTMENTS AND RISKS
OF THE PORTFOLIO."
RISKS COMMON TO ALL MUTUAL FUNDS
At any time, your investment in a mutual fund may be worth more or less
than the price you originally paid for it. You may lose money by investing
in any mutual fund because:
. The value of the securities it owns changes, sometimes rapidly and
unpredictably.
. The mutual fund is not successful in reaching its goal because of its
strategy or because it did not implement its strategy properly.
. Unforeseen occurrences in the securities markets negatively affect the
mutual fund.
ICM FIXED INCOME PORTFOLIO
Since the portfolio invests in debt securities, the value of its
investments could fall because:
. Of market conditions and economic and political events.
1
<PAGE>
. Interest rates rise, which tends to cause the value of debt securities
to fall.
. A security's credit rating worsens or its issuer becomes unable to
honor its financial obligations.
HOW HAS THE PORTFOLIO PERFORMED?
- --------------------------------------------------------------------------------
The bar chart and table below illustrate how the performance of the
portfolio has varied from year to year. The following bar chart shows the
investment returns of the portfolio since its inception. The table
following the bar chart compares the portfolio's average annual returns for
the periods indicated to those of a broad-based securities market index.
Past performance does not guarantee future results.
ICM FIXED INCOME PORTFOLIO
[GRAPH APPEARS HERE]
*From the portfolio's inception (11/03/92) through 12/31/89.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_)
<TABLE>
<CAPTION>
Since
Average annual return 1 Year 5 Years Inception
---------------------------------------------------------------------------
<S> <C> <C> <C>
ICM Fixed Income Portfolio
Benchmark
</TABLE>
WHAT ARE THE PORTFOLIO'S FEES AND EXPENSES?
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM THE ASSETS OF A
PORTFOLIO)
This table describes the fees and expenses that you may pay if you buy and
hold shares of a portfolio. This table is presented in the format required
by the Securities and Exchange Commission (SEC) and may not reflect the
actual expenses you would have paid as a shareholder in the portfolio.
<TABLE>
<CAPTION>
ICM Fixed Income Portfolio
--------------------------------------------------------------------------
<S> <C>
Management fees
--------------------------------------------------------------------------
Other expenses
--------------------------------------------------------------------------
Total expenses
--------------------------------------------------------------------------
</TABLE>
ACTUAL FEES AND EXPENSES
The ratios stated in the table above are higher than the expenses you would
have actually paid as an investor in the portfolio. Due to certain expense
limits
<PAGE>
by the adviser and expense offsets, investors in the portfolio actually
paid _% of average net assets during the fiscal year October 31, 1998.
EXAMPLE
This example can help you to compare the cost of investing in the portfolio
to the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the portfolio for the periods shown and then redeem all of your
shares at the end of those periods. It also assumes a 5% return on your
investment each year and that the portfolio's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
ICM Fixed Income Portfolio
<S> <C>
1 Year
===========================================================================
3 Years
---------------------------------------------------------------------------
5 Years
---------------------------------------------------------------------------
10 Years
</TABLE>
<PAGE>
INVESTING WITH THE UAM FUNDS
BUYING SHARES
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
TO OPEN AN ACCOUNT TO BUY MORE SHARES
---------------------------------------------------------------
<S> <C> <C>
By Mail Send a check or Send a check and, if
money order and possible, the "Invest
your account by Mail" stub that
application to the accompanied your
UAM Funds. Make statement to the UAM
checks payable to Funds. Be sure your
"UAM Funds" (the check identifies
UAM Funds will not clearly your name,
accept third-party account number and the
checks). portfolio into which
you want to invest.
---------------------------------------------------------------
By Wire Call the UAM Funds Call the UAM Funds to
for an account get a wire control
number and wire number and wire your
control number and money to the UAM Funds.
then send your
completed account
application to the
UAM Funds.
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: portfolio name/account number/
account name/wire control number
---------------------------------------------------------------
By Automatic Not Available To set up a plan, mail
Investment a completed application
Plan (Via ACH) to the UAM Funds. To
cancel or change a
plan, write to the UAM
Funds. Allow up to 15
days to create the plan
and 3 days to cancel or
change it.
---------------------------------------------------------------
Minimum $100,000 $1,000
Investments
</TABLE>
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
<PAGE>
REDEEMING SHARES
- --------------------------------------------------------------------------------
By Mail Send a letter signed by all registered parties on the
account to UAM Funds specifying the portfolio, the account
number and the dollar amount or number of shares you wish to
redeem. Certain shareholders may have to include additional
documents.
---------------------------------------------------------------------------
By Telephone You must first establish the telephone redemption privilege
(and, if desired, the wire redemption privilege) by
completing the appropriate sections of the account
application.
Call 1-877-UAM-Link to redeem your shares. Based on your
instructions, the UAM Funds will mail your proceeds to you
or wire them to your bank.
---------------------------------------------------------------------------
By If your account balance is at least $10,000, you
Systematic may transfer as little as $100 per month from your UAM
Withdrawal account to your financial institution.
Plan (Via ACH) To participate in this service, you must complete the
appropriate sections of the account application and mail it
to the UAM Funds.
EXCHANGE SHARES
- --------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the
same class of any other UAM Fund by writing to or calling the UAM Funds.
Before exchanging your shares, read the prospectus of the UAM Fund for
which you want to exchange, which you may obtain from the UAM Funds. You
may not exchange shares represented by certificates over the telephone. You
may only exchange shares between accounts with identical registrations
(i.e., the same names and addresses).
TRANSACTION POLICIES
- --------------------------------------------------------------------------------
CALCULATING YOUR SHARE PRICE
You may buy, sell or exchange shares of a UAM Fund at a price equal to its
net asset value (NAV) next computed after it receives your order. The
portfolio calculate its NAV as of the close of trading on the New York
Stock Exchange (NYSE) (generally 4:00 p.m. Eastern Time) on each day the
NYSE is open. Therefore, to receive the NAV on any given day, the UAM Funds
must accept your order by the close of trading on the NYSE that day.
Otherwise, you will receive the NAV that is calculated on the close of
trading on the following day. The UAM Funds are open for business on the
same days as the NYSE, which is closed on weekends and certain holidays.
<PAGE>
BUYING OR SELLING SHARES THROUGH A FINANCIAL INTERMEDIARY
You may buy, exchange or redeem shares of the UAM Funds through a financial
intermediary (such as a financial planner or adviser). Generally, to buy or
sell shares at the NAV of any given day your financial intermediary must
receive your order by the close of trading on the NYSE that day. Your
financial intermediary is responsible for transmitting all subscription and
redemption requests, investment information, documentation and money to the
UAM Funds on time.
Certain financial intermediaries have agreements with the UAM Funds that allow
them to enter confirmed purchase or redemption orders on behalf of clients and
customers. Under this arrangement, the financial intermediary must send your
payment to the UAM Funds by the time they price their shares on the following
day. If your financial intermediary fails to do so, it may be responsible for
any resulting fees or losses.
CALCULATING NAV
The UAM Funds calculate their NAV by adding the total value of their assets,
subtracting their liabilities and then dividing the result by the number of
shares outstanding. The UAM Funds value their investments with readily
available market quotations at market value. Investments that do not have
readily available market quotations are valued at fair value, according to
guidelines established by the UAM Funds. The UAM Funds may also value
securities at fair value when events occur that make established valuation
methods (such as stock exchange closing prices) unreliable. The UAM Funds
value debt securities that will mature in 60 days or less at amortized cost,
which approximates market value.
IN-KIND TRANSACTIONS
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares of a portfolio with securities instead of cash. In addition, the UAM
Funds may pay all or part of your redemption proceeds with securities instead
of cash.
PAYMENT OF REDEMPTION PROCEEDS
The UAM Funds will pay for all shares redeemed within seven days after they
receive a redemption request in proper order. If you redeem shares that were
purchased by check, you will not receive your redemption proceeds until the
check has cleared, which may take up to 15 days. You may avoid these delays
by paying for shares with a certified check, bank check or money order.
SIGNATURE GUARANTEE
You must have your signature guaranteed when (1) you want the proceeds from
your redemption sent to a person or address different from that registered on
the account, or (2) you request a transfer of your shares.
<PAGE>
You may obtain a signature guarantee from most banks, savings institutions,
securities dealers, national securities exchanges, registered securities
associations, clearing agencies and other guarantor institutions. A notary
public cannot guarantee a signature.
TELEPHONE TRANSACTIONS
The UAM Funds will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine; they may be liable for any losses if
they fail to do so. The UAM Funds will be responsible for any loss, liability,
cost or expense for following instructions received by telephone that it
reasonably believes to be genuine.
RIGHTS RESERVED BY THE UAM FUNDS
PURCHASES
At any time and without notice, the UAM Funds may:
. Stop offering shares of a portfolio.
. Reject any purchase order.
. Bar an investor engaged in a pattern of excessive trading from buying
shares of any portfolio. (Excessive trading can hurt the performance of a
portfolio by disrupting its management and by increasing its expenses.)
REDEMPTIONS
The UAM Funds may suspend your right to redeem if:
. An emergency exists and a portfolio cannot dispose of its investments or
fairly determine their value.
. Trading on the NYSE is restricted.
. The SEC tells the UAM Funds to delay redemptions.
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail.
EXCHANGES
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders.
. Reject any request for an exchange.
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
<PAGE>
ACCOUNT POLICIES
SMALL ACCOUNTS
- --------------------------------------------------------------------------------
The UAM Funds may redeem your shares without your permission if the value
of your account falls below 50% of the required minimum initial investment,
but not because of a drop in the value of your shares caused by market
fluctuations. This provision does not apply to retirement accounts and
certain other accounts.
DISTRIBUTIONS
- --------------------------------------------------------------------------------
Normally, the portfolio distributes its net investment income quarterly. In
addition, it distributes any net capital gains once a year. The UAM Funds
will automatically reinvest dividends and distributions in additional
shares of the portfolio, unless you elect on your account application to
receive them in cash.
FEDERAL TAXES
- --------------------------------------------------------------------------------
The following is a summary of the federal income tax consequences of
investing in this portfolios. You may also have to pay state and local
taxes on your investment. You should always consult your tax advisor for
specific guidance regarding the tax effect of your investment in the UAM
Funds.
TAXES ON DISTRIBUTIONS
The distributions of the portfolios will generally be taxable to shareholders
as ordinary income or capital gains (which may be taxable at different rates
depending on the length of time the portfolio held the relevant assets). You
will be subject to income tax on these distributions regardless of whether
they are paid in cash or reinvested in additional shares. Once a year UAM
Funds will send you a statement showing the types and total amount of
distributions you received during the previous year.
You should note that if you purchase shares just before a distribution, the
purchase price would reflect the amount of the upcoming distribution. In this
case, you would be taxed on the entire amount of the distribution received,
even though, as an economic matter, the distribution simply constitutes a
return of your investment. This is known as "buying into a dividend" and
should be avoided.
TAXES ON EXCHANGES AND REDEMPTIONS
When you redeem or exchange shares in any portfolio, you may recognize a gain
or loss for income tax purposes. This gain or loss will be based on the
difference between your tax basis in the shares and the amount you receive for
them. (To aid in computing your tax basis, you generally should retain your
account statements for the periods during which you held shares.) Any loss
<PAGE>
realized on shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividends that were received
with respect to the shares.
The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other tax-
qualified plan) will not be currently taxable, but they may be taxable at some
time in the future.
To the extent a portfolio invests in foreign securities, it may be subject to
foreign withholding taxes with respect to dividends or interest the portfolios
received from sources in foreign countries. The portfolios may elect to treat
some of those taxes as a distribution to shareholders, which would allow
shareholders to offset some of their U.S. federal income tax.
BACKUP WITHHOLDING
By law, the UAM Funds must withhold 31% of your distributions and proceeds if
you have not provided complete, correct taxpayer information.
<PAGE>
FUND DETAILS
PRINCIPAL INVESTMENTS AND RISKS OF THE PORTFOLIO
- --------------------------------------------------------------------------------
The following is a brief description of the principal investment strategies
ICM Fixed Income Portfolio may employ in seeking its objectives. This
discussion is in addition to the discussion set forth in the "PORTFOLIO
SUMMARY." For more information concerning these investment practices and their
associated risks, please read the "PORTFOLIO SUMMARY" and the statement of
additional information (SAI). You can also find information on the portfolio's
recent strategies and holdings in its current annual/semiannual report. The
portfolio may change these strategies without shareholder approval.
The portfolio invests primarily in investment-grade debt securities. Debt
securities are securities issued by the U.S. government and its agencies,
corporate debt securities, mortgage-backed and asset-backed securities, Yankee
bonds, commercial paper and certificates of deposit. These securities may
have varying interest rate schedules and maturities (dates when debt
securities are due and payable). Asset-backed and mortgage-backed securities
are securities that are backed by pools of loans or mortgages assembled for
sale to investors by various governmental agencies and private issuers.
Mortgage-backed securities may generally take two forms: pass-throughs and
collateralized mortgage obligations (CMOs).
The adviser employs a conservative fixed-income investment strategy that 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. Independent research on
relative value along the yield curve and a view on interest rate trends drive
the adviser's investment process. 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.
RISKS OF INVESTING IN DEBT SECURITIES
The value of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up the value of the bond will go
down, and vice versa). Interest rate changes may cause people to pay off
mortgage-backed and asset-backed securities earlier or later than expected,
which may shorten or lengthen the average maturity. Variations to average
maturity may cause the portfolio's share price and yield to fall.
The credit rating or financial condition of an issuer may affect the value of
a debt security. Generally, the lower the quality rating of a security, the
greater the risks that the issuer will fail to pay interest and return
principal. To compensate investors for taking on increased risk, issuers with
lower credit
<PAGE>
ratings usually offer their investors higher interest rates. If an issuer
defaults or becomes unable to honor its financial obligations, the bond may
lose some or all of its value.
OTHER INVESTMENT PRACTICES AND STRATEGIES
- --------------------------------------------------------------------------------
As described below, the portfolio may invest in derivatives and foreign
securities and may deviate from its investment strategy from time to time. In
addition, it may employ investment practices that are not described in this
prospectus, such as repurchase agreements, when-issued and forward commitment
transactions, lending of securities, borrowing and other techniques. For more
information concerning the risks associated with these investment practices,
you should read the SAI.
FOREIGN INVESTMENTS
The portfolio will invest the majority of its assets in U.S. dollar
denominated securities; however, using the same credit quality standards
applied to domestic securities it also may invest in foreign securities.
Foreign securities, especially those of companies in emerging markets, can be
riskier and more volatile than domestic securities. Adverse political and
economic developments or changes in the value of foreign currency can make it
harder for a portfolio to sell its securities and could reduce the value of
your shares. Changes in tax and accounting standards and difficulties
obtaining information about foreign companies can negatively affect investment
decisions.
In January 1999, the new European common currency, called the Euro, will begin
being used. The nations that use the Euro will have the same monetary policy
regardless of their domestic economy, which could have adverse effects on
those economies. In addition, the method by which the conversion to the Euro
is implemented could negatively affect the investments of a portfolio.
DERIVATIVES
The portfolio may buy and sell derivatives, including futures and options.
These tools allow the portfolio to employ its investment strategies more
effectively. Derivatives are often more volatile than other investments and
may magnify a portfolio's gains or losses. A portfolio may lose money if the
adviser:
. Fails to predict correctly the direction in which the underlying asset or
economic factor will move.
. Judges market conditions incorrectly.
. Employs a strategy that does not correlate well with the investments of the
portfolio.
<PAGE>
SHORT-TERM INVESTING
At times, the adviser may decide to suspend the normal investment activities
of a portfolio by investing up to 100% of its assets in a variety of
securities, such as U.S. government and other high quality and short-term debt
obligations. The adviser may temporarily adopt a defensive position to reduce
changes in the value of a portfolio's shares that may result from adverse
market, economic, political or other developments.
When the adviser pursues a defensive strategy, a portfolio may not profit from
favorable developments that it would have otherwise profited from if it were
pursuing its normal strategies. Likewise, these strategies may prevent a
portfolio from achieving its stated objectives.
YEAR 2000
- --------------------------------------------------------------------------------
Many computer programs in use today cannot distinguish the year 2000 from the
year 1900 because of the way they encode and calculate dates. Consequently,
these programs may not be able to perform necessary functions and could
disrupt the operations of the UAM Funds or financial markets in general. The
year 2000 issue affects all companies and organizations, including those that
provide services to the UAM Funds and those in which the UAM Funds invest.
The UAM Funds and their advisers, administrator, distributor and transfer
agent are taking steps they believe are reasonably necessary to address any
portfolio-related year 2000-related computer problems. They are actively
working on necessary changes to their own computer systems to prepare for the
year 2000 and expect that their systems will be adapted before that date. They
are also requesting information on each service provider's state of readiness
and contingency plan. However, at this time the degree to which the year 2000
issue will affect the UAM Funds' investments or operations cannot be
predicted. Any negative consequences could adversely affect your investment in
the UAM Funds.
INVESTMENT MANAGEMENT
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Investment Counselors of Maryland, Inc., a Maryland corporation located at 803
Cathedral Street, Baltimore, Maryland 21201, is the investment adviser to the
portfolio. The adviser manages and supervises the investment of the
portfolio's assets on a discretionary basis. Investment Counselors of
Maryland, an affiliate of United Asset Management Corporation, has provided
investment management services to corporations, pension and profit sharing
plans, trusts, estates and other institutions and individuals since 1972.
The adviser has voluntarily agreed to limit the expenses of the portfolio to
0.50% of its average net assets. To maintain this expense limit, the adviser
may waive a portion of its advisory fee and/or reimburse certain expenses of
the portfolio. The adviser intends to continue its expense limitation until
<PAGE>
further notice. During the last fiscal year, the portfolio paid Investment
Counselors of Maryland __% of the portfolio's average daily net assets.
PORTFOLIO MANAGERS
Listed below is the investment professional of the adviser who is primarily
responsible for the day-to-day management of the portfolio and a description
of his business experience during the past five years.
Manager & Title Experience
- --------------------------------------------------------------------------------
Daniel O. Shackelford Mr. Shackelford joined ICM in 1993. Prior to
Senior Vice President joining ICM, he was Assistant Director of
Investments for the University of North
Carolina. He has specific expertise in the
utilization of financial futures and options
and came to ICM with thirteen years of
experience in international fixed income
management. Mr. Shackelford is portfolio
manager for the ICM Fixed Income Fund and
related separate accounts. He received his
B.S. degree in Business Administration from
the University of North Carolina and an M.B.A.
from the Fuqua School of Business at Duke
University. He is a Chartered Financial
Analyst. Mr. Shackelford has managed the
portfolio since January 1994.
The Investment Counselors of Maryland team of professionals also includes:
Name & Title Experience
- --------------------------------------------------------------------------------
Robert D. McDorman, Jr. Mr. McDorman joined ICM in June, 1985. His
Principal and Chief primary responsibilities are the management of
Investment Officer ICM Small Company Portfolio and related
separate accounts and equity security
analysis. Prior to joining ICM, Mr. McDorman
managed the Financial Indistrial 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.
- --------------------------------------------------------------------------------
Stephen T. Scott Mr. Scott specializes in the management of
Principal and President pension assets, private foundations and
endowments. He joined ICM in 1973 after having
served as portfolio manager at Chase Manhattan
Bank and Mercantile-Safe Deposit and Trust
Company. He is a graduate of Randolph-Macon
College and received an M.B.A. from Columbia
University Graduate School of Business.
- --------------------------------------------------------------------------------
Paul L. Borssuck Mr. Scott specializes in the management of
Principal pension assets, private foundations and
endowments. He joined ICM in 1973 after having
served as portfolio manager at Chase Manhattan
Bank and Mercantile-Safe Deposit and Trust
Company. He is a graduate of Randolph-Macon
College and received an M.B.A. from Columbia
University Graduate School of Business.
- --------------------------------------------------------------------------------
Robert F. Boyd Mr. Boyd joined ICM in 1995, to focus on
Principal investment and quantitative/valuation
research. Before joining ICM, he was a
Managing Director and portfolio manager at
Brandywine Asset Management. Prior to that, he
was Senior Vice President, Director of
Research at Mercantile-Safe Deposit and Trust
Company, as well as a portfolio manager. Mr.
Boyd was awarded his B.S. degree from the
University of Virginia and his M.B.A. at
Columbia University, after which he joined
Smith Barney's research department. He is a
Chartered Financial Analyst.
<PAGE>
Name & Title Experience
- --------------------------------------------------------------------------------
Linda W. McCleary Ms. McCleary oversees the Fixed Income Group
Principal at ICM and, as a portfolio manager, is
instrumental in the mangement of balanced
accounts. She joined ICM 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.
- --------------------------------------------------------------------------------
Andrew L. Gilchrist Mr. Gilchrist joined ICM in 1996 as Director
Executive Vice President of Investment Technology. Prior to ICM, Mr.
Gilchrist served as Director of Investment
Technology at Mercantile-Safe Deposit and
Trust Company for 18 years. Before that, he
was with Merrill Lynch. Mr. Gilchrist
graduated with honors in Economics from the
University of Maryland and earned a Masters
from The Johns Hopkins University. He is a
member of the Society of Quantitative
Analysts.
- --------------------------------------------------------------------------------
Jule L. Hale Ms. Hale joined ICM in 1998 with seventeen
Senior Vice President years of investment experience. Prior to
joining ICM, she was a Senior Vice President
and mutual fund manager for Nations Bank
Corporation from 1991 to 1998. She has a B.S.
degree from Mt. St. Mary's College and an
M.B.A. from Kent State University. Ms. Hale is
a Chartered Financial Analyst and a member of
the National Association of Petroleum
Investment Analysts (NAPIA).
- --------------------------------------------------------------------------------
Simeon F. Wooten, III Mr. Wooten joined ICM in 1998 as a research
Senior Vice President analyst and as a member of the management team
of the ICM Small Company Portfolio. Prior to
joining ICM, he served as Vice
President/Research at Adams Express Company,
which he joined in 1980. He is a graduate of
the Wharton School of the University of
Pennsylvania. Mr. Wooten is a Chartered
Financial Analyst and Certified Public
Accountant.
- --------------------------------------------------------------------------------
William V. Heaphy Mr. Heaphy joined ICM in 1994 as a security
Vice President analyst in the equity research department.
Prior to joining ICM, Mr. Heaphy was an
associate in the Baltimore law firm of Ober,
Kaler, Grimes and Shriver, and before that, a
staff auditor with Price Waterhouse. Mr.
Heaphy earned his law degree from the
University of Maryland School of Law and his
B.S. from Lehigh University. He is a Certified
Public Accountant and Chartered Financial
Analyst.
SHAREHOLDER SERVICING ARRANGEMENTS
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICING
Certain financial itermediaries (services agents) may charge their clients
account fees for buying or redeeming shares of the UAM Funds. These fees may
include transaction fees and/or service fees paid by the UAM Funds from their
assets attributable to the service agent. The UAM Funds do not pay these fees
on shares purchased directly from UAM Fund Distributors. The service agents
may provide shareholder services to their clients that are not available to a
shareholder dealing directly with the UAM Funds. Each service agent is
responsible for transmitting to its clients a schedule of any such fees and
information regarding any additional or different purchase or redemption
conditions. You should consult your service agent for information regarding
these fees and conditions.
The adviser may pay its affiliated companies for referring investors to the
portfolio. The adviser and its affiliates may, at their own expense, pay
qualified service providers for marketing, shareholder servicing, record-
keeping and/or other services performed with respect to the portfolios.
<PAGE>
UAM Fund Distributors, the adviser and certain of their other affiliates also
participate, as of the date of this prospectus, in an arrangement with Salomon
Smith Barney under which Salomon Smith Barney provides certain defined
contribution plan marketing and shareholder services and receives 0.15% of the
portion of the daily net asset value of Institutional Class Shares held by
Salomon Smith Barney's eligible customer accounts in addition to amounts
payable to all selling dealers. The UAM Funds also compensate Salomon Smith
Barney for services it provides to certain defined contribution plan
shareholders that are not otherwise provided by the UAM Funds' administrator.
The UAM Funds also offer Institutional Service Class shares, which pay
marketing or shareholder servicing fees, and Adviser Class shares, which
impose a sales load and fees for marketing and shareholder servicing, for
certain of its portfolios. Not all of the UAM Funds offer all of these
classes.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
financial performance of the portfolio for the past five years. The financial
highlights table comes from the financial statements of the portfolio and
reflects the financial results for a single portfolio share. The total returns
in the table represent the rate that an investor would have earned on an
investment in the portfolio (assuming reinvestment of all dividends and
distributions). PricewaterhouseCoopers LLP has audited the financial
statements of the portfolio. The financial statements, and the unqualified
opinion of PricewaterhouseCoopers LLP are included in the annual report of the
portfolio. The annual report of the portfolio is available upon request.
<TABLE>
<CAPTION>
Fiscal Year Ended October 31, 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value Beginning $ 10.36 $ 10.43 $ 9.55 $ 10.58
of Period
- --------------------------------------------------------------------------------------
Income from Investment
Operations
Net Investment Income 0.62 0.59 0.59 0.52
Net Gains or losses on
Securities (Realized and
Unrealized) 0.21 (0.07) 0.82 (0.98)
- --------------------------------------------------------------------------------------
Total From Investment
Operations 0.83 0.52 1.41 (0.46)
- --------------------------------------------------------------------------------------
Less Distributions
Net Investment Income (0.63) (0.59) (0.53) (0.48)
Capital Gains - - - (0.09)
- --------------------------------------------------------------------------------------
Total Distributions (0.63) (0.59) (0.53) (0.57)
- --------------------------------------------------------------------------------------
Net Asset Value, End of
Period $ 10.56 $ 10.36 $ 10.43 $ 9.55
- --------------------------------------------------------------------------------------
Total Return+ 8.31% 5.17% 15.11% (4.43)%
======================================================================================
Ratios/Supplemental Data
Net Assets, End of Period
(Thousands) $31,119 $24,358 $16,765 $12,601
Ratio of Expenses to
Average Net Assets 0.50% 0.50% 0.63% 0.84%
Ratio of Net Investment Income to
Average Net Assets 6.03% 5.98% 6.04% 5.26%
Portfolio Turnover Rate 34% 46% 49% 82%
Ratio of Voluntarily
Waived Fees and Expenses
Assumed by the Adviser to
Average Net Assets 0.56% 0.82% 0.77% 0.45%
Ratio of Expenses to
Average Net Assets
Including Expense Offsets 0.50% 0.50% 0.61% --
</TABLE>
+ Total return would have been lower had certain fees not been waived
and expenses assumed by the adviser during the periods.
<PAGE>
ICM PORTFOLIOS
For investors who want more information about ICM Fixed Income Portfolio, the
following documents are available upon request.
ANNUAL/SEMI-ANNUAL REPORTS
The annual and semi-annual reports of ICM Fixed Income Portfolio provide
additional information about their investments. In each annual report, you
will also find a discussion of the market conditions and investment strategies
that significantly affected the performance of ICM Fixed Income Portfolio
during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains additional detailed information about ICM Fixed Income
Portfolio and is incorporated by reference into (legally part of) this
prospectus.
Investors can receive free copies of these materials, request other
information about the portfolios and make shareholder inquiries by writing to
or calling UAM Fund Service Center at:
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
You can review, for a fee, the reports of the portfolio and SAI by writing to
the SEC's Public Reference Section, Washington, D.C. 20459-6009, or by calling
the SEC at 1-800-SEC-0330. You can get copies of this information for free, on
the SEC's Internet site at http://www.sec.gov.
------------------
The portfolio's Investment Company Act of 1940 file is 811-5683.
[LOGO]
<PAGE>
UAM FUNDS
Funds for the Informed Investor
ICM PORTFOLIOS
Institutional Class Prospectus , 199_
ICM Equity Portfolio
ICM Small Company Portfolio
[LOGO]
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
PORTFOLIO SUMMARY................................................. 1
What are the Objectives of the Portfolios?....................... 1
What are the Principal Investment Strategies of the Portfolios?.. 1
What are the Principal Risks of the Portfolios................... 2
How have the Portfolios Performed?............................... 2
What Are the Portfolios' Fees and Expenses?...................... 4
INVESTING WITH THE UAM FUNDS...................................... 5
Buying Shares.................................................... 5
Redeeming Shares................................................. 6
Exchanging Shares................................................ 6
Transaction Policies............................................. 6
ACCOUNT POLICIES.................................................. 9
Small Accounts................................................... 9
Distributions.................................................... 9
Federal Taxes.................................................... 9
FUND DETAILS...................................................... 11
Principal Investments and Risks of the Portfolios................ 11
Other Investment Practices and Strategies........................ 12
Year 2000........................................................ 13
Investment Management............................................ 13
Shareholder Servicing Arrangements............................... 16
FINANCIAL HIGHLIGHTS.............................................. 18
ICM Small Compay Portfolio....................................... 18
ICM Equity Portfolio............................................. 19
</TABLE>
<PAGE>
PORTFOLIO SUMMARY
ICM SMALL COMPANY PORTFOLIO IS CURRENTLY CLOSED TO NEW INVESTORS.
WHAT ARE THE OBJECTIVES OF THE PORTFOLIOS?
- --------------------------------------------------------------------------------
Listed below are the investment objectives of ICM Equity and Small Company
Portfolios. ICM Equity and Small Company Portfolios cannot guarantee they
will meet their investment objectives. A portfolio may not change its
investment objective without shareholder approval.
ICM SMALL COMPANY PORTFOLIO
ICM Small Company Portfolio seeks maximum, long-term total return consistent
with reasonable risk to principal, by investing primarily in common stocks of
smaller companies measured in terms of revenues and assets and, more
importantly, in terms of market capitalization.
ICM EQUITY PORTFOLIO
ICM Equity Portfolio seeks maximum long-term return consistent with reasonable
risk to principal, by investing primarily in common stocks of relatively large
companies measured in terms of revenues, assets and market capitalization.
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE PORTFOLIOS?
- --------------------------------------------------------------------------------
The following is a brief description of the principal investment strategies of
ICM Equity and Small Company Portfolios. For more information see "PRINCIPAL
INVESTMENTS AND RISKS OF THE PORTFOLIOS."
ICM Small Company Portfolio normally invests at least 80% of its assets in
common stocks of smaller, less established companies in terms of revenues and
assets and, more importantly, market capitalization. Such companies will
generally have market capitalizations (the total market value of its
outstanding shares) that range from $50 million to $700 million. ICM Equity
Portfolio normally invests at least 80% of its assets in common stocks of
relatively large companies in terms of revenues, assets, and market
capitalization. Usually, the portfolio expects to invest at least 80% of its
assets in companies that have a market capitalization exceeding that of the
median market capitalization of the stocks listed on the New York Stock
Exchange.
Typically, the adviser invests in companies that have an above-average return
on equity, are financially strong, and yet are selling at a price to earnings
ratio lower than that of most stocks represented in the S&P 500 Index. In
addition, the adviser tends to focus on those companies whose earnings
momentum is accelerating and/or whose recent earnings have exceeded general
expectations.
1
<PAGE>
WHAT ARE THE PRINCIPAL RISKS OF THE PORTFOLIOS
- --------------------------------------------------------------------------------
The following is a summary of the principal risks associated with investing in
the portfolios. For more information see "PRINCIPAL INVESTMENTS AND RISKS OF
THE PORTFOLIOS."
RISKS COMMON TO ALL MUTUAL FUNDS
At any time, your investment in a mutual fund may be worth more or less than
the price you originally paid for it. You may lose money by investing in any
mutual fund because:
. The value of the securities it owns changes, sometimes rapidly and
unpredictably.
. The mutual fund is not successful in reaching its goal because of its
strategy or because it did not implement its strategy properly.
. Unforeseen occurrences in the securities markets negatively affect the
mutual fund.
ICM EQUITY AND SMALL COMPANY PORTFOLIOS
Since the portfolios invest mainly in equity securities, their principal risks
are those of investing in equity securities, which may include sudden,
unpredictable drops in value or long periods of decline in value. Equity
securities may lose value because of factors affecting the securities markets
generally, an entire industry or a particular company.
The portfolios are value oriented and may not perform as well as certain other
types of equity mutual funds during periods when value stocks are out of
favor.
Investors in ICM Small Company Portfolio take on additional risks that come
with investing in stocks of smaller companies, which can be riskier than
investing in larger, more mature companies. Smaller companies may be more
vulnerable to adverse developments than larger companies because they tend to
have more narrow product lines and more limited financial resources. Their
stocks may trade less frequently and in limited volume.
HOW HAVE THE PORTFOLIOS PERFORMED?
- --------------------------------------------------------------------------------
The bar charts and tables below illustrate how the performance of the
portfolios has varied from year to year. The following bar charts show the
investment returns of each portfolio since its inception. The table following
each bar chart compares each portfolio's average annual returns for the
periods indicated to those of a broad-based securities market index. Past
performance does not guarantee future results.
2
<PAGE>
ICM SMALL COMPANY PORTFOLIO
[GRAPHIC APPEARS HERE]
*From the portfolio's inception (4/1/89) through 12/31/89.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_)
<TABLE>
<CAPTION>
Since
Average annual return for periods ended 12/31/98 1 Year 5 Years Inception
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ICM Small Company Portfolio
Benchmark
</TABLE>
ICM EQUITY PORTFOLIO
[GRAPHIC APPEARS HERE]
*From the portfolio's inception (10/1/89) through 12/31/93.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_)
<TABLE>
<CAPTION>
Since
Average annual return for periods ended 12/31/98 1 Year 5 Years Inception
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ICM Equity Portfolio
Benchmark
</TABLE>
3
<PAGE>
WHAT ARE THE PORTFOLIOS' FEES AND EXPENSES?
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM THE ASSETS OF A
PORTFOLIO)
This table describes the fees and expenses that you may pay if you buy and
hold shares of a portfolio. This table is presented in the format required by
the Securities and Exchange Commission (SEC) and may not reflect the actual
expenses you would have paid as a shareholder in the portfolios.
<TABLE>
<CAPTION>
ICM Small ICM Equity
Company Portfolio Portfolio
------------------------------------------------------------------------------
<S> <C> <C>
Management fees
------------------------------------------------------------------------------
Other expenses
------------------------------------------------------------------------------
Total expenses
------------------------------------------------------------------------------
</TABLE>
Actual Fees and Expenses
The ratios stated in the table above are higher than the expenses you will
actually pay as an investor in these portfolios. Due to certain expense
limits by the adviser for ICM Equity Portfolio and expense offsets for both
portfolios, investors in the portfolios actually paid the following total
operating expenses during the fiscal year ended October 31, 1998:
<TABLE>
<CAPTION>
ICM Small ICM Equity
Company Portfolio Portfolio
------------------------------------------------------------------------------
<S> <C> <C>
Actual Expenses
------------------------------------------------------------------------------
</TABLE>
EXAMPLE
This example can help you to compare the cost of investing in these portfolios
to the cost of investing in other mutual funds. It assumes that you invest
$10,000 in a portfolio for the periods shown and then redeem all of your
shares at the end of those periods. It also assumes a 5% return on your
investment each year and that the portfolio's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
ICM Small Company ICM Equity
Portfolio Portfolio
------------------------------------------------------------------------------
<S> <C> <C>
1 Year
------------------------------------------------------------------------------
3 Years
------------------------------------------------------------------------------
5 Years
------------------------------------------------------------------------------
10 Years
</TABLE>
4
<PAGE>
INVESTING WITH THE UAM FUNDS
BUYING SHARES
- --------------------------------------------------------------------------------
TO OPEN AN ACCOUNT TO BUY MORE SHARES
------------------------------------------------------------------------------
By Mail Send a check or Send a check and, if
money order and possible, the "Invest
your account by Mail" stub that
application to the accompanied your
UAM Funds. Make statement to the UAM
checks payable to Funds. Be sure your
"UAM Funds" (the check identifies
UAM Funds will not clearly your name,
accept third-party account number and
checks). the portfolio into
which you want to
invest.
------------------------------------------------------------------------------
By Wire Call the UAM Funds Call the UAM Funds to
for an account get a wire control
number and wire number and wire your
control number and money to the UAM
then send your Funds.
completed account
application to the
UAM Funds.
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: portfolio
name/account number/
account name/wire
control number
------------------------------------------------------------------------------
By Automatic Not Available To set up a plan,
Investment Plan mail a completed
(Via ACH) application to the
UAM Funds. To cancel
or change a plan,
write to the UAM
Funds. Allow up to 15
days to create the
plan and 3 days to
cancel or change it.
------------------------------------------------------------------------------
Minimum $2,500 for ICM $100 for ICM Equity
Investments Equity Portfolio, Portfolio and $1,000
$5,000,000 for ICM for ICM Small Company
Small Company Portfolio
Portfolio, and for
IRAs ($500) and
spousal IRAs
($250),
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
5
<PAGE>
REDEEMING SHARES
- --------------------------------------------------------------------------------
By Mail Send a letter signed by all registered parties on the account
to UAM Funds specifying the portfolio, the account number and
the dollar amount or number of shares you wish to redeem.
Certain shareholders may have to include additional documents.
------------------------------------------------------------------------------
By Telephone You must first establish the telephone redemption privilege
(and, if desired, the wire redemption privilege) by completing
the appropriate sections of the account application.
Call 1-877-UAM-Link to redeem your shares. Based on your
instructions, the UAM Funds will mail your proceeds to you or
wire them to your bank.
------------------------------------------------------------------------------
By If your account balance is at least $10,000, you may transfer
Systematic as little as $100 per month from your UAM account to your
Withdrawal financial institution.
Plan (Via ACH)
To participate in this service, you must complete the
appropriate sections of the account application and mail it to
the UAM Funds.
EXCHANGE SHARES
- --------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the same
class of any other UAM Fund by writing to or calling the UAM Funds. Before
exchanging your shares, read the prospectus of the UAM Fund for which you want
to exchange, which you may obtain from the UAM Funds. You may not exchange
shares represented by certificates over the telephone. You may only exchange
shares between accounts with identical registrations (i.e., the same names and
addresses).
TRANSACTION POLICIES
- --------------------------------------------------------------------------------
CALCULATING YOUR SHARE PRICE
You may buy, sell or exchange shares of a UAM Fund at a price equal to its net
asset value (NAV) next computed after it receives your order. The portfolio
calculate its NAV as of the close of trading on the New York Stock Exchange
(NYSE) (generally 4:00 p.m. Eastern Time) on each day the NYSE is open.
Therefore, to receive the NAV on any given day, the UAM Funds must accept your
order by the close of trading on the NYSE that day. Otherwise, you will
receive the NAV that is calculated on the close of trading on the following
day. The UAM Funds are open for business on the same days as the NYSE, which
is closed on weekends and certain holidays.
6
<PAGE>
BUYING OR SELLING SHARES THROUGH A FINANCIAL INTERMEDIARY
You may buy, exchange or redeem shares of the UAM Funds through a financial
intermediary (such as a financial planner or adviser). Generally, to buy or
sell shares at the NAV of any given day your financial intermediary must
receive your order by the close of trading on the NYSE that day. Your
financial intermediary is responsible for transmitting all subscription and
redemption requests, investment information, documentation and money to the
UAM Funds on time.
Certain financial intermediaries have agreements with the UAM Funds that allow
them to enter confirmed purchase or redemption orders on behalf of clients and
customers. Under this arrangement, the financial intermediary must send your
payment to the UAM Funds by the time they price their shares on the following
day. If your financial intermediary fails to do so, it may be responsible for
any resulting fees or losses.
CALCULATING NAV
The UAM Funds calculate their NAV by adding the total value of their assets,
subtracting their liabilities and then dividing the result by the number of
shares outstanding. The UAM Funds value their investments with readily
available market quotations at market value. Investments that do not have
readily available market quotations are valued at fair value, according to
guidelines established by the UAM Funds. The UAM Funds may also value
securities at fair value when events occur that make established valuation
methods (such as stock exchange closing prices) unreliable. The UAM Funds
value debt securities that will mature in 60 days or less at amortized cost,
which approximates market value.
IN-KIND TRANSACTIONS
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares of a portfolio with securities instead of cash. In addition, the UAM
Funds may pay all or part of your redemption proceeds with securities instead
of cash.
PAYMENT OF REDEMPTION PROCEEDS
The UAM Funds will pay for all shares redeemed within seven days after they
receive a redemption request in proper order. If you redeem shares that were
purchased by check, you will not receive your redemption proceeds until the
check has cleared, which may take up to 15 days. You may avoid these delays
by paying for shares with a certified check, bank check or money order.
SIGNATURE GUARANTEE
You must have your signature guaranteed when (1) you want the proceeds from
your redemption sent to a person or address different from that registered on
the account, or (2) you request a transfer of your shares.
7
<PAGE>
You may obtain a signature guarantee from most banks, savings institutions,
securities dealers, national securities exchanges, registered securities
associations, clearing agencies and other guarantor institutions. A notary
public cannot guarantee a signature.
TELEPHONE TRANSACTIONS
The UAM Funds will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine; they may be liable for any losses if
they fail to do so. The UAM Funds will be responsible for any loss, liability,
cost or expense for following instructions received by telephone that it
reasonably believes to be genuine.
RIGHTS RESERVED BY THE UAM FUNDS
Purchases
At any time and without notice, the UAM Funds may:
. Stop offering shares of a portfolio.
. Reject any purchase order.
. Bar an investor engaged in a pattern of excessive trading from buying
shares of any portfolio. (Excessive trading can hurt the performance of a
portfolio by disrupting its management and by increasing its expenses.)
Redemptions
The UAM Funds may suspend your right to redeem if:
. An emergency exists and a portfolio cannot dispose of its investments or
fairly determine their value.
. Trading on the NYSE is restricted.
. The SEC tells the UAM Funds to delay redemptions.
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail.
Exchanges
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders.
. Reject any request for an exchange.
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
8
<PAGE>
ACCOUNT POLICIES
SMALL ACCOUNTS
- --------------------------------------------------------------------------------
The UAM Funds may redeem your shares without your permission if the value of
your account falls below 50% of the required minimum initial investment, but
not because of a drop in the value of your shares caused by market
fluctuations. This provision does not apply to retirement accounts and certain
other accounts.
DISTRIBUTIONS
- --------------------------------------------------------------------------------
Normally, the portfolios distribute their net investment income quarterly. In
addition, they distribute any net capital gains once a year. The UAM Funds
will automatically reinvest dividends and distributions in additional shares
of the portfolio, unless you elect on your account application to receive them
in cash.
FEDERAL TAXES
- --------------------------------------------------------------------------------
The following is a summary of the federal income tax consequences of investing
in the UAM Funds. You may also have to pay state and local taxes on your
investment. You should always consult your tax advisor for specific guidance
regarding the tax effect of your investment in the UAM Funds.
TAXES ON DISTRIBUTIONS
The distributions of the portfolios will generally be taxable to shareholders
as ordinary income or capital gains (which may be taxable at different rates
depending on the length of time the portfolio held the relevant assets). You
will be subject to income tax on these distributions regardless of whether
they are paid in cash or reinvested in additional shares. Once a year UAM
Funds will send you a statement showing the types and total amount of
distributions you received during the previous year.
You should note that if you purchase shares just before a distribution, the
purchase price would reflect the amount of the upcoming distribution. In this
case, you would be taxed on the entire amount of the distribution received,
even though, as an economic matter, the distribution simply constitutes a
return of your investment. This is known as "buying into a dividend" and
should be avoided.
TAXES ON EXCHANGES AND REDEMPTIONS
When you redeem or exchange shares in any portfolio, you may recognize a gain
or loss for income tax purposes. This gain or loss will be based on the
difference between your tax basis in the shares and the amount you receive for
them. (To aid in computing your tax basis, you generally should retain your
9
<PAGE>
account statements for the periods during which you held shares.) Any loss
realized on shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividends that were received
with respect to the shares.
The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other tax-
qualified plan) will not be currently taxable, but they may be taxable at some
time in the future.
BACKUP WITHHOLDING
By law, the UAM Funds must withhold 31% of your distributions and proceeds if
you have not provided complete, correct taxpayer information.
10
<PAGE>
FUND DETAILS
PRINCIPAL INVESTMENTS AND RISKS OF THE PORTFOLIOS
- --------------------------------------------------------------------------------
The following is a brief description of the principal investment strategies
ICM Equity and Small Company Portfolios may employ in seeking their
objectives. This discussion is in addition to the discussion set forth in the
"PORTFOLIO SUMMARY." For more information concerning these investment
practices and their associated risks, please read the "PORTFOLIO SUMMARY" and
the statement of additional information (SAI). You can find information on the
portfolio's recent strategies and holdings in its current annual/semiannual
report. The portfolio may change these strategies without shareholder
approval.
ICM Small Company Portfolio normally invests at least 80% of its assets in
common stocks of smaller, less established companies in terms of revenues and
assets and, more importantly, market capitalization. Such companies will
generally have market capitalizations (the total market value of its
outstanding shares) that range from $50 million to $700 million. ICM Equity
Portfolio normally invests at least 80% of its assets in common stocks of
relatively large companies in terms of revenues, assets, and market
capitalization. Each portfolio may invest in common stocks preferred stocks,
securities convertible or exchangeable into common stock and rights or
warrants to purchase common stocks listed on the New York and American Stock
Exchanges or traded on the over-the-counter markets operated by the National
Association of Securities Dealers, Inc
Typically, the adviser invests in companies that have an above-average return
on equity, are financially strong, and yet are selling at a lower price to
earnings ratio lower than that of most stocks represented in the S&P 500
Index. The adviser believes stocks with such characteristics are likely to
provide superior rates of return to investors when compared to stocks with
higher price to earnings ratios over extended periods of time and through a
variety of economic and market cycles. Using screening parameters such as
price to earnings ratios, relative return on equity, and other financial
ratios, the adviser screens the universe of potential investments of each
portfolio to identify potentially undervalued securities. The adviser further
narrows the list of potential investments through traditional fundamental
security analysis, which may include interviews with company management and a
review of the assessments and opinions of outside analysts and consultants.
Securities are sold when the adviser believes the shares have become
relatively overvalued or it finds more attractive alternatives. In addition,
the adviser tends to focus on those companies whose rates of earnings momentum
is accelerating and/or whose recent earnings have exceeded general
expectations.
Equity securities may lose value because of factors affecting the securities
markets generally, such as adverse changes in economic conditions, the general
outlook for corporate earnings, interest rates or investor sentiment.
11
<PAGE>
These circumstances may lead to long periods of poor performances, such as
during a "bear market." Equity securities may also lose value because of
factors affecting an entire industry such as increases in production costs, or
factors directly related to that company, such as decisions made by its
management.
Undervalued companies may have experienced adverse business developments or
other events that have caused their stocks to be out of favor. If the
adviser's assessment of a company is wrong, or if the market does not
recognize the value of the company, the price of its stock may fail to meet
expectations and the portfolio's share price may suffer. A value-oriented
portfolio may not perform as well as certain other types of mutual funds
during periods when value stocks are out of favor
OTHER INVESTMENT PRACTICES AND STRATEGIES
- --------------------------------------------------------------------------------
As described below, the portfolios may invest in foreign securities and may
deviate from their investment strategies from time to time. In addition, they
may employ investment practices that are not described in this prospectus,
such as derivatives, repurchase agreements, when-issued and forward commitment
transactions, lending of securities, borrowing and other techniques. For more
information concerning the risks associated with these investment practices,
you should read the SAI.
FOREIGN INVESTMENTS
Each portfolio may invest up to 20% of its assets in American Depositary
Receipts (ADRs). ADRs are certificates evidencing ownership of shares of a
foreign issuer that are issued by depository banks and generally trade on an
established market in the United States or elsewhere. Although they are
alternatives to directly purchasing the underlying foreign securities in their
national markets and currencies, ADRs continue to be subject to many of the
risks associated with investing directly in foreign securities.
Foreign securities, especially those of companies in emerging markets, can be
riskier and more volatile than domestic securities. Adverse political and
economic developments or changes in the value of foreign currency can make it
harder for a portfolio to sell its securities and could reduce the value of
your shares. Changes in tax and accounting standards and difficulties
obtaining information about foreign companies can negatively affect investment
decisions.
In January 1999, certain European nations will begin to use the new European
common currency, called the Euro. The nations that use the Euro will have the
same monetary policy regardless of their domestic economy, which could have
adverse effects on those economies. In addition, the method by which the
conversion to the Euro is implemented could negatively affect the investments
of a portfolio.
12
<PAGE>
SHORT-TERM INVESTING
At times, the adviser may decide to suspend the normal investment activities
of a portfolio by investing up to 100% of its assets in a variety of
securities, such as U.S. government and other high quality and short-term debt
obligations. The adviser may temporarily adopt a defensive position to reduce
changes in the value of a portfolio's shares that may result from adverse
market, economic, political or other developments.
When the adviser pursues a defensive strategy, a portfolio may not profit from
favorable developments that it would have otherwise profited from if it were
pursuing its normal strategies. Likewise, these strategies may prevent a
portfolio from achieving its stated objectives.
YEAR 2000
- --------------------------------------------------------------------------------
Many computer programs in use today cannot distinguish the year 2000 from the
year 1900 because of the way they encode and calculate dates. Consequently,
these programs may not be able to perform necessary functions and could
disrupt the operations of the UAM Funds or financial markets in general. The
year 2000 issue affects all companies and organizations, including those that
provide services to the UAM Funds and those in which the UAM Funds invest.
The UAM Funds and their advisers, administrator, distributor and transfer
agent are taking steps they believe are reasonably necessary to address any
portfolio-related year 2000-related computer problems. They are actively
working on necessary changes to their own computer systems to prepare for the
year 2000 and expect that their systems will be adapted before that date. They
are also requesting information on each service provider's state of readiness
and contingency plan. However, at this time the degree to which the year 2000
issue will affect the UAM Funds' investments or operations cannot be
predicted. Any negative consequences could adversely affect your investment in
the UAM Funds.
INVESTMENT MANAGEMENT
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Investment Counselors of Maryland, Inc., a Maryland corporation located at 803
Cathedral Street, Baltimore, Maryland 21201, is the investment adviser to each
of the portfolios. The adviser manages and supervises the investment of the
portfolio's assets on a discretionary basis. The adviser, an affiliate of
United Asset Management Corporation, has provided investment management
services to corporations, pension and profit sharing plans, trusts, estates
and other institutions and individuals since 1972.
The adviser has voluntarily agreed to limit the expenses of the ICM Equity
Portfolio to 0.90% of its average net assets. To maintain this expense limit,
the adviser may waive a portion of its advisory fee and/or reimburse certain
13
<PAGE>
expenses of the portfolios. The adviser intends to continue its expense
limitation until further notice. During the last fiscal year, the portfolios
paid the adviser the following fees, which are expressed as a percentage of
average daily net assets:
ICM SMALL COMPANY PORTFOLIO ICM EQUITY PORTFOLIO
------------------------------------------------------------------------------
% %
PORTFOLIO MANAGERS
A team of investment professionals is primarily responsible for the day-to-day
management of the portfolios. Listed below are the leaders of that team and a
description of their business experience during the past five years.
MANAGER PORTFOLIO SINCE EXPERIENCE
------------------------------------------------------------------------------
Robert D. McDorman, Jr. ICM Small Inception Mr. McDorman joined
Principal and Chief Company ICM in June, 1985.
Investment Officer Portfolio His primary
responsibilities are
the management of
ICM Small Company
Portfolio and
related separate
accounts and equity
security analysis.
Prior to joining
ICM, 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.
------------------------------------------------------------------------------
Robert F. Boyd ICM Equity 2/98 Mr. Boyd joined ICM
Principal Portfolio in 1995, to focus on
investment and
quantitative/
valuation research.
Mr. Boyd was a
Managing Director
and portfolio
manager at
Brandywine Asset
Management. From
February 1994 to
December 1995.
Before that, he was
Senior Vice
President, Director
of Research at
Mercantile-Safe
Deposit and Trust
Company, as well as
a portfolio manager.
Mr. Boyd was awarded
his B.S. degree from
the University of
Virginia and his
M.B.A. at Columbia
University, after
which he joined
Smith Barney's
research department.
He is a Chartered
Financial Analyst.
The Investment Counselors of Maryland team of professionals also includes:
14
<PAGE>
NAME AND TITLE EXPERIENCE
- --------------------------------------------------------------------------------
Stephen T. Scott Mr. Scott specializes in the management of
Principal and President pension assets, private foundations and
endowments. He joined ICM in 1973 after
having served as portfolio manager at Chase
Manhattan Bank and Mercantile-Safe Deposit
and Trust Company. He is a graduate of
Randolph-Macon College and received an
M.B.A. from Columbia University Graduate
School of Business.
- --------------------------------------------------------------------------------
Paul L. Borssuck Mr. Borssuck joined ICM in 1985 and heads
Principal the firm's Individual Capital Management
Division. Prior to joining ICM, Mr. Borssuck
served as Chairman of the Investment Policy
Committee at Mercantile-Safe Deposit and
Trust Company where he managed portfolios
for 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.
- --------------------------------------------------------------------------------
Linda W. McCleary Ms. McCleary oversees the Fixed Income
Principal Group at ICM and, as a portfolio manager, is
instrumental in the management of balanced
accounts. She joined ICM 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.
- --------------------------------------------------------------------------------
Andrew L. Gilchrist Mr. Gilchrist joined ICM in 1996 as Director
Executive Vice President of Investment Technology. Prior to ICM, Mr.
Gilchrist served as Director of Investment
Technology at Mercantile-Safe Deposit and
Trust Company for 18 years. Before that, he
was with Merrill Lynch. Mr. Gilchrist
graduated with honors in Economics from the
University of Maryland and earned a Masters
from The Johns Hopkins University. He is a
member of the Society of Quantitative
Analysts.
- --------------------------------------------------------------------------------
Jule L. Hale Ms. Hale joined ICM in 1998 with seventeen
Senior Vice President years of investment experience. Prior to
joining ICM, she was a Senior Vice President
and mutual fund manager for Nations Bank
Corporation from 1991 to 1998. She has a
B.S. degree from Mt. St. Mary's College and
an M.B.A. from Kent State University. Ms.
Hale is a Chartered Financial Analyst and a
member of the National Association of
Petroleum Investment Analysts (NAPIA).
- --------------------------------------------------------------------------------
Daniel O. Shackelford Mr. Shackelford joined ICM in 1993. Prior
Senior Vice President to joining ICM, he was Assistant Director of
Investments for the University of North
Carolina. He has specific expertise in the
utilization of financial futures and options
and came to ICM with thirteen years of
experience in international fixed income
management. Mr. Shackelford is portfolio
manager for the ICM Fixed Income Fund and
related separate accounts. He received his
B.S. degree in Business Administration from
the University of North Carolina and an
M.B.A. from the Fugua School of Business at
Duke University. He is a Chartered Financial
Analyst.
- --------------------------------------------------------------------------------
Simeon F. Wooten, III Mr. Wooten joined ICM in 1998 as a research
Senior Vice President analyst and as a member of the management
team of the ICM Small Company Portfolio.
Prior to joining ICM, he served as Vice
President/Research at Adams Express Company,
which he joined in 1980. He is a graduate of
the Wharton School of the University of
Pennsylvania. Mr. Wooten is a Chartered
Financial Analyst and Certified Public
Accountant.
- --------------------------------------------------------------------------------
William V. Heaphy Mr. Heaphy joined ICM in 1994 as a security
Vice President analyst in the equity research department.
Prior to joining ICM, Mr. Heaphy was an
associate in the Baltimore law firm of Ober,
Kaler, Grimes and Shriver, and before that,
a staff auditor with Price Waterhouse. Mr.
Heaphy earned his law degree from the
University of Maryland School of Law and his
B.S. from Lehigh University. He is a
Certified Public Accountant and Chartered
Financial Analyst.
15
<PAGE>
ADVISER'S HISTORICAL PERFORMANCE
The adviser manages separate accounts of equity securities and equity
securities that have the same investment objectives as the ICM Equity
Portfolio. The adviser manages these accounts using techniques and strategies
substantially similar, though not always identical, to those used to manage
the portfolio. Composites of the performance of all of these separate
accounts are listed below. The performance data for the managed accounts
reflects deductions for all fees and expenses. Because separately managed
accounts may have different fees and expenses than the portfolio, their
investment returns may differ from those of the portfolios. All fees and
expenses of the separate accounts were less than the operating expenses of the
portfolio. If the performance of the managed accounts was adjusted to reflect
fees and expenses of the portfolio, the composites' performance would have
been lower.
The separately managed accounts are not subject to investment limitations,
diversification requirements, and other restrictions imposed by the Investment
Company Act of 1940 and the Internal Revenue Code. If they were, their
returns might have been lower. The performance of these separate accounts is
not intended to predict or suggest the performance of the portfolio.
<TABLE>
<CAPTION>
Investment Counselors
of Maryland
--Value Equity* S&P 500 Index+
------------------------------------------------------------------------------
<S> <C> <C>
Calendar Years Ended:
1990
------------------------------------------------------------------------------
1991
------------------------------------------------------------------------------
1992
------------------------------------------------------------------------------
1993
------------------------------------------------------------------------------
1994
------------------------------------------------------------------------------
1995
------------------------------------------------------------------------------
1996
------------------------------------------------------------------------------
1997
------------------------------------------------------------------------------
1998
------------------------------------------------------------------------------
Annualized Return For Various
------------------------------------------------------------------------------
Periods Ended 12/31/98
------------------------------------------------------------------------------
(annualized)
------------------------------------------------------------------------------
1-year
------------------------------------------------------------------------------
5-years
------------------------------------------------------------------------------
Since inception (1/1/82)
------------------------------------------------------------------------------
Cumulative Since Inception
------------------------------------------------------------------------------
(1/1/82)
</TABLE>
* The adviser's average annual management fee from 11/1/90 to 10/31/98 was
0.625%. Net returns to investors vary depending on the management fee.
+ The S&P 500 Index is an unmanaged index composite of 400 industrial, 40
financial, 40 utilities and 20 transportation stocks. It assumes that
dividends are reinvested and is generally considers representative of large
U.S. large capitalization stocks.
SHAREHOLDER SERVICING ARRANGEMENTS
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICING
Certain financial intermediaries (service agents) may charge their clients
account fees for buying or redeeming shares of the UAM Funds. These fees
16
<PAGE>
may include transaction fees and/or service fees paid by the UAM Funds from
their assets attributable to the service agent. The UAM Funds do not pay these
fees on shares purchased directly from UAM Fund Distributors. The service
agents may provide shareholder services to their clients that are not
available to a shareholder dealing directly with the UAM Funds. Each service
agent is responsible for transmitting to its clients a schedule of any such
fees and information regarding any additional or different purchase or
redemption conditions. You should consult your service agent for information
regarding these fees and conditions.
The adviser may pay its affiliated companies for referring investors to the
portfolio. The adviser and its affiliates may, at their own expense, pay
qualified service providers for marketing, shareholder servicing, record-
keeping and/or other services performed with respect to the portfolios.
UAM Fund Distributors, the adviser and certain of their other affiliates also
participate, as of the date of this prospectus, in an arrangement with Salomon
Smith Barney under which Salomon Smith Barney provides certain defined
contribution plan marketing and shareholder services and receives 0.15% of the
portion of the daily net asset value of Institutional Class Shares held by
Salomon Smith Barney's eligible customer accounts in addition to amounts
payable to all selling dealers. The UAM Funds also compensate Salomon Smith
Barney for services it provides to certain defined contribution plan
shareholders that are not otherwise provided by the UAM Funds' administrator.
The UAM Funds also offer Institutional Service Class shares, which pay
marketing or shareholder servicing fees, and Adviser Class shares, which
impose a sales load and fees for marketing and shareholder servicing, for
certain of its portfolios. Not all of the UAM Funds offer all of these
classes.
17
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
financial performance of the portfolios for the past five years. The financial
highlights table comes from the financial statements of the portfolios and
reflects the financial results for a single portfolio share. The total returns
in the table represent the rate that an investor would have earned on an
investment in the portfolios (assuming reinvestment of all dividends and
distributions). PricewaterhouseCoopers LLP has audited the financial
statements of the portfolios. The financial statements and the unqualified
opinion of PricewaterhouseCoopers LLP are included in the annual report of the
portfolios. The annual report of the portfolios is available upon request.
<TABLE>
<CAPTION>
ICM SMALL COMPANY PORTFOLIO
- --------------------------------------------------------------------------------
Fiscal Year Ended October 31, 1998 1997 1996 1995 1994
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value Beginning
of Period $ 20.71 $ 19.04 $ 17.05 $ 18.75
------------------------------------------------------------------------------
Income from Investment
Operations
Net Investment Income 0.23 0.24 0.16 0.09
Net Gains or losses on
Securities
(Realized and Unrealized) 8.27 2.59 2.70 0.64
------------------------------------------------------------------------------
Total From Investment
Operations 8.50 2.83 2.86 0.73
------------------------------------------------------------------------------
Less Distributions
Net Investment Income (0.20) (0.24) (0.14) (0.09)
Capital Gains (1.19) (0.92) (0.73) (2.34)
------------------------------------------------------------------------------
Total Distributions (1.39) (1.16) (0.87) (2.43)
------------------------------------------------------------------------------
Net Asset Value, End of Period $ 27.82 $ 20.71 $ 19.04 $ 17.05
------------------------------------------------------------------------------
Total Return 43.28% 15.62% 17.73% 4.59%
------------------------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Period
(Thousands) $ 518,377 $ 320,982 $ 250,798 $115,761
Ratio of Expenses to
Average Net Assets 0.89% 0.88% 0.87% 0.93%
Ratio of Net Investment
Income to Average Net
Assets 0.97% 1.20% 1.02% 0.58%
Portfolio Turnover Rate 23% 23% 20% 21%
Ratio of Expenses to
Average Net Assets
Including Expense Offsets 0.88% 0.88% 0.86% --
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
ICM EQUITY PORTFOLIO
- -------------------------------------------------------------------------------------------
Fiscal Year Ended October 31, 1998 1997 1996 1995 1994
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value Beginning of Period $ 14.49 $12.14 $10.41 $9.94
-----------------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 0.28 0.30 0.26 0.20
Net Gains or losses on Securities
(Realized and Unrealized) 4.74 2.76 1.75 0.45
-----------------------------------------------------------------------------------------
Total From Investment Operations 5.02 3.06 2.01 0.65
-----------------------------------------------------------------------------------------
Less Distributions
Net Investment Income (0.25) (0.28) (0.26) (0.18)
Capital Gains (0.99) (0.43) (0.02) --
-----------------------------------------------------------------------------------------
Total Distributions (1.24) (0.71) (0.28) (0.18)
-----------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 18.27 $14.49 $12.14 $10.41
-----------------------------------------------------------------------------------------
Total Return+ 36.98% 26.23% 19.62% 6.63%
-----------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Period
(Thousands) $46,598 $7,868 $6,865 $3,659
Ratio of Expenses to Average Net
Assets 0.90% 0.90% 0.92% 0.90%
Ratio of Net Investment Income to Average Net
Assets 1.91% 2.30% 2.44% 2.15%
Portfolio Turnover Rate 31% 57% 37% 17%
Ratio of Voluntarily Waived
Fees and Expenses Assumed by
the Adviser to Average Net Assets 0.37% 1.82% 1.49% 2.29%
Ratio of Expenses to Average Net
Assets Including Expense Offsets 0.90% 0.90% 0.90% --
</TABLE>
+ Total return would have been lower had certain expenses not been waived and
assumed by the adviser during the period.
19
<PAGE>
ICM PORTFOLIOS
For investors who want more information about ICM Equity and Small Company
Portfolios, the following documents are available upon request.
ANNUAL/SEMI-ANNUAL REPORTS
The annual and semi-annual reports of ICM Equity and Small Company Portfolios
provide additional information about their investments. In each annual
report, you will also find a discussion of the market conditions and
investment strategies that significantly affected the performance of ICM
Portfolios during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains additional detailed information about ICM Portfolios and is
incorporated by reference into (legally part of) this prospectus.
Investors can receive free copies of these materials, request other
information about the portfolios and make shareholder inquiries by writing to
or calling UAM Fund Service Center at:
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
You can review, for a fee, the reports of the portfolio and SAI by writing to
the SEC's Public Reference Section, Washington, D.C. 20459-6009, or by calling
the SEC at 1-800-SEC-0330. You can get copies of this information for free, on
the SEC's Internet site at http://www.sec.gov.
------------------
The portfolio's Investment Company Act of 1940 file is 811-5683.
[LOGO]
20
<PAGE>
UAM Funds
Funds for the Informed Investor
THE MCKEE PORTFOLIOS
INSTITUTIONAL CLASS PROSPECTUS , 199_
McKee US. Government Portfolio
MCKee Domestic Equity Portfolio
McKee International Equity Portfolio
McKee Small Cap Equity Portfolio
[LOGO]
The Securities and exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of prospectus. Any
representation to the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PORTFOLIO SUMMARY......................................................... 1
What are the Objectives of the Portfolios?............................... 1
What are the Principal Investment Strategies of the Portfolios?.......... 1
What are the Principal Risks of the Portfolio............................ 2
How have the Portfolios Performed?....................................... 3
What are the Portfolios' Fees and Expenses?.............................. 5
INVESTING WITH THE UAM FUNDS.............................................. 7
Buying Shares............................................................ 7
Redeeming Shares......................................................... 8
Exchanging Shares........................................................ 8
Transaction Policies..................................................... 8
ACCOUNT POLICIES.......................................................... 12
Small Accounts........................................................... 12
Distributions............................................................ 12
Federal Taxes............................................................ 12
FUND DETAILS.............................................................. 14
Principal Investments and Risks of the Portfolios........................ 14
Other Investment Practices and Strategies................................ 17
Year 2000................................................................ 18
Investment Management.................................................... 19
Shareholder Servicing Arrangements....................................... 20
FINANCIAL HIGHLIGHTS...................................................... 21
McKee U.S. Government Portfolio.......................................... 21
McKee Domestic Equity Portfolio.......................................... 22
McKee International Equity Portfolio..................................... 22
</TABLE>
<PAGE>
PORTFOLIO SUMMARY
WHAT ARE THE OBJECTIVES OF THE PORTFOLIOS?
- --------------------------------------------------------------------------------
Listed below are the investment objectives of the McKee Portfolios. The McKee
Portfolios cannot guarantee they will meet their investment objectives. A
portfolio may not change its investment objective without shareholder
approval.
MCKEE U.S. GOVERNMENT PORTFOLIO
McKee U.S. Government Portfolio seeks a high level of current income
consistent with preservation of capital by investing primarily in U.S.
Treasury and Government agency securities.
MCKEE DOMESTIC EQUITY PORTFOLIO
McKee Domestic Equity Portfolio seeks a superior long-term total return over a
market cycle by investing primarily in equity securities of U.S. issuers.
MCKEE INTERNATIONAL EQUITY PORTFOLIO
McKee International Equity Portfolio seeks a superior long-term total return
over a market cycle by investing primarily in the equity securities of non-
U.S. issuers.
MCKEE SMALL CAP EQUITY PORTFOLIO
McKee Small Cap Equity Portfolio seeks a superior long-term total return by
investing primarily in the equity securities of small companies.
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE PORTFOLIOS?
- --------------------------------------------------------------------------------
The following is a brief description of the principal investment strategies of
the McKee Portfolios. For more information see "PRINCIPAL INVESTMENTS AND
RISKS OF THE PORTFOLIOS."
MCKEE U.S. GOVERNMENT PORTFOLIO
McKee U.S. Government Portfolio normally invests at least 65% of its total
assets in securities issued by the U.S. government, including agencies. The
adviser will actively manage the portfolio to reflect its outlook for the
direction of interest rates. Based on the adviser's outlook, the average
weighted maturity of the portfolio is expected to fluctuate between 5 years
and 15 years.
1
<PAGE>
MCKEE DOMESTIC EQUITY, SMALL CAP EQUITY AND INTERNATIONAL EQUITY PORTFOLIOS
The stock selection process begins by screening the acceptable universe of
companies for each portfolio to identify potentially undervalued securities.
The adviser attempts to invest the assets of the portfolios' in companies that
are undervalued and exhibit accelerating earnings by applying an approach that
combines quantitative and qualitative screens and analysis. Using this
approach, the portfolios invest in the following universes of equity
securities:
. McKee Domestic Equity Portfolio normally invests at least 65% of its total
assets in equity securities of U.S. companies with medium to large market
capitalizations that are listed on a national exchange or traded over the
counter.
. McKee Small Cap Equity Portfolio normally invests at least 65% of its total
assets in common stocks of companies with market capitalizations of less than
$1 billion at the time of initial purchase.
. McKee International Equity Portfolio normally invests at least 65% of its
total assets in the equity securities of companies located in at least three
countries other than the U.S.
WHAT ARE THE PRINCIPAL RISKS OF THE PORTFOLIO
- --------------------------------------------------------------------------------
THE FOLLOWING IS A SUMMARY OF THE PRINCIPAL RISKS ASSOCIATED WITH INVESTING IN
THE PORTFOLIOS. FOR MORE INFORMATION SEE "PRINCIPAL INVESTMENTS AND RISKS OF THE
PORTFOLIOS."
RISKS COMMON TO ALL MUTUAL FUNDS
At any time, your investment in a mutual fund may be worth more or less than
the price you originally paid for it. You may lose money by investing in any
mutual fund because:
. The value of the securities it owns changes, sometimes rapidly and
unpredictably.
. The mutual fund is not successful in reaching its goal because of its
strategy or because it did not implement its strategy properly.
. Unforeseen occurrences in the securities markets negatively affect the
mutual fund.
MCKEE DOMESTIC EQUITY, INTERNATIONAL EQUITY AND SMALL CAP EQUITY PORTFOLIOS
Since the portfolios invest mainly in equity securities, their principal risks
are those of investing in equity securities, which may include sudden,
unpredictable drops in value or long periods of decline in value. Equity
securities may lose value because of factors affecting the securities markets
generally, an entire industry or a particular company.
2
<PAGE>
MCKEE SMALL CAP EQUITY PORTFOLIO
Investors in the McKee Small Cap Equity Portfolio take on additional risks
that come with investing in stocks of smaller companies, which can be riskier
than investing in larger, more mature companies. Smaller companies may be more
vulnerable to adverse developments than larger companies because they tend to
have more narrow product lines and more limited financial resources. Their
stocks may trade less frequently and in limited volume.
MCKEE INTERNATIONAL EQUITY PORTFOLIO
Foreign securities, especially those of companies in emerging markets, can be
riskier and more volatile than domestic securities. Adverse political and
economic developments or changes in the value of foreign currency can make it
harder for a portfolio to sell its securities and could reduce the value of
your shares. Differences in tax and accounting standards and difficulties in
obtaining information about foreign companies can negatively affect investment
decisions.
MCKEE U.S. GOVERNMENT PORTFOLIO
Since the portfolio invests in debt securities, the value of its investments
could fall because:
. Of market conditions and economic and political events.
. Interest rates rise, which tends to cause the value of debt securities to
fall.
. A security's credit rating worsens or its issuer becomes unable to honor its
financial obligations.
MCKEE U.S. GOVERNMENT, DOMESTIC EQUITY AND INTERNATIONAL EQUITY PORTFOLIOS
McKee U.S. Government, Domestic Equity and International Equity Portfolios are
"non-diversified" mutual funds and therefore are not required to meet any
diversification requirements under the Investment Company Act of 1940. Since
they may invest in a smaller number of issuers, changes in the financial
condition or market assessment of a single issuer may negatively affect the
value of their shares more than other mutual funds.
HOW HAVE THE PORTFOLIOS PERFORMED?
- --------------------------------------------------------------------------------
The bar charts and tables below illustrate how the performance of the
portfolios has varied from year to year. The following bar charts show the
investment returns of each portfolio since its inception. The table following
each bar chart compares each portfolio's average annual returns for the
periods indicated to those of a broad-based securities market index. Past
performance does not guarantee future results.
3
<PAGE>
MCKEE U.S. GOVERNMENT PORTFOLIO
[GRAPH APPEARS HERE]
* From the portfolio's inception (3/2/95) through 12/31/95.
Highest quarter: __.__% (___ quarter 199 _. Lowest quarter: -__.__% (___
quarter 199_)
Average annual return for periods ended 12/31/98 1 Year Since Inception
================================================================================
McKee U.S. Government Portfolio
- --------------------------------------------------------------------------------
Lehman Brothers Government Index
MCKEE DOMESTIC EQUITY PORTFOLIO
[GRAPH APPEARS HERE]
* From the portfolio's inception (3/2/95) through 12/31/95.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_)
Average annual return for periods ended 12/31/98 1 Year Since Inception
================================================================================
McKee Domestic Equity Portfolio
- --------------------------------------------------------------------------------
Russell 1000 Value Index
MCKEE INTERNATIONAL EQUITY PORTFOLIO
[GRAPH APPEAR YEAR]
* From the portfolio's inception (5/26/94) through 12/31/94
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_)
4
<PAGE>
Average annual return for periods ended Since
12/31/98 1 Year 5 Years Inception
==============================================================================
Mckee International Equity Portfolio
------------------------------------------------------------------------------
Morgan Stanley Capital International EAFE Index
MCKEE SMALL CAP EQUITY PORTFOLIO
[GRAPH APPEARS HERE]
* From the portfolio's inception (11/4/97) through 12/31/97.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_)
Average annual return for periods ended 12/31/98 1 Year Since Inception
==============================================================================
McKee Small Cap Equity Portfolio
------------------------------------------------------------------------------
Russell 2000 Index
WHAT ARE THE PORTFOLIOS' FEES AND EXPENSES?
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM THE ASSETS OF A
PORTFOLIO)
This table describes the fees and expenses that you may pay if you buy and
hold shares of a portfolio. This table is presented in the format required by
the Securities and Exchange Commission (SEC) and may not reflect the actual
expenses you would have paid as a shareholder in the portfolios.
<TABLE>
<CAPTION>
McKee McKee
McKee U.S. Domestic International McKee Small
Government Equity Equity Cap Equity
Portfolio Portfolio Portfolio Portfolio
================================================================================
<S> <C> <C> <C> <C>
Management fees
--------------------------------------------------------------------------------
Other Expenses
--------------------------------------------------------------------------------
Total Expenses
--------------------------------------------------------------------------------
</TABLE>
Actual Fees and Expenses
The ratios stated in the table above are higher than the expenses you would
have actually paid as an investor in these portfolios. Due to certain expense
limits by the adviser for McKee Small Cap Equity Portfolio and expense offsets
for all of the portfolios, investors in the McKee Portfolios actually paid the
following total operating expenses during the fiscal year ended October 31,
1998:
5
<PAGE>
<TABLE>
<CAPTION>
McKee McKee
McKee U.S. Domestic International McKee Small
Government Equity Equity Cap Equity
Portfolio Portfolio Portfolio Portfolio
===============================================================================
<S> <C> <C> <C> <C>
Actual Expenses
-------------------------------------------------------------------------------
</TABLE>
EXAMPLE
This example can help you to compare the cost of investing in these portfolios
to the cost of investing in other mutual funds. It assumes that you invest
$10,000 in a portfolio for the periods shown and then redeem all of your
shares at the end of those periods. It also assumes a 5% return on your
investment each year and that the portfolio's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
McKee U.S. McKee McKee Small
Government McKee Domestic International Cap Equity
Portfolio Equity Portfolio Equity Portfolio Portfolio
==============================================================================
<S> <C> <C> <C> <C>
1 Year
------------------------------------------------------------------------------
3 Years
------------------------------------------------------------------------------
5 Years
------------------------------------------------------------------------------
10 Years
</TABLE>
6
<PAGE>
INVESTING WITH THE UAM FUNDS
BUYING SHARES
- --------------------------------------------------------------------------------
TO OPEN AN ACCOUNT TO BUY MORE SHARES
------------------------------------------------------------------------------
BY MAIL Send a check or money Send a check and, if
order and your account possible, the "Invest by
application to the UAM Mail" stub that accompanied
Funds. Make checks your statement to the UAM
payable to "UAM Funds" Funds. Be sure your check
(the UAM Funds will not identifies clearly your
accept third-party name, account number and
checks). the portfolio into which
you want to invest.
------------------------------------------------------------------------------
BY WIRE Call the UAM Funds for an Call the UAM Funds to get
account number and wire a wire control number and
control number and then wire your money to the UAM
send your completed Funds.
account application to
the UAM Funds.
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: portfolio name/account number/
account name/wire control number
------------------------------------------------------------------------------
BY AUTOMATIC Not Available To set up a plan, mail a
INVESTMENT PLAN completed application to
(VIA ACH) the UAM Funds. To cancel
or change a plan, write to
the UAM Funds. Allow up to
15 days to create the plan
and 3 days to cancel or
change it.
------------------------------------------------------------------------------
MINIMUM $2,500, except IRAs $100
INVESTMENTS ($500) and spousal IRAs
($250)
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
<PAGE>
REDEEMING SHARES
- --------------------------------------------------------------------------------
By Mail Send a letter signed by all registered parties on the
account to UAM Funds specifying the portfolio, the account
number and the dollar amount or number of shares you wish
to redeem. Certain shareholders may have to include
additional documents.
------------------------------------------------------------------------------
By Telephone You must first establish the telephone redemption
privilege (and, if desired, the wire redemption privilege)
by completing the appropriate sections of the account
application.
Call 1-877-UAM-Link to redeem your shares. Based on your
instructions, the UAM Funds will mail your proceeds to you
or wire them to your bank.
------------------------------------------------------------------------------
By If your account balance is at least $10,000, you may
Systematic transfer as little as $100 per month from your UAM account
Withdrawal Plan to your financial institution.
(Via ACH)
To participate in this service, you must complete the
appropriate sections of the account application and mail
it to the UAM Funds.
EXCHANGING SHARES
- --------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the same
class of any other UAM Fund by writing to or calling the UAM Funds. Before
exchanging your shares, read the prospectus of the UAM Fund for which you want
to exchange, which you may obtain from the UAM Funds. You may not exchange
shares represented by certificates over the telephone. You may only exchange
shares between accounts with identical registrations (i.e., the same names and
addresses).
TRANSACTION POLICIES
- --------------------------------------------------------------------------------
CALCULATING YOUR SHARE PRICE
You may buy, sell or exchange shares of a UAM Fund at a price equal to its net
asset value (NAV) next computed after receives your order. The portfolios
calculate their NAVs as of the close of trading on the New York Stock Exchange
(NYSE) (generally 4:00 p.m. Eastern Time) on each day the NYSE is open.
Therefore, to receive the NAV on any given day, the UAM Funds must accept your
order by the close of trading on the NYSE that day. Otherwise, you will
receive the NAV that is calculated on the close of trading on the following
day. The UAM Funds are open for business on the same days as the NYSE, which
is closed on weekends and certain holidays.
Securities that are traded on foreign exchanges may trade on days when a
portfolio does not price its shares. Consequently, the value of the
portfolios
<PAGE>
may change on days when you are unable to purchase or redeem shares of the
portfolios.
BUYING OR SELLING SHARES THROUGH A FINANCIAL INTERMEDIARY
You may buy, exchange or redeem shares of the UAM Funds through a financial
intermediary (such as a financial planner or adviser). Generally, to buy or
sell shares at the NAV on any given day, your financial intermediary must
receive your order by the close of trading on the NYSE that day. Your
financial intermediary is responsible for transmitting all subscription and
redemption requests, investment information, documentation and money to the
UAM Funds on time.
Certain financial intermediaries have agreements with the UAM Funds that allow
them to enter confirmed purchase or redemption orders on behalf of clients and
customers. Under this arrangement, the financial intermediary must send your
payment to the UAM Funds by the time they price their shares on the following
day. If your financial intermediary fails to do so, it may be responsible for
any resulting fees or losses.
CALCULATING NAV
The UAM Funds calculate their NAV by adding the total value of their assets,
subtracting their liabilities and then dividing the result by the number of
shares outstanding. The UAM Funds value their investments with readily
available market quotations at market value. Investments that do not have
readily available market quotations are valued at fair value, according to
guidelines established by the UAM Funds. The UAM Funds may also value
securities at fair value when events occur that make established valuation
methods (such as stock exchange closing prices) unreliable. The UAM Funds
value debt securities that will mature in 60 days or less at amortized cost,
which approximates market value.
IN-KIND TRANSACTIONS
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares of a UAM Fund with securities instead of cash. In addition, the UAM
Funds may pay all or part of your redemption proceeds with securities instead
of cash.
PAYMENT OF REDEMPTION PROCEEDS
The UAM Funds will pay for all shares redeemed within seven days after they
receive a redemption request in proper order. If you redeem shares that were
purchased by check, you will not receive your redemption proceeds until the
check has cleared, which may take up to 15 days. You may avoid these delays
by paying for shares with a certified check, bank check or money order.
<PAGE>
SIGNATURE GUARANTEE
You must have your signature guaranteed when (1) you want the proceeds from
your redemption sent to a person or address different from that registered on
the account, or (2) you request a transfer of your shares.
You may obtain a signature guarantee from most banks, savings institutions,
securities dealers, national securities exchanges, registered securities
associations, clearing agencies and other guarantor institutions. A notary
public cannot guarantee a signature.
TELEPHONE TRANSACTIONS
The UAM Funds will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine; they may be liable for any losses if
they fail to do so. The UAM Funds will be responsible for any loss, liability,
cost or expense for following instructions received by telephone that it
reasonably believes to be genuine.
RIGHTS RESERVED BY THE UAM FUNDS
PURCHASES
At any time and without notice, the UAM Funds may:
. Stop offering shares of a portfolio.
. Reject any purchase order.
. Bar an investor engaged in a pattern of excessive trading from buying
shares of any portfolio. (Excessive trading can hurt the performance of a
portfolio by disrupting its management and by increasing its expenses.)
. Redemptions
. The UAM Funds may suspend your right to redeem if:
. An emergency exists and a portfolio cannot dispose of its investments or
fairly determine their value.
. Trading on the NYSE is restricted.
. The SEC tells the UAM Funds to delay redemptions.
. At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail.
EXCHANGES
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders.
. Reject any request for an exchange.
<PAGE>
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
<PAGE>
ACCOUNT POLICIES
SMALL ACCOUNTS
- --------------------------------------------------------------------------------
The UAM Funds may redeem your shares without your permission if the value of
your account falls below 50% of the required minimum initial investment, but
not because of a drop in the value of your shares caused by market
fluctuations. This provision does not apply to retirement accounts and certain
other accounts.
DISTRIBUTIONS
- --------------------------------------------------------------------------------
Normally, the portfolios distribute their net investment income quarterly. In
addition, they distribute any net capital gains once a year. The UAM Funds
will automatically reinvest dividends and distributions in additional shares
of the portfolio, unless you elect on your account application to receive them
in cash.
FEDERAL TAXES
- --------------------------------------------------------------------------------
The following is a summary of the federal income tax consequences of investing
in these portfolios. You may also have to pay state and local taxes on your
investment. You should always consult your tax advisor for specific guidance
regarding the tax effect of your investment in the UAM Funds.
TAXES ON DISTRIBUTIONS
The distributions of the portfolios will generally be taxable to shareholders
as ordinary income or capital gains (which may be taxable at different rates
depending on the length of time the portfolio held the relevant assets). You
will be subject to income tax on these distributions regardless of whether
they are paid in cash or reinvested in additional shares. Once a year UAM
Funds will send you a statement showing the types and total amount of
distributions you received during the previous year.
You should note that if you purchase shares just before a distribution, the
purchase price would reflect the amount of the upcoming distribution. In this
case, you would be taxed on the entire amount of the distribution received,
even though, as an economic matter, the distribution simply constitutes a
return of your investment. This is known as "buying into a dividend" and
should be avoided.
TAXES ON EXCHANGES AND REDEMPTIONS
When you redeem or exchange shares in any portfolio, you may recognize a gain
or loss for income tax purposes. This gain or loss will be based on the
difference between your tax basis in the shares and the amount you receive for
them. (To aid in computing your tax basis, you generally should retain your
<PAGE>
account statements for the periods during which you held shares.) Any loss
realized on shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividends that were received
with respect to the shares.
The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other tax-
qualified plan) will not be currently taxable, but they may be taxable at some
time in the future.
To the extent a portfolio invests in foreign securities, it may be subject to
foreign withholding taxes with respect to dividends or interest the portfolios
received from sources in foreign countries. The portfolios may elect to treat
some of those taxes as a distribution to shareholders, which would allow
shareholders to offset some of their U.S. federal income tax.
BACKUP WITHHOLDING
By law, the UAM Funds must withhold 31% of your distributions and proceeds if
you have not provided complete, correct taxpayer information.
<PAGE>
FUND DETAILS
PRINCIPAL INVESTMENTS AND RISKS OF THE PORTFOLIOS
- --------------------------------------------------------------------------------
The following is a brief description of the principal investment strategies
the McKee Portfolios may employ in seeking their objectives. This discussion
is in addition to the discussion set forth in the "PORTFOLIO SUMMARY." For
more information concerning these investment practices and their associated
risks, please read the "PORTFOLIO SUMMARY" and the statement of additional
information (SAI). You can find information on each portfolio's recent
strategies and holdings in the current annual/semiannual report. The
portfolio may change these strategies without shareholder approval.
MCKEE U.S. GOVERNMENT PORTFOLIO
The portfolio principally invests in the following government securities:
. U.S. Treasury bills, notes and bonds.
. Securities (including mortgage-backed securities) of the Government
National Mortgage Association, Federal Home Loan Bank, Federal Home Loan
Mortgage Corporation, Federal National Mortgage Association and other U.S.
government agencies and instrumentalities.
In addition, to the securities mentioned above, the portfolio may also invest
in other types of investment-grade debt securities. Debt securities are
securities issued by the U.S. government and its agencies, corporate debt
securities, mortgage-backed and asset-backed securities, commercial paper and
certificates of deposit. These securities may have varying interest rate
schedules and maturities (dates when debt securities are due and payable).
Asset-backed and mortgage-backed securities are securities that are backed by
pools of loans or mortgages assembled for sale to investors by various
governmental agencies and private issuers. Mortgage-backed securities may
generally take two forms: pass-throughs and collateralized mortgage
obligations (CMOs).
Although, the adviser intends to limit the investments of the portfolio to
those that are investment-grade it reserves the right to retain securities
that are downgraded if it believes the retention of the securities is
warranted.
The portfolio normally invests at least 65% of its assets in securities issued
by the U.S. government and its agencies and instrumentalities. The adviser
will actively manage the portfolio based on its outlook for the direction of
interest rates. The adviser expects the average weighted maturity of the
portfolio to range between 5 and 15 years.
RISKS OF INVESTING IN DEBT SECURITIES
The value of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up the value of the bond will go
down,
14
<PAGE>
and vice versa). Interest rate changes may cause people to pay off mortgage-
backed and asset-backed securities earlier or later than expected, which may
shorten or lengthen the average maturity. Variations to average maturity may
cause the portfolio's share price and yield to fall.
The credit rating or financial condition of an issuer may affect the value of
a debt security. Generally, the lower the quality rating of a security, the
greater the risks that the issuer will fail to pay interest and return
principal. To compensate investors for taking on increased risk, issuers with
lower credit ratings usually offer their investors higher interest rates. If
an issuer defaults or becomes unable to honor its financial obligations, the
bond may lose some or all of its value.
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade. The adviser may retain securities that are downgraded, if
it believes that keeping those securities is warranted.
MCKEE DOMESTIC EQUITY, INTERNATIONAL AND SMALL CAP EQUITY PORTFOLIOS
McKee Domestic Equity Portfolio normally invests at least 65% of its total
assets in equity securities of U.S. companies with medium to large market
capitalizations that are listed on a national exchange or traded over the
counter.
McKee Small Cap Equity Portfolio normally invests at least 65% of its total
assets in common stocks of companies with market capitalizations of less than
$1 billion at the time of initial purchase.
McKee International Equity Portfolio normally invests at least 65% of its
total assets in the equity securities of companies located in at least three
countries other than the U.S.
Each portfolio may invest in common stocks, preferred stocks, securities
convertible or exchangeable into common stock and rights or warrants to
purchase common stocks.
EQUITY SELECTION PROCESS
The stock selection process begins by screening the acceptable universe of
companies for each portfolio to identify potentially undervalued securities.
Such screens include price/earnings ratios, earnings momentum and earnings
surprise. Stocks in the top 25% of each economic sector as determined by the
above screens will form the adviser 's focus list. Using fundamental security
analysis, company management interviews and an assessment of opinions of
street analysts and consultants, the adviser selects a portfolio of stocks
from the focus list that demonstrates the best combination of value and
earnings momentum. The adviser looks for companies with strong balance sheets,
15
<PAGE>
competent management and comparative business advantages such as costs,
products and geographical location.
For McKee Domestic Equity and Small Cap Equity Portfolios, the adviser
attempts to manage risk through broad and systematic diversification of
issues. The adviser believes that the portfolios can achieve a broad
diversification by maintaining exposure to most major economic sectors and
industries that comprise their relative universes. S&P 500 Index economic
sector weights serve as guidelines around which the McKee Domestic Equity
Portfolio can vary by plus or minus 50%. Likewise, Russell 2000 Index economic
sector weights will serve as guidelines around which the exposure of McKee
Small Cap Equity Portfolio can vary by plus or minus 50%. Normally, stocks
will be sold when they fall from the top 50% of their universe or meet the
price objectives set by the adviser.
McKee International Equity Portfolio will attempt to minimize risk through
systematic country and economic sector diversification. The adviser will
deliberately allocate the assets of the portfolio to most major markets and
industries within the Morgan Stanley Capital International EAFE Index.
However, the portfolio may buy stocks that are not included in countries and
industries comprising the Morgan Stanley Capital International EAFE Index.
Based on this strategy the portfolio will generally hold more than 50 stocks
selected from at least 15 countries.
RISKS OF INVESTING IN EQUITY SECURITIES
Equity securities may lose value because of factors affecting the securities
markets generally, such as adverse changes in economic conditions, the general
outlook for corporate earnings, interest rates or investor sentiment. These
circumstances may lead to long periods of poor performance, such as during a
"bear market." Equity securities may also lose value because of factors
affecting an entire industry, such as increases in production costs, or
factors directly related to that company, such as decisions made by its
management.
RISKS OF INVESTING IN FOREIGN SECURITIES
Foreign securities, foreign currencies, and securities issued by U.S. entities
with substantial foreign operations may involve significant risks in addition
to the risks inherent in U.S. investments.
Local political, economic, regulatory or social instability, military action
or unrest, or adverse diplomatic developments may affect the value of foreign
investments. A foreign government may act adversely to the interests of U.S.
investors. Such actions may include expropriation or nationalization of
assets, confiscatory taxation and other restrictions on U.S. investment.
The securities of foreign companies are often denominated in foreign
currencies. Since the portfolio's net asset value is denominated in U.S.
dollars, changes in foreign currency rates and in exchange control regulations
may positively or negatively affect the value of its securities. In January
1999,
16
<PAGE>
certain European nations will begin to use the new European common currency,
called the Euro. The nations that use the Euro will have the same monetary
policy regardless of their domestic economy, which could have adverse effects
on those economies. In addition, the method by which the conversion to the
Euro is implemented could negatively affect the investments of a portfolio.
Foreign stock markets, while growing in volume and sophistication, are
generally not as developed as those in the U.S. and securities of some foreign
issuers may be less liquid and more volatile than securities of comparable
U.S. issuers. In addition, the costs associated with foreign investments,
including withholding taxes, brokerage commissions and custodial costs, are
generally higher than with U.S. investments.
Foreign countries have different legal systems and different regulations
concerning financial disclosure, accounting and auditing standards than the
U.S. This could make corporate financial information more difficult to obtain
or understand and less reliable than information about U.S. companies.
Investing in emerging markets may magnify the risks of foreign investing.
Security prices in emerging markets can be significantly more volatile than
those in more developed markets, reflecting the greater uncertainties of
investing in less established markets and economies. In particular, countries
with emerging markets may have relatively unstable governments, may present
the risks of nationalization of businesses, restrictions on foreign ownership
and prohibitions on the repatriation of assets. They also may protect property
rights less than more developed countries. The economies of countries with
emerging markets may be based on only a few industries, may be highly
vulnerable to changes in local or global trade conditions and may suffer from
extreme and volatile debt burdens or inflation rates. Local securities markets
may trade a small number of securities and may be unable to respond
effectively to increases in trading volume, potentially making prompt
liquidation of holdings difficult or impossible at times.
Each portfolio may invest in American Depositary Receipts (ADRs). However,
McKee Domestic Equity and Small Cap Equity Portfolios may only invest up to
20% of their assets in ADRs. ADRs are certificates evidencing ownership of
shares of a foreign issuer that are issued by depository banks and generally
trade on an established market in the United States or elsewhere. Although
they are alternatives to directly purchasing the underlying foreign securities
in their national markets and currencies, ADRs continue to be subject to many
of the risks associated with investing directly in foreign securities.
OTHER INVESTMENT PRACTICES AND STRATEGIES
- --------------------------------------------------------------------------------
As described below, the portfolios may invest in derivatives and may deviate
from their investment strategies from time to time. In addition, they may
employ investment practices that are not described in this prospectus, such as
repurchase agreements, when-issued and forward commitment transactions,
lending of securities, borrowing and other techniques. For more information
17
<PAGE>
concerning the risks associated with these investment practices, you should
read the SAI.
DERIVATIVES
Each portfolio may buy and sell derivatives, including futures and options.
Derivatives are often more volatile than other investments and may magnify a
portfolio's gains or losses. A portfolio may lose money if the adviser:
. Fails to predict correctly the direction in which the underlying asset or
economic factor will move.
. Judges market conditions incorrectly.
. Employs a strategy that does not correlate well with the investments of the
portfolio.
SHORT-TERM INVESTING
At times, the adviser may decide to suspend the normal investment activities
of a portfolio by investing up to 100% of its assets in a variety of
securities, such as U.S. government and other high quality and short-term debt
obligations. The adviser may temporarily adopt a defensive position to reduce
changes in the value of a portfolio's shares that may result from adverse
market, economic, political or other developments.
When the adviser pursues a defensive strategy, a portfolio may not profit from
favorable developments that it would have otherwise profited from if it were
pursuing its normal strategies. Likewise, these strategies may prevent a
portfolio from achieving its stated objectives.
YEAR 2000
- --------------------------------------------------------------------------------
Many computer programs in use today cannot distinguish the year 2000 from the
year 1900 because of the way they encode and calculate dates. Consequently,
these programs may not be able to perform necessary functions and could
disrupt the operations of the UAM Funds or financial markets in general. The
year 2000 issue affects all companies and organizations, including those that
provide services to the UAM Funds and those in which the UAM Funds invest.
The UAM Funds and their advisers, administrator, distributor and transfer
agent are taking steps they believe are reasonably necessary to address any
portfolio-related year 2000-related computer problems. They are actively
working on necessary changes to their own computer systems to prepare for the
year 2000 and expect that their systems will be adapted before that date.
They are also requesting information on each service provider's state of
readiness and contingency plan. However, at this time the degree to which the
year 2000 issue will affect the UAM Funds' investments or operations cannot be
predicted. Any negative consequences could adversely affect your investment in
the UAM Funds.
18
<PAGE>
INVESTMENT MANAGEMENT
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
C.S. McKee & Co., Inc., a Pennsylvania corporation located at One Gateway
Center, Pittsburgh, PA 15222, is the investment adviser to each of the
portfolios. The adviser.manages and supervises the investment of each
portfolio's assets on a discretionary basis. The adviser, an affiliate of
United Asset Management Corporation, has provided investment management
services to pension and profit sharing plans, trusts and endowments, 401(k)
and thrift plans, corporations and other institutions and individuals since
1931.
The adviser voluntarily agreed to limit the expenses of McKee Small Cap Equity
Portfolio to 1.75% of its average daily net assets. To maintain this expense
limit, the adviser may waive a portion of its fee and/or reimburse certain
expenses of the portfolio. The adviser intends to continue its expense
limitation until further notice. During the fiscal year ended October 31,
1998, the portfolios paid the adviser the following fees, which are expressed
as a percentage of average net assets:
<TABLE>
<CAPTION>
MCKEE U.S. MCKEE
GOVERNMENT MCKEE DOMESTIC INTERNATIONAL MCKEE SMALL CAP
PORTFOLIO EQUITY PORTFOLIO EQUITY PORTFOLIO EQUITY PORTFOLIO
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
% % % %
</TABLE>
PORTFOLIO MANAGERS
Listed below are the investment professionals of The adviser who are primarily
responsible for the day-to-day management of the portfolios and a description
of their business experience during the past five years.
MANAGER & TITLE EXPERIENCE
------------------------------------------------------------------------------
McKee U.S. Government Portfolio
Joseph F. Bonomo, Jr. Mr. Bonomo has 31 years of investment experience. He
Director of Fixed- joined C.S. McKee as Senior Vice President and
Income and Chief Director of Fixed Income in 1994 and was previously
Economist Senior Vice President of Paul Revere Insurance
Company. He is a graduate of Temple University from
which he received his B.S. and M.B.A., in Finance and
Insurance, and a Ph.D. in Economics.
------------------------------------------------------------------------------
McKee Domestic Equity Portfolio
Kathryn J. Murin McKee Domestic Equity Portfolio Ms. Murin has 22
Associate Director of years of investment experience. She joined C.S. McKee
Equities as a Vice President and Equity Analyst in 1985 and
became Senior Vice President in 1992. She was
previously a senior investment officer at Equibank.
She is a graduate of Chatham College (BA) and is a
Chartered Financial analyst.
------------------------------------------------------------------------------
McKee International Equity Portfolio
Walter C. Bean Mr. Bean has 28 years of investment experience. He
Director of Equities joined C.S. McKee as Senior Vice President and
Director of Equities in 1987 and became an Executive
Vice President in 1995. He was previously Managing
Director of First Chicago Investment Advisers. He is
a graduate of Ohio University (BA) and Penn State
University (MBA) and is a Chartered Financial
Analyst.
19
<PAGE>
MANAGER & TITLE EXPERIENCE
------------------------------------------------------------------------------
McKee Small Cap Equity Portfolio
Walter C. Bean Mr. Bean's biography is provided above under McKee
Director of Equities International Equity Portfolio.
------------------------------------------------------------------------------
Brian C. Jacobs Mr. Jacobs has four years of investment experience.
Vice President He joined C.S. McKee as a Vice President and Equity
Analyst in 1996. He was previously in the financial
administration group of PNC Bank. He is a graduate of
Allegheny College (BA) and Duke University (MBA) and
is a Chartered Financial Analyst.
SHAREHOLDER SERVICING ARRANGEMENTS
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICING
Certain financial intermediaries (service agents) may charge their clients
account fees for buying or redeeming shares of the UAM Funds. These fees may
include transaction fees and/or service fees paid by the UAM Funds from their
assets attributable to the service agent. The UAM Funds do not pay these fees
on shares purchased directly from UAM Fund Distributors. The service agents
may provide shareholder services to their clients that are not available to a
shareholder dealing directly with the UAM Funds. Each service agent is
responsible for transmitting to its clients a schedule of any such fees and
information regarding any additional or different purchase or redemption
conditions. You should consult your service agent for information regarding
these fees and conditions.
The adviser may pay its affiliated companies for referring investors to the
portfolio. The adviser and its affiliates may, at their own expense, pay
qualified service providers for marketing, shareholder servicing, record-
keeping and/or other services performed with respect to the portfolios.
UAM Fund Distributors, the adviser and certain of their other affiliates also
participate, as of the date of this prospectus, in an arrangement with Salomon
Smith Barney under which Salomon Smith Barney provides certain defined
contribution plan marketing and shareholder services and receives 0.15% of the
portion of the daily net asset value of Institutional Class Shares held by
Salomon Smith Barney's eligible customer accounts in addition to amounts
payable to all selling dealers. The UAM Funds also compensate Salomon Smith
Barney for services it provides to certain defined contribution plan
shareholders that are not otherwise provided by the UAM Funds' administrator.
The UAM Funds also offer Institutional Service Class shares, which pay
marketing or shareholder servicing fees, and Adviser Class shares, which
impose a sales load and fees for marketing and shareholder servicing, for
certain of its portfolios. Not all of the UAM Funds offer all of these
classes.
20
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
financial performance of each portfolio for the past five years. The financial
highlights table comes from the financial statements of the portfolio and
reflects the financial results for a single portfolio share. The total returns
in the table represent the rate that an investor would have earned on an
investment in the portfolio (assuming reinvestment of all dividends and
distributions). PricewaterhouseCoopers LLP has audited the financial
statements of the portfolio. The financial statements and the unqualified
opinion of PricewaterhouseCoopers, LLP of the portfolio are included in the
annual report of the portfolios, which is available upon request.
<TABLE>
<CAPTION>
MCKEE U.S. GOVERNMENT PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------
Fiscal Year Ended October 31, 1998 1997 1996 1995#
============================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 10.58 $ 10.76 $10.00
-------------------------------------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 0.54 0.46 0.28
Net Gains or losses on Securities
(Realized and Unrealized) 0.25 (0.07)++ 0.71
-------------------------------------------------------------------------------------------------------------
Total From Investment Operations 0.79 0.39 0.99
-------------------------------------------------------------------------------------------------------------
Less Distributions
Net Investment Income (0.53) (0.44) (0.23)
In Excess of Net Realized Gain -- (0.13) --
-------------------------------------------------------------------------------------------------------------
Total Distributions (0.53) (0.57) (0.23)
-------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 10.84 $ 10.58 $10.76
-------------------------------------------------------------------------------------------------------------
Total Return 7.73% 3.77%+ 9.96%**+
-------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Year (Thousands) $57,527 $23,118 $6,069
Ratio of Expenses to Average Net Assets 0.94% 1.13% 0.89%*
Ratio of Net Investment Income to Average Net Assets 5.67% 5.39% 5.39%*
Portfolio Turnover Rate 124% 83% 104%
Ratio of Voluntarily Waived Fees and
Expenses Assumed by the Adviser to
Average Net Assets -- 0.12% 1.93%*
Ratio of Expenses to Average Net Assets
Including Expense Offsets 0.94% 1.13% 0.85%*
</TABLE>
# For the period March 2, 1995 (commencement of operations) to October 31,
1995.
+ Total return would have been lower had certain fees not been waived and
expenses assumed by the adviser during the periods.
* Annualized.
** Not annualized.
++ The amount shown for the year ended October 31, 1996 for a share
outstanding throughout the period does not accord with the aggregate net
gains on investments for the period because of the sales and repurchases
of the portfolio shares in relation to fluctuating market value of the
investments of the portfolio.
21
<PAGE>
<TABLE>
<CAPTION>
MCKEE DOMESTIC EQUITY PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended October 31, 1998 1997 1996 1995#
======================================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 13.38 $ 11.44 $10.00
Income from Investment Operations
Net Investment Income 0.10 0.10 0.08
Net Gains or losses on Securities (Realized and
Unrealized) 3.92 2.08 1.43
----------------------------------------------------------------------------------------------------------------------
Total From Investment Operations 4.02 2.18 1.51
----------------------------------------------------------------------------------------------------------------------
Less Distributions
Net Investment Income (0.10) (0.09) (0.07)
Capital Gains (0.44) (0.15) --
----------------------------------------------------------------------------------------------------------------------
Total Distributions (0.54) (0.24) (0.07)
----------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 16.86 $ 13.38 $11.44
----------------------------------------------------------------------------------------------------------------------
Total Return 30.96% 19.31%+ 15.13%+**
----------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Year (Thousands) $107,389 $62,170 $6,427
Ratio of Expenses to Average Net Assets 0.94% 0.99% 1.08%*
Ratio of Net Investment Income to Average Net Assets 0.64% 0.93% 1.12%*
Portfolio Turnover Rate 47% 42% 27%
Ratio of Voluntarily Waived Fees and Expenses
Assumed by the Adviser to Average Net Assets -- 0.04% 1.65%*
Ratio of Expenses to Average Net Assets Including
Expense Offsets 0.94% 0.99% 1.00%*
</TABLE>
<TABLE>
<CAPTION>
MCKEE INTERNATIONAL EQUITY PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended October 31, 1998 1997 1996 1995 1994##
=====================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 10.55 $ 10.03 $ 10.40 $ 10.00
---------------------------------------------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 0.11 0.09 0.11 0.04
Net Gains or losses on Securities
(Realized and Unrealized) 2.01 0.73 (0.39) 0.39
----------------------------------------------------------------------------------------------------------------------
Total From Investment Operations 2.12 0.82 (0.28) 0.43
----------------------------------------------------------------------------------------------------------------------
Less Distributions
Net Investment Income (0.11) (0.09) (0.09) (0.03)
Capital Gains (0.14) (0.21) --
----------------------------------------------------------------------------------------------------------------------
Total Distributions (0.25) (0.30) (0.09) (0.03)
----------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 12.42 $ 10.55 $ 10.03 $ 10.40
----------------------------------------------------------------------------------------------------------------------
Total Return 20.31% 8.29% (2.69)% 4.31%+**
----------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Year (Thousands) $103,050 $91,224 $74,893 $37,257
Ratio of Expenses to Average Net Assets 0.98% 1.01% 0.97% 1.12%*
Ratio of Net Investment Income to Average Net Assets 0.95% 0.92% 1.16% 0.97%*
Portfolio Turnover Rate 29% 9% 7% 11%
Ratio of Voluntarily Waived Fees and Expenses
Assumed by the Adviser to Average Net Assets -- -- -- --
Ratio of Expenses to Average Net Assets
Including Expense Offsets 0.98% 1.01% 0.96% --
</TABLE>
# For the period March 2, 1995 (commencement of operations) to October
31, 1995.
## For the period May 26, 1994 (commencement of operations) through October
31, 1994.
+ Total return would have been lower had certain fees not been waived and
expenses assumed by the adviser during the period indicated.
* Annualized.
** Not annualized
22
<PAGE>
THE MCKEE PORTFOLIOS
For investors who want more information about the McKee Portfolios, the
following documents are available upon request.
ANNUAL/SEMI-ANNUAL REPORTS
The annual and semi-annual reports of the McKee Portfolios provide additional
information about their investments. In each annual report, you will also
find a discussion of the market conditions and investment strategies that
significantly affected the performance of the McKee Portfolios during the last
fiscal year.
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains additional detailed information about the McKee Portfolios
and is incorporated by reference into (legally part of) this prospectus.
Investors can receive free copies of these materials, request other
information about the portfolios and make shareholder inquiries by writing to
or calling:
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
You can review, for a fee, the reports of the portfolio and SAI by writing to
the SEC's Public Reference Section, D.C. 20459-6009, or by calling the SEC at
1-800-SEC-0330. You can get copies of this information for free, on the SEC's
Internet site at http://www.sec.gov.
------------------
The portfolio's Investment Company Act of 1940 file is 811-5683.
[LOGO]
<PAGE>
UAM FUNDS
Funds for the Informed Investor
THE NWQ PORTFOLIOS
Institutional Class Prospectus , 199_
NWQ Small Cap Value Portfolio
NWQ Special Equity Portfolio
NWQ Balanced Portfolio
[LOGO]
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
PORTFOLIO SUMMARY................................................. 1
What are the Objectives of the Portfolios?....................... 1
What are the Principal Investment Strategies of the Portfolios?.. 1
What are the Principal Risks of the Portfolio.................... 2
How have the Portfolios Performed?............................... 3
What are the Portfolios' Fees and Expenses?...................... 5
INVESTING WITH THE UAM FUNDS...................................... 7
Buying Shares.................................................... 7
Redeeming Shares................................................. 8
Exchanging Shares................................................ 8
Transaction Policies............................................. 8
ACCOUNT POLICIES.................................................. 11
Small Accounts................................................... 11
Distributions.................................................... 11
Federal Taxes.................................................... 11
FUND DETAILS...................................................... 13
Principal Investments and Risks of the Portfolios................ 13
Other Investment Practices and Strategies........................ 16
Year 2000........................................................ 17
Investment Management............................................ 18
Shareholder Servicing Arrangements............................... 22
FINANCIAL HIGHLIGHTS.............................................. 24
NWQ Balanced Portfolio........................................... 24
</TABLE>
<PAGE>
PORTFOLIO SUMMARY
WHAT ARE THE OBJECTIVES OF THE PORTFOLIOS?
- --------------------------------------------------------------------------------
Listed below are the investment objectives of the NWQ Portfolios. The NWQ
Portfolios cannot guarantee they will meet their investment objectives. A
portfolio may not change its investment objective without shareholder
approval.
NWQ BALANCED PORTFOLIO
NWQ Balanced Portfolio seeks consistent, above-average returns with minimum
risk to principal by investing primarily in a combination of investment-
grade fixed-income securities and common stocks of companies with above-
average statistical value which are in fundamentally attractive industries
and which, in the adviser's opinion, are undervalued at the time of
purchase.
NWQ SMALL CAP VALUE PORTFOLIO
NWQ Small Cap Value Equity Portfolio seeks long-term capital appreciation
by investing primarily in small capitalization common stocks and other
equity securities, which in the adviser's opinion, are undervalued at the
time of purchase.
NWQ SPECIAL EQUITY PORTFOLIO
NWQ Small Cap Value Equity Portfolio seeks long-term capital appreciation
by investing primarily the common stock and other equity securities of
companies, which in the adviser's opinion, are undervalued at the time of
purchase and offer the potential for above-average appreciation.
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE PORTFOLIOS?
- --------------------------------------------------------------------------------
The following is a brief description of the principal investment strategies
the NWQ Portfolios. For more information see "PRINCIPAL INVESTMENTS AND
RISKS OF THE PORTFOLIOS."
NWQ SMALL CAP VALUE PORTFOLIO
NWQ Small Cap Value Portfolio normally invests at least 65% of its total
assets in equity securities of companies with market capitalizations of $50
million to $1 billion. NWQ uses top-down or macroeconomic analysis to
identify industries that should benefit from major economic trends that
ideally last five to seven years. NWQ combines this top-down discipline
with rigorous fundamental or bottom-up company analysis. The adviser
analyzes such factors as management quality, restructuring opportunities,
improving industry
1
<PAGE>
fundamentals, franchise strength and competitive position. The adviser also
values stocks based on measures such as current and normalized earnings
power, price-to-book value, dividend yield, price-to-sales and price-to-
cash flow.
NWQ SPECIAL EQUITY PORTFOLIO
NWQ Special Equity Portfolio normally invests at least 65% of its total
assets in equity securities of large, mid and small capitalizations that it
selects on an opportunistic basis. The portfolio seeks to identify
undervalued companies where a catalyst such as new management, industry
consolidation or company restructuring exists to improve a company's
profitability. The portfolio also may invest up to 35% of its total asses
in investment-grade debt securities.
NWQ BALANCED PORTFOLIO
NWQ Balanced Portfolio actively varies its asset composition among equity
securities, debt securities and cash to maximize the portfolio's return and
reduce volatility. The process focuses on the expected returns of each
asset type relative to each other, market conditions and the adviser's
economic outlook. The portfolio will typically invest:
. Approximately 60% of its assets in common stock of companies with
medium to large market capitalizations that are listed on a national
exchange or traded over-the-counter. The adviser uses a multi-
disciplined approach to choose companies with above-average
statistical values in those industries with positive fundamentals.
. 30% percent of its assets in debt securities. The adviser uses a
strategy that increases debt securities and lengthens maturity when
interest rates decline, and likewise decreases ownership and shortens
maturity when interest rates are rising.
. 10% of its assets in cash and cash equivalents.
WHAT ARE THE PRINCIPAL RISKS OF THE PORTFOLIO
- --------------------------------------------------------------------------------
The following is a summary of the principal risks associated with investing
in the portfolios. For more information see "PRINCIPAL INVESTMENTS AND
RISKS OF THE PORTFOLIOS."
RISKS COMMON TO ALL MUTUAL FUNDS
At any time, your investment in a mutual fund may be worth more or less
than the price you originally paid for it. You may lose money by investing
in any mutual fund because:
. The value of the securities it owns changes, sometimes rapidly and
unpredictably.
. The mutual fund is not successful in reaching its goal because of its
strategy or because it did not implement its strategy properly.
2
<PAGE>
. Unforeseen occurrences in the securities markets negatively affect the
mutual fund.
NWQ SMALL CAP EQUITY AND SPECIAL EQUITY PORTFOLIOS
Since the portfolios invest mainly in equity securities, their principal
risks are those of investing in equity securities, which may inclue sudden,
unpredictable drops in value or long periods of decline in value. Equity
securities may lose value because of factors affecting the securities
markets generally, an entire industry or a particular company.
The portfolios are value oriented and may not perform as well as certain
other types of equity mutual funds during periods when value stocks are out
of favor.
Investors in NWQ Small Cap Value Portfolio take on additional risks that
come with investing in stocks of smaller companies, which can be riskier
than investing in larger, more mature companies. Smaller companies may be
more vulnerable to adverse developments than larger companies because they
tend to have more narrow product lines and more limited financial
resources. Their stocks may trade less frequently and in limited volume.
NWQ BALANCED AND SPECIAL EQUITY PORTFOLIOS
Shareholders that invest in the portfolios take on the risks that come with
investing in equity securities discussed above.
To the extent the portfolio invests in debt securities, the value of its
investments could fall because:
. Of market conditions and economic and political events.
. Interest rates rise, which tends to cause the value of debt securities
to fall.
. A security's credit rating worsens or its issuer becomes unable to
honor its financial obligations.
HOW HAVE THE PORTFOLIOS PERFORMED?
- --------------------------------------------------------------------------------
The bar charts and tables below illustrate how the performance of the
portfolios has varied from year to year. The following bar charts show the
investment returns of each portfolio since its inception. The table
following each bar chart compares each portfolio's average annual returns
for the periods indicated to those of a broad-based securities market
index. Past performance does not guarantee future results.
3
<PAGE>
NWQ BALANCED PORTFOLIO
(CHART APPEARS HERE)
*From the portfolio's inception (8/2/94) through 12/31/94.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_).
<TABLE>
<CAPTION>
Since
Average annual return 1 Year 5 Years Inception
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------
NWQ Balanced Portfolio
-----------------------------------------------------------------------------------------
S&P 500 Index
-----------------------------------------------------------------------------------------
Lehman Brothers Government/Corporate Index
-----------------------------------------------------------------------------------------
Salomon Brothers 3-Month Treasury Bill Average+
-----------------------------------------------------------------------------------------
Balanced Index++
</TABLE>
* The S&P 500 Index is an unmanaged index composite of 400 industrial, 40
financial, 40 utilities and 20 transportation stocks.
# The Lehman Brothers Government/Corporate Index --is an unmanaged index
composed of a combination of the Government and Corporate Bond Indices.
The Government Index includes public obligations of the U.S. Treasury,
issues of Government agencies, and corporate debt backed by the U.S.
Government. The Corporate Bond Index includes investment-grade fixed-
rate nonconvertible corporate debt, Yankee Bonds and nonconvertible debt
issued by or guaranteed by foreign or international governments and
agencies. All issues have maturities of at least one year and
outstanding par value of at least $100 million for U.S. Government
issues and $25 million for others.
+ The Salomon Brothers 3-Month Treasury Bill Average is the weighted
average return for all Treasury bills for the previous three month
period.
++ Balanced Index is a combined index of which 60% reflects S&P 500 Index,
30% the Lehman Brother Government/Corporate Index and 10% the Salomon
Brothers 3-Month Treasury Bill Average.
NWQ SMALL CAP VALUE PORTFOLIO
(CHART APPEARS HERE)
*From the portfolio's inception (11/4/97) through 12/31/97.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_).
4
<PAGE>
<TABLE>
<CAPTION>
Average annual return 1 Year Since Inception
------------------------------------------------------------------------------------
<S> <C> <C>
NWQ Small Cap Value Portfolio
------------------------------------------------------------------------------------
Benchmark
</TABLE>
NWQ SPECIAL EQUITY PORTFOLIO
(CHART APPEARS HERE)
* From the portfolio's inception (11/4/97) through 12/31/98
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_).
<TABLE>
<CAPTION>
Average annual return 1 Year Since Inception
------------------------------------------------------------------------------------
<S> <C> <C>
NWQ Special Equity Portfolio
------------------------------------------------------------------------------------
S&P 500 Index
------------------------------------------------------------------------------------
Lipper Equity Income Funds Index
</TABLE>
WHAT ARE THE PORTFOLIOS' FEES AND EXPENSES?
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM THE ASSETS OF A
PORTFOLIO)
This table describes the fees and expenses that you may pay if you buy and
hold shares of a portfolio. This table is presented in the format required
by the Securities and Exchange Commission (SEC) may not reflect the actual
expenses you would have paid as a shareholder in the portfolios.
<TABLE>
<CAPTION>
NWQ Balanced NWQ Small Cap NWQ Special
Portfolio Value Portfolio Equity Portfolio
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fees
------------------------------------------------------------------------------------------
Other expenses
------------------------------------------------------------------------------------------
Total Expenses
------------------------------------------------------------------------------------------
</TABLE>
ACTUAL FEES AND EXPENSES
The amounts stated in the table above are higher than the expenses you
would have actually paid as an investor in these portfolios. Due to certain
expense limits by the adviser and expense offsets, investors in the
portfolios actually paid the following total operating expenses during the
fiscal year ended October 31, 1998:
5
<PAGE>
<TABLE>
<CAPTION>
NWQ Balanced NWQ Small Cap NWQ Special
Portfolio Value Portfolio Equity Portfolio
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Actual Expenses
------------------------------------------------------------------------------------------
</TABLE>
EXAMPLE
This example can help you to compare the cost of investing in these
portfolios to the cost of investing in other mutual funds. It assumes that
you invest $10,000 in a portfolio for the periods shown and then redeem all
of your shares at the end of those periods. It also assumes a 5% return on
your investment each year and that the portfolio's operating expenses
remain the same. Although your actual costs may be higher or lower, based
on these assumptions your costs would be:
<TABLE>
<CAPTION>
NWQ Balanced NWQ Small Cap NWQ Special
Portfolio Value Portfolio Equity Portfolio
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Year
------------------------------------------------------------------------------------------
3 Years
------------------------------------------------------------------------------------------
5 Years
------------------------------------------------------------------------------------------
10 Years
</TABLE>
6
<PAGE>
INVESTING WITH THE UAM FUNDS
<TABLE>
<CAPTION>
BUYING SHARES
- ----------------------------------------------------------------------------------------------
TO OPEN AN ACCOUNT TO BUY MORE SHARES
-----------------------------------------------------------------------------------------
<S> <C> <C>
By Mail Send a check or money Send a check and, if possible,
order and your account the "Invest by Mail" stub that
application to the UAM accompanied your statement
Funds. Make checks to the UAM Funds. Be sure
payable to "UAM Funds" your check identifies clearly
(the UAM Funds will not your name, account number
accept third-party checks). and the portfolio into which
you want to invest.
-----------------------------------------------------------------------------------------
By Wire Call the UAM Funds for Call the UAM Funds to get a
an account number and wire control number and
wire control number and wire your money to the UAM
then send your completed Funds.
account application to the
UAM Funds.
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: portfolio name/account number/
account name/wire control number
-----------------------------------------------------------------------------------------
By Automatic Not Available To set up a plan, mail a
Investment Plan completed application to the
(Via ACH) UAM Funds. To cancel or
change a plan, write to the
UAM Funds. Allow up to 15
days to create the plan and 3
days to cancel or change it.
-----------------------------------------------------------------------------------------
Minimum $2,500, except IRAs $100
Investments ($500) and spousal IRAs
($250)
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
REDEEMING SHARES
- ----------------------------------------------------------------------------------------------
<S> <C>
By Mail Send a letter signed by all registered parties on the account to
UAM Funds specifying the portfolio, the account number and
the dollar amount or number of shares you wish to redeem.
Certain shareholders may have to include additional
documents.
-----------------------------------------------------------------------------------------
By Telephone You must first establish the telephone redemption privilege
(and, if desired, the wire redemption privilege) by completing
the appropriate sections of the account application.
Call 1-877-UAM-Link to redeem your shares. Based on your
instructions, the UAM Funds will mail your proceeds to you or
wire them to your bank.
-----------------------------------------------------------------------------------------
By If your account balance is at least $10,000, you may transfer as
Systematic little as $100 per month from your UAM account to your
Withdrawal financial institution.
Plan (Via
ACH) To participate in this service, you must complete the
appropriate sections of the account application and mail it to
the UAM Funds.
</TABLE>
EXCHANGING SHARES
- --------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the
same class of any other UAM Fund by writing to or calling the UAM Funds.
Before exchanging your shares, read the prospectus of the UAM Fund for
which you want to exchange, which you may obtain from the UAM Funds. You
may not exchange shares represented by certificates over the telephone. You
may only exchange shares between accounts with identical registrations
(i.e., the same names and addresses).
TRANSACTION POLICIES
- --------------------------------------------------------------------------------
CALCULATING YOUR SHARE PRICE
You may buy, sell or exchange shares of a UAM Fund at a price equal to its
net asset value (NAV) next computed after it receives your order. DSI Money
Market Portfolio calculates it NAV at 12:00 noon (Eastern time) on each day
the New York Stock Exchange (NYSE). The other DSI portfolios calculate
their NAVs as of the close of trading on the NYSE (generally 4:00 p.m.
Eastern Time) on each day the NYSE is open. Therefore, to receive the NAV
on any given day, the UAM Funds must accept your order by the close of
trading on the NYSE that day. Otherwise, you will receive the NAV that is
calculated on the close of trading on the following day. The UAM Funds are
open for business on the same days as the NYSE, which is closed on weekends
and certain holidays.
8
<PAGE>
BUYING OR SELLING SHARES THROUGH A FINANCIAL INTERMEDIARY
You may buy, exchange or redeem shares of the UAM Funds through a financial
intermediary (such as a financial planner or adviser). Generally, to buy or
sell shares at the NAV on any given day, your financial intermediary must
receive your order by the close of trading on the NYSE that day. Your
financial intermediary is responsible for transmitting all subscription and
redemption requests, investment information, documentation and money to the
UAM Funds on time.
Certain financial intermediaries have agreements with the UAM Funds that
allow them to enter confirmed purchase or redemption orders on behalf of
clients and customers. Under this arrangement, the financial intermediary
must send your payment to the UAM Funds by the time they price their shares
on the following day. If your financial intermediary fails to do so, it may
be responsible for any resulting fees or losses.
CALCULATING NAV
The UAM Funds calculate their NAV by adding the total value of their
assets, subtracting their liabilities and then dividing the result by the
number of shares outstanding. The UAM Funds value their investments with
readily available market quotations at market value. Investments that do
not have readily available market quotations are valued at fair value,
according to guidelines established by the UAM Funds. The UAM Funds may
also value securities at fair value when events occur that make established
valuation methods (such as stock exchange closing prices) unreliable. The
UAM Funds value debt securities that will mature in 60 days or less
amortized cost, which approximates market value.
IN-KIND TRANSACTIONS
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares of a portfolio with securities instead of cash. In addition, the UAM
Funds may pay all or part of your redemption proceeds with securities
instead of cash.
PAYMENT OF REDEMPTION PROCEEDS
The UAM Funds will pay for all shares redeemed within seven days after they
receive a redemption request in proper order. If you redeem shares that
were purchased by check, you will not receive your redemption proceeds
until the check has cleared, which may take up to 15 days. You may avoid
these delays by paying for shares with a certified check, bank check or
money order.
SIGNATURE GUARANTEE
You must have your signature guaranteed when (1) you want the proceeds from
your redemption sent to a person or address different from that registered
on the account, or (2) you request a transfer of your shares.
9
<PAGE>
You may obtain a signature guarantee from most banks, savings institutions,
securities dealers, national securities exchanges, registered securities
associations, clearing agencies and other guarantor institutions. A notary
public cannot guarantee a signature.
TELEPHONE TRANSACTIONS
The UAM Funds will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine; they may be liable for
any losses if they fail to do so. The UAM Funds will be responsible for any
loss, liability, cost or expense for following instructions received by
telephone that it reasonably believes to be genuine.
RIGHTS RESERVED BY THE UAM FUNDS
PURCHASES
At any time and without notice, the UAM Funds may:
. Stop offering shares of a portfolio.
. Reject any purchase order.
. Bar an investor engaged in a pattern of excessive trading from buying
shares of any portfolio. (Excessive trading can hurt the performance
of a portfolio by disrupting its management and by increasing its
expenses.)
REDEMPTIONS
The UAM Funds may suspend your right to redeem if:
. An emergency exists and a portfolio cannot dispose of its investments
or fairly determine their value.
. Trading on the NYSE is restricted.
. The SEC tells the UAM Funds to delay redemptions.
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail.
EXCHANGES
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders.
. Reject any request for an exchange.
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
10
<PAGE>
ACCOUNT POLICIES
SMALL ACCOUNTS
- --------------------------------------------------------------------------------
The UAM Funds may redeem your shares without your permission if the value
of your account falls below 50% of the required minimum initial investment,
but not because of a drop in the value of your shares caused by market
fluctuations. This provision does not apply to retirement accounts and
certain other accounts.
DISTRIBUTIONS
- --------------------------------------------------------------------------------
Normally, the portfolios distribute their net investment income quarterly.
In addition, they distribute any net capital gains once a year. The UAM
Funds will automatically reinvest dividends and distributions in additional
shares of the portfolio, unless you elect on your account application to
receive them in cash.
FEDERAL TAXES
- --------------------------------------------------------------------------------
The following is a summary of the federal income tax consequences of
investing in the UAM Funds. You may also have to pay state and local taxes
on your investment. You should always consult your tax advisor for specific
guidance regarding the tax effect of your investment in the UAM Funds.
TAXES ON DISTRIBUTIONS
The distributions of the portfolios will generally be taxable to
shareholders as ordinary income or capital gains (which may be taxable at
different rates depending on the length of time the portfolio held the
relevant assets). You will be subject to income tax on these distributions
regardless of whether they are paid in cash or reinvested in additional
shares. Once a year UAM Funds will send you a statement showing the types
and total amount of distributions you received during the previous year.
You should note that if you purchase shares just before a distribution, the
purchase price would reflect the amount of the upcoming distribution. In
this case, you would be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply
constitutes a return of your investment. This is known as "buying into a
dividend" and should be avoided.
TAXES ON EXCHANGES AND REDEMPTIONS
When you redeem or exchange shares in any portfolio, you may recognize a
gain or loss for income tax purposes. This gain or loss will be based on
the difference between your tax basis in the shares and the amount you
receive for them. (To aid in computing your tax basis, you generally should
retain your
11
<PAGE>
account statements for the periods during which you held shares.) Any loss
realized on shares held for six months or less will be treated as a long-
term capital loss to the extent of any capital gain dividends that were
received with respect to the shares.
The one major exception to these tax principles is that distributions on,
and sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable, but they may be taxable
at some time in the future.
BACKUP WITHHOLDING
By law, the UAM Funds must withhold 31% of your distributions and proceeds
if you have not provided complete, correct taxpayer information.
12
<PAGE>
FUND DETAILS
PRINCIPAL INVESTMENTS AND RISKS OF THE PORTFOLIOS
- --------------------------------------------------------------------------------
The following is a brief description of the principal investment
strategies. The NWQ Portfolios may employ in seeking their objectives. This
discussion is in addition to the discussion set forth in the "PORTFOLIO
SUMMARY." For more information concerning these investment practices and
their associated risks, please read the "PORTFOLIO SUMMARY" and the
statement of additional information (SAI). You can also find information on
each portfolio's recent strategies and holdings in the current annual/semi
annual report. The portfolio may change these strategies without
shareholder approval.
NWQ SMALL CAP VALUE AND SPECIAL EQUITY PORTFOLIOS
- --------------------------------------------------------------------------------
Using the approaches described below, each portfolio may invest in common
stocks, preferred stocks, securities convertible or exchangeable into
common stock, and rights or warrants to purchase common stocks.
NWQ SMALL CAP VALUE PORTFOLIO
NWQ Small Cap Value Portfolio normally invests at least 65% of its total
assets in equity securities of companies with market capitalizations of $50
million to $1 billion.
The adviser uses top-down or macroeconomic analysis to identify industries
that should benefit from major economic trends that ideally last five to
seven years. The adviser combines this top-down discipline with rigorous
fundamental or bottom-up company analysis, which includes qualitative and
quantitative valuation criteria. On a qualitative and fundamental basis,
the adviser analyzes such factors as management quality, restructuring
opportunities, improving industry fundamentals, insider stock ownership,
"franchise" strength, and competitive position. On a quantitative basis,
valuation of stocks is based on statistical measures such as current and
normalized earnings power, price-to-book value, dividend yield, price-to-
sales, and price-to-cash flow. The adviser extensively analyzes companies'
financial statements for signs of eroding quality of earnings, in order to
avoid securities of companies with deteriorating financial prospects. In
addition to quantitative evaluation, the adviser uses company visits, as
well as interviews with management and analysts.
NWQ SPECIAL EQUITY PORTFOLIO
NWQ Special Equity Portfolio normally invests at least 65% of its total
assets in equity securities. The portfolio is value oriented and seeks to
identify statistically undervalued companies where a catalyst exists to
recognize value or improve a company's profitability. These catalysts can
be new management, industry consolidation, company restructuring or a turn
in the company's
13
<PAGE>
fundamentals. Strong bottom up fundamental research, which focuses on both
quantitative and qualitative valuation measures drives the stock selection
process. The adviser's research team applies a broad range of quantitative
screens such as price to cash flow, low price to sales, low price to
earnings, low price to book value and quality of earnings. On a qualitative
basis, the adviser focuses on management strength, competitive position,
industry fundamentals and corporate strategy. As a result of its broader
definition of value, the adviser 's valuation framework will include
companies valued by traditional statistical measures as well as relative
value, discount to asset break up value and special situations.
The portfolio may invest up to 35% of its total asses in investment-grade
debt securities and up to 15% of its total assets in debt securities rated
below investment-grade (junk bonds). The adviser manages the debt portion
of the portfolio in the same way that it manages NWQ Balanced Portfolio,
which is discussed below.
RISKS OF INVESTING IN EQUITY SECURITIES
Equity securities may lose value because of factors affecting the
securities markets generally, such as adverse changes in economic
conditions, the general outlook for corporate earnings, interest rates or
investor sentiment. These circumstances may lead to long periods of poor
performance, such as during a "bear market." Equity securities may also
lose value because of factors affecting an entire industry, such as
increases in production costs, or factors directly related to that company,
such as decisions made by its management.
Undervalued companies may have experienced adverse business developments or
other events that have caused their stocks to be out of favor. If the
adviser's assessment of a company is wrong, or if the market does not
recognize the value of the company, the price of its stock may fail to meet
expectations and the portfolio's share price may suffer. A value-oriented
portfolio may not perform as well as certain other types of mutual funds
during periods when value stocks are out of favor.
NWQ BALANCED PORTFOLIO
The portfolio may invest 30%-75% of its assets in common stocks, 25%-50% in
fixed income securities, and up to 45% in cash and cash equivalents. While
the adviser may vary the investments of the portfolio within those ranges,
it will typically invest approximately:
. 60% of the assets of the portfolio in common stocks of companies with
medium to large market capitalizations that are listed on a national
exchange or traded over-the-counter.
. 30% of the portfolio's assets in debt securities.
. 10% of the portfolio's assets in cash and cash equivalents.
14
<PAGE>
The portfolio will invest at least 25% of its assets in senior debt
securities. The portfolio also may invest up to 10% of its total assets in
common stocks of companies with market capitalizations of less than $500
million and in debt securities that are rated below investment-grade (junk
bonds).
EQUITY STRATEGY
The adviser uses statistical measures to screen for the companies with the
best value characteristics such as below average price-to-earnings and
price-to-book ratios, above-average dividend yield and strong financial
stability. The adviser's process is different from that of other value-
oriented investment managers because it (1) uses normalized earnings to
value cyclical companies, (2) focuses on quality of earnings, (3) invests
in relative value, and (4) concentrates in industries/sectors having strong
long-term fundamentals.
As part of its multi-disciplined approach to capturing value, the adviser
strives to identify market sectors early in their cycle of fundamental
improvement, investor recognition and market exploitation. Industry
fundamentals employed in the decision making process are (1) business trend
analysis, which is used to analyze industry and company fundamentals for
the impact of changing worldwide product demand/supply; (2) direction of
inflation and interest rates; and (3) expansion/contraction of business
cycles.
The adviser then actively follows those companies that have above-average
statistical values and are in sectors identified as having positive
fundamentals on a secular basis. Company visits and interviews with
management provide the fundamental research to verify the value in these
potential investments. The adviser uses in-house research capabilities in
addition to Wall Street and numerous independent firms for economic,
industry and securities research. The portfolio will invest in those
industries with positive fundamentals and likewise will minimize risk by
avoiding industries with deteriorating secular fundamentals.
Investing in equity securities entails the risks discussed above.
DEBT STRATEGY
The debt portion of the portfolio will primarily consist of investment-
grade debt securities. Debt securities are securities issued by the U.S.
government and its agencies, corporate debt securities, mortgage-backed and
asset-backed securities, commercial paper and certificates of deposit.
These securities may have varying interest rate schedules and maturities
(the dates when a debt instrument is due and payable). Asset-backed and
mortgage-backed securities are securities that are backed by pools of loans
or mortgages assembled for sale to investors by various governmental
agencies and private issuers. Mortgage-backed securities may generally take
two forms: pass-throughs and collateralized mortgage obligations (CMOs).
The adviser uses an active debt strategy seeking to benefit during periods
of declining interest rates by increasing investment exposure and extending
security maturities. During a rising interest rate environment, the adviser
will
15
<PAGE>
seek to avoid a capital loss by shortening the maturity of the portfolio
and decreasing exposure. The adviser adds value to its investment process
by actively adjusting the duration of the portfolio. Average duration may
range from one to ten years and maturities may range from one to thirty
years.
RISKS OF INVESTING IN DEBT SECURITIES
The value of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up the value of the bond will go
down, and vice versa). Interest rate changes may cause people to pay off
mortgage-backed and asset-backed securities earlier or later than expected,
which may shorten or lengthen the average maturity. Variations to average
maturity may cause the portfolio's share price and yield to fall.
The credit rating or financial condition of an issuer may affect the value
of a debt security. Generally, the lower the quality rating of a security,
the greater the risks that the issuer will fail to pay interest and return
principal. To compensate investors for taking on increased risk, issuers
with lower credit ratings usually offer their investors higher interest
rates. If an issuer defaults or becomes unable to honor its financial
obligations, the bond may lose some or all of its value.
A security rated within the four highest rating categories by a rating
agency is called investment-grade because its issuer is more likely to pay
interest and repay principal than an issuer of a lower rated bond. Adverse
economic conditions or changing circumstances, however, may weaken the
capacity of the issuer to pay interest and repay principal. If a security
is not rated or is rated under a different system, the adviser may
determine that it is of investment-grade. The adviser may retain securities
that are downgraded, if it believes that keeping those securities is
warranted.
OTHER INVESTMENT PRACTICES AND STRATEGIES
- --------------------------------------------------------------------------------
As described below, the portfolios may invest in derivatives and foreign
securities and may deviate from its investment strategy from time to time.
In addition, the portfolios may employ investment practices that are not
described in this prospectus, such as repurchase agreements, when-issued
and forward commitment transactions, lending of securities, borrowing and
other techniques. For more information concerning the risks associated with
these investment practices, you should read the SAI.
FOREIGN INVESTMENTS
NWQ Balanced Portfolio and NWQ Small Cap Value Portfolio may invest up to
20% of their assets in American Depositary Receipts (ADRs). NWQ Special
Equity Portfolio may invest up to 35% of its assets in foreign securities
directly or through ADRs. ADRs are certificates evidencing ownership of
shares of a foreign issuer that are issued by depository banks and
generally trade on an established market in the United States or elsewhere.
Although they are alternatives to directly purchasing the underlying
foreign securities in their
16
<PAGE>
national markets and currencies, ADRs continue to be subject to many of the
risks associated with investing directly in foreign securities.
Foreign securities, especially those of companies in emerging markets, can
be riskier and more volatile than domestic securities. Adverse political
and economic developments or changes in the value of foreign currency can
make it harder for a portfolio to sell its securities and could reduce the
value of your shares. Changes in tax and accounting standards and
difficulties obtaining information about foreign companies can negatively
affect investment decisions.
In January 1999, certain European nations will begin to use the new
European common currency, called the Euro. The nations that use the Euro
will have the same monetary policy regardless of their domestic economy,
which could have adverse effects on those economies. In addition, the
method by which the conversion to the Euro is implemented could negatively
affect the investments of a portfolio.
DERIVATIVES
To remain fully invested and to reduce transaction costs, NWQ Special
Equity Portfolio may buy and sell derivatives, including futures and option
on stock indices, interest rates and currencies. Derivatives are often more
volatile than other investments and may magnify a portfolio's gains or
losses. A portfolio may lose money if the adviser:
. Fails to predict correctly the direction in which the underlying asset or
economic factor will move.
. Judges market conditions incorrectly.
. Employs a strategy that does not correlate well with the investments of
the portfolio.
SHORT-TERM INVESTING
At times, the adviser may decide to suspend the normal investment
activities of a portfolio by investing up to 100% of its assets in a
variety of securities, such as U.S. government and other high quality and
short-term debt obligations. The adviser may temporarily adopt a defensive
position to reduce changes in the value of a portfolio's shares that may
result from adverse market, economic, political or other developments.
When the adviser pursues a defensive strategy, a portfolio may not profit
from favorable developments that it would have otherwise profited from if
it were pursuing its normal strategies. Likewise, these strategies may
prevent a portfolio from achieving its stated objectives.
YEAR 2000
- --------------------------------------------------------------------------------
Many computer programs in use today cannot distinguish the year 2000 from
the year 1900 because of the way they encode and calculate dates.
Consequently, these programs may not be able to perform necessary functions
17
<PAGE>
and could disrupt the operations of the UAM Funds or financial markets in
general. The year 2000 issue affects all companies and organizations,
including those that provide services to the UAM Funds and those in which the
UAM Funds invest.
The UAM Funds and their advisers, administrator, distributor and transfer
agent are taking steps they believe are reasonably necessary to address any
portfolio-related year 2000-related computer problems. They are actively
working on necessary changes to their own computer systems to prepare for the
year 2000 and expect that their systems will be adapted before that date. They
are also requesting information on each service provider's state of readiness
and contingency plan. However, at this time the degree to which the year 2000
issue will affect the UAM Funds' investments or operations cannot be
predicted. Any negative consequences could adversely affect your investment in
the UAM Funds.
INVESTMENT MANAGEMENT
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
NWQ Investment Management Company, Inc., a California corporation located at
2049 Century Park East, 4th Floor, Los Angeles, California 90067, is the
investment adviser the portfolios. The adviser manages and supervises the
investment of each portfolio's assets on a discretionary basis. The adviser,
an affiliate of United Asset Management Corporation, has provided investment
management services to institutional and high net worth individuals since in
1982.
The adviser has voluntarily agreed to limit the expense of these portfolios.
To maintain this expense limit, the adviser may waive a portion of its
advisory fee and/or reimburse certain expenses of the portfolios. The adviser
intends to continue its expense limitation until further notice. Set forth
below are the expense limits of the portfolios and the amounts they paid to
the adviser during the fiscal year ended October 31, 1998, both of which are
expressed as a percentage of average net assets.
<TABLE>
<CAPTION>
NWQ Small Cap NWQ Special
NWQ Balanced Portfolio Value Portfolio Equity Portfolio
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fees
- -------------------------------------------------------------------------------
Expenses Limit
</TABLE>
For more information on NWQ Investment Management Company's investment
services please call (206) 624-3800.
18
<PAGE>
PORTFOLIO MANAGERS
NWQ Balanced and NWQ Small Cap Value Portfolios
Separate investment committees are responsible for the day-to-day management
of NWQ Balanced Portfolio and NWQ Small Cap Value Portfolio.
NWQ Special Equity Portfolio
Jon D. Bosse, CFA, is the Portfolio Manager of NWQ Special Equity Portfolio.
Mr. Bosse has been a Managing Director of NWQ Investment Management Company
since 1996. From 1986 to 1996, Mr. Bosse was a Portfolio Manager and Director
of Equity Research at ARCO Investment Management Company.
ADVISER'S HISTORICAL PERFORMANCE
The adviser manages separate accounts of equity securities and fixed-income
securities that have the same investment objectives as the portfolios,
respectively. The adviser manages these accounts using techniques and
strategies substantially similar, though not always identical, to those used
to manage the portfolios. Composites of the performance of all of these
separate accounts are listed below. The performance data for the managed
accounts reflects deductions for all fees and expenses. Because separately
managed accounts may have different fees and expenses than the portfolio,
their investment returns may differ from those of the portfolios. All fees
and expenses of the separate accounts were less than the operating expenses of
the portfolios. If the performance of the managed accounts was adjusted to
reflect fees and expenses of the portfolios, the composites' performance would
have been lower.
The separately managed accounts are not subject to investment limitations,
diversification requirements and other restrictions imposed by the Investment
Company Act of 1940 and the Internal Revenue Code. If they were, their
returns might have been lower. The performance of these separate accounts is
not intended to predict or suggest the performance of the portfolios.
<TABLE>
<CAPTION>
NWQ Investment
Management Company --
Balanced Composite* 60/30/10 Index+
===============================================================================
Calendar Years Ended:
<S> <C> <C>
1982 33.61% 23.62%
-------------------------------------------------------------------------------
1983 16.65% 16.72%
-------------------------------------------------------------------------------
1984 7.29% 9.43%
-------------------------------------------------------------------------------
1985 24.50% 26.14%
-------------------------------------------------------------------------------
1986 25.17% 16.78%
-------------------------------------------------------------------------------
1987 5.57% 5.80%
-------------------------------------------------------------------------------
1988 11.76% 12.91%
-------------------------------------------------------------------------------
1989 22.05% 24.01%
-------------------------------------------------------------------------------
1990 0.89% 1.56%
-------------------------------------------------------------------------------
1991 23.07% 23.68%
-------------------------------------------------------------------------------
1992 3.74% 7.26%
-------------------------------------------------------------------------------
1993 16.75% 9.70%
-------------------------------------------------------------------------------
1994 (3.25)% 0.21%
-------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
NWQ Investment
Management Company --
Balanced Composite* 60/30/10 Index+
===============================================================================
<S> <C> <C>
1995 27.77% 28.46%
- -------------------------------------------------------------------------------
1996 14.68% 14.92%
- -------------------------------------------------------------------------------
1997
- -------------------------------------------------------------------------------
1998
- -------------------------------------------------------------------------------
Annualized Return For Various
Periods Ended 12/31/98 (annualized)
1-year
- -------------------------------------------------------------------------------
5-years
- -------------------------------------------------------------------------------
10-years
- -------------------------------------------------------------------------------
Since inception (1/1/82)
- -------------------------------------------------------------------------------
Cumulative Since Inception (1/1/82)
</TABLE>
* The adviser's average annual management fee from 1/1/82 to 9/30/97 was
0.76%. During the period, fees on the adviser's individual accounts ranged
from 0.30% to 1.0%. Net returns to investors vary depending on the
management fee.
+ The 60/30/10 index is a weighted index comprised of 60% S&P 500 Index, 30%
Lehman Brothers Government Corporate Index, 10% 3 Month Treasury Bills.
This is an unmanaged index, which assumes reinvestment of dividends.
<TABLE>
<CAPTION>
NWQ Investment
Management
Company -- Small
Cap Value Russell 2000 Lipper Small Cap
Composite* Index+ Funds Index#
===============================================================================
<S> <C> <C> <C>
Calendar Years Ended:
1997
- -------------------------------------------------------------------------------
1998
- -------------------------------------------------------------------------------
Annualized Return For
Various Periods Ended
12/31/98 (annualized)
1-year
- -------------------------------------------------------------------------------
Since inception
(7/1/96)
- -------------------------------------------------------------------------------
Cumulative Since
Inception (7/1/96)
</TABLE>
* The adviser's average annual management fee from 7/1/96 to December 31,
1998 was __%, which is the maximum fee charged to the advisers equity
accounts. Net returns to investors may vary depending on the management
fee.
+ The Russell 2000 Index consists of the 2,000 smallest of the 3,000 largest
stocks. The list is rebalanced each year on June 30. If a stock is taken
over or goes bankrupt, it is not replaced until rebalancing. Therefore,
there can be fewer than 2,000 stocks in the Russell 2000 Index. The index
is an equity market capitalization weighted index available from Frank
Russell & Co. on a monthly basis.
# Lipper Small Cap Funds Index is an unmanaged index of mutual funds that
invest primarily in companies with market Capitalizations less than $1
billion at the time of purchase.
<TABLE>
<CAPTION>
NWQ
Investment Lipper
Management Capital
Company -- Appreciation
Special Equity S&P 500 S&P 400 Mid Funds
Composite Index+ Cap Index# Index##
================================================================================
<S> <C> <C> <C> <C>
Calendar Years Ended:
1997
- --------------------------------------------------------------------------------
1998
- --------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
NWQ
Investment Lipper
Management Capital
Company -- Appreciation
Special Equity S&P 500 S&P 400 Mid Funds
Composite Index+ Cap Index# Index##
================================================================================
<S> <C> <C> <C> <C>
Annualized Return For
Various Periods Ended
12/31/98 (annualized)
1-year
--------------------------------------------------------------------------------
Since inception
(10/1/96)
--------------------------------------------------------------------------------
Cumulative Since
Inception (10/1/96)
</TABLE>
* The Adviser's imputed average annual management fee from 10/1/96 to
12/31/98 was ____%, based on the fees paid by the adviser's special equity
accounts. Net returns to investors vary depending on the management fee,
which may be a maximum of 0.85%.
+ The S&P 500 Index is an unmanaged index composite of 400 industrial, 40
financial, 40 utilities and 20 transportation stocks. It assumes that
dividends are reinvested and is generally considers representative of large
U.S. large capitalization stocks.
# S&P 400 Mid Cap Index consists of 400 domestic stocks chosen for market
size, liquidity, and industry group representation.
## Lipper Capital Appreciation Funds Index is an unmanaged index of mutual
funds which aim for maximum capital appreciation, frequently by means of
100% or more portfolio turnover, leveraging, purchasing unregistered
securities, purchasing options, etc.
HISTORICAL PERFORMANCE OF JON BOSSE
While at ARCO Investment Management Company, Mr. Bosse managed separate
accounts using techniques and strategies substantially similar, though not
always identical, to those used to manage NWQ Special Equity Portfolio. Set
forth below is certain performance information that the adviser provided
concerning Mr. Bosse's accounts. The performance data for these accounts
reflects deductions for all fees and expenses. Because this account may have
different fees and expenses than the portfolio, their investment returns may
differ from those of the portfolios. All fees and expenses of the separate
accounts were less than the operating expenses of the portfolios. If the
performance of Mr. Bosse's account was adjusted to reflect fees and expenses
of the portfolios, the composites' performance would have been lower. During
Mr. Bosse's tenure as portfolio manager for the separately managed account, he
was primarily responsible for the day-to-day management of the assets, and no
other person had a significant role in achieving the separately managed
accounts performance.
The separately managed accounts are not subject to investment limitations,
diversification requirements and other restrictions imposed by the Investment
Company Act of 1940 and the Internal Revenue Code. If they were, their
returns might have been lower. The performance of these separate accounts is
not intended to predict or suggest the performance of the portfolios.
<TABLE>
<CAPTION>
Lipper
Capital
ARCO Value S&P 500 S&P 400 Mid Appreciation
Equity Fund* Index* Cap Index* Funds Index*
================================================================================
<S> <C> <C> <C> <C>
Calendar Years Ended:
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Lipper
Capital
ARCO Value S&P 500 S&P 400 Mid Appreciation
Equity Fund* Index* Cap Index* Funds Index*
=============================================================================
<S> <C> <C> <C> <C>
1990
-----------------------------------------------------------------------------
1991
-----------------------------------------------------------------------------
1992
-----------------------------------------------------------------------------
1993
-----------------------------------------------------------------------------
1994
-----------------------------------------------------------------------------
1995
-----------------------------------------------------------------------------
1996
-----------------------------------------------------------------------------
Annualized Return For
Various Periods Ended
9/30/96 (annualized)
1-year
-----------------------------------------------------------------------------
5 Years
-----------------------------------------------------------------------------
Since inception
(1/1/90)
-----------------------------------------------------------------------------
Cumulative Since
Inception (1/1/90)
</TABLE>
* For a description of the S&P 500 Index, S&P Mid Cap 400 Index and Lipper
Capital Appreciation Funds Index, see the adviser's historical performance
information for NWQ Special Equity Fund above.
SHAREHOLDER SERVICING ARRANGEMENTS
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICING
Certain financial intermediaries (service agents) may charge their clients
account fees for buying or redeeming shares of the UAM Funds. These fees may
include transaction fees and/or service fees paid by the UAM Funds from their
assets attributable to the service agent. The UAM Funds do not pay these fees
on shares purchased directly from UAM Fund Distributors. The service agents
may provide shareholder services to their clients that are not available to a
shareholder dealing directly with the UAM Funds. Each service agent is
responsible for transmitting to its clients a schedule of any such fees and
information regarding any additional or different purchase or redemption
conditions. You should consult your service agent for information regarding
these fees and conditions.
The adviser may pay its affiliated companies for referring investors to the
portfolio. The adviser and its affiliates may, at their own expense, pay
qualified service providers for marketing, shareholder servicing, record-
keeping and/or other services performed with respect to the portfolios.
UAM Fund Distributors, the adviser and certain of their other affiliates also
participate, as of the date of this prospectus, in an arrangement with
Salomon Smith Barney under which Salomon Smith Barney provides certain
defined contribution plan marketing and shareholder services and receives
0.15% of the portion of the daily net asset value of Institutional Class
Shares held by Salomon Smith Barney's eligible customer accounts in addition
to amounts payable to all selling dealers. The UAM Funds also compensate
Salomon Smith Barney for services it provides to certain defined contribution
plan
22
<PAGE>
shareholders that are not otherwise provided by the UAM Funds' administrator.
The UAM Funds also offer Institutional Service Class shares, which pay
marketing or shareholder servicing fees, and Adviser Class shares, which
impose a sales load and fees for marketing and shareholder servicing, for
certain of its portfolios. Not all of the UAM Funds offer all of these
classes.
23
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
financial performance of the portfolios for the past five years. The
financial highlights table comes from the financial statements of the
portfolio and reflects the financial results for a single portfolio share.
The total returns in the table represent the rate that an investor would have
earned on an investment in the portfolios (assuming reinvestment of all
dividends and distributions). PricewaterhouseCoopers LLP has audited the
financial statements of the portfolios. The financial statements and the
unqualified opinion of PricewaterhouseCoopers LLP are included in the annual
report of the portfolios. The annual report of the portfolios is available
upon request.
<TABLE>
<CAPTION>
NWQ BALANCED PORTFOLIO
- --------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED OCTOBER 31, 1998 1997 1996 1995 1994#
===========================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 12.39 $ 11.24 $ 9.84 $ 10.00
-----------------------------------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 0.31 0.31 0.32 0.06
Net Gains or losses on Securities
(Realized and Unrealized) 2.47 1.21 1.40 (0.19)
-----------------------------------------------------------------------------------------------------------
Total From Investment Operations 2.78 1.52 1.72 (0.13)
-----------------------------------------------------------------------------------------------------------
Less Distributions
Net Investment Income (0.31) (0.30) (0.32) (0.03)
Capital Gains (0.05) (0.07) -- --
-----------------------------------------------------------------------------------------------------------
Total Distributions (0.36) (0.37) (0.32) (0.03)
-----------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 14.81 $ 12.39 $ 11.24 $9.84
===========================================================================================================
Total Return+ 22.82% 13.68% 17.80% (1.30)%++
===========================================================================================================
Ratios/Supplemental Data
Net Assets, End of Year (Thousands) $12,697 $ 8,624 $ 5,334 $1,584
Ratio of Expenses to Average Net
Assets 1.00% 1.01% 1.04% 1.00%
Ratio of Net Investment Income to Average Net
Assets 2.29% 2.79% 3.30% 3.59%
Portfolio Turnover Rate 20% 31% 31% 1%
Ratio of Voluntarily Waived Fees and
Expenses assumed by the Adviser to
Average Net Assets 0.22% 1.21% 2.63% 12.10%*
Ratio of Expenses to Average Net
Assets Including Expense Offsets 1.00% 1.00% 1.00% --
</TABLE>
# For the period August 2, 1994 (commencement of operations) to October 3,
1994.
+ Total return would have been lower had certain fees not been waived and
expenses assumed by the adviser during the periods.
* Annualized.
++ Not annualized.
24
<PAGE>
THE NWQ PORTFOLIOS
For investors who want more information about the NWQ Portfolios, the
following documents are available upon request.
ANNUAL/SEMI-ANNUAL REPORTS
The annual and semi-annual reports of the NWQ Portfolios provide additional
information about their investments. In each annual report, you will also
find a discussion of the market conditions and investment strategies that
significantly affected the performance of the NWQ Portfolios during the last
fiscal year.
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains additional detailed information about the NWQ Portfolios and
is incorporated by reference into (legally part of) this prospectus.
Investors can receive free copies of these materials, request other
information about the portfolios and make shareholder inquiries by writing to
or calling:
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
You can review, for a fee, the reports of the portfolio and SAI by writing to
the SEC's Public Reference Section, D.C. 20459-6009, or by calling the SEC at
1-800-SEC-0330. You can get copies of this information for free, on the SEC's
Internet site at http://www.sec.gov.
------------------
The portfolio's Investment Company Act of 1940 file is 811-5683.
[LOGO]
<PAGE>
UAM FUNDS
Funds for the Informed Investor
THE NWQ PORTFOLIOS
Institutional Service Class Prospectus , 199_
NWQ Small Cap Value Portfolio
NWQ Special Equity Portfolio
NWQ Balanced Portfolio
[LOGO]
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PORTFOLIO SUMMARY................................................. 1
What are the Objectives of the Portfolios?....................... 1
What are the Principal Investment Strategies of the Portfolios?.. 1
What are the Principal Risks of the Portfolio.................... 2
How have the Portfolios Performed?............................... 3
What are the Portfolios' Fees and Expenses?...................... 5
INVESTING WITH THE UAM FUNDS...................................... 7
Buying Shares.................................................... 7
Redeeming Shares................................................. 8
Exchanging Shares................................................ 8
Transaction Policies............................................. 8
ACCOUNT POLICIES.................................................. 11
Small Accounts................................................... 11
Distributions.................................................... 11
Federal Taxes.................................................... 11
FUND DETAILS...................................................... 13
Principal Investments and Risks of the Portfolios................ 13
Other Investment Practices and Strategies........................ 16
Year 2000........................................................ 17
Investment Management............................................ 18
Shareholder Servicing Arrangements............................... 22
FINANCIAL HIGHLIGHTS.............................................. 24
NWQ Balanced Portfolio........................................... 24
</TABLE>
<PAGE>
PORTFOLIO SUMMARY
WHAT ARE THE OBJECTIVES OF THE PORTFOLIOS?
- --------------------------------------------------------------------------------
Listed below are the investment objectives of the NWQ Portfolios. The NWQ
Portfolios cannot guarantee they will meet their investment objectives. A
portfolio may not change its investment objective without shareholder
approval.
NWQ BALANCED PORTFOLIO
NWQ Balanced Portfolio seeks consistent, above-average returns with minimum
risk to principal by investing primarily in a combination of investment-grade
fixed-income securities and common stocks of companies with above-average
statistical value which are in fundamentally attractive industries and which,
in the adviser's opinion, are undervalued at the time of purchase.
NWQ SMALL CAP VALUE PORTFOLIO
NWQ Small Cap Value Equity Portfolio seeks long-term capital appreciation by
investing primarily in small capitalization common stocks and other equity
securities, which in the adviser's opinion, are undervalued at the time of
purchase.
NWQ SPECIAL EQUITY PORTFOLIO
NWQ Small Cap Value Equity Portfolio seeks long-term capital appreciation by
investing primarily the common stock and other equity securities of companies,
which in the adviser's opinion, are undervalued at the time of purchase and
offer the potential for above-average appreciation.
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE PORTFOLIOS?
- ---------------------------------------------------------------
The following is a brief description of the principal investment strategies of
the NWQ Portfolios. For more information see "PRINCIPAL INVESTMENTS AND RISKS
OF THE PORTFOLIOS."
NWQ SMALL CAP VALUE PORTFOLIO
NWQ Small Cap Value Portfolio normally invests at least 65% of its total
assets in equity securities of companies with market capitalizations of $50
million to $1 billion. NWQ uses top-down or macroeconomic analysis to
identify industries that should benefit from major economic trends that
ideally last five to seven years. NWQ combines this top-down discipline with
rigorous fundamental or bottom-up company analysis. The adviser analyzes such
factors as management quality, restructuring opportunities, improving industry
1
<PAGE>
fundamentals, franchise strength and competitive position. The adviser also
values stocks based on measures such as current and normalized earnings power,
price-to-book value, dividend yield, price-to-sales and price-to-cash flow.
NWQ SPECIAL EQUITY PORTFOLIO
NWQ Special Equity Portfolio normally invests at least 65% of its total assets
in equity securities of large, mid and small capitalizations that it selects
on an opportunistic basis. The portfolio seeks to identify undervalued
companies where a catalyst such as new management, industry consolidation or
company restructuring exists to improve a company's profitability. The
portfolio also may invest up to 35% of its total assets in investment-grade
debt securities.
NWQ BALANCED PORTFOLIO
NWQ Balanced Portfolio actively varies its asset composition among equity
securities, debt securities and cash to maximize the portfolio's return and
reduce volatility. The process focuses on the expected returns of each asset
type relative to each other, market conditions and the adviser's economic
outlook. The portfolio will typically invest:
. Approximately 60% of its assets in common stock of companies with medium to
large market capitalizations that are listed on a national exchange or
traded over-the-counter. The adviser uses a multi-disciplined approach to
choose companies with above-average statistical values in those industries
with positive fundamentals.
. 30% percent of its assets in debt securities. The adviser uses a strategy
that increases debt securities and lengthens maturity when interest rates
decline, and likewise decreases ownership and shortens maturity when
interest rates are rising.
. 10% of its assets in cash and cash equivalents.
WHAT ARE THE PRINCIPAL RISKS OF THE PORTFOLIO
- --------------------------------------------------------------------------------
The following is a summary of the principal risks associated with investing in
the portfolios. For more information see "PRINCIPAL INVESTMENTS AND RISKS OF
THE PORTFOLIOS."
RISKS COMMON TO ALL MUTUAL FUNDS
At any time, your investment in a mutual fund may be worth more or less than
the price you originally paid for it. You may lose money by investing in any
mutual fund because:
. The value of the securities it owns changes, sometimes rapidly and
unpredictably.
. The mutual fund is not successful in reaching its goal because of its
strategy or because it did not implement its strategy properly.
2
<PAGE>
. Unforeseen occurrences in the securities markets negatively affect the
mutual fund.
NWQ SMALL CAP EQUITY AND SPECIAL EQUITY PORTFOLIOS
Since the portfolios invest mainly in equaity securities, their principal
risks are those of investing in equity securities, which may include sudden,
unpredictable drops in value or long periods of decline in value. Equity
securities may lose value because of factors affecting the securities markets
generally, an entire industry or a particular company.
The portfolios are value oriented and may not perform as well as certain other
types of equity mutual funds during periods when value stocks are out of
favor.
Investors in NWQ Small Cap Value Portfolio take on additional risks that come
with investing in stocks of smaller companies, which can be riskier than
investing in larger, more mature companies. Smaller companies may be more
vulnerable to adverse developments than larger companies because they tend to
have more narrow product lines and more limited financial resources. Their
stocks may trade less frequently and in limited volume.
NWQ BALANCED AND SPECIAL EQUITY PORTFOLIOS
Shareholders that invest in the portfolios take on the risks that come with
investing in equity securities discussed above.
To the extent the portfolio invests in debt securities, the value of its
investments could fall because:
. Of market conditions and economic and political events.
. Interest rates rise, which tends to cause the value of debt securities to
fall.
. A security's credit rating worsens or its issuer becomes unable to honor
its financial obligations.
HOW HAVE THE PORTFOLIOS PERFORMED?
- --------------------------------------------------------------------------------
The bar charts and tables below illustrate how the performance of the
portfolios has varied from year to year. The following bar charts show the
investment returns of each portfolio since its inception. The table following
each bar chart compares each portfolio's average annual returns for the
periods indicated to those of a broad-based securities market index. Past
performance does not guarantee future results.
3
<PAGE>
NWQ BALANCED PORTFOLIO
[BAR CHART APPEARS HERE]
*From the portfolio's inception (8/2/94) through 12/31/94.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_).
<TABLE>
<CAPTION>
Since
Average annual return 1 Year 5 Years Inception
==============================================================================
<S> <C> <C> <C>
NWQ Balanced Portfolio
------------------------------------------------------------------------------
S&P 500 Index
------------------------------------------------------------------------------
Lehman Brothers Government/Corporate Index
------------------------------------------------------------------------------
Salomon Brothers 3-Month Treasury Bill Average+
------------------------------------------------------------------------------
Balanced Index++
</TABLE>
* The S&P 500 Index is an unmanaged index composite of 400 industrial, 40
financial, 40 utilities and 20 transportation stocks.
# The Lehman Brothers Government/Corporate Index --is an unmanaged index
composed of a combination of the Government and Corporate Bond Indices. The
Government Index includes public obligations of the U.S. Treasury, issues
of Government agencies, and corporate debt backed by the U.S. Government.
The Corporate Bond Index includes investment-grade fixed-rate
nonconvertible corporate debt, Yankee Bonds and nonconvertible debt issued
by or guaranteed by foreign or international governments and agencies. All
issues have maturities of at least one year and outstanding par value of at
least $100 million for U.S. Government issues and $25 million for others.
+ The Salomon Brothers 3-Month Treasury Bill Average is the weighted average
return for all Treasury bills for the previous three month period.
++ Balanced Index is a combined index of which 60% reflects S&P 500 Index, 30%
the Lehman Brother Government/Corporate Index and 10% the Salomon Brothers
3-Month Treasury Bill Average.
NWQ SPECIAL EQUITY PORTFOLIO
[BAR CHART APPEARS]
* From the portfolio's inception (11/7/97) through 12/31/98
4
<PAGE>
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_).
<TABLE>
<CAPTION>
Average annual return 1 Year Since Inception
===========================================================================
<S> <C> <C>
NWQ Special Equity Portfolio
---------------------------------------------------------------------------
S&P 500 Index
---------------------------------------------------------------------------
Lipper Equity Income Funds Index
</TABLE>
WHAT ARE THE PORTFOLIOS' FEES AND EXPENSES?
- -------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM THE ASSETS OF A
PORTFOLIO)
This table describes the fees and expenses that you may pay if you buy and
hold shares of a portfolio. This table is presented in the format required by
the Securities and Exchange Commission (SEC) may not reflect the actual
expenses you would have paid as a shareholder in the portfolios.
<TABLE>
<CAPTION>
NWQ Balanced NWQ Small Cap NWQ Special
Portfolio Value Portfolio Equity Portfolio
------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fees
------------------------------------------------------------------------------
Other expenses
------------------------------------------------------------------------------
Distribution and service fees 0.40% 0.40% 0.40%
------------------------------------------------------------------------------
Total Expenses
==============================================================================
</TABLE>
ACTUAL FEES AND EXPENSES
The amounts stated in the table above are higher than the expenses you would
have actually paid as an investor in these portfolios. Due to certain expense
limits by the adviser and expense offsets, investors in the portfolios
actually paid the following total operating expenses during the fiscal year
ended October 31, 1998:
<TABLE>
<CAPTION>
NWQ Small Cap NWQ Special
NWQ Balanced Value Equity
Portfolio Portfolio Portfolio
=======================================================================
<S> <C> <C> <C>
Actual Expenses
=======================================================================
</TABLE>
EXAMPLE
This example can help you to compare the cost of investing in these portfolios
to the cost of investing in other mutual funds. It assumes that you invest
$10,000 in a portfolio for the periods shown and then redeem all of your
shares at the end of those periods. It also assumes a 5% return on your
investment each year and that the portfolio's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
NWQ Balanced NWQ Small Cap NWQ Special
Portfolio Value Portfolio Equity Portfolio
------------------------------------------------------------------------
<S> <C> <C> <C>
1 Year
------------------------------------------------------------------------
3 Years
------------------------------------------------------------------------
5 Years
------------------------------------------------------------------------
</TABLE>
5
<PAGE>
10 Years
6
<PAGE>
INVESTING WITH THE UAM FUNDS
BUYING SHARES
- --------------------------------------------------------------------------------
TO OPEN AN ACCOUNT TO BUY MORE SHARES
------------------------------------------------------------------------------
By Mail Send a check or Send a check and, if
money order and possible, the "Invest
your account by Mail" stub that
application to the accompanied your
UAM Funds. Make statement to the UAM
checks payable to Funds. Be sure your
"UAM Funds" (the check identifies
UAM Funds will not clearly your name,
accept third-party account number and the
checks). portfolio into which
you want to invest.
------------------------------------------------------------------------------
By Wire Call the UAM Funds Call the UAM Funds to
for an account get a wire control
number and wire number and wire your
control number and money to the UAM Funds.
then send your
completed account
application to the
UAM Funds.
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: portfolio name/account numbeR/
account name/wire control number
------------------------------------------------------------------------------
By Automatic Not Available To set up a plan, mail
Investment Plan a completed application
(Via ACH) to the UAM Funds. To
cancel or change a
plan, write to the UAM
Funds. Allow up to 15
days to create the plan
and 3 days to cancel or
change it.
------------------------------------------------------------------------------
Minimum $2,500, except $100
Investments IRAs ($500) and
spousal IRAs ($250)
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
7
<PAGE>
REDEEMING SHARES
- --------------------------------------------------------------------------------
By Mail Send a letter signed by all registered parties on the account
to UAM Funds specifying the portfolio, the account number and
the dollar amount or number of shares you wish to redeem.
Certain shareholders may have to include additional
documents.
------------------------------------------------------------------------------
By Telephone You must first establish the telephone redemption privilege
(and, if desired, the wire redemption privilege) by
completing the appropriate sections of the account
application.
Call 1-877-UAM-Link to redeem your shares. Based on your
instructions, the UAM Funds will mail your proceeds to you or
wire them to your bank.
------------------------------------------------------------------------------
By If your account balance is at least $10,000, you may
Systematic transfer as little as $100 per month from your UAM account to
Withdrawal your financial institution.
Plan (Via
ACH) To participate in this service, you must complete the
appropriate sections of the account application and mail it
to the UAM Funds.
EXCHANGING SHARES
- --------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the same
class of any other UAM Fund by writing to or calling the UAM Funds. Before
exchanging your shares, read the prospectus of the UAM Fund for which you want
to exchange, which you may obtain from the UAM Funds. You may not exchange
shares represented by certificates over the telephone. You may only exchange
shares between accounts with identical registrations (i.e., the same names and
addresses).
TRANSACTION POLICIES
- --------------------------------------------------------------------------------
CALCULATING YOUR SHARE PRICE
You may buy, sell or exchange shares of a UAM Fund at a price equal to its net
asset value (NAV) next computed after it receives your order. DSI Money
Market Portfolio calculates it NAV at 12:00 noon (Eastern time) on each day
the New York Stock Exchange (NYSE). The other DSI portfolios calculate
their NAVs as of the close of trading on the NYSE (generally 4:00 p.m. Eastern
Time) on each day the NYSE is open. Therefore, to receive the NAV on any
given day, the UAM Funds must accept your order by the close of trading on the
NYSE that day. Otherwise, you will receive the NAV that is calculated on the
close of trading on the following day. The UAM Funds are open for business on
the same days as the NYSE, which is closed on weekends and certain holidays.
8
<PAGE>
BUYING OR SELLING SHARES THROUGH A FINANCIAL INTERMEDIARY
You may buy, exchange or redeem shares of the UAM Funds through a financial
intermediary (such as a financial planner or adviser). Generally, to buy or
sell shares at the NAV on any given day, your financial intermediary must
receive your order by the close of trading on the NYSE that day. Your
financial intermediary is responsible for transmitting all subscription and
redemption requests, investment information, documentation and money to the
UAM Funds on time.
Certain financial intermediaries have agreements with the UAM Funds that allow
them to enter confirmed purchase or redemption orders on behalf of clients and
customers. Under this arrangement, the financial intermediary must send your
payment to the UAM Funds by the time they price their shares on the following
day. If your financial intermediary fails to do so, it may be responsible for
any resulting fees or losses.
CALCULATING NAV
The UAM Funds calculate their NAV by adding the total value of their assets,
subtracting their liabilities and then dividing the result by the number of
shares outstanding. The UAM Funds value their investments with readily
available market quotations at market value. Investments that do not have
readily available market quotations are valued at fair value, according to
guidelines established by the UAM Funds. The UAM Funds may also value
securities at fair value when events occur that make established valuation
methods (such as stock exchange closing prices) unreliable. The UAM Funds
value debt securities that will mature in 60 days or less amortized cost,
which approximates market value.
IN-KIND TRANSACTIONS
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares of a portfolio with securities instead of cash. In addition, the UAM
Funds may pay all or part of your redemption proceeds with securities instead
of cash.
PAYMENT OF REDEMPTION PROCEEDS
The UAM Funds will pay for all shares redeemed within seven days after they
receive a redemption request in proper order. If you redeem shares that were
purchased by check, you will not receive your redemption proceeds until the
check has cleared, which may take up to 15 days. You may avoid these delays
by paying for shares with a certified check, bank check or money order.
SIGNATURE GUARANTEE
You must have your signature guaranteed when (1) you want the proceeds from
your redemption sent to a person or address different from that registered on
the account, or (2) you request a transfer of your shares.
9
<PAGE>
You may obtain a signature guarantee from most banks, savings institutions,
securities dealers, national securities exchanges, registered securities
associations, clearing agencies and other guarantor institutions. A notary
public cannot guarantee a signature.
TELEPHONE TRANSACTIONS
The UAM Funds will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine; they may be liable for any losses if
they fail to do so. The UAM Funds will be responsible for any loss, liability,
cost or expense for following instructions received by telephone that it
reasonably believes to be genuine.
RIGHTS RESERVED BY THE UAM FUNDS
PURCHASES
At any time and without notice, the UAM Funds may:
. Stop offering shares of a portfolio.
. Reject any purchase order.
. Bar an investor engaged in a pattern of excessive trading from buying
shares of any portfolio. (Excessive trading can hurt the performance of a
portfolio by disrupting its management and by increasing its expenses.)
REDEMPTIONS
The UAM Funds may suspend your right to redeem if:
. An emergency exists and a portfolio cannot dispose of its investments or
fairly determine their value.
. Trading on the NYSE is restricted.
. The SEC tells the UAM Funds to delay redemptions.
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail.
EXCHANGES
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders.
. Reject any request for an exchange.
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
10
<PAGE>
ACCOUNT POLICIES
SMALL ACCOUNTS
- --------------------------------------------------------------------------------
The UAM Funds may redeem your shares without your permission if the value of
your account falls below 50% of the required minimum initial investment, but
not because of a drop in the value of your shares caused by market
fluctuations. This provision does not apply to retirement accounts and certain
other accounts.
DISTRIBUTIONS
- --------------------------------------------------------------------------------
Normally, the portfolios distribute their net investment income quarterly. In
addition, they distribute any net capital gains once a year. The UAM Funds
will automatically reinvest dividends and distributions in additional shares
of the portfolio, unless you elect on your account application to receive them
in cash.
FEDERAL TAXES
- --------------------------------------------------------------------------------
The following is a summary of the federal income tax consequences of investing
in the UAM Funds. You may also have to pay state and local taxes on your
investment. You should always consult your tax advisor for specific guidance
regarding the tax effect of your investment in the UAM Funds.
TAXES ON DISTRIBUTIONS
The distributions of the portfolios will generally be taxable to shareholders
as ordinary income or capital gains (which may be taxable at different rates
depending on the length of time the portfolio held the relevant assets). You
will be subject to income tax on these distributions regardless of whether
they are paid in cash or reinvested in additional shares. Once a year UAM
Funds will send you a statement showing the types and total amount of
distributions you received during the previous year.
You should note that if you purchase shares just before a distribution, the
purchase price would reflect the amount of the upcoming distribution. In this
case, you would be taxed on the entire amount of the distribution received,
even though, as an economic matter, the distribution simply constitutes a
return of your investment. This is known as "buying into a dividend" and
should be avoided.
TAXES ON EXCHANGES AND REDEMPTIONS
When you redeem or exchange shares in any portfolio, you may recognize a gain
or loss for income tax purposes. This gain or loss will be based on the
difference between your tax basis in the shares and the amount you receive for
them. (To aid in computing your tax basis, you generally should retain your
11
<PAGE>
account statements for the periods during which you held shares.) Any loss
realized on shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividends that were received
with respect to the shares.
The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other tax-
qualified plan) will not be currently taxable, but they may be taxable at some
time in the future.
BACKUP WITHHOLDING
By law, the UAM Funds must withhold 31% of your distributions and proceeds if
you have not provided complete, correct taxpayer information.
12
<PAGE>
FUND DETAILS
PRINCIPAL INVESTMENTS AND RISKS OF THE PORTFOLIOS
- --------------------------------------------------------------------------------
The following is a brief description of the principal investment strategies.
The NWQ Portfolios may employ in seeking their objectives. This discussion is
in addition to the discussion set forth in the "PORTFOLIO SUMMARY." For more
information concerning these investment practices and their associated risks,
please read the "PORTFOLIO SUMMARY" and the statement of additional
information (SAI). You can also find information on each portfolio's recent
strategies and holdings in the current annual/semi annual report. The
portfolio may change these strategies without shareholder approval.
NWQ SMALL CAP VALUE AND SPECIAL EQUITY PORTFOLIOS
Using the approaches described below, each portfolio may invest in common
stocks, preferred stocks, securities convertible or exchangeable into common
stock, and rights or warrants to purchase common stocks.
NWQ SMALL CAP VALUE PORTFOLIO
NWQ Small Cap Value Portfolio normally invests at least 65% of its total
assets in equity securities of companies with market capitalizations of $50
million to $1 billion.
The adviser uses top-down or macroeconomic analysis to identify industries
that should benefit from major economic trends that ideally last five to seven
years. The adviser combines this top-down discipline with rigorous fundamental
or bottom-up company analysis, which includes qualitative and quantitative
valuation criteria. On a qualitative and fundamental basis, the adviser
analyzes such factors as management quality, restructuring opportunities,
improving industry fundamentals, insider stock ownership, "franchise"
strength, and competitive position. On a quantitative basis, valuation of
stocks is based on statistical measures such as current and normalized
earnings power, price-to-book value, dividend yield, price-to-sales, and
price-to-cash flow. The adviser extensively analyzes companies' financial
statements for signs of eroding quality of earnings, in order to avoid
securities of companies with deteriorating financial prospects. In addition to
quantitative evaluation, the adviser uses company visits, as well as
interviews with management and analysts.
NWQ SPECIAL EQUITY PORTFOLIO
NWQ Special Equity Portfolio normally invests at least 65% of its total assets
in equity securities. The portfolio is value oriented and seeks to identify
statistically undervalued companies where a catalyst exists to recognize value
or improve a company's profitability. These catalysts can be new management,
industry consolidation, company restructuring or a turn in the company's
13
<PAGE>
fundamentals. Strong bottom up fundamental research, which focuses on both
quantitative and qualitative valuation measures drives the stock selection
process. The adviser's research team applies a broad range of quantitative
screens such as price to cash flow, low price to sales, low price to earnings,
low price to book value and quality of earnings. On a qualitative basis, the
adviser focuses on management strength, competitive position, industry
fundamentals and corporate strategy. As a result of its broader definition of
value, the adviser's valuation framework will include companies valued by
traditional statistical measures as well as relative value, discount to asset
break up value and special situations.
The portfolio may invest up to 35% of its total asses in investment-grade debt
securities and up to 15% of its total assets in debt securities rated below
investment-grade (junk bonds). The adviser manages the debt portion of the
portfolio in the same way that it manages NWQ Balanced Portfolio, which is
discussed below.
RISKS OF INVESTING IN EQUITY SECURITIES
Equity securities may lose value because of factors affecting the securities
markets generally, such as adverse changes in economic conditions, the general
outlook for corporate earnings, interest rates or investor sentiment. These
circumstances may lead to long periods of poor performance, such as during a
"bear market." Equity securities may also lose value because of factors
affecting an entire industry, such as increases in production costs, or
factors directly related to that company, such as decisions made by its
management.
Undervalued companies may have experienced adverse business developments or
other events that have caused their stocks to be out of favor. If the
adviser's assessment of a company is wrong, or if the market does not
recognize the value of the company, the price of its stock may fail to meet
expectations and the portfolio's share price may suffer. A value-oriented
portfolio may not perform as well as certain other types of mutual funds
during periods when value stocks are out of favor.
NWQ BALANCED PORTFOLIO
The portfolio may invest 30%-75% of its assets in common stocks, 25%-50% in
fixed income securities, and up to 45% in cash and cash equivalents. While
the adviser may vary the investments of the portfolio within those ranges, it
will typically invest approximately:
. 60% of the assets of the portfolio in common stocks of companies with
medium to large market capitalizations that are listed on a national
exchange or traded over-the-counter.
. 30% of the portfolio's assets in debt securities.
. 10% of the portfolio's assets in cash and cash equivalents.
14
<PAGE>
The portfolio will invest at least 25% of its assets in senior debt
securities. The portfolio also may invest up to 10% of its total assets in
common stocks of companies with market capitalizations of less than $500
million and in debt securities that are rated below investment-grade (junk
bonds).
EQUITY STRATEGY
The adviser uses statistical measures to screen for the companies with the
best value characteristics such as below average price-to-earnings and price-
to-book ratios, above-average dividend yield and strong financial stability.
The adviser's process is different from that of other value-oriented
investment managers because it (1) uses normalized earnings to value cyclical
companies, (2) focuses on quality of earnings, (3) invests in relative value,
and (4) concentrates in industries/sectors having strong long-term
fundamentals.
As part of its multi-disciplined approach to capturing value, the adviser
strives to identify market sectors early in their cycle of fundamental
improvement, investor recognition and market exploitation. Industry
fundamentals employed in the decision making process are (1) business trend
analysis, which is used to analyze industry and company fundamentals for the
impact of changing worldwide product demand/supply; (2) direction of inflation
and interest rates; and (3) expansion/contraction of business cycles.
The adviser then actively follows those companies that have above-average
statistical values and are in sectors identified as having positive
fundamentals on a secular basis. Company visits and interviews with management
provide the fundamental research to verify the value in these potential
investments. The adviser uses in-house research capabilities in addition to
Wall Street and numerous independent firms for economic, industry and
securities research. The portfolio will invest in those industries with
positive fundamentals and likewise will minimize risk by avoiding industries
with deteriorating secular fundamentals.
Investing in equity securities entails the risks discussed above.
DEBT STRATEGY
The debt portion of the portfolio will primarily consist of investment-grade
debt securities. Debt securities are securities issued by the U.S. government
and its agencies, corporate debt securities, mortgage-backed and asset-backed
securities, commercial paper and certificates of deposit. These securities
may have varying interest rate schedules and maturities (the dates when a debt
instrument is due and payable). Asset-backed and mortgage-backed securities
are securities that are backed by pools of loans or mortgages assembled for
sale to investors by various governmental agencies and private issuers.
Mortgage-backed securities may generally take two forms: pass-throughs and
collateralized mortgage obligations (CMOs).
The adviser uses an active debt strategy seeking to benefit during periods of
declining interest rates by increasing investment exposure and extending
security maturities. During a rising interest rate environment, the adviser
will
15
<PAGE>
seek to avoid a capital loss by shortening the maturity of the portfolio and
decreasing exposure. The adviser adds value to its investment process by
actively adjusting the duration of the portfolio. Average duration may range
from one to ten years and maturities may range from one to thirty years.
RISKS OF INVESTING IN DEBT SECURITIES
The value of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up the value of the bond will go
down, and vice versa). Interest rate changes may cause people to pay off
mortgage-backed and asset-backed securities earlier or later than expected,
which may shorten or lengthen the average maturity. Variations to average
maturity may cause the portfolio's share price and yield to fall.
The credit rating or financial condition of an issuer may affect the value of
a debt security. Generally, the lower the quality rating of a security, the
greater the risks that the issuer will fail to pay interest and return
principal. To compensate investors for taking on increased risk, issuers with
lower credit ratings usually offer their investors higher interest rates. If
an issuer defaults or becomes unable to honor its financial obligations, the
bond may lose some or all of its value.
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade. The adviser may retain securities that are downgraded, if
it believes that keeping those securities is warranted.
OTHER INVESTMENT PRACTICES AND STRATEGIES
- --------------------------------------------------------------------------------
As described below, the portfolios may invest in derivatives and foreign
securities and may deviate from its investment strategy from time to time. In
addition, the portfolios may employ investment practices that are not
described in this prospectus, such as repurchase agreements, when-issued and
forward commitment transactions, lending of securities, borrowing and other
techniques. For more information concerning the risks associated with these
investment practices, you should read the SAI.
FOREIGN INVESTMENTS
NWQ Balanced Portfolio and NWQ Small Cap Value Portfolio may invest up to 20%
of their assets in American Depositary Receipts (ADRs). NWQ Special Equity
Portfolio may invest up to 35% of its assets in foreign securities directly or
through ADRs. ADRs are certificates evidencing ownership of shares of a
foreign issuer that are issued by depository banks and generally trade on an
established market in the United States or elsewhere. Although they are
alternatives to directly purchasing the underlying foreign securities in their
16
<PAGE>
national markets and currencies, ADRs continue to be subject to many of the
risks associated with investing directly in foreign securities.
Foreign securities, especially those of companies in emerging markets, can be
riskier and more volatile than domestic securities. Adverse political and
economic developments or changes in the value of foreign currency can make it
harder for a portfolio to sell its securities and could reduce the value of
your shares. Changes in tax and accounting standards and difficulties
obtaining information about foreign companies can negatively affect investment
decisions.
In January 1999, certain European nations will begin to use the new European
common currency, called the Euro. The nations that use the Euro will have the
same monetary policy regardless of their domestic economy, which could have
adverse effects on those economies. In addition, the method by which the
conversion to the Euro is implemented could negatively affect the investments
of a portfolio.
DERIVATIVES
To remain fully invested and to reduce transaction costs, NWQ Special Equity
Portfolio may buy and sell derivatives, including futures and option on stock
indices, interest rates and currencies. Derivatives are often more volatile
than other investments and may magnify a portfolio's gains or losses. A
portfolio may lose money if the adviser:
. Fails to predict correctly the direction in which the underlying asset or
economic factor will move.
. Judges market conditions incorrectly.
. Employs a strategy that does not correlate well with the investments of the
portfolio.
SHORT-TERM INVESTING
At times, the adviser may decide to suspend the normal investment activities
of a portfolio by investing up to 100% of its assets in a variety of
securities, such as U.S. government and other high quality and short-term debt
obligations. The adviser may temporarily adopt a defensive position to reduce
changes in the value of a portfolio's shares that may result from adverse
market, economic, political or other developments.
When the adviser pursues a defensive strategy, a portfolio may not profit from
favorable developments that it would have otherwise profited from if it were
pursuing its normal strategies. Likewise, these strategies may prevent a
portfolio from achieving its stated objectives.
YEAR 2000
- --------------------------------------------------------------------------------
Many computer programs in use today cannot distinguish the year 2000 from the
year 1900 because of the way they encode and calculate dates. Consequently,
these programs may not be able to perform necessary functions
17
<PAGE>
and could disrupt the operations of the UAM Funds or financial markets in
general. The year 2000 issue affects all companies and organizations,
including those that provide services to the UAM Funds and those in which
the UAM Funds invest.
The UAM Funds and their advisers, administrator, distributor and transfer
agent are taking steps they believe are reasonably necessary to address any
portfolio-related year 2000-related computer problems. They are actively
working on necessary changes to their own computer systems to prepare for
the year 2000 and expect that their systems will be adapted before that
date. They are also requesting information on each service provider's
state of readiness and contingency plan. However, at this time the degree
to which the year 2000 issue will affect the UAM Funds' investments or
operations cannot be predicted. Any negative consequences could adversely
affect your investment in the UAM Funds.
INVESTMENT MANAGEMENT
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
NWQ Investment Management Company, Inc., a California corporation located at
2049 Century Park East, 4th Floor, Los Angeles, California 90067, is the
investment adviser the portfolios. The adviser manages and supervises the
investment of each portfolio's assets on a discretionary basis. The adviser,
an affiliate of United Asset Management Corporation, has provided investment
management services to institutional and high net worth individuals since in
1982.
The adviser has voluntarily agreed to limit the expense of these portfolios.
To maintain this expense limit, the adviser may waive a portion of its
advisory fee and/or reimburse certain expenses of the portfolios. The adviser
intends to continue its expense limitation until further notice. Set forth
below are the expense limits of the portfolios and the amounts they paid to
the adviser during the fiscal year ended October 31, 1998, both of which are
expressed as a percentage of average net assets.
<TABLE>
<CAPTION>
NWQ Special
NWQ Balanced NWQ Small Cap Equity
Portfolio Value Portfolio Portfolio
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Management fees
- ----------------------------------------------------------------------------
Expenses Limit
</TABLE>
For more information on NWQ Investment Management Company's investment
services please call (206) 624-3800.
18
<PAGE>
PORTFOLIO MANAGERS
NWQ BALANCED AND NWQ SMALL CAP VALUE PORTFOLIOS
Separate investment committees are responsible for the day-to-day management
of NWQ Balanced Portfolio and NWQ Small Cap Value Portfolio.
NWQ SPECIAL EQUITY PORTFOLIO
Jon D. Bosse, CFA, is the Portfolio Manager of NWQ Special Equity Portfolio.
Mr. Bosse has been a Managing Director of NWQ Investment Management Company
since 1996. From 1986 to 1996, Mr. Bosse was a Portfolio Manager and Director
of Equity Research at ARCO Investment Management Company.
ADVISER'S HISTORICAL PERFORMANCE
The adviser manages separate accounts of equity securities and fixed-income
securities that have the same investment objectives as the portfolios,
respectively. The adviser manages these accounts using techniques and
strategies substantially similar, though not always identical, to those used
to manage the portfolios. Composites of the performance of all of these
separate accounts are listed below. The performance data for the managed
accounts reflects deductions for all fees and expenses. Because separately
managed accounts may have different fees and expenses than the portfolio,
their investment returns may differ from those of the portfolios. All fees
and expenses of the separate accounts were less than the operating expenses of
the portfolios. If the performance of the managed accounts was adjusted to
reflect fees and expenses of the portfolios, the composites' performance would
have been lower.
The separately managed accounts are not subject to investment limitations,
diversification requirements and other restrictions imposed by the Investment
Company Act of 1940 and the Internal Revenue Code. If they were, their
returns might have been lower. The performance of these separate accounts is
not intended to predict or suggest the performance of the portfolios.
<TABLE>
<CAPTION>
NWQ Investment
Management Company --
Balanced Composite* 60/30/10 Index+
- ------------------------------------------------------------------------------
Calendar Years Ended:
<S> <C> <C>
1982 33.61% 23.62%
- ------------------------------------------------------------------------------
1983 16.65% 16.72%
- ------------------------------------------------------------------------------
1984 7.29% 9.43%
- ------------------------------------------------------------------------------
1985 24.50% 26.14%
- ------------------------------------------------------------------------------
1986 25.17% 16.78%
- ------------------------------------------------------------------------------
1987 5.57% 5.80%
- ------------------------------------------------------------------------------
1988 11.76% 12.91%
- ------------------------------------------------------------------------------
1989 22.05% 24.01%
- ------------------------------------------------------------------------------
1990 0.89% 1.56%
- ------------------------------------------------------------------------------
1991 23.07% 23.68%
- ------------------------------------------------------------------------------
1992 3.74% 7.26%
- ------------------------------------------------------------------------------
1993 16.75% 9.70%
- ------------------------------------------------------------------------------
1994 (3.25)% 0.21%
- ------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
NWQ Invest
Management Company__
Balanced Composite* 60/30/10 Indext
<S> <C> <C>
==============================================================================
1995 27.77% 28.46%
- ------------------------------------------------------------------------------
1996 14.68% 14.92%
- ------------------------------------------------------------------------------
1997
- ------------------------------------------------------------------------------
1998
- ------------------------------------------------------------------------------
Annualized Return For Various Periods Ended
12/31/98 (annualized)
1-year
- ------------------------------------------------------------------------------
5-years
- ------------------------------------------------------------------------------
10-years
- ------------------------------------------------------------------------------
Since inception (1/1/82)
- ------------------------------------------------------------------------------
Cumulative Since Inception (1/1/82)
</TABLE>
* The adviser's average annual management fee from 1/1/82 to 9/30/97 was
0.76%. During the period, fees on the adviser's individual accounts ranged
from 0.30% to 1.0%. Net returns to investors vary depending on the management
fee.
+ The 60/30/10 index is a weighted index comprised of 60% S&P 500 Index, 30%
Lehman Brothers Government Corporate Index, 10% 3 Month Treasury Bills. This
is an unmanaged index, which assumes reinvestment of dividends.
<TABLE>
<CAPTION>
NWQ Investment
Management
Company --
Small Cap Lipper Small
Value Russell 2000 Cap Funds
Composite* Index+ Index#
===========================================================================
Calendar Years Ended:
<S> <C> <C> <C>
- ---------------------------------------------------------------------------
1997
- ---------------------------------------------------------------------------
1998
- ---------------------------------------------------------------------------
Annualized Return
For Various
Periods Ended
12/31/98
(annualized)
1-year
- ---------------------------------------------------------------------------
Since inception
(7/1/96)
- ---------------------------------------------------------------------------
Cumulative Since
Inception (7/1/96)
</TABLE>
* The adviser's average annual management fee from 7/1/96 to December 31,
1998 was __%, which is the maximum fee charged to the advisers equity
accounts. Net returns to investors may vary depending on the management
fee.
+ The Russell 2000 Index consists of the 2,000 smallest of the 3,000 largest
stocks. The list is rebalanced each year on June 30. If a stock is taken
over or goes bankrupt, it is not replaced until rebalancing. Therefore,
there can be fewer than 2,000 stocks in the Russell 2000 Index. The index
is an equity market capitalization weighted index available from Frank
Russell & Co. on a monthly basis.
# Lipper Small Cap Funds Index is an unmanaged index of mutual funds that
invest primarily in companies with market Capitalizations less than $1
billion at the time of purchase.
<TABLE>
<CAPTION>
NWQ
Investment
Management Lipper
Company -- Capital
Special S&P 400 Appreciation
Equity S&P 500 Mid Cap Funds
Composite Index+ Index# Index##
- ------------------------------------------------------------------------
Calendar Years Ended:
<S> <C> <C> <C> <C>
1997
- ------------------------------------------------------------------------
1998
- ------------------------------------------------------------------------
</TABLE>
20
<PAGE>
NWQ
Investment
Management Lipper
Company -- Capital
Special S&P 400 Appreciation
Equity S&P 500 Mid Cap on Funds
Composite Index+ Index# Index##
================================================================================
Annualized Return For
Various Periods Ended
12/31/98 (annualized)
1-year
- --------------------------------------------------------------------------------
Since inception
(10/1/96)
- --------------------------------------------------------------------------------
Cumulative Since
Inception (10/1/96)
* The Adviser's imputed average annual management fee from 10/1/96 to
12/31/98 was ____%, based on the fees paid by the adviser's special equity
accounts. Net returns to investors vary depending on the management fee,
which may be a maximum of 0.85%.
+ The S&P 500 Index is an unmanaged index composite of 400 industrial, 40
financial, 40 utilities and 20 transportation stocks. It assumes that
dividends are reinvested and is generally considers representative of large
U.S. large capitalization stocks. # S&P 400 Mid Cap Index consists of 400
domestic stocks chosen for market size, liquidity, and industry group
representation.
## Lipper Capital Appreciation Funds Index is an unmanaged index of mutual
funds which aim for maximum capital appreciation, frequently by means of
100% or more portfolio turnover, leveraging, purchasing unregistered
securities, purchasing options, etc.
HISTORICAL PERFORMANCE OF JON BOSSE
While at ARCO Investment Management Company, Mr. Bosse managed separate
accounts using techniques and strategies substantially similar, though not
always identical, to those used to manage NWQ Special Equity Portfolio. Set
forth below is certain performance information that the adviser provided
concerning Mr. Bosse's accounts. The performance data for these accounts
reflects deductions for all fees and expenses. Because this account may have
different fees and expenses than the portfolio, their investment returns may
differ from those of the portfolios. All fees and expenses of the separate
accounts were less than the operating expenses of the portfolios. If the
performance of Mr. Bosse's account was adjusted to reflect fees and expenses
of the portfolios, the composites' performance would have been lower. During
Mr. Bosse's tenure as portfolio manager for the separately managed account, he
was primarily responsible for the day-to-day management of the assets, and no
other person had a significant role in achieving the separately managed
accounts performance.
The separately managed accounts are not subject to investment limitations,
diversification requirements and other restrictions imposed by the Investment
Company Act of 1940 and the Internal Revenue Code. If they were, their
returns might have been lower. The performance of these separate accounts is
not intended to predict or suggest the performance of the portfolios.
<TABLE>
<CAPTION>
Lipper
Capital
ARCO Value S&P 400 Appreciation
Equity S&P 500 Mid Cap Funds
Fund* Index* Index* Index*
- ------------------------------------------------------------------------
Calendar Years
Ended:
<S> <C> <C> <C> <C>
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
ARCO Value S&P 400 Appreciation
Equity S&P 500 Mid Cap on Funds
Fund* Index* Index* Index*
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
1990
- --------------------------------------------------------------------------------
1991
- --------------------------------------------------------------------------------
1992
- --------------------------------------------------------------------------------
1993
- --------------------------------------------------------------------------------
1994
- --------------------------------------------------------------------------------
1995
- --------------------------------------------------------------------------------
1996
- --------------------------------------------------------------------------------
Annualized Return
For Various
Periods Ended
9/30/96
(annualized)
1-year
- --------------------------------------------------------------------------------
5 Years
- --------------------------------------------------------------------------------
Since
inception
(1/1/90)
- --------------------------------------------------------------------------------
Cumulative Since
Inception (1/1/90)
</TABLE>
* For a description of the S&P 500 Index, S&P Mid Cap 400 Index and Lipper
Capital Appreciation Funds Index, see the adviser's historical performance
information for NWQ Special Equity Fund above.
SHAREHOLDER SERVICING ARRANGEMENTS
- --------------------------------------------------------------------------------
DISTRIBUTION PLANS
The UAM Funds have adopted distribution plans and shareholder services plans
under Rule 12b-1 of the Investment Company Act of 1940 that permit them to pay
broker-dealers, financial institutions and other third parties for marketing,
distribution and shareholder services. The UAM Funds' 12b-1 plans allow the
portfolios to pay up to 1.00% of their average daily net assets annually for
these services. However, the board of the UAM Funds has currently authorized
the portfolios to pay only 0.40% per year. The board may increase the amounts
the portfolios pay, up to the plan maximum, at any time. Because
Institutional Service Class Shares pay these fees out of their assets on an
ongoing basis, over time, your shares may cost more than if you had paid
another type of sales charge. Long-term shareholders may pay more than the
economic equivalent of the maximum front-end sales charges permitted by rules
of the National Association of Securities Dealers, Inc.
SHAREHOLDER SERVICING
Certain financial intermediaries (service agents) may charge their clients
account fees for buying or redeeming shares of the UAM Funds, which are not
subject to the Fund's Distribution Plan or Shareholder Servicing Plan. These
fees may include transaction fees and/or service fees paid from the assets of
the UAM Funds attributable to the service agent. The UAM Funds do not pay
these fees on shares purchased directly from UAM Fund Distributors. The
service agents may provide shareholder services to their clients that are not
available to a shareholder dealing directly with the UAM Funds. Each service
agent is responsible for transmitting to its clients a schedule of any such
fees and information regarding any additional or different purchase or
redemption
22
<PAGE>
conditions. You should consult your service agent for information regarding
these fees and conditions.
Anyone entitled to receive compensation for selling or servicing shares of the
UAM Funds may receive different compensation with respect to one particular
class of shares over another.
The adviser may pay its affiliated companies for referring investors to a
portfolio. The adviser and its affiliates may, at their own expense, pay
qualified service providers for marketing, shareholder servicing, record-
keeping and/or other services performed with respect to a portfolio.
UAM Fund Distributors, the adviser and certain of their other affiliates also
participate, as of the date of this prospectus, in an arrangement with Salomon
Smith Barney under which Salomon Smith Barney provides certain defined
contribution plan marketing and shareholder services and receives from such
entities an amount equal to up to 33.3% of the portion of the investment
advisory fees attributable to the invested assets of Salomon Smith Barney's
eligible customer accounts without regard to any expense limitation in
addition to amounts payable to all selling dealers. The UAM Funds also
compensates Salomon Smith Barney for services it provides to certain defined
contribution plan shareholders that are not otherwise provided by the UAM
Funds' administrator.
The UAM Funds also offer Institutional Class shares, which do not pay
marketing or shareholder servicing fees, and Adviser Class shares, which
impose a sales load and fees for marketing and shareholder servicing, for
certain of its portfolios. Not all of the UAM Funds offer all of these
classes.
23
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
financial performance of the portfolios for the past five years. The
financial highlights table comes from the financial statements of the
portfolio and reflects the financial results for a single portfolio share.
The total returns in the table represent the rate that an investor would
have earned on an investment in the portfolios (assuming reinvestment of
all dividends and distributions). PricewaterhouseCoopers LLP has audited
the financial statements of the portfolios. The financial statements and
the unqualified opinion of PricewaterhouseCoopers LLP are included in the
annual report of the portfolios. The annual report of the portfolios is
available upon request.
<TABLE>
<CAPTION>
NWQ BALANCED PORTFOLIO
- -------------------------------------------------------------------------------------
Fiscal Year Ended October 31, 1998 1997 1996+
================================================================================
<S> <C> <C> <C>
Net Asset Value, Beginning of Year $ 12.37 $ 11.57
--------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 0.26 0.21
Net Gains or losses on Securities (Realized
and Unrealized) 2.47 0.78
--------------------------------------------------------------------------------
Total From Investment Operations 2.73 0.99
--------------------------------------------------------------------------------
Less Distributions
Net Investment Income (0.25) (0.19)
Capital Gains (0.05) --
Returns of Capital
--------------------------------------------------------------------------------
Total Distributions (0.30) (0.19)
--------------------------------------------------------------------------------
Net Asset Value, End of Year $ 14.80 $ 12.37
--------------------------------------------------------------------------------
Total Return++ 22.39% 8.60%#
================================================================================
Ratios/Supplemental Data
Net Assets, End of Year (Thousands) $41,421 $19,999
Ratio of Expenses to Average Net Assets 1.40% 1.41%*
Ratio of Net, Investment Income to Average Net Assets 1.89% 2.39%*
Portfolio Turnover Rate 20% 31%
Ratio of Voluntarily Waived Fees and
Expenses assumed by the Adviser to Average
Net Assets 0.22% 0.99%*
Ratio of Expenses to Average Net Assets
Including Expense Offsets 1.40% 1.40%*
</TABLE>
+ For the period January 22, 1996 (commencement of operations) through
October 3, 1996.
++ Total return would have been lower had certain fees not been waived and
expenses assumed by the adviser during the periods.
* Annualized.
# Not annualized
24
<PAGE>
THE NWQ PORTFOLIOS
For investors who want more information about the NWQ Portfolios, the
following documents are available upon request.
ANNUAL/SEMI-ANNUAL REPORTS
The annual and semi-annual reports of the NWQ Portfolios provide additional
information about their investments. In each annual report, you will also
find a discussion of the market conditions and investment strategies that
significantly affected the performance of the NWQ Portfolios during the last
fiscal year.
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains additional detailed information about the NWQ Portfolios and
is incorporated by reference into (legally part of) this prospectus.
Investors can receive free copies of these materials, request other
information about the portfolios and make shareholder inquiries by writing to
or calling:
UAM Funds
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
You can review, for a fee, the reports of the portfolio and SAI by writing to
the SEC's Public Reference Section, D.C. 20459-6009, or by calling the SEC at
1-800-SEC-0330. You can get copies of this information for free, on the SEC's
Internet site at http://www.sec.gov.
------------------
The portfolio's Investment Company Act of 1940 file is 811-5683.
[LOGO]
<PAGE>
UAM Funds
Funds for the Informed Investor
THE RICE, HALL, JAMES PORTFOLIOS
Institutional Class Prospectus , 199_
Rice, Hall, James Small Cap Portfolio
Rice, Hall, James Small/Mid Cap Portfolio
[LOGO OF UAM]
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PORTFOLIO SUMMARY................................................. 1
What Are the Objectives of the Portfolios?....................... 1
What Are the Principal Investment Strategies of the Portfolios?.. 1
How have the Portfolios Performed?............................... 2
What Are the Portfolios' Fees and Expenses?...................... 3
INVESTING WITH THE UAM FUNDS...................................... 5
Buying Shares.................................................... 5
Redeeming Shares................................................. 6
Exchanging Shares................................................ 6
Transaction Policies............................................. 6
ACCOUNT POLICIES.................................................. 9
Small Accounts................................................... 9
Distributions.................................................... 9
Federal Taxes.................................................... 9
FUND DETAILS...................................................... 11
Principal Investments and Risks of the Portfolios................ 11
Other Investment Practices and Strategies........................ 12
Year 2000........................................................ 14
Investment Management............................................ 14
Shareholder Servicing Arrangements............................... 15
FINANCIAL HIGHLIGHTS.............................................. 17
Rice, Hall, James Small Company Portfolio........................ 17
Rice, hall, james small mid cap portfolio........................ 18
</TABLE>
<PAGE>
PORTFOLIO SUMMARY
WHAT ARE THE OBJECTIVES OF THE PORTFOLIOS?
- --------------------------------------------------------------------------------
Listed below are the investment objectives of the Rice, Hall, James
Portfolios. The Rice, Hall, James Portfolios cannot guarantee they will meet
their investment objectives. A portfolio may not change its investment
objective without shareholder approval.
Rice, Hall, James Small Cap Portfolio
Rice, Hall, James Small Cap Portfolio seeks maximum capital appreciation,
consistent with reasonable risk to principal by investing primarily in small
market capitalization companies.
Rice, Hall, James Small/Mid Cap Portfolio
Rice, Hall, James Small/Mid Cap Portfolio seeks maximum capital appreciation,
consistent with reasonable risk to principal by investing primarily in
small/mid market capitalization (small/mid cap) companies.
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE PORTFOLIOS?
- --------------------------------------------------------------------------------
The following is a brief description of the principal investment strategies
of the Rice, Hall, James Portfolios. For more information see "PRINCIPAL
INVESTMENTS AND RISKS OF THE PORTFOLIOS."
Each portfolio may invest in equity securities using the adviser's company
specific approach to making investment decisions, which focuses on identifying
stocks of growth companies that are selling at a discount to the companies'
projected earnings growth rates. The adviser looks for companies where
fundamental changes are occurring that are temporarily going unnoticed by
investors, but which it believes will ultimately lead to greater investor
recognition and higher stock prices.
Rice, Hall, James Small Cap Portfolio
Rice, Hall, James Small Cap Portfolio normally invests at least 65% of its
total assets in equity securities of companies with market capitalizations of
$40 million to $500 million at the time of initial purchase. In selecting
securities for Rice, Hall, James Small Cap Portfolio, the adviser emphasizes
smaller, emerging companies possessing the potential to become market leaders
in their industries.
Rice, Hall, James Small/Mid Cap Portfolio
Rice, Hall, James Small/Mid Cap Portfolio normally invests at least 65% of its
total assets in equity securities of companies with market capitalizations of
1
<PAGE>
$300 million to $2.5 billion at the time of initial purchase. The adviser
believes that there are greater pricing inefficiencies for small/mid cap
securities than larger capitalization securities because this range of the
market has less analyst coverage.
Risks Common to All Mutual Funds
At any time, your investment in a mutual fund may be worth more or less than
the price you originally paid for it. You may lose money by investing in any
mutual fund because:
. The value of the securities it owns changes, sometimes rapidly and
unpredictably.
. The mutual fund is not successful in reaching its goal because of its
strategy or because it did not implement its strategy properly.
. Unforeseen occurrences in the securities markets negatively affect the
mutual fund.
Rice, Hall, James Small Cap and Small/Mid Cap Portfolios
Since the portfolios invest mainly in equity securities, their principal risks
are those of investing in equity securities, which may include sudden,
unpredictable drops in value or long periods of decline in value. Equity
securities may lose value because of factors affecting the securities markets
generally, an entire industry or a particular company.
The portfolios seek to invest in equity securities that the adviser believes
are undervaluedvalue oriented and may not perform as well as certain other
types of equity mutual funds during periods when value stocks are out of
favor.
Investors in the portfolios take on additional risks that come with investing
in stocks of smaller companies, which can be riskier than investing in larger,
more mature companies. Smaller companies may be more vulnerable to adverse
developments than larger companies because they tend to have more narrow
product lines and more limited financial resources. Their stocks may trade
less frequently and in limited volume.
HOW HAVE THE PORTFOLIOS PERFORMED?
- --------------------------------------------------------------------------------
The bar charts and tables below illustrate how the performance of the portfolios
have varied from year to year. The following bar charts show the investment
returns of each portfolio since its inception. The table following each bar
chart compares each portfolio's average annual returns for the periods indicated
to those of a broad-based securities market index. Past performance does not
guarantee future results.
2
<PAGE>
Rice, Hall, James Small Cap Portfolio
[BAR CHART APPEARS HERE]
*From the portfolio's inception (7/1/94) through 12/31/94.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_).
Since
Average annual return for periods ended 12/31/98 1 Year 5 Years Inception
- --------------------------------------------------------------------------------
Rice, Hall, James Small Cap Portfolio
- --------------------------------------------------------------------------------
Benchmark
Rice, Hall, James Small/Mid Cap Portfolio
[BAR CHART APPEARS HERE]
*From the portfolio's inception (11/1/96) through 12/31/96.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_).
Since
Average annual return for periods ended 12/31/98 1 Year Inception
- --------------------------------------------------------------------------------
Rice, Hall, James Small/Mid Cap Portfolio
- --------------------------------------------------------------------------------
Benchmark
Annual Fund Operating Expenses (Expenses That Are Deducted From the Assets of a
Portfolio)
WHAT ARE THE PORTFOLIOS' FEES AND EXPENSES?
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of a portfolio. The table is presented in the format required by the
Securities and Exchange Commission (SEC) and may not reflect the actual expenses
you would have paid as a shareholder in the portfolios.
3
<PAGE>
Rice, Hall, James Rice, Hall, James
Small Cap Portfolio Small/Mid Cap
Portfolio
------------------------------------------------------------------------------
Management fees
------------------------------------------------------------------------------
Other expenses
------------------------------------------------------------------------------
Total expenses
------------------------------------------------------------------------------
Actual Fees and Expenses
The ratios stated in the table above are higher than the expenses you would
have actually paid as an investor in these portfolios. Due to certain expense
limits by the adviser and expense offsets, investors in the portfolios
actually paid the following total operating expenses during the previous
fiscal year ended October 31, 1998:
Rice, Hall, James Rice, Hall, James
Small Cap Portfolio Small/Mid Cap Portfolio
------------------------------------------------------------------------------
Actual Expenses
------------------------------------------------------------------------------
EXAMPLE
This example can help you to compare the cost of investing in these portfolios
to the cost of investing in other mutual funds. It assumes that you invest
$10,000 in a portfolio for the periods shown and then redeem all of your
shares at the end of those periods. It also assumes a 5% return on your
investment each year and that the portfolio's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
Rice, Hall, James Rice, Hall, James
Small Cap Portfolio Small/Mid Cap Portfolio
------------------------------------------------------------------------------
1 Year
------------------------------------------------------------------------------
3 Years
------------------------------------------------------------------------------
5 Years
------------------------------------------------------------------------------
10 Years
4
<PAGE>
Investing with the UAM Funds
BUYING SHARES
- ------------------------------------------------------------------------
TO OPEN AN ACCOUNT TO BUY MORE SHARES
-------------------------------------------------------------------
By Mail Send a check or Send a check and, if
money order and possible, the "Invest
your account by Mail" stub that
application to the accompanied your
UAM Funds. Make statement to the UAM
checks payable to Funds. Be sure your
"UAM Funds" (the check identifies
UAM Funds will not clearly your name,
accept third-party account number and the
checks). portfolio into which
you want to invest.
-------------------------------------------------------------------
By Wire Call the UAM Funds Call the UAM Funds to
for an account get a wire control
number and wire number and wire your
control number and money to the UAM Funds.
then send your
completed account
application to the
UAM Funds.
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: portfolio name/account number/
account name/wire control number
-------------------------------------------------------------------
By Automatic Not Available To set up a plan, mail
Investment a completed application
Plan (Via ACH) to the UAM Funds. To
cancel or change a
plan, write to the UAM
Funds. Allow up to 15
days to create the plan
and 3 days to cancel or
change it.
-------------------------------------------------------------------
Minimum $2,500, except IRAs $100
Investments ($500) and spousal
IRAs
($250)
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
5
<PAGE>
REDEEMING SHARES
- --------------------------------------------------------------------------------
By Mail Send a letter signed by all registered
parties on the account to UAM Funds
specifying the portfolio, the account
number and the dollar amount or number of
shares you wish to redeem. Certain
shareholders may have to include additional
documents.
--------------------------------------------------------------------------
By Telephone You must first establish the telephone
redemption privilege (and, if desired, the
wire redemption privilege) by completing
the appropriate sections of the account
application.
Call 1-877-UAM-Link to redeem your shares.
Based on your instructions, the UAM Funds
will mail your proceeds to you or wire them
to your bank.
--------------------------------------------------------------------------
By If your account balance is at least
Systematic $10,000, you may transfer as little as $100
Withdrawal per month from your UAM account to your
Plan (Via ACH) financial institution.
To participate in this service, you must
complete the appropriate sections of the
account application and mail it to the UAM
Funds.
EXCHANGING SHARES
-------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the
same class of any other UAM Fund by writing to or calling the UAM Funds.
Before exchanging your shares, read the prospectus of the UAM Fund for
which you want to exchange, which you may obtain from the UAM Funds. You
may not exchange shares represented by certificates over the telephone.
You may only exchange shares between accounts with identical registrations
(i.e., the same names and addresses).
TRANSACTION POLICIES
- --------------------------------------------------------------------------------
CALCULATING YOUR SHARE PRICE
You may buy, sell or exchange shares of a UAM Fund at a price equal to its
net asset value (NAV) next computed after it receives your order. DSI
Money Market Portfolio calculates it NAV at 12:00 noon (Eastern time) on
each day the New York Stock Exchange (NYSE). The other DSI portfolios
calculate their NAVs as of the close of trading on the NYSE (generally
4:00 p.m. Eastern Time) on each day the NYSE is open. Therefore, to
receive the NAV on any given day, the UAM Funds must accept your order by
the close of trading on the NYSE that day. Otherwise, you will receive the
NAV that is calculated on the close of trading on the following day. The
UAM Funds are open for business on the same days as the NYSE, which is
closed on weekends and certain holidays.
6
<PAGE>
Buying or Selling Shares through a Financial Intermediary
You may buy, exchange or redeem shares of the UAM Funds through a financial
intermediary (such as a financial planner or adviser). Generally, to buy or
sell shares at the NAV on any given day, your financial intermediary must
receive your order by the close of trading on the NYSE that day. Your
financial intermediary is responsible for transmitting all subscription and
redemption requests, investment information, documentation and money to the
UAM Funds on time.
Certain financial intermediaries have agreements with the UAM Funds that allow
them to enter confirmed purchase or redemption orders on behalf of clients and
customers. Under this arrangement, the financial intermediary must send your
payment to the UAM Funds by the time they price their shares on the following
day. If your financial intermediary fails to do so, it may be responsible for
any resulting fees or losses.
CALCULATING NAV
The UAM Funds calculate their NAV by adding the total value of their assets,
subtracting their liabilities and then dividing the result by the number of
shares outstanding. The UAM Funds value their investments with readily
available market quotations at market value. Investments that do not have
readily available market quotations are valued at fair value, according to
guidelines established by the UAM Funds. The UAM Funds may also value
securities at fair value when events occur that make established valuation
methods (such as stock exchange closing prices) unreliable. The UAM Funds
value debt securities that will mature in 60 days or less amortized cost,
which approximates market value.
IN-KIND TRANSACTIONS
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares of a portfolio with securities instead of cash. In addition, the UAM
Funds may pay all or part of your redemption proceeds with securities instead
of cash.
PAYMENT OF REDEMPTION PROCEEDS
The UAM Funds will pay for all shares redeemed within seven days after they
receive a redemption request in proper order. If you redeem shares that were
purchased by check, you will not receive your redemption proceeds until the
check has cleared, which may take up to 15 days. You may avoid these delays
by paying for shares with a certified check, bank check or money order.
SIGNATURE GUARANTEE
You must have your signature guaranteed when (1) you want the proceeds from
your redemption sent to a person or address different from that registered on
the account, or (2) you request a transfer of your shares.
7
<PAGE>
You may obtain a signature guarantee from most banks, savings institutions,
securities dealers, national securities exchanges, registered securities
associations, clearing agencies and other guarantor institutions. A notary
public cannot guarantee a signature.
TELEPHONE TRANSACTIONS
The UAM Funds will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine; they may be liable for any losses if
they fail to do so. The UAM Funds will be responsible for any loss, liability,
cost or expense for following instructions received by telephone that it
reasonably believes to be genuine.
RIGHTS RESERVED BY THE UAM FUNDS
Purchases
At any time and without notice, the UAM Funds may:
. Stop offering shares of a portfolio.
. Reject any purchase order.
. Bar an investor engaged in a pattern of excessive trading from buying shares
of any portfolio. (Excessive trading can hurt the performance of a portfolio
by disrupting its management and by increasing its expenses.)
Redemptions
The UAM Funds may suspend your right to redeem if:
. An emergency exists and a portfolio cannot dispose of its investments or
fairly determine their value.
. Trading on the NYSE is restricted.
. The SEC tells the UAM Funds to delay redemptions.
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail.
Exchanges
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written notice
to shareholders.
. Reject any request for an exchange.
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
8
<PAGE>
ACCOUNT POLICIES
SMALL ACCOUNTS
- --------------------------------------------------------------------------------
The UAM Funds may redeem your shares without your permission if the value of
your account falls below 50% of the required minimum initial investment, but
not because of a drop in the value of your shares caused by market
fluctuations. This provision does not apply to retirement accounts and certain
other accounts.
DISTRIBUTIONS
- --------------------------------------------------------------------------------
Normally, the portfolios distribute their net investment income quarterly. In
addition, they distribute any net capital gains once a year. The UAM Funds
will automatically reinvest dividends and distributions in additional shares
of the portfolio, unless you elect on your account application to receive them
in cash.
FEDERAL TAXES
- --------------------------------------------------------------------------------
The following is a summary of the federal income tax consequences of investing
in these portfolios. You may also have to pay state and local taxes on your
investment. You should always consult your tax advisor for specific guidance
regarding the tax effect of your investment in the UAM Funds.
TAXES ON DISTRIBUTIONS
The distributions of the portfolios will generally be taxable to shareholders
as ordinary income or capital gains (which may be taxable at different rates
depending on the length of time the portfolio held the relevant assets). You
will be subject to income tax on these distributions regardless of whether
they are paid in cash or reinvested in additional shares. Once a year UAM
Funds will send you a statement showing the types and total amount of
distributions you received during the previous year.
You should note that if you purchase shares just before a distribution, the
purchase price would reflect the amount of the upcoming distribution. In this
case, you would be taxed on the entire amount of the distribution received,
even though, as an economic matter, the distribution simply constitutes a
return of your investment. This is known as "buying into a dividend" and
should be avoided.
TAXES ON EXCHANGES AND REDEMPTIONS
When you redeem or exchange shares in any portfolio, you may recognize a gain
or loss for income tax purposes. This gain or loss will be based on the
difference between your tax basis in the shares and the amount you receive for
them. (To aid in computing your tax basis, you generally should retain your
9
<PAGE>
account statements for the periods during which you held shares.) Any loss
realized on shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividends that were received
with respect to the shares.
The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other tax-
qualified plan) will not be currently taxable, but they may be taxable at some
time in the future.
To the extent a portfolio invests in foreign securities, it may be subject to
foreign withholding taxes with respect to dividends or interest the portfolios
received from sources in foreign countries. The portfolios may elect to treat
some of those taxes as a distribution to shareholders, which would allow
shareholders to offset some of their U.S. federal income tax.
BACKUP WITHHOLDING
By law, the UAM Funds must withhold 31% of your distributions and proceeds if
you have not provided complete, correct taxpayer information.
10
<PAGE>
FUND DETAILS
PRINCIPAL INVESTMENTS AND RISKS OF THE PORTFOLIOS
- --------------------------------------------------------------------------------
The following is a brief description of the principal investment strategies
that the Rice, Hall, James Portfolios may employ in seeking their objectives.
This discussion is in addition to the discussion set forth in the "PORTFOLIO
SUMMARY." For more information concerning these investment practices and their
associated risks, please read the "PORTFOLIO SUMMARY" and the statement of
additional information (SAI). You can find information on the portfolio's
recent strategies and holdings in its current annual/semiannual report. The
portfolio may change these strategies without shareholder approval.
RICE, HALL, JAMES SMALL CAP PORTFOLIO
Rice, Hall, James Small Cap Portfolio normally invests at least 65% of its
total assets in equity securities of companies with market capitalizations of
$40 million to $500 million at the time of initial purchase. In selecting
securities for the portfolio, the adviser emphasizes smaller, emerging
companies possessing the potential to become market leaders in their
industries.
RICE, HALL, JAMES SMALL/MID CAP PORTFOLIO
Rice, Hall, James Small/Mid Cap Portfolio normally invests at least 65% of its
total assets in equity securities of companies with market capitalizations of
$300 million to $2.5 billion at the time of initial purchase. The small/mid
cap range of the market (meaning companies with market capitalizations of less
than $2.5 billion but greater than $300 million) has more than three times the
number of securities than the market comprised of companies with market
capitalizations greater than $2.5 billion. The adviser believes that there are
greater pricing inefficiencies for small/mid cap securities than larger
capitalization securities because this range of the market has less analyst
coverage.
EQUITY SELECTION PROCESS
Each portfolio may invest in common stocks, preferred stocks, securities
convertible or exchangeable into common stock and rights or warrants to
purchase common stocks. The adviser uses a company specific approach to
making investment decisions, which focuses on identifying stocks of growth
companies that are selling at a discount to the companies' projected earnings
growth rates. Specifically, the adviser will only invest the assets of the
portfolio in companies with price/earnings ratios that are lower than the
company's 3 to 5 year projected earnings growth rate.
The adviser looks for companies where fundamental changes are occurring that
are temporarily going unnoticed by investors, but which it believes will
ultimately lead to increases in revenue growth rates, expanding profit margins
11
<PAGE>
and/or increases in earnings growth rates. Such events can include new product
introductions or applications, discovery of niche markets, new management,
corporate or industry restructures, regulatory change and end market
expansion. Most importantly, the adviser will only invest in a company when it
is convinced that such changes will lead to greater investor recognition and
higher stock prices within a 12- to 24-month period.
Moreover, the adviser will focus on securities of companies with:
. Strong management.
. Leading products or services.
. Distribution to a large marketplace or growing niche market.
. Anticipated above-average revenue and earnings growth rates.
. Potential for improvement in profit margins.
. Strong cash flow and/or improving financial position.
RISKS OF EQUITY INVESTING
Equity securities may lose value because of factors affecting the securities
markets generally, such as adverse changes in economic conditions, the general
outlook for corporate earnings, interest rates or investor sentiment. These
circumstances may lead to long periods of poor performance, such as during a
"bear market." Equity securities may also lose value because of factors
affecting an entire industry, such as increases in production costs, or
factors directly related to that company, such as decisions made by its
management.
Undervalued companies may have experienced adverse business developments or
other events that have caused their stocks to be out of favor. If the
adviser's assessment of a company is wrong, or if the market does not
recognize the value of the company, the price of its stock may fail to meet
expectations and the portfolio's share price may suffer. A value-oriented
portfolio may not perform as well as certain other types of mutual funds
during periods when value stocks are out of favor.
OTHER INVESTMENT PRACTICES AND STRATEGIES
- --------------------------------------------------------------------------------
As described below, the portfolios may invest in derivatives and foreign
securities and may deviate from its investment strategy from time to time. In
addition, the portfolios may employ investment practices that are not
described in this prospectus, such as repurchase agreements, when-issued and
forward commitment transactions, lending of securities, borrowing and other
techniques. For more information concerning the risks associated with these
investment practices, you should read the SAI.
12
<PAGE>
FOREIGN INVESTMENTS
The portfolios may invest up to 15% of their assets in foreign securities
directly or through ADRs. ADRs are certificates evidencing ownership of
shares of a foreign issuer that are issued by depository banks and generally
trade on an established market in the United States or elsewhere. Although
they are alternatives to directly purchasing the underlying foreign securities
in their national markets and currencies, ADRs continue to be subject to many
of the risks associated with investing directly in foreign securities.
Foreign securities, especially those of companies in emerging markets, can be
riskier and more volatile than domestic securities. Adverse political and
economic developments or changes in the value of foreign currency can make it
harder for a portfolio to sell its securities and could reduce the value of
your shares. Changes in tax and accounting standards and difficulties
obtaining information about foreign companies can negatively affect investment
decisions.
In January 1999, certain European nations will begin to use the new European
common currency, called the Euro. The nations that use the Euro will have the
same monetary policy regardless of their domestic economy, which could have
adverse effects on those economies. In addition, the method by which the
conversion to the Euro is implemented could negatively affect the investments
of a portfolio.
DERIVATIVES
Each portfolio may buy and sell derivatives, including futures and options.
Derivatives are often more volatile than other investments and may magnify a
portfolio's gains or losses. A portfolio may lose money if the adviser:
. Fails to predict correctly the direction in which the underlying asset or
economic factor will move.
. Judges market conditions incorrectly.
. Employs a strategy that does not correlate well with the investments of the
portfolio.
SHORT-TERM INVESTING
At times, the adviser may decide to suspend the normal investment activities
of a portfolio by investing up to 100% of its assets in a variety of
securities, such as U.S. government and other high quality and short-term debt
obligations. The adviser may temporarily adopt a defensive position to reduce
changes in the value of a portfolio's shares that may result from adverse
market, economic, political or other developments.
When the adviser pursues a defensive strategy, a portfolio may not profit from
favorable developments that it would have otherwise profited from if it were
pursuing its normal strategies. Likewise, these strategies may prevent a
portfolio from achieving its stated objectives.
13
<PAGE>
YEAR 2000
- --------------------------------------------------------------------------------
Many computer programs in use today cannot distinguish the year 2000 from the
year 1900 because of the way they encode and calculate dates. Consequently,
these programs may not be able to perform necessary functions and could
disrupt the operations of the UAM Funds or financial markets in general. The
year 2000 issue affects all companies and organizations, including those that
provide services to the UAM Funds and those in which the UAM Funds invest.
The UAM Funds and their advisers, administrator, distributor and transfer
agent are taking steps they believe are reasonably necessary to address any
portfolio-related year 2000-related computer problems. They are actively
working on necessary changes to their own computer systems to prepare for the
year 2000 and expect that their systems will be adapted before that date. They
are also requesting information on each service provider's state of readiness
and contingency plan. However, at this time the degree to which the year 2000
issue will affect the UAM Funds' investments or operations cannot be
predicted. Any negative consequences could adversely affect your investment in
the UAM Funds.
INVESTMENT MANAGEMENT
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Rice, Hall, James & Associates, a California corporation located at 600 West
Broadway, Suite 1000, San Diego, CA 92101, is the investment adviser to each
portfolio. The adviser manages and supervises the investment of the
portfolios' assets on a discretionary basis. The adviser, an affiliate of
United Asset Management Corporation, has provided investment management
services to individual and institutional investors since 1974.
The adviser has voluntarily agreed to limit the expenses of the portfolios.
To maintain this expense limit, the adviser may waive a portion of its
advisory fee and/or reimburse certain expenses of the portfolios. The adviser
intends to continue its expense limitation until further notice. Set forth
below are the expense limits of the portfolios and the amounts they paid the
adviser during the fiscal year ended October 31, 1998, both of which are
expressed as a percentage of average net assets.
<TABLE>
<CAPTION>
Rice, Hall, James Small Rice, Hall, James
Cap Portfolio Small/Mid Cap Portfolio
---------------------------------------------------------------------------
<S> <C> <C>
Management Fees % %
---------------------------------------------------------------------------
Expense Limit 1.40% 1.25%
</TABLE>
PORTFOLIO MANAGERS
Listed below are the investment professionals of the adviser who are primarily
responsible for the day-to-day management of the portfolios and a description
of their business experience during the past five years.
14
<PAGE>
<TABLE>
<CAPTION>
Manager Experience
- --------------------------------------------------------------------------------
<S> <C>
Samuel R. Trozzo Mr. Trozzo has over thirty-six years'
investment experience. Prior to founding Rice,
Hall, James & Associates in 1974, Mr. Trozzo
was Vice President and Senior Investment
Officer of Southern California First National
Bank. He is a former member of the State of
California Board of Administration/ Investment
Committee Public Employees Retirement System.
He is a graduate of Kent State University.
- --------------------------------------------------------------------------------
Thomas W. McDowell, Jr. Mr. McDowell has over fifteen years'
President and Chief Executive investment experience. Mr. McDowell joined
Officer Rice, Hall, James in 1984. Prior to that time,
he was Investment Officer, Security Analyst
and Portfolio Manager at California First
Bank. He earned his B.A. degree from the
University of California, Los Angeles and his
M.B.A. from San Diego State University.
- --------------------------------------------------------------------------------
David P. Tessmer Mr. Tessmer has thirty years' investment
Partner and Co-Director of experience. Prior to joining Rice, Hall, James
Research in 1986, Mr. Tessmer was Vice President and
Senior Portfolio Manager at The Pacific
Century Group, San Diego. He earned his B.S.
degree in Investment Management at
Northwestern University and his M.B.A. in
Finance at Columbia Graduate School of
Business.
- --------------------------------------------------------------------------------
Timothy A. Todaro Mr. Todaro has sixteen years' investment
Partner and Co-Director of experience. Mr. Todaro joined Rice, Hall,
Research James in 1983. Prior to that time, he was
Senior Investment Analyst at Comerica Bank,
Detroit, Michigan. Mr. Todaro earned his B.A.
in Economics at the University of California,
San Diego and his M.B.A. degree in
Finance/International Business at the
University of Wisconsin, Madison. He is a
Chartered Financial Analyst.
- --------------------------------------------------------------------------------
Gary S. Rice Mr. Rice has thirteen years' investment
Partner experience. Mr. Rice was an Account
Administrator with the Trust Division at
Federated Investors, Inc., Pittsburgh,
Pennsylvania prior to joining Rice, Hall,
James in 1983. He earned his B.A. degree in
Economics/Business Administration at
Vanderbilt University.
-------------------------------------------------------------------------------
Michelle P. Connell Ms. Connell has twelve years' investment
Partner experience. Prior to joining Rice, Hall, James
in 1995, she was Senior Investment Analyst
with Linsco/Private Ledger. Previously, she
was the director of Finance and Operations at
the San Diego Natural History Museum. Ms.
Connell has a B.A. degree in Accounting from
Seattle University and her M.B.A. from San
Diego State University. She is a Chartered
Financial Analyst.
</TABLE>
SHAREHOLDER SERVICING ARRANGEMENTS
- ------------------------------------------------------------------------------
SHAREHOLDER SERVICING
Certain financial intermediaries (service agents) may charge their clients
account fees for buying or redeeming shares of the UAM Funds. These fees may
include transaction fees and/or service fees paid by the UAM Funds from their
assets attributable to the service agent. The UAM Funds do not pay these fees
on shares purchased directly from UAM Fund Distributors. The service agents
may provide shareholder services to their clients that are not available to a
shareholder dealing directly with the UAM Funds. Each service agent is
responsible for transmitting to its clients a schedule of any such fees and
information regarding any additional or different purchase or redemption
conditions. You should consult your service agent for information regarding
these fees and conditions.
The adviser may pay its affiliated companies for referring investors to the
portfolio. The adviser and its affiliates may, at their own expense, pay
15
<PAGE>
qualified service providers for marketing, shareholder servicing, record-
keeping and/or other services performed with respect to the portfolios.
UAM Fund Distributors, the adviser and certain of their other affiliates also
participate, as of the date of this prospectus, in an arrangement with Salomon
Smith Barney under which Salomon Smith Barney provides certain defined
contribution plan marketing and shareholder services and receives 0.15% of the
portion of the daily net asset value of Institutional Class Shares held by
Salomon Smith Barney's eligible customer accounts in addition to amounts
payable to all selling dealers. The UAM Funds also compensate Salomon Smith
Barney for services it provides to certain defined contribution plan
shareholders that are not otherwise provided by the UAM Funds' administrator.
The UAM Funds also offer Institutional Service Class shares, which pay
marketing or shareholder servicing fees, and Adviser Class shares, which
impose a sales load and fees for marketing and shareholder servicing, for
certain of its portfolios. Not all of the UAM Funds offer all of these
classes.
16
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
financial performance of the portfolio for the past five years. The financial
highlights table comes from the financial statements of the portfolios and
reflects the financial results for a single portfolio share. The total returns
in the table represent the rate that an investor would have earned on an
investment in the portfolio (assuming reinvestment of all dividends and
distributions). PricewaterhouseCoopers LLP has audited the financial
statements of the portfolio. The financial statements and the unqualified
opinion of PricewaterhouseCoopers LLP are included in the annual report of
the portfolio. The annual report of the portfolio is available upon request.
RICE, HALL, JAMES SMALL CAP PORTFOLIO
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED OCTOBER 31, 1998 1997 1996 1995 1994#
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value Beginning of Period $ 15.73 $ 15.87 $ 11.14 $ 10.00
-----------------------------------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income (0.08) (0.10) (0.07) 0.01
Net Gains or losses on Securities
(Realized and Unrealized) 4.59 2.73 4.81 1.13
-----------------------------------------------------------------------------------------------------------
Total From Investment
Operations 4.51 2.63 4.74 1.14
------------------------------------------------------------------------------------------------------------
Less Distributions
Net Investment Income (loss)
In Excess of Net Investment (0.01)
Income -- -- 0.00## --
Capital Gains (1.48) (2.77) -- --
--------------------------------------------------------------------------------------------------------------
Total Distributions (1.48) (2.77) (0.01) --
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 18.76 $ 15.73 $ 15.87 $ 11.14
==============================================================================================================
Total Return 31.44% 19.43% 42.59%+ 11.40** +
==============================================================================================================
Ratios/Supplemental Data
Net Assets, End of Period
(Thousands) $51,772 $33,488 $ 18,910 $ 8,287
Ratio of Expenses to Average
Net Assets 1.21% 1.37% 1.40% 1.40%*
Ratio of Net Investment Income to
Average Net Assets (0.53)% (0.78)% (0.63)% 0.30%*
Portfolio Turnover Rate 158% 181% 180% 5%
Ratio of Voluntarily Waived
Fees and Expenses Assumed
by the Adviser to Average
Net Assets -- -- 0.11 2.38%*
Ratio of Expenses to Average
Net Assets Including Expense
Offsets 1.21% 1.37% 1.40% --
</TABLE>
# For the period August 2, 1994 (commencement of operations) to October 31,
1994.
## Value is less than $0.01 per share.
+ Total return would have been lower had certain fees not been waived and
expenses assumed by the adviser during the periods.
* Annualized.
** Not annualized.
17
<PAGE>
RICE, HALL, JAMES SMALL MID/CAP PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER 31, 1998 1997#
==============================================================================
<S> <C> <C>
Net Asset Value Beginning of Period $ 10.00
-------------------------------------------------------------------------------
Income from Investment Operations 0.03
Net Investment Income
Net Gains or losses on Securities
(Realized and Unrealized) 2.64
--------------------------------------------------------------------------------
Total From Investment Operations 2.67
--------------------------------------------------------------------------------
Less Distributions (0.03)
Net Investment Income Dividends
Capital Gains Distributions --
---------------------------------------------------------------------------------
Total Distributions (0.03)
---------------------------------------------------------------------------------
Net Asset Value, End of Period $ 12.64
=================================================================================
Total Return+ 26.76%
=================================================================================
Ratios/Supplemental Data
Net Assets, End of Period (Thousands) $12.957
Ratio of Expenses to Average Net
Assets 1.25%
Ratio of Net Investment Income to Average Net
Assets 0.24%
Portfolio Turnover Rate 56%
Ratio of Voluntarily Waived Fees and
Expenses assumed by the Adviser to
Average Net Assets 1.29%
Ratio of Expenses to Average Net
Assets Including Expense Offsets 1.25%
</TABLE>
# For period November 1, 1996 (commencement of operations) to October 31,
1997.
<PAGE>
THE RICE, HALL, JAMES PORTFOLIOS
For investors who want more information about the Rice, Hall, James
Portfolios, the following documents are available upon request.
ANNUAL/SEMI-ANNUAL REPORTS
The annual and semi-annual reports of the Rice, Hall, James Portfolios provide
additional information about their investments. In each annual report, you
will also find a discussion of the market conditions and investment strategies
that significantly affected the performance of the Rice, Hall, James
Portfolios during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains additional detailed information about the Rice, Hall, James
Portfolios and is incorporated by reference into (legally part of) this
prospectus.
Investors can receive free copies of these materials, request other
information about the portfolios and make shareholder inquiries by writing to
or calling
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
You can review, for a fee, the reports of the portfolio and SAI by writing to
the SEC's Public Reference Section, Washington, D.C. 20459-6009, or by calling
the SEC at 1-800-SEC-0330. You can get copies of this information for free, on
the SEC's Internet site at http://www.sec.gov.
------------------
The portfolio's Investment Company Act of 1940 file is 811-5683.
[LOGO]
<PAGE>
UAM Funds
Funds for the Informed Investor
SAMI PREFERRED STOCK INCOME PORTFOLIO
INSTITUTIONAL CLASS PROSPECTUS , 199_
[LOGO OF UAM APPEARS HERE]
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PORTFOLIO SUMMARY................................................ 1
What is the Objective of the Portfolio?......................... 1
What are the Principal Investment Strategies of the Portfolio?.. 1
What are the Principal Risks of the Portfolio................... 1
How has the Portfolio Performed?................................ 2
What are the Portfolio's Fees and Expenses?..................... 2
INVESTING WITH THE UAM FUNDS..................................... 4
Buying Shares................................................... 4
Redeeming Shares................................................ 5
Exchanging Shares............................................... 5
Transaction Policies............................................ 5
ACCOUNT POLICIES................................................. 8
Small Accounts.................................................. 8
Distributions................................................... 8
Federal Taxes................................................... 8
FUND DETAILS..................................................... 10
Principal Investments and Risks of the Portfolio................ 10
Other Investment Practices and Strategies....................... 12
Year 2000....................................................... 13
Investment Management........................................... 13
Shareholder Servicing Arrangements.............................. 15
FINANCIAL HIGHLIGHTS............................................. 17
</TABLE>
<PAGE>
PORTFOLIO SUMMARY
WHAT IS THE OBJECTIVE OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
SAMI Preferred Stock Income Portfolio seeks a high level of dividend income
consistent with capital preservation. The portfolio cannot guarantee it will
meet its investment objectives. The portfolio may not change its investment
objective without shareholder approval.
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
The following is a brief description of the principal investment strategies of
SAMI Preferred Stock Income Portfolio. For more information see "PRINCIPAL
INVESTMENTS AND RISKS OF THE PORTFOLIO."
SAMI Preferred Stock Income Portfolio will invest primarily in a
professionally managed, diversified portfolio of investment-grade utility
preferred securities. The portfolio will hedge its investments with U.S.
government securities futures to minimize capital fluctuations caused by
interest rate movements. The adviser also expects to invest a significant
portion of the portfolio's assets in bank preferred securities.
WHAT ARE THE PRINCIPAL RISKS OF THE PORTFOLIO
- --------------------------------------------------------------------------------
The following is a summary of the principal risks associated with investing in
the portfolios. For more information see "PRINCIPAL INVESTMENTS AND RISKS OF
THE PORTFOLIO."
RISKS COMMON TO ALL MUTUAL FUNDS
At any time, your investment in a mutual fund may be worth more or less than
the price you originally paid for it. You may lose money by investing in any
mutual fund because:
. The value of the securities it owns changes, sometimes rapidly and
unpredictably.
. The mutual fund is not successful in reaching its goal because of its
strategy or because it did not implement its strategy properly.
. Unforeseen occurrences in the securities markets negatively affect the
mutual fund.
SAMI PREFERRED STOCK INCOME PORTFOLIO
Since the portfolio invests in preferred stock, adverse changes in interest
rates could cause the value of its investments to fall. This typically occurs
when interest rates rise. Preferred stock has many attributes that are
similar to those
1
<PAGE>
of debt securities, and has a preference over common stock in liquidation and
generally dividends but is subordinated to the liabilities of the issuer in
all respects. The portfolio also could lose money if a security's credit
rating worsens or its issuer becomes unable to honor its financial
obligations. Since preferred stock is junior to other debt securities,
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.
The portfolio invests in derivatives, which may be volatile and may magnify a
portfolio's gains or losses, causing it to make or lose substantially more
money than it invested.
HOW HAS THE PORTFOLIO PERFORMED?
- --------------------------------------------------------------------------------
The bar chart and table below illustrate how the performance of the portfolio
has varied from year to year. The following bar chart shows the investment
returns of the portfolio since its inception. The table following the bar
chart compares the portfolio's average annual returns for the periods
indicated to those of a broad-based securities market index. Past performance
does not guarantee future results.
SAMI Preferred Stock Income Portfolio
[BAR CHART APPEARS HERE]
*From the portfolio's inception (6/23/92) through 12/31/92.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_).
<TABLE>
<CAPTION>
Since
Average annual return for periods ended 12/31/98 1 Year 5 Years Inception
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
SAMI Preferred Stock Income Portfolio
---------------------------------------------------------------------------------------
Salomon Brothers 1-3 Year Treasury Index*
---------------------------------------------------------------------------------------
</TABLE>
1 Year Treasury Bill+
+ An index of U.S. Treasury Notes and Bonds with maturities of one ear or
greater and less than three years.
WHAT ARE THE PORTFOLIO'S FEES AND EXPENSES?
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM THE ASSETS OF A
PORTFOLIO)
This table describes the fees and expenses that you may pay if you buy and
hold shares of a portfolio. This table is presented in the format required by
the Securities and Exchange Commission (SEC) and may not reflect the actual
expenses you would have paid as a shareholder in the portfolios.
2
<PAGE>
---------------------------------------------------------------------
Management fees
---------------------------------------------------------------------
Other expenses
---------------------------------------------------------------------
Total expenses
=====================================================================
ACTUAL FEES AND EXPENSES
The ratios stated in the table above are higher than the expenses you would
have actually paid as an investor in the portfolio. Due to certain expense
limits by the adviser and expense offsets, investors in the portfolio actually
paid _% of average net assets in total expenses during the fiscal year ended
October 31, 1998.
EXAMPLE
This example can help you to compare the cost of investing in the portfolio to
the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the portfolio for the periods shown and then redeem all of your
shares at the end of those periods. It also assumes a 5% return on your
investment each year and that the portfolio's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 Year
------------------------------------------------------------------------------
3 Years
------------------------------------------------------------------------------
5 Years
------------------------------------------------------------------------------
10 Years
3
<PAGE>
INVESTING WITH THE UAM FUNDS
BUYING SHARES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
To open an account To buy more shares
-----------------------------------------------------------------------------------
<S> <C> <C>
By Mail Send a check or money Send a check and, if possible,
order and your account the "Invest by Mail" stub that
application to the UAM accompanied your statement to
Funds. Make checks the UAM Funds. Be sure your
payable to "UAM Funds" check identifies clearly your
(the UAM Funds will not name, account number and the
accept third-party portfolio into which you want to
checks). invest.
-----------------------------------------------------------------------------------
By Wire Call the UAM Funds for an Call the UAM Funds to get a wire
account number and wire control number and wire your
control number and then money to the UAM Funds.
send your completed
account application to
the UAM Funds.
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: portfolio name/account number/
account name/wire control number
-----------------------------------------------------------------------------------
By Automatic Not Available To set up a plan, mail a
Investment Plan (Via completed application to the UAM
ACH) Funds. To cancel or change a
plan, write to the UAM Funds.
Allow up to 15 days to create
the plan and 3 days to cancel or
change it.
-----------------------------------------------------------------------------------
Minimum $2,500, except IRAs $100
Investments ($500) and spousal IRAs
($250)
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
</TABLE>
4
<PAGE>
REDEEMING SHARES
- --------------------------------------------------------------------------------
By Mail Send a letter signed by all registered parties on the
account to UAM Funds specifying the portfolio, the
account number and the dollar amount or number of
shares you wish to redeem. Certain shareholders may
have to include additional documents.
---------------------------------------------------------------------------
By Telephone You must first establish the telephone redemption
privilege (and, if desired, the wire redemption
privilege) by completing the appropriate sections of
the account application.
Call 1-877-UAM-Link to redeem your shares. Based on
your instructions, the UAM Funds will mail your
proceeds to you or wire them to your bank.
---------------------------------------------------------------------------
By If your account balance is at least $10,000, you may
Systematic transfer as little as $100 per month from your UAM
Withdrawal account to your financial institution. To participate
Plan (Via in this service, you must complete the appropriate
ACH) sections of the account application and mail it to
the UAM Funds.
EXCHANGING SHARES
- --------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the
same class of any other UAM Fund by writing to or calling the UAM Funds.
Before exchanging your shares, read the prospectus of the UAM Fund for
which you want to exchange, which you may obtain from the UAM Funds. You
may not exchange shares represented by certificates over the telephone. You
may only exchange shares between accounts with identical registrations
(i.e., the same names and addresses).
TRANSACTION POLICIES
- --------------------------------------------------------------------------------
CALCULATING yOUR SHARE PRICE
You may buy, sell or exchange shares of a UAM Fund at a price equal to its
net asset value (NAV) next computed after it receives your order. DSI Money
Market Portfolio calculates it NAV at 12:00 noon (Eastern time) on each day
the New York Stock Exchange (NYSE). The other DSI portfolios calculate
their NAVs as of the close of trading on the NYSE (generally 4:00 p.m.
Eastern Time) on each day the NYSE is open. Therefore, to receive the NAV
on any given day, the UAM Funds must accept your order by the close of
trading on the NYSE that day. Otherwise, you will receive the NAV that is
calculated on the close of trading on the following day. The UAM Funds are
open for business on the same days as the NYSE, which is closed on weekends
and certain holidays.
<PAGE>
BUYING OR SELLING SHARES THROUGH A FINANCIAL INTERMEDIARY
You may buy, exchange or redeem shares of the UAM Funds through a financial
intermediary (such as a financial planner or adviser). Generally, to buy or
sell shares at the NAV on any given day, your financial intermediary must
receive your order by the close of trading on the NYSE that day. Your
financial intermediary is responsible for transmitting all subscription and
redemption requests, investment information, documentation and money to the
UAM Funds on time.
Certain financial intermediaries have agreements with the UAM Funds that
allow them to enter confirmed purchase or redemption orders on behalf of
clients and customers. Under this arrangement, the financial intermediary
must send your payment to the UAM Funds by the time they price their shares
on the following day. If your financial intermediary fails to do so, it may
be responsible for any resulting fees or losses.
CALCULATING NAV
The UAM Funds calculate their NAV by adding the total value of their
assets, subtracting their liabilities and then dividing the result by the
number of shares outstanding. The UAM Funds value their investments with
readily available market quotations at market value. Investments that do
not have readily available market quotations are valued at fair value,
according to guidelines established by the UAM Funds. The UAM Funds may
also value securities at fair value when events occur that make established
valuation methods (such as stock exchange closing prices) unreliable. The
UAM Funds value debt securities that will mature in 60 days or less
amortized cost, which approximates market value.
IN-KIND TRANSACTIONS
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares of a portfolio with securities instead of cash. In addition, the UAM
Funds may pay all or part of your redemption proceeds with securities
instead of cash.
PAYMENT OF REDEMPTION PROCEEDS
The UAM Funds will pay for all shares redeemed within seven days after they
receive a redemption request in proper order. If you redeem shares that
were purchased by check, you will not receive your redemption proceeds
until the check has cleared, which may take up to 15 days. You may avoid
these delays by paying for shares with a certified check, bank check or
money order.
SIGNATURE GUARANTEE
You must have your signature guaranteed when (1) you want the proceeds from
your redemption sent to a person or address different from that registered
on the account, or (2) you request a transfer of your shares.
<PAGE>
You may obtain a signature guarantee from most banks, savings institutions,
securities dealers, national securities exchanges, registered securities
associations, clearing agencies and other guarantor institutions. A notary
public cannot guarantee a signature.
TELEPHONE TRANSACTIONS
The UAM Funds will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine; they may be liable for
any losses if they fail to do so. The UAM Funds will be responsible for any
loss, liability, cost or expense for following instructions received by
telephone that it reasonably believes to be genuine.
RIGHTS RESERVED BY THE UAM FUNDS
PURCHASES
At any time and without notice, the UAM Funds may:
. Stop offering shares of a portfolio.
. Reject any purchase order.
. Bar an investor engaged in a pattern of excessive trading from buying
shares of any portfolio. (Excessive trading can hurt the performance of
a portfolio by disrupting its management and by increasing its
expenses.)
REDEMPTIONS
The UAM Funds may suspend your right to redeem if:
. An emergency exists and a portfolio cannot dispose of its investments or
fairly determine their value.
. Trading on the NYSE is restricted.
. The SEC tells the UAM Funds to delay redemptions.
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail.
EXCHANGES
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders.
. Reject any request for an exchange.
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
<PAGE>
ACCOUNT POLICIES
SMALL ACCOUNTS
- --------------------------------------------------------------------------------
The UAM Funds may redeem your shares without your permission if the value
of your account falls below 50% of the required minimum initial investment,
but not because of a drop in the value of your shares caused by market
fluctuations. This provision does not apply to retirement accounts and
certain other accounts.
DISTRIBUTIONS
- --------------------------------------------------------------------------------
Normally, the portfolio distributes its net investment income monthly. In
addition, it distributes any net capital gains once a year. The UAM Funds
will automatically reinvest dividends and distributions in additional
shares of the portfolio, unless you elect on your account application to
receive them in cash.
FEDERAL TAXES
- --------------------------------------------------------------------------------
The following is a summary of the federal income tax consequences of
investing in the UAM Funds. You may also have to pay state and local taxes
on your investment. You should always consult your tax advisor for specific
guidance regarding the tax effect of your investment in the UAM Funds.
TAXES ON DISTRIBUTIONS
The distributions of the portfolios will generally be taxable to
shareholders as ordinary income or capital gains (which may be taxable at
different rates depending on the length of time the portfolio held the
relevant assets). You will be subject to income tax on these distributions
regardless of whether they are paid in cash or reinvested in additional
shares. Once a year UAM Funds will send you a statement showing the types
and total amount of distributions you received during the previous year.
You should note that if you purchase shares just before a distribution, the
purchase price would reflect the amount of the upcoming distribution. In
this case, you would be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply
constitutes a return of your investment. This is known as "buying into a
dividend" and should be avoided.
TAXES ON EXCHANGES AND REDEMPTIONS
When you redeem or exchange shares in any portfolio, you may recognize a
gain or loss for income tax purposes. This gain or loss will be based on
the difference between your tax basis in the shares and the amount you
receive for them. (To aid in computing your tax basis, you generally should
retain your account statements for the periods during which you held
shares.) Any loss
<PAGE>
realized on shares held for six months or less will be treated as a long-
term capital loss to the extent of any capital gain dividends that were
received with respect to the shares.
The one major exception to these tax principles is that distributions on,
and sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable, but they may be taxable
at some time in the future.
BACKUP WITHHOLDING
By law, the UAM Funds must withhold 31% of your distributions and proceeds
if you have not provided complete, correct taxpayer information.
<PAGE>
FUND DETAILS
PRINCIPAL INVESTMENTS AND RISKS OF THE PORTFOLIO
- --------------------------------------------------------------------------------
The following is a brief description of the principal investment strategies
SAMI Preferred Stock Income Portfolio may employ in seeking its objective.
This discussion is in addition to the discussion set forth in the
"PORTFOLIO SUMMARY." For more information concerning these investment
practices and their associated risks, please read the "PORTFOLIO SUMMARY"
and the statement of additional information (SAI). You can also find
information on the portfolio's recent strategies and holdings in its
current annual/semiannual report. The portfolio may change these strategies
without shareholder approval.
The portfolio concentrates in utilities and will invest at least 65% of its
assets in utility preferred stocks. The utilities industry includes (1)
companies that manufacture, produce, generate, transmit and sell gas and
electric energy and (2) communications companies, which includes telephone,
telegraph, satellite, microwave and other companies providing communication
facilities for the public benefit. The portfolio also invests a significant
portion of its total assets, but less than 25%, in bank preferred
securities. The banking industry includes companies that provide financial
services to consumers and industry, such as commercial banks savings and
loan associations.
The adviser will invest at least 65% of the portfolio's assets in all types
of preferred securities rated A or better by at least one rating agency.
Under normal conditions, the adviser may invest up to 35% of the
portfolio's total assets in U.S. Treasury bills or similar short-term
instruments.
Investors should be aware of certain risks associated with the utilities
industry, including:
. Difficulties in earning adequate returns on investments despite frequent
rate increases.
. Restrictions on operations and increased costs and delays due to
governmental regulations.
. Building or construction delays.
. Environmental regulations.
. Difficulty of the capital markets in absorbing utility debt and equity
securities.
. Difficulties in obtaining fuel at reasonable prices.
PREFERRED STOCK SELECTION PROCESS
When selecting specific preferred stock issues, the adviser considers all
variables, including current dividend yield, that would affect the value of
a
<PAGE>
security (i.e., sinking fund provisions, call features, redemption
characteristics and credit quality). The adviser also carefully analyzes
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 adviser is primarily one of buy and
hold, it will trade securities when it believes market, economic or other
conditions make it advantageous to do so. For example, the adviser may try
to improve dividend income without eroding capital by taking advantage of
market or pricing inefficiencies of certain securities. The adviser also
attempts 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 focuses on issues either trading at a
discount with strong call protection or with attractive yields to call.
A security rated within the four highest rating categories by a rating
agency is called investment-grade because its issuer is more likely to pay
interest and repay principal than an issuer of a lower rated security.
Adverse economic conditions or changing circumstances, however, may weaken
the capacity of the issuer to pay interest and repay principal. If a
security is not rated or is rated under a different system, the adviser may
determine that it is of investment-grade. In addition, the portfolio will
sell or otherwise dispose of any security that loses its rating or has its
rating reduced below investment grade within 90 days.
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 debt securities are subject to market fluctuation
based largely, but not exclusively on the securities' sensitivity to
changes in interest rates. To reduce interest rate related risk, the
adviser hedges the investments of the portfolio with futures and options on
U.S. government securities. Since the adviser intends to produce offsetting
capital gains and losses as interest rates change, it expects the return of
the portfolio to consist primarily of the dividend and interest income it
receives.
The adviser monitors the correlation between the preferred and fixed-income
securities and the U.S. government futures and options markets and
evaluates the history of price movements in those markets. Then, using
sophisticated quantitative analytical techniques, including regression
analyses and price volatility analyses, the adviser creates the necessary
statistical data to monitor and adjust the hedging investments. This
strategy enables the adviser to invest across the yield curve, realizing
higher dividend yields, while managing interest rate volatility.
<PAGE>
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, a
decline in interest rates would probably cause these hedging positions to lose
value and, consequently, may cause the portfolio to sell some of its preferred
stocks to finance hedge losses, which would decrease its dividend income.
Since dividend rates on fixed rate preferred stocks do not change in response
to changes in interest rates, the adviser believes the successful use of
hedging transactions will make the portfolio's income increase in rising
interest rate environments. Similarly, the adviser would expect the income of
the portfolio to be relatively resistant to the impact of significant declines
in interest rates.
The ability of the portfolio to hedge its securities through derivatives
depends on the degree to which interest rates correlate with price movements
in the relevant securities. The portfolio could be negatively affected if the
change in market value of its securities fails to correlate perfectly with the
prices of the futures and options it purchased or sold.
The lack of a liquid secondary market for a futures contract or option may
prevent the portfolio from closing futures position and could adversely impact
its ability to hedge its investments and to realize profits or limit losses.
Since futures and options transactions involve a high degree of leverage, a
relatively small price movement in a derivative may result in an immediate and
substantial loss (as well as gain) to the portfolio. The portfolio also may
lose more than it originally invested in the derivative.
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.
OTHER INVESTMENT PRACTICES AND STRATEGIES
- --------------------------------------------------------------------------------
As described below, the portfolio may deviate from its investment strategy
from time to time. In addition, the portfolio may employ investment practices
that are not described in this prospectus, such as repurchase agreements,
when-issued and forward commitment transactions, lending of securities,
borrowing and other techniques.. For more information concerning the risks
associated with these investment practices, you should read the SAI.
SHORT-TERM INVESTING
At times, the adviser may decide to suspend the normal investment activities
of a portfolio by investing up to 100% of its assets in a variety of
securities, such as U.S. government and other high quality and short-term debt
obligations. The adviser may temporarily adopt a defensive position to reduce
changes in the value of a portfolio's shares that may result from adverse
market, economic, political or other developments.
When the adviser pursues a defensive strategy, a portfolio may not profit from
favorable developments that it would have otherwise profited from if it were
<PAGE>
pursuing its normal strategies. Likewise, these strategies may prevent a
portfolio from achieving its stated objectives.
YEAR 2000
- --------------------------------------------------------------------------------
Many computer programs in use today cannot distinguish the year 2000 from the
year 1900 because of the way they encode and calculate dates. Consequently,
these programs may not be able to perform necessary functions and could
disrupt the operations of the UAM Funds or financial markets in general. The
year 2000 issue affects all companies and organizations, including those that
provide services to the UAM Funds and those in which the UAM Funds invest.
The UAM Funds and their advisers, administrator, distributor and transfer
agent are taking steps they believe are reasonably necessary to address any
portfolio-related year 2000-related computer problems. They are actively
working on necessary changes to their own computer systems to prepare for the
year 2000 and expect that their systems will be adapted before that date.
They are also requesting information on each service provider's state of
readiness and contingency plan. However, at this time the degree to which the
year 2000 issue will affect the UAM Funds' investments or operations cannot be
predicted. Any negative consequences could adversely affect your investment in
the UAM Funds.
INVESTMENT MANAGEMENT
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Spectrum Asset Management, Inc., a Connecticut corporation located at Four
High Ridge Park, Stamford, Connecticut 06905, is the investment adviser to the
portfolio. The adviser manages and supervises the investment of the
portfolio's assets on a discretionary basis. The adviser, an affiliate of
United Asset Management Corporation, has provided investment management
services to corporations, pension plans and endowments since 1987.
The adviser has agreed voluntarily to limit the expenses of the portfolio to
0.99% of its average net assets. To maintain this expense limit, the adviser
may waive a portion of its advisory fees and/or reimburse certain expenses of
the portfolios. The adviser intends to continue its expense limit until
further notice. During the last fiscal year, the portfolios paid the adviser
__% of the portfolio's average net assets.
Since its inception, the adviser has concentrated its advisory services on
managing diversified portfolios of fixed-dividend, preferred stocks for its
clients using techniques similar to that described for the SAMI Preferred
Stock Income Portfolio. The adviser is registered as a broker-dealer and
investment adviser with the SEC 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.
<PAGE>
PORTFOLIO MANAGERS
Listed below are the investment professionals of the adviser who are primarily
responsible for the day-to-day management of the portfolio and a description
of their business experience during the past five years.
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 receive passing grades on the following exams:
. General Securities Representative (Series 7);
. Commodity Futures Associated Person-NFA (Series 3); and
. Uniform Securities Agent Exam (Blue Sky Law, Series 63).
Name & Title Experience
------------------------------------------------------------------------------
Scott T. Fleming Mr. Fleming was a Director and Principal of DBL
Principal 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. Mr. Fleming has managed the portfolio
since its inception.
------------------------------------------------------------------------------
Mark A. Lieb Director of United Asset Management Corporation.
Principal 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 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.
Mr. Lieb has managed the portfolio since its
inception.
------------------------------------------------------------------------------
Bernard M. Sussman Prior to joining Spectrum, Mr. Sussman was with
Principal 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. 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. Mr. Sussman has managed the portfolio
since its April 1995.
------------------------------------------------------------------------------
L. Philip Jacoby, IV Prior to joining Spectrum, Mr. Jacoby was a Senior
Vice President -- Investment Officer at USL Capital Corporation (a
Portfolio Management 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
<PAGE>
Name & Title Experience
------------------------------------------------------------------------------
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. Mr. Jacoby has managed the portfolio
since its January 1995.
------------------------------------------------------------------------------
Patrick G. Hurley Mr. Hurley came to Spectrum Asset Management, Inc.
Hedge Manager 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.
Mr. Hurley has managed the portfolio since its May
1994.
SHAREHOLDER SERVICING ARRANGEMENTS
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICING
Certain financial intermediaries (service agents) may charge their clients
account fees for buying or redeeming shares of the UAM Funds. These fees may
include transaction fees and/or service fees paid by the UAM Funds from their
assets attributable to the service agent. The UAM Funds do not pay these fees
on shares purchased directly from UAM Fund Distributors. The service agents
may provide shareholder services to their clients that are not available to a
shareholder dealing directly with the UAM Funds. Each service agent is
responsible for transmitting to its clients a schedule of any such fees and
information regarding any additional or different purchase or redemption
conditions. You should consult your service agent for information regarding
these fees and conditions.
The adviser may pay its affiliated companies for referring investors to the
portfolio. The adviser and its affiliates may, at their own expense, pay
qualified service providers for marketing, shareholder servicing, record-
keeping and/or other services performed with respect to the portfolios.
UAM Fund Distributors, the adviser and certain of their other affiliates also
participate, as of the date of this prospectus, in an arrangement with Salomon
Smith Barney under which Salomon Smith Barney provides certain defined
contribution plan marketing and shareholder services and receives 0.15% of the
portion of the daily net asset value of Institutional Class Shares held by
Salomon Smith Barney's eligible customer accounts in addition to amounts
payable to all selling dealers. The UAM Funds also compensate Salomon Smith
Barney for services it provides to certain defined contribution plan
shareholders that are not otherwise provided by the UAM Funds' administrator.
The UAM Funds also offer Institutional Service Class shares, which pay
marketing or shareholder servicing fees, and Adviser Class shares, which
<PAGE>
impose a sales load and fees for marketing and shareholder servicing, for
certain of its portfolios. Not all of the UAM Funds offer all of these
classes.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
financial performance of the portfolio for the past five years. The financial
highlights table comes from the financial statements of the portfolio and
reflects the financial results for a single portfolio share. The total returns
in the table represent the rate that an investor would have earned on an
investment in the portfolio (assuming reinvestment of all dividends and
distributions). PricewaterhouseCoopers LLP has audited the financial
statements of the portfolio. The financial statements and the unqualified
opinion of PricewaterhouseCoopers LLP are included in the annual report of the
portfolio. The annual report of the portfolio is available upon request.
<TABLE>
<CAPTION>
Fiscal Year Ended October 31, 1998 1997 1996 1995 1994
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value Beginning of Period $ 9.34 $ 9.21 $ 9.29 $ 9.98
---------------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 0.55 0.58 0.67 0.60
Net Gains or Losses on Securities
(Realized and Unrealized) 0.15 0.14 (0.08) (0.71)
---------------------------------------------------------------------------------------
Total From Investment Operations 0.70 0.72 0.59 (0.11)
---------------------------------------------------------------------------------------
Less Distributions
Net Investment Income (0.57) (0.59) (0.67) (0.58)
Capital Gains - - - -
---------------------------------------------------------------------------------------
Total Distributions (0.57) (0.59) (0.67) (0.58)
---------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 9.47 $ 9.34 $ 9.21 $ 9.29
---------------------------------------------------------------------------------------
Total Return 7.73%+ 8.17%+ 6.67% (1.15)%
=======================================================================================
Ratios/Supplemental Data
Net Assets, End of Period (Thousands) $32,552 $27,528 $33,789 $91,221
Ratio of Expenses to Average Net Assets 0.99% 0.99% 0.98% 0.89%
Ratio of Net Investment Income to Average
Net Assets 5.83% 6.26% 7.03% 6.45%
Portfolio Turnover Rate 59% 77% 44% 65%
Ratio of Voluntarily Waived Fees and
Expenses Assumed by the Adviser to
Average Net Assets 0.18% 0.18% - -
Ratio of Expenses to Average Net Assets
Including Expense Offsets 0.99% 0.99% 0.98% -
</TABLE>
+ Total return would have been lower had certain fees not been waived and
expenses assumed by the adviser during the periods.
<PAGE>
SAMI PREFERRED STOCK INCOME PORTFOLIO
For investors who want more information about SAMI Preferred Stock Income
Portfolio, the following documents are available upon request.
ANNUAL/SEMI-ANNUAL REPORTS
The annual and semi-annual reports of SAMI Preferred Stock Income Portfolio
provide additional information about their investments. In each annual
report, you will also find a discussion of the market conditions and
investment strategies that significantly affected the performance of SAMI
Preferred Stock Income Portfolio during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains additional detailed information about SAMI Preferred Stock
Income Portfolio and is incorporated by reference into (legally part of) this
prospectus.
Investors can receive free copies of these materials, request other
information about the portfolios and make shareholder inquiries by writing to
or calling UAM Fund Service Center at:
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
You can review, for a fee, the reports of the portfolio and SAI by writing to
the SEC's Public Reference Section, Washington, D.C. 20459-6009, or by calling
the SEC at 1-800-SEC-0330. You can get copies of this information for free, on
the SEC's Internet site at http://www.sec.gov.
------------------
The portfolio's Investment Company Act of 1940 file is 811-5683.
<PAGE>
UAM Funds
Funds for the Informed Investor
THE SIRACH PORTFOLIOS
Institutional Class Prospectus , 199_
Sirach Growth Portfolio
Sirach Special Equity Portfolio
Sirach Strategic Balanced Portfolio
Sirach Equity Portfolio
Sirach Bond Portfolio
[LOGO]
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
<PAGE>
Table Of Contents
<TABLE>
<S> <C>
PORTFOLIO SUMMARY................................................. 1
What are the Objectives of the Portfolios?....................... 1
What are the Principal Investment Strategies of the Portfolios?.. 1
What are the Principal Risks of the Portfolio.................... 2
How have the Portfolios Performed?............................... 3
What are the Portfolios' Fees and Expenses?...................... 5
INVESTING WITH THE UAM FUNDS...................................... 7
Buying Shares.................................................... 7
Redeeming Shares................................................. 8
Exchanging Shares................................................ 8
Transaction Policies............................................. 8
ACCOUNT POLICIES.................................................. 11
Small Accounts................................................... 11
Distributions.................................................... 11
Federal Taxes.................................................... 11
FUND DETAILS...................................................... 13
Principal Investments and Risks of The Portfolios................ 13
Other Investment Practices and Strategies........................ 15
Year 2000........................................................ 16
Investment Management............................................ 17
Shareholder Servicing Arrangements............................... 20
FINANCIAL HIGHLIGHTS.............................................. 22
Sirach Growth Portfolio.......................................... 22
Sirach Special Equity Portfolio.................................. 23
Sirach Strategic Balanced Portfolio.............................. 23
Sirach Equity Portfolio.......................................... 24
</TABLE>
<PAGE>
PORTFOLIO SUMMARY
WHAT ARE THE OBJECTIVES OF THE PORTFOLIOS?
- -------------------------------------------------------------------------------
Listed below are the investment objectives of the Sirach Portfolios. The
Sirach Portfolios cannot guarantee they will meet their investment objectives.
A portfolio may not change its investment objective without shareholder
approval.
SIRACH GROWTH PORTFOLIO
Sirach Growth Portfolio seeks to provide long-term capital growth, consistent
with reasonable risk to principal, by investing primarily in common stocks of
companies that offer long-term growth potential.
SIRACH EQUITY PORTFOLIO
Sirach Equity Portfolio seeks to provide long-term capital growth, consistent
with reasonable risk to principal, by investing, under normal circumstances,
at least 90% of its total assets in common stocks of companies that offer
long-term growth potential.
SIRACH STRATEGIC BALANCED PORTFOLIO
Sirach Strategic Balanced Portfolio seeks to provide long-term capital growth,
consistent with reasonable risk to principal, by investing in a diversified
portfolio of common stocks and fixed income securities.
SIRACH SPECIAL EQUITY PORTFOLIO
Sirach Special Equity Portfolio seeks to provide maximum long-term growth of
capital, consistent with reasonable risk to principal, by investing in small
to medium capitalized companies with particularly attractive financial
characteristics.
SIRACH BOND PORTFOLIO
Sirach Bond Portfolio seeks to achieve above-average total return, consistent
with reasonable risk to principal, by investing primarily in dollar-
denominated, investment-grade fixed-income securities.
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE PORTFOLIOS?
- -------------------------------------------------------------------------------
The following is a brief description of the principal investment strategies of
the Sirach Portfolios. For more information see "PRINCIPAL INVESTMENTS AND
RISKS OF THE PORTFOLIOS."
SIRACH GROWTH, EQUITY AND SPECIAL EQUITY PORTFOLIOS
The adviser believes that Sirach Growth, Equity and Special Equity Portfolios
1
<PAGE>
can achieve their goals by investing in securities of companies that rank high
on its proprietary ranking system. Sirach Growth and Equity Portfolios invest
in companies of all sizes. Sirach Special Equity Portfolio invests primarily
in companies that have market capitalizations of $100 million to $4 billion.
SIRACH BOND PORTFOLIO
Sirach Bond Portfolio normally invests at least 75% of its total assets in a
diversified mix of dollar-denominated, investment-grade debt securities. The
adviser will adjust the maturity and/or duration of the portfolio based on its
assessment of current economic conditions and trends and monetary and fiscal
policies. Over the complete economic cycle, the weighted maturity of the
portfolio is expected to range from eight and twelve years and its duration
will range from four to six years. In selecting securities for the portfolio,
the adviser tries to:
. Emphasize relative values within selected maturity ranges.
. Take advantage of relative values and interest rate spreads among the
various credit qualities, issue types and coupons.
. Emphasize the marketability of individual issues and diversification
within the portfolio.
SIRACH STRATEGIC BALANCED PORTFOLIO
The adviser manages Sirach Strategic Balanced Portfolio to take advantage of
its equity and debt strategies. The portfolio typically invests approximately
40-45% of its assets in investment-grade debt securities and 55-60% in equity
securities.
WHAT ARE THE PRINCIPAL RISKS OF THE PORTFOLIO
- -------------------------------------------------------------------------------
The following is a summary of the principal risks associated with investing in
the portfolios. For more information see "PRINCIPAL INVESTMENTS AND RISKS OF
THE PORTFOLIOS."
RISKS COMMON TO All MUTUAL FUNDS
At any time, your investment in a mutual fund may be worth more or less than
the price you originally paid for it. You may lose money by investing in any
mutual fund because:
. The value of the securities it owns changes, sometimes rapidly and
unpredictably.
. The mutual fund is not successful in reaching its goal because of its
strategy or because it did not implement its strategy properly.
. Unforeseen occurrences in the securities markets negatively affect the
mutual fund.
2
<PAGE>
SIRACH GROWTH, EQUITY AND SPECIAL EQUITY PORTFOLIOS
Since the portfolios invest mainly in equity securities, their principal risks
are those of investing in equity securities, which may include sudden,
unpredictable drops in value or long periods of decline in value. Equity
securities may lose value because of factors affecting the securities markets
generally, an entire industry or a particular company.
Because Sirach Growth and Equity Portfolios are growth oriented, they may not
perform as well as other types of mutual funds when growth investing is out of
favor. The values of growth stocks may be more sensitive to changes in
current or expected earnings than the values of other stocks.
Investors in Sirach Special Equity Portfolio take on additional risks that
come with investing in stocks of smaller companies, which can be riskier than
investing in larger, more mature companies. Smaller companies may be more
vulnerable to adverse developments than larger companies because they tend to
have more narrow product lines and more limited financial resources. Their
stocks may trade less frequently and in limited volume.
SIRACH BOND PORTFOLIO
Since the portfolio invests in debt securities, the value of its investments
could fall because:
. Of market conditions and economic and political events.
. Interest rates rise, which tends to cause the value of debt securities to
fall.
. A security's credit rating worsens or its issuer becomes unable to honor its
financial obligations.
SIRACH STRATEGIC BALANCED PORTFOLIO
To the extent Sirach Strategic Balanced Portfolio invests in equity and debt
securities, its shareholders will take on the risks that come with investing
in those types of securities. Investors also run the risk that the portfolio
will be more heavily invested in one type of security when it would be better
to invest in the other type of security.
HOW HAVE THE PORTFOLIOS PERFORMED?
- -------------------------------------------------------------------------------
The bar charts and tables below illustrate how the performance of the
portfolios has varied from year to year. The following bar charts show the
investment returns of each portfolio since its inception. The table following
each bar chart compares each portfolio's average annual returns for the
periods indicated to those of a broad-based securities market index. Past
performance does not guarantee future results.
3
<PAGE>
SIRACH GROWTH PORTFOLIO
[GRAPH APPEARS HERE]
*From the portfolio's inception (12/1/93) through 12/31/93.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_)
Average annual return for periods ended 12/31/98 1 Year 5 Years Since
Inception
===========================================================================
Sirach Growth Portfolio
---------------------------------------------------------------------------
S&P 500 Index
SIRACH STRATEGIC BALANCED PORTFOLIO
[GRAPH APPEARS HERE]
*From the portfolio's inception (12/1/93) through 12/31/93.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_)
Average annual return for periods ended 12/31/98 1 Year 5 Years Since
Inception
Sirach Strategic Balanced Portfolio
---------------------------------------------------------------------------
S&P 500 Index
---------------------------------------------------------------------------
Lehman Brothers Government/Corporate Index
SIRACH EQUITY PORTFOLIO
[GRAPH APPEARS HERE]
*From the portfolio's inception (7/1/96) through 12/31/96.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_)
4
<PAGE>
Average annual return for periods ended 12/31/98 1 Year
-------------------------------------------------------------------------
Sirach Equity Portfolio
-------------------------------------------------------------------------
S&P 500 Index
-------------------------------------------------------------------------
SIRACH SPECIAL EQUITY PORTFOLIO
[GRAPH APPEARS HERE]
*From the portfolio's inception (10/2/89) through 12/31/89.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_).
Average annual return for periods ended 12/31/98 1 Year
-------------------------------------------------------------------------
Sirach Special Equity Portfolio
-------------------------------------------------------------------------
S&P Midcap 400 Index
SIRACH BOND PORTFOLIO
[GRAPH APPEARS HERE]
*From the portfolio's inception (11/3/97) through 12/31/97.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_).
Average annual return for periods ended 12/31/98 1 Year
-------------------------------------------------------------------------
Sirach Bond Portfolio
-------------------------------------------------------------------------
Lehman Brothers Government/Corporate Index
WHAT ARE THE PORTFOLIOS' FEES AND EXPENSES?
- ------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT aRE DEDUCTED FROM THE ASSETS OF A
PORTFOLIO)
This table describes the fees and expenses that you may pay if you buy and
hold shares of a portfolio. This table is presented in the format required
by the Securities and Exchange Commission (SEC) and may not reflect the
actual expenses you would have paid as a shareholder in the portfolios.
5
<PAGE>
<TABLE>
<CAPTION>
Sirach Sirach
Sirach Special Strategi Sirach Sirach
Growth Equity Balanced Equity Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Management fees
-----------------------------------------------------------------------------
Other Expenses
-----------------------------------------------------------------------------
Total Expenses
=============================================================================
</TABLE>
ACTUAL FEES AND EXPENSES
The ratios stated in the table are higher than the expenses you would have
actually paid as an investor in these portfolios. Due to certain expense
limits by the adviser and expense offsets, investors in the portfolios
actually paid the following total operating expenses during the fiscal year
ended October 31, 1998:
<TABLE>
<CAPTION>
Sirach Sirach
Sirach Special Strategi Sirach Sirach
Growth Equity Balanced Equity Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
=============================================================================
<S> <C> <C> <C> <C> <C>
Actual Expenses
=============================================================================
</TABLE>
EXAMPLE
This example can help you to compare the cost of investing in these portfolios
to the cost of investing in other mutual funds. It assumes that you invest
$10,000 in a portfolio for the periods shown and then redeem all of your
shares at the end of those periods. It also assumes a 5% return on your
investment each year and that the portfolio's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
Sirach Sirach
Sirach Special Strategic Sirach Sirach
Growth Equity Balanced Equity Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year
------------------------------------------------------------------------------
3 Years
------------------------------------------------------------------------------
5 Years
------------------------------------------------------------------------------
10 Years
</TABLE>
6
<PAGE>
Investing with the UAM Funds
BUYING SHARES
- ---------------------------------------------------------------
TO OPEN AN ACCOUNT TO BUY MORE SHARES
- ---------------------------------------------------------------
By Mail Send a check or Send a check and, if
money order and possible, the "Invest
your account by Mail" stub that
application to the accompanied your
UAM Funds. Make statement to the UAM
checks payable to Funds. Be sure your
"UAM Funds" (the check identifies
UAM Funds will not clearly your name,
accept third-party account number and the
checks). portfolio into which
you want to invest.
- ---------------------------------------------------------------
By Wire Call the UAM Funds Call the UAM Funds to
for an account get a wire control
number and wire number and wire your
control number and money to the UAM Funds.
then send your
completed account
application to the
UAM Funds.
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: portfolio name/account number/
account name/wire control number
- ---------------------------------------------------------------
By Automatic Not Available To set up a plan, mail
Investment Plan a completed application
(Via ACH) to the UAM Funds. To
cancel or change a
plan, write to the UAM
Funds. Allow up to 15
days to create the plan
and 3 days to cancel or
change it.
- ---------------------------------------------------------------
Minimum $2,500, except $100
Investments IRAs ($500) and
spousal IRAs ($250)
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
7
<PAGE>
REDEEMING SHARES
- --------------------------------------------------------------------------------
By Mail Send a letter signed by all registered parties on the
account to UAM Funds specifying the portfolio, the account
number and the dollar amount or number of shares you wish
to redeem. Certain shareholders may have to include
additional documents.
- --------------------------------------------------------------------------------
By Telephone You must first establish the telephone redemption
privilege (and, if desired, the wire redemption privilege)
by completing the appropriate sections of the account
application.
Call 1-877-UAM-Link to redeem your shares. Based on your
instructions, the UAM Funds will mail your proceeds to you
or wire them to your bank.
- --------------------------------------------------------------------------------
By If your account balance is at least $10,000, you may
Systematic transfer as little as $100 per month from your UAM
Withdrawal account to your financial institution.
Plan (Via ACH) To participate in this service, you must complete the
appropriate sections of the account application and mail
it to the UAM Funds.
EXCHANGING SHARES
- --------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the
same class of any other UAM Fund by writing to or calling the UAM Funds.
Before exchanging your shares, read the prospectus of the UAM Fund for
which you want to exchange, which you may obtain from the UAM Funds. You
may not exchange shares represented by certificates over the telephone. You
may only exchange shares between accounts with identical registrations
(i.e., the same names and addresses).
TRANSACTION POLICIES
- --------------------------------------------------------------------------------
CALCULATING YOUR SHARE PRICE
You may buy, sell or exchange shares of a UAM Fund at a price equal to its
net asset value (NAV) next computed after it receives your order. The
portfolios calculate their NAVs as of the close of trading on the New York
Stock Exchange (NYSE) (generally 4:00 p.m. Eastern Time) on each day the
NYSE is open. Therefore, to receive the NAV on any given day, the UAM Funds
must accept your order by the close of trading on the NYSE that day.
Otherwise, you will receive the NAV that is calculated on the close of
trading on the following day. The UAM Funds are open for business on the
same days as the NYSE, which is closed on weekends and certain holidays.
8
<PAGE>
BUYING OR SELLING SHARES THROUGH A FINANCIAL INTERMEDIARY
You may buy, exchange or redeem shares of the UAM Funds through a financial
intermediary (such as a financial planner or adviser). Generally, to buy or
sell shares at the NAV on any given day, your financial intermediary must
receive your order by the close of trading on the NYSE that day. Your
financial intermediary is responsible for transmitting all subscription and
redemption requests, investment information, documentation and money to the
UAM Funds on time.
Certain financial intermediaries have agreements with the UAM Funds that
allow them to enter confirmed purchase or redemption orders on behalf of
clients and customers. Under this arrangement, the financial intermediary
must send your payment to the UAM Funds by the time they price their shares
on the following day. If your financial intermediary fails to do so, it may
be responsible for any resulting fees or losses.
CALCULATING NAV
The UAM Funds calculate their NAV by adding the total value of their
assets, subtracting their liabilities and then dividing the result by the
number of shares outstanding. The UAM Funds value their investments with
readily available market quotations at market value. Investments that do
not have readily available market quotations are valued at fair value,
according to guidelines established by the UAM Funds. The UAM Funds may
also value securities at fair value when events occur that make established
valuation methods (such as stock exchange closing prices) unreliable. The
UAM Funds value debt securities that will mature in 60 days or less
amortized cost, which approximates market value.
IN-KIND TRANSACTIONS
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares of a portfolio with securities instead of cash. In addition, the UAM
Funds may pay all or part of your redemption proceeds with securities
instead of cash.
PAYMENT OF REDEMPTION PROCEEDS
The UAM Funds will pay for all shares redeemed within seven days after they
receive a redemption request in proper order. If you redeem shares that
were purchased by check, you will not receive your redemption proceeds
until the check has cleared, which may take up to 15 days. You may avoid
these delays by paying for shares with a certified check, bank check or
money order.
SIGNATURE GUARANTEE
You must have your signature guaranteed when (1) you want the proceeds from
your redemption sent to a person or address different from that registered
on the account, or (2) you request a transfer of your shares.
9
<PAGE>
You may obtain a signature guarantee from most banks, savings institutions,
securities dealers, national securities exchanges, registered securities
associations, clearing agencies and other guarantor institutions. A notary
public cannot guarantee a signature.
TELEPHONE TRANSACTIONS
The UAM Funds will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine; they may be liable for
any losses if they fail to do so. The UAM Funds will be responsible for any
loss, liability, cost or expense for following instructions received by
telephone that it reasonably believes to be genuine.
RIGHTS RESERVED BY THE UAM FUNDS
PURCHASES
At any time and without notice, the UAM Funds may:
. Stop offering shares of a portfolio.
. Reject any purchase order.
. Bar an investor engaged in a pattern of excessive trading from buying
shares of any portfolio. (Excessive trading can hurt the performance
of a portfolio by disrupting its management and by increasing its
expenses.)
REDEMPTIONS
The UAM Funds may suspend your right to redeem if:
. An emergency exists and a portfolio cannot dispose of its investments
or fairly determine their value.
. Trading on the NYSE is restricted.
. The SEC tells the UAM Funds to delay redemptions.
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail.
EXCHANGES
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders.
. Reject any request for an exchange.
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
10
<PAGE>
ACCOUNT POLICIES
SMALL ACCOUNTS
- --------------------------------------------------------------------------------
The UAM Funds may redeem your shares without your permission if the value
of your account falls below 50% of the required minimum initial investment,
but not because of a drop in the value of your shares caused by market
fluctuations. This provision does not apply to retirement accounts and
certain other accounts.
DISTRIBUTIONS
- --------------------------------------------------------------------------------
Normally, the portfolios distribute their net investment income quarterly.
In addition, they distribute any net capital gains once a year. The UAM
Funds will automatically reinvest dividends and distributions in additional
shares of the portfolio, unless you elect on your account application to
receive them in cash.
FEDERAL TAXES
- --------------------------------------------------------------------------------
The following is a summary of the federal income tax consequences of
investing in the UAM Funds. You may also have to pay state and local taxes
on your investment. You should always consult your tax advisor for specific
guidance regarding the tax effect of your investment in the UAM Funds.
TAXES ON DISTRIBUTIONS
The distributions of the portfolios will generally be taxable to
shareholders as ordinary income or capital gains (which may be taxable at
different rates depending on the length of time the portfolio held the
relevant assets). You will be subject to income tax on these distributions
regardless of whether they are paid in cash or reinvested in additional
shares. Once a year UAM Funds will send you a statement showing the types
and total amount of distributions you received during the previous year.
You should note that if you purchase shares just before a distribution, the
purchase price would reflect the amount of the upcoming distribution. In
this case, you would be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply
constitutes a return of your investment. This is known as "buying into a
dividend" and should be avoided.
TAXES ON EXCHANGES AND REDEMPTIONS
When you redeem or exchange shares in any portfolio, you may recognize a
gain or loss for income tax purposes. This gain or loss will be based on
the difference between your tax basis in the shares and the amount you
receive for them. (To aid in computing your tax basis, you generally should
retain your
11
<PAGE>
account statements for the periods during which you held shares.) Any loss
realized on shares held for six months or less will be treated as a long-
term capital loss to the extent of any capital gain dividends that were
received with respect to the shares.
The one major exception to these tax principles is that distributions on,
and sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable, but they may be taxable
at some time in the future.
BACKUP WITHHOLDING
By law, the UAM Funds must withhold 31% of your distributions and proceeds
if you have not provided complete, correct taxpayer information.
12
<PAGE>
FUND DETAILS
PRINCIPAL INVESTMENTS AND RISKS OF THE PORTFOLIOS
- --------------------------------------------------------------------------------
The following is a brief description of the principal investment strategies
the Sirach Portfolios may employ in seeking their objectives. This
discussion is in addition to the discussion set forth in the "PORTFOLIO
SUMMARY." For more information concerning these investment practices and
their associated risks, please read the "PORTFOLIO SUMMARY" and the
statement of additional information (SAI). You can find information on each
portfolio's recent strategies and holdings in the current annual/semiannual
report. The portfolio may change these strategies without shareholder
approval.
SIRACH GROWTH, EQUITY AND SPECIAL EQUITY PORTFOLIOS
Sirach Growth and Equity Portfolios invest in companies of all sizes.
Sirach Special Equity Portfolio invests primarily in companies that have
market capitalizations of $100 million to $4 billion. Each portfolio may
invest in common stocks, preferred stocks, securities convertible or
exchangeable into common stock and rights or warrants to purchase common
stocks.
The adviser invests the assets of the portfolio in equity securities of
companies that rank high on its proprietary ranking system. The adviser's
system ranks securities according to decile using historical earnings
growth and consistency, earnings acceleration, prospective earnings
"surprise" probabilities, relative price strength and valuation. The
adviser further narrows the list of potential investments using traditional
fundamental security analysis, focusing particular attention on identifying
the factors influencing earnings, understanding competitive advantages and
examining earnings. The adviser believes that companies that have ranked
highly according to its analysis are likely to provide superior rates of
return over an extended period relative to the stock market in general.
RISKS OF INVESTING IN EQUITY SECURITIES
Equity securities may lose value because of factors affecting the
securities markets generally, such as adverse changes in economic
conditions, the general outlook for corporate earnings, interest rates or
investor sentiment. These circumstances may lead to long periods of poor
performance, such as during a "bear market." Equity securities may also
lose value because of factors affecting an entire industry, such as
increases in production costs, or factors directly related to that company,
such as decisions made by its management.
The Sirach Growth and Equity Portfolios may invest in growth stocks, which
are stocks of companies that the adviser believes have earnings that will
grow relatively rapidly. These growth stocks typically trade at higher
multiples of current earnings than other stocks. Therefore, the values of
growth stocks may
13
<PAGE>
be more sensitive to changes in current or expected earnings than the
values of other stocks.
SIRACH BOND PORTFOLIO
Sirach Bond Portfolio normally invests at least 75% of its total assets in
a diversified mix of dollar-denominated, investment-grade debt securities.
Debt securities are securities issued by the U.S. government and its
agencies, corporate debt securities, mortgage-backed and asset-backed
securities, Yankee bonds, commercial paper and certificates of deposit.
These securities may have varying interest rate schedules and maturities
(dates when debt securities are due and payable). Asset-backed and
mortgage-backed securities are securities that are backed by pools of loans
or mortgages assembled for sale to investors by various governmental
agencies and private issuers. Mortgage-backed securities may generally take
two forms: pass-throughs and collateralized mortgage obligations (CMOs).
The adviser believes that preserving principal in periods of rising
interest rates should lead to above-average returns over the long run. The
adviser seeks to reduce negative changes in NAV by adjusting the average
maturity and/or duration (a measure of the investment life of a security)
of the portfolio based on its assessment of current economic conditions and
trends, the Federal Reserve Board's management of monetary policy, fiscal
policy, inflation expectations, government and private credit demands and
global conditions. Ordinarily, the weighted average maturity of the
portfolio will range between eight and twelve years and its weighted
average duration will range between four and six years.
In addition, the adviser tries to emphasize (1) relative values and
interest rate spreads within selected maturity ranges, credit qualities and
coupons, and (2) the marketability of individual issues and diversification
within the portfolio.
RISKS OF INVESTING IN DEBT SECURITIES
The value of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up the value of the bond will go
down, and vice versa). Interest rate changes may cause people to pay off
mortgage-backed and asset-backed securities earlier or later than expected,
which may shorten or lengthen the average maturity. Variations to average
maturity may cause the portfolio's share price and yield to fall.
The credit rating or financial condition of an issuer may affect the value
of a debt security. Generally, the lower the quality rating of a security,
the greater the risks that the issuer will fail to pay interest and return
principal. To compensate investors for taking on increased risk, issuers
with lower credit ratings usually offer their investors higher interest
rates. If an issuer defaults or becomes unable to honor its financial
obligations, the bond may lose some or all of its value.
A security rated within the four highest rating categories by a rating
agency is called investment-grade because its issuer is more likely to pay
interest and repay principal than an issuer of a lower rated bond. Adverse
economic
14
<PAGE>
conditions or changing circumstances, however, may weaken the capacity of
the issuer to pay interest and repay principal. If a security is not rated
or is rated under a different system, the adviser may determine that it is
of investment-grade. The adviser may retain securities that are downgraded,
if it believes that keeping those securities is warranted.
SIRACH STRATEGIC BALANCED PORTFOLIO
The adviser manages Sirach Strategic Balanced Portfolio to take advantage
of its equity and debt strategies. The portfolio may invest in a
combination of stocks, bonds and short-term cash equivalents. Normally, the
portfolio will invest 25% - 50% of its assets in fixed-income securities
and 35% - 70% of its assets in equity securities. While the adviser can
vary the composition of the portfolio within those ranges, it will
typically invest approximately 55-60% of the portfolio's assets in equity
securities and 40-45% in debt securities. The portfolio will invest at
least 25% of its total assets in senior debt securities, including
preferred stock.
OTHER INVESTMENT PRACTICES AND STRATEGIES
- --------------------------------------------------------------------------------
As described below, the portfolios may invest in derivatives and foreign
securities and may deviate from its investment strategy from time to time.
In addition, the portfolios may employ investment practices that are not
described in this prospectus, such as repurchase agreements, when-issued
and forward commitment transactions, lending of securities, borrowing and
other techniques. For more information concerning the risks associated with
these investment practices, you should read the SAI.
FOREIGN INVESTMENTS
Each portfolio may invest up to 20% of its assets in American Depositary
Receipts (ADRs). ADRs are certificates evidencing ownership of shares of a
foreign issuer that are issued by depository banks and generally trade on
an established market in the United States or elsewhere. Although they are
alternatives to directly purchasing the underlying foreign securities in
their national markets and currencies, ADRs continue to be subject to many
of the risks associated with investing directly in foreign securities.
Foreign securities, especially those of companies in emerging markets, can
be riskier and more volatile than domestic securities. Adverse political
and economic developments or changes in the value of foreign currency can
make it harder for a portfolio to sell its securities and could reduce the
value of your shares. Changes in tax and accounting standards and
difficulties obtaining information about foreign companies can negatively
affect investment decisions.
In January 1999, certain European nations will begin to use the new
European common currency, called the Euro. The nations that use the Euro
will have the same monetary policy regardless of their domestic economy,
which could have adverse effects on those economies. In addition, the
method
15
<PAGE>
by which the conversion to the Euro is implemented could negatively affect
the investments of a portfolio.
DERIVATIVES
Sirach Bond and Strategic Balanced Portfolios may buy and sell futures and
options. Derivatives are often more volatile than other investments and may
magnify a portfolio's gains or losses. A portfolio may lose money if the
adviser:
. Fails to predict correctly the direction in which the underlying
asset or economic factor will move.
. Judges market conditions incorrectly.
. Employs a strategy that does not correlate well with the investments
of the portfolio.
SHORT-TERM INVESTING
At times, the adviser may decide to suspend the normal investment
activities of a portfolio by investing up to 100% of its assets in a
variety of securities, such as U.S. government and other high quality and
short-term debt obligations. The adviser may temporarily adopt a defensive
position to reduce changes in the value of a portfolio's shares that may
result from adverse market, economic, political or other developments.
When the adviser pursues a defensive strategy, a portfolio may not profit
from favorable developments that it would have otherwise profited from if
it were pursuing its normal strategies. Likewise, these strategies may
prevent a portfolio from achieving its stated objectives.
PORTFOLIO TURNOVER
The portfolios may buy and sell investments relatively often. Such a
strategy often involves higher expenses, including brokerage commissions,
and may increase the amount of capital gains (and, in particular, short-
term gains) realized by a portfolio. Shareholders must pay tax on such
capital gains.
YEAR 2000
- --------------------------------------------------------------------------------
Many computer programs in use today cannot distinguish the year 2000 from
the year 1900 because of the way they encode and calculate dates.
Consequently, these programs may not be able to perform necessary functions
and could disrupt the operations of the UAM Funds or financial markets in
general. The year 2000 issue affects all companies and organizations,
including those that provide services to the UAM Funds and those in which
the UAM Funds invest.
The UAM Funds and their advisers, administrator, distributor and transfer
agent are taking steps they believe are reasonably necessary to address any
portfolio-related year 2000-related computer problems. They are actively
working on necessary changes to their own computer systems to prepare for
the year 2000 and expect that their systems will be adapted before that
date.
16
<PAGE>
They are also requesting information on each service provider's state of
readiness and contingency plan. However, at this time the degree to which
the year 2000 issue will affect the UAM Funds' investments or operations
cannot be predicted. Any negative consequences could adversely affect your
investment in the UAM Funds.
INVESTMENT MANAGEMENT
- --------------------------------------------------------------------------------
Investment Adviser
Sirach Capital Management, Inc., located at 3323 One Union Square, Seattle,
Washington 98101, is the investment adviser to each of the portfolios. The
adviser manages and supervises the investment of each portfolio's assets on a
discretionary basis. The adviser, an affiliate of United Asset Management
Corporation, has provided investment management services to corporations,
pension and profit sharing plans, 401(k) and thrift plans, trusts, estates and
other institutions and individuals since 1970.
The adviser has voluntarily agreed to limit the expenses of these portfolios.
To maintain this expense limit, the adviser may waive a portion of its
advisory fee and/or reimburse certain expenses of the portfolios. The adviser
intends to continue its expense limitation until further notice. Set forth
below are the expense limits of the portfolios and the amounts they paid to
the adviser during the fiscal year ended October 31, 1998, both of which are
expressed as a percentage of average net assets.
<TABLE>
<CAPTION>
Sirach Sirach
Sirach Special Strategi Sirach Sirach
Growth Equity Balanced Equity Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------
Management fees
-------------------------------------------------------------------------
Expenses Limit
</TABLE>
For more information on Sirach Capital Management's investment services
please call (206) 624-3800.
PORTFOLIO MANAGERS
Teams of investment professionals are primarily responsible for the day-to-
day management of the portfolios. Listed below are the investment
professionals that comprise those teams and a description of their business
experience during the past five years.
<TABLE>
<CAPTION>
Manager/Title With
Adviser Experience
<S> <C>
---------------------------------------------------------------------------------------------------------
Sirach Equity Management Team manages Sirach Growth and Equity Portfolios and the equity portion of
Sirach Strategic Balanced Portfolios.
Harvey G. Bateman Mr. Bateman joined Sirach Capital Management in 1988, where he
Principal has managed equity accounts since 1989.
---------------------------------------------------------------------------------------------------------
Sharon Rowley, CFA Ms. Rowley joined Sirach Capital Management in 1998. Before that
Principal/Portfolio she was a Principal at Seafirst Investment Counselors where she
---------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Manager/Title With
Adviser Experience
<S> <C>
---------------------------------------------------------------------------------------------------------
Manager managed equity, bond and balanced accounts for high net worth
individuals and institutional clients.
---------------------------------------------------------------------------------------------------------
James P. Kieburtz Mr. Kieburtz joined Sirach Capital Management in 1994. Before
Principal/Portfolio that, he was a Systems Engineer specializing in financial account
Manager applications at the accounting firm of Hagen, Kurth & Perman.
---------------------------------------------------------------------------------------------------------
Sirach Small Cap Equity Management Team manages Sirach Special Equity Portfolio
Harvey G. Bateman You may find Mr. Bateman's biography under Equity Management
Principal Team above
---------------------------------------------------------------------------------------------------------
Stefan W. Cobb Mr. Cobb joined Sirach Capital Management in 1994. Before that,
Principal he was a Vice President at the investment-banking firm of
Robertson, Stephens & Company where he was engaged in
institutional sales.
---------------------------------------------------------------------------------------------------------
James P. Kieburtz You may find Mr. Kieburtz's biography under Equity Management Team
Principal above.
---------------------------------------------------------------------------------------------------------
Sirach Fixed Income Management Team manages Sirach Bond Portfolio and the debt portion of Sirach
Strategic Balanced Portfolio
Craig F. Hintze Mr. Hintze joined Sirach Capital Management, Inc. in 1996 when
Principal Olympic Capital Management merged with Sirach Capital Management.
Before the merger, he was a Principal of Olympic Capital
Management where he had managed fixed-income portfolios for
institutional clients since 1982.
---------------------------------------------------------------------------------------------------------
John F. Dagres Mr. Dagres joined Sirach Capital Management, Inc. in 1996 when
Principal Olympic Capital Management merged with Sirach Capital Management.
Before the merger, he was a Principal of Olympic Capital Management
where he had managed fixed income portfolios for institutional
clients since 1982.
---------------------------------------------------------------------------------------------------------
Stephen J. Romano Mr. Romano joined Sirach Capital Management in 1991. Before that,
Principal he was a Senior Investment Officer at Seattle-First National Bank
where he managed equity and fixed income portfolios for private
banking clients..
---------------------------------------------------------------------------------------------------------
Larry J. Katz Mr. Katz joined Sirach Capital Management in 1996. Before that,
Principal he was a Senior Analyst at Frank Russell Company from 1994 until
1996, an independent consultant during 1993 and a Senior Portfolio
Manager at Puget Sound Savings Bank from 1984 through 1992.
</TABLE>
ADVISER'S HISTORICAL PERFORMANCE
The adviser manages separate accounts of equity securities and fixed-income
securities that have the same investment objectives as Sirach Equity
Portfolio and Sirach Bond Portfolio, respectively. The adviser manages
these accounts using techniques and strategies substantially similar,
though not always identical, to those used to manage the portfolios.
Composites of the performance of all of these separate accounts are listed
below. The performance data for the managed accounts reflects deductions
for all fees and expenses. Because separately managed accounts may have
different fees and expenses than the portfolios, their investment returns
may differ from those of the portfolios. All fees and expenses of the
separate accounts were less than the operating expenses of the portfolios.
If the performance of the managed accounts was adjusted to reflect fees and
expenses of the portfolios, the composites' performance would have been
lower.
The separately managed accounts are not subject to investment limitations,
diversification requirements, and other restrictions imposed by the
Investment Company Act of 1940 and the Internal Revenue Code. If they were,
their
18
<PAGE>
returns might have been lower. The performance of these separate accounts is
not intended to predict or suggest the performance of the Sirach Equity
Portfolio or Sirach Bond Portfolio.
Sirach Capital
Management --
Equity Composite* S&P 500 Index+
------------------------------------------------------------------------------
Calendar Years Ended:
------------------------------------------------------------------------------
1981
------------------------------------------------------------------------------
1982
------------------------------------------------------------------------------
1983
------------------------------------------------------------------------------
1984
------------------------------------------------------------------------------
1985
------------------------------------------------------------------------------
1986
------------------------------------------------------------------------------
1987
------------------------------------------------------------------------------
1988
------------------------------------------------------------------------------
1989
------------------------------------------------------------------------------
1990
------------------------------------------------------------------------------
1991
------------------------------------------------------------------------------
1992
------------------------------------------------------------------------------
1993
------------------------------------------------------------------------------
1994
------------------------------------------------------------------------------
1995
------------------------------------------------------------------------------
1996
------------------------------------------------------------------------------
1997
------------------------------------------------------------------------------
1998
------------------------------------------------------------------------------
Annualized Return For Various Periods Ended
12/31/98 (annualized)
1-year
------------------------------------------------------------------------------
5-years
------------------------------------------------------------------------------
10-years
------------------------------------------------------------------------------
Since inception (__/__/__)
------------------------------------------------------------------------------
Cumulative Since Inception (__/__/__)
* The adviser's performance results reflect a blending of 95% of the actual
return from the equity only portion of its equity composite with 5% of
the return from the Salomon Brothers 3-Month Treasury Bill rate. Results
are based on the actual performance of an asset weights composite of full
discretionary, non-restricted, unleveraged accounts.
+ The S&P 500 Index is an unmanaged index composite of 400 industrial, 40
financial, 40 utilities and 20 transportation stocks. It assumes that
dividends are reinvested and is generally considers representative of
large U.S. large capitalization stocks.
Sirach Capital
Management -- Lehman Brothers
Fixed Income Aggregate Bond
Composite* Index+
---------------------------------------------------------------------------
Calendar Years Ended:
---------------------------------------------------------------------------
1980 6.23% 2.70%
---------------------------------------------------------------------------
1981 13.27% 6.25%
---------------------------------------------------------------------------
1982 13.31% 32.62%
---------------------------------------------------------------------------
1983 6.63% 8.35%
---------------------------------------------------------------------------
1984 14.68% 15.15%
---------------------------------------------------------------------------
1985 21.21% 22.10%
---------------------------------------------------------------------------
1986 14.38% 15.26%
---------------------------------------------------------------------------
1987 3.20% 2.76%
---------------------------------------------------------------------------
1988 9.80% 7.89%
---------------------------------------------------------------------------
1989 13.94% 14.53%
---------------------------------------------------------------------------
19
<PAGE>
---------------------------------------------------------------------------
1990 7.62 % 8.96 %
---------------------------------------------------------------------------
1991 18.54 % 16.00 %
---------------------------------------------------------------------------
1992 8.13 % 7.40 %
---------------------------------------------------------------------------
1993 11.65 % 9.75 %
---------------------------------------------------------------------------
1994 (1.90)% (2.92)%
---------------------------------------------------------------------------
1995 18.71 % 18.47 %
---------------------------------------------------------------------------
1996 4.81 % 3.63 %
---------------------------------------------------------------------------
1997 9.90 % 9.65 %
---------------------------------------------------------------------------
1998
---------------------------------------------------------------------------
Annualized Return For Various Periods Ended
12/31/98 (annualized)
6 months
---------------------------------------------------------------------------
1-year
---------------------------------------------------------------------------
5-years
---------------------------------------------------------------------------
10-years
---------------------------------------------------------------------------
Since inception (1/1/80)
---------------------------------------------------------------------------
Cumulative Since Inception (1/1/80)
* The adviser's average annual management fee over the periods shown was
0.30%. During the period shown the adviser's individual account fees
ranged from 0.20% to 0.30%. Net returns to investors vary depending on
the management fee.
+ The Lehman Brothers Aggregate Bond Index is an unmanaged index, which
assumes that dividends are reinvested. The adviser considers it to be
representative of they types of in which the adviser invested for
purposes of its the composite number.
SHAREHOLDER SERVICING ARRANGEMENTS
SHAREHOLDER SERVICING
Certain financial intermediaries (service agents) may charge their clients
account fees for buying or redeeming shares of the UAM Funds. These fees
may include transaction fees and/or service fees paid by the UAM Funds from
their assets attributable to the service agent. The UAM Funds do not pay
these fees on shares purchased directly from UAM Fund Distributors. The
service agents may provide shareholder services to their clients that are
not available to a shareholder dealing directly with the UAM Funds. Each
service agent is responsible for transmitting to its clients a schedule of
any such fees and information regarding any additional or different
purchase or redemption conditions. You should consult your service agent
for information regarding these fees and conditions.
The adviser may pay its affiliated companies for referring investors to the
portfolio. The adviser and its affiliates may, at their own expense, pay
qualified service providers for marketing, shareholder servicing, record-
keeping and/or other services performed with respect to the portfolios.
UAM Fund Distributors, the adviser and certain of their other affiliates
also participate, as of the date of this prospectus, in an arrangement with
Salomon Smith Barney under which Salomon Smith Barney provides certain
defined contribution plan marketing and shareholder services and receives
0.15% of the portion of the daily net asset value of Institutional Class
Shares held by Salomon Smith Barney's eligible customer accounts in
addition to amounts payable to all selling dealers. The UAM Funds also
compensate Salomon Smith Barney for services it provides to certain defined
contribution plan
20
<PAGE>
shareholders that are not otherwise provided by the UAM Funds'
administrator.
The UAM Funds also offer Institutional Service Class shares, which pay
marketing or shareholder servicing fees, and Adviser Class shares, which
impose a sales load and fees for marketing and shareholder servicing, for
certain of its portfolios. Not all of the UAM Funds offer all of these
classes.
21
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
financial performance of each portfolio for the past five years. The
financial highlights table comes from the financial statements of the
portfolio and reflects the financial results for a single portfolio share.
The total returns in the table represent the rate that an investor would
have earned on an investment in the portfolio (assuming reinvestment of all
dividends and distributions). PricewaterhouseCoopers LLP has audited the
financial statements of the portfolio. The financial statements and the
unqualified opinion of PricewaterhouseCoopers, LLP are included in the
annual report of the portfolios, which is available upon request.
SIRACH GROWTH PORTFOLIO
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal Year Ended October 31, 1998 1997 1996 1995 1994+
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $14.01 $11.35 $9.66 $10.00
------------------------------------------------------------------------------------------------------
Income from Investment Operations 0.12 0.12 0.15 0.10
Net Investment Income
Net Gains or Losses on Securities
(Realized and Unrealized) 3.55 2.65 1.70 (0.36)
------------------------------------------------------------------------------------------------------
Total From Investment
Operations 3.67 2.77 1.85 (0.26)
------------------------------------------------------------------------------------------------------
Less Distributions
Net Investment Income (0.13) (0.11) (0.16) (0.08)
Capital Gains (2.11) -- -- --
Returns of Capital
------------------------------------------------------------------------------------------------------
Total Distributions (2.24) (0.11) (0.16) (0.08)
------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $15.44 $14.01 $11.35 $9.66
------------------------------------------------------------------------------------------------------
Total Return 30.86% 24.52% 19.33% (2.58)%#
------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Year
(Thousands) $132,530 $128,982 $114,787 $80,944
Ratio of Expenses to Average Net
Assets 0.90% 0.87% 0.86% 0.92%*
Ratio of Net Investment Income to Average
Net Assets 0.84% 0.97% 1.48% 1.13%*
Portfolio Turnover Rate 138% 151% 119% 141%
Ratio of Expenses to Average Net
Assets Including Expense 0.90% 0.86% 0.84% --
Offsets
</TABLE>
+ For the period December 1, 1993 (commencement of operations) to October
31, 1993.
* Annualized
# Not annualized
22
<PAGE>
<TABLE>
<CAPTION>
SIRACH SPECIAL EQUITY PORTFOLIO
- ----------------------------------------------------------------------------------------------------------
Fiscal Year Ended October 31, 1998 1997 1996 1995 1994
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $17.98 $18.80 $16.10 $19.10
---------------------------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income (0.09) (0.06) 0.11 0.04
Net Gains or Losses on
Securities (Realized
and Unrealized) 0.98 3.51 3.65 (0.90)
---------------------------------------------------------------------------------------------------
Total From Investment
Operations 0.89 3.45 3.76 (0.86)
---------------------------------------------------------------------------------------------------
Less Distributions
Net Investment Income - (0.03) (0.11) (0.02)
Capital Gains (3.92) (4.24) (0.95) (2.12)
---------------------------------------------------------------------------------------------------
Total Distributions (3.92) (4.27) (1.06) (2.14)
---------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $14.95 $17.98 $18.80 $16.10
===================================================================================================
Total Return** 8.11% 23.62% 25.31% (4.68)%
===================================================================================================
Ratios/Supplemental Data
Net Assets, End of Year
(Thousands) $368,430 $441,326 $498,026 $513,468
Ratio of Expenses to
Average Net Assets 0.89% 0.87% 0.85% 0.88%
Ratio of Net Investment Income to
Average Net Assets (0.53) (0.29)% (0.64) 0.27%
Portfolio Turnover Rate 114% 129% 137% 107%
Ratio of Expenses to
Average Net Assets
Including Expense Offsets 0.89% 0.87% 0.85% -
SIRACH STRATEGIC BALANCED PORTFOLIO
- ----------------------------------------------------------------------------------------------------------
Fiscal Year Ended October 31, 1998 1997 1996 1995 1994+
---------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $11.99 $ 10.75 $9.35 $10.00
---------------------------------------------------------------------------------------------------
Income from Investment Operations 0.37 0.36 0.36 0.27
Net Investment Income
Net Gains or Losses on Securities
(Realized and Unrealized) 1.81 1.24 1.39 (0.69)
---------------------------------------------------------------------------------------------------
Total From Investment Operations 2.18 1.60 1.75 (0.42)
---------------------------------------------------------------------------------------------------
Less Distributions
Net Investment Income (0.37) (0.36) (0.35) (0.23)
Capital Gains (1.36) - - -
---------------------------------------------------------------------------------------------------
Total Distributions (1.73) (0.36) (0.35) (0.23)
---------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $12.44 $ 11.99 $ 10.75 $9.35
===================================================================================================
Total Return 20.78% 15.13% 19.10% (4.19)%#
===================================================================================================
Ratios/Supplemental Data
Net Assets, End of Year
(Thousands) $86,204 $ 83,430 $95,834 $ 99,564
Ratio of Expenses to Average
Net Assets 0.97% 0.93% 0.87% 0.90%*
Ratio of Net Investment Income to
Average Net Assets 3.06% 3.04% 3.49% 3.05%*
Portfolio Turnover Rate 128% 172% 158% 158%
Ratio of Expenses to
Average Net Assets
Including Expense Offsets 0.97% 0.92% 0.86% -
</TABLE>
+ For the period December 1, 1993 (commencement of operations) to
October 31, 1994.
** Total return would have been lower had certain fees not been waived
and expenses assumed by the adviser during the periods indicated.
* Annualized
# Not annualized
<PAGE>
<TABLE>
<CAPTION>
SIRACH EQUITY PORTFOLIO
- ------------------------------------------------------------------------------
Fiscal Year Ended October 31, 1998 1997 1996+
------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Year $ 10.97 $ 10.00
------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 0.03 0.01
Net Gains or Losses on Securities (Realized
and Unrealized) 3.06 0.97
------------------------------------------------------------------------------
Total From Investment Operations 3.09 0.98
------------------------------------------------------------------------------
Less Distributions
Net Investment Income (0.02) (0.01)
Capital Gains (0.06) --
Total Distributions (0.08) (0.01)
------------------------------------------------------------------------------
Net Asset Value, End of Year $ 13.98 $ 10.97
------------------------------------------------------------------------------
Total Return** 28.34% 9.80%#
==============================================================================
Ratios/Supplemental Data
Net Assets, End of Year (Thousands) $26,169 $ 6,410
Ratio of Expenses to Average Net Asset 0.90% 1.03%*
Ratio of Net Investment Income to Average Net Assets 0.30% 0.39*
Portfolio Turnover Rate 89% 34%
Ratio of Voluntarily Waived Fees and Expenses Assumed
by the Adviser to Average Net Assets 0.53% 4.15%
Ratio of Expenses to Average Net Assets
Including Expense Offsets 0.90% 0.90%
</TABLE>
+ For the period July 1, 1996 (commencement of operations) to October
31, 1996.
** Total return would have been lower had certain fees not been waived
and expenses assumed by the adviser during the periods indicated.
* Annualized
# Not annualized
24
<PAGE>
THE SIRACH PORTFOLIOS
For investors who want more information about the Sirach Portfolios, the
following documents are available upon request.
ANNUAL/SEMI-ANNUAL REPORTS
The annual and semi-annual reports of the Sirach Portfolios provide additional
information about their investments. In each annual report, you will also
find a discussion of the market conditions and investment strategies that
significantly affected the performance of the Sirach Portfolios during the
last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains additional detailed information about the Sirach Portfolios
and is incorporated by reference into (legally part of) this prospectus.
Investors can receive free copies of these materials, request other
information about the portfolios and make shareholder inquiries by writing to
or calling:
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
You can review, for a fee, the reports of the portfolio and SAI by writing to
the SEC's Public Reference Section, Washington, D.C. 20459-6009, or by calling
the SEC at 1-800-SEC-0330. You can get free copies of this information on the
SEC's Internet site at http://www.sec.gov.
------------------
The portfolio's Investment Company Act of 1940 file is 811-5683.
[LOGO]
<PAGE>
UAM FUNDS
Funds for the Informed Investor
THE SIRACH PORTFOLIOS
Institutional Service Class Prospectus , 199_
Sirch Growth Portfolio
Sirch Special Equity Portfolio
Sirch Strategic Balanced Portfolio
Sirch Equity Portfolio
Sirch Bond Portfolio
[LOGO]
The Securities and Exchange Commission has nor approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any represenation to
the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PORTFOLIO SUMMARY................................................. 1
What are the Objectives of the Portfolios?....................... 1
What are the Principal Investment Strategies of the Portfolios?.. 1
What are the Principal Risks of the Portfolio.................... 2
How have the Portfolios Performed?............................... 3
What are the Portfolios' Fees and Expenses?...................... 5
INVESTING WITH THE UAM FUNDS...................................... 7
Buying Shares.................................................... 7
Redeeming Shares................................................. 8
Exchanging Shares................................................ 8
Transaction Policies8
ACCOUNT POLICIES.................................................. 11
Small Accounts................................................... 11
Distributions.................................................... 11
Federal Taxes.................................................... 11
FUND DETAILS...................................................... 13
Principal Investments and Risks of The Portfolios................ 13
Other Investment Practices and Strategies........................ 15
Year 2000........................................................ 16
Investment Management............................................ 17
Shareholder Servicing Arrangements............................... 20
FINANCIAL HIGHLIGHTS.............................................. 22
Sirach Growth Portfolio.......................................... 22
Sirach Special EquityPortfolio................................... 23
Sirach Srategic Balanced Portfolio............................... 23
</TABLE>
<PAGE>
PORTFOLIO SUMMARY
WHAT ARE THE OBJECTIVES OF THE PORTFOLIOS?
- --------------------------------------------------------------------------------
Listed below are the investment objectives of the Sirach Portfolios. The
Sirach Portfolios cannot guarantee they will meet their investment objectives.
A portfolio may not change its investment objective without shareholder
approval.
SIRACH GROWTH PORTFOLIO
Sirach Growth Portfolio seeks to provide long-term capital growth, consistent
with reasonable risk to principal, by investing primarily in common stocks of
companies that offer long-term growth potential.
SIRACH EQUITY PORTFOLIO
Sirach Equity Portfolio seeks to provide long-term capital growth, consistent
with reasonable risk to principal, by investing, under normal circumstances,
at least 90% of its total assets in common stocks of companies that offer
long-term growth potential.
SIRACH STRATEGIC BALANCED PORTFOLIO
Sirach Strategic Balanced Portfolio seeks to provide long-term capital growth,
consistent with reasonable risk to principal, by investing in a diversified
portfolio of common stocks and fixed income securities.
SIRACH SPECIAL EQUITY PORTFOLIO
Sirach Special Equity Portfolio seeks to provide maximum long-term growth of
capital, consistent with reasonable risk to principal, by investing in small
to medium capitalized companies with particularly attractive financial
characteristics.
SIRACH BOND PORTFOLIO
Sirach Bond Portfolio seeks to achieve above-average total return, consistent
with reasonable risk to principal, by investing primarily in dollar-
denominated, investment-grade fixed-income securities.
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE PORTFOLIOS?
- --------------------------------------------------------------------------------
The following is a brief description of the principal investment strategies of
the Sirach Portfolios. For more information see "PRINCIPAL INVESTMENTS AND
RISKS OF THE PORTFOLIOS."
SIRACH GROWTH, EQUITY AND SPECIAL EQUITY PORTFOLIOS
The adviser believes that Sirach Growth, Equity and Special Equity Portfolios
1
<PAGE>
can achieve their goals by investing in securities of companies that rank high
on its proprietary ranking system. Sirach Growth and Equity Portfolios invest
in companies of all sizes. Sirach Special Equity Portfolio invests primarily
in companies that have market capitalizations of $100 million to $4 billion.
SIRACH BOND PORTFOLIO
Sirach Bond Portfolio normally invests at least 75% of its total assets in a
diversified mix of dollar-denominated, investment-grade debt securities. The
adviser will adjust the maturity and/or duration of the portfolio based on its
assessment of current economic conditions and trends and monetary and fiscal
policies. Over the complete economic cycle, the weighted maturity of the
portfolio is expected to range from eight and twelve years and its duration
will range from four to six years. In selecting securities for the portfolio,
the adviser tries to:
. Emphasize relative values within selected maturity ranges.
. Take advantage of relative values and interest rate spreads among the
various credit qualities, issue types and coupons.
. Emphasize the marketability of individual issues and diversification within
the portfolio.
SIRACH STRATEGIC BALANCED PORTFOLIO
The adviser manages Sirach Strategic Balanced Portfolio to take advantage of
its equity and debt strategies. The portfolio typically invests approximately
40-45% of its assets in investment-grade debt securities and 55-60% in equity
securities.
WHAT ARE THE PRINCIPAL RISKS OF THE PORTFOLIO
- --------------------------------------------------------------------------------
The following is a summary of the principal risks associated with investing in
the portfolios. For more information see "PRINCIPAL INVESTMENTS AND RISKS OF
THE PORTFOLIOS."
RISKS COMMON TO ALL MUTUAL FUNDS
At any time, your investment in a mutual fund may be worth more or less than
the price you originally paid for it. You may lose money by investing in any
mutual fund because:
. The value of the securities it owns changes, sometimes rapidly and
unpredictably.
. The mutual fund is not successful in reaching its goal because of its
strategy or because it did not implement its strategy properly.
. Unforeseen occurrences in the securities markets negatively affect the
mutual fund.
2
<PAGE>
SIRACH GROWTH, EQUITY AND SPECIAL EQUITY PORTFOLIOS
Since the portfolios invest mainly in equity securities, their principal are
those of investing in equity securities, which may include sudden,
unpredictable drops in value or long periods of decline in value. Equity
securities may lose value because of factors affecting the securities markets
generally, an entire industry or a particular company.
Because Sirach Growth and Equity Portfolios are growth oriented, they may not
perform as well as other types of mutual funds when growth investing is out of
favor. The values of growth stocks may be more sensitive to changes in
current or expected earnings than the values of other stocks.
Investors in Sirach Special Equity Portfolio take on additional risks that
come with investing in stocks of smaller companies, which can be riskier than
investing in larger, more mature companies. Smaller companies may be more
vulnerable to adverse developments than larger companies because they tend to
have more narrow product lines and more limited financial resources. Their
stocks may trade less frequently and in limited volume.
SIRACH BOND PORTFOLIO
Since the portfolio invests in debt securities, the value of its investments
could fall because:
. Of market conditions and economic and political events.
. Interest rates rise, which tends to cause the value of debt securities to
fall.
. A security's credit rating worsens or its issuer becomes unable to honor
its financial obligations.
SIRACH STRATEGIC BALANCED PORTFOLIO
To the extent Sirach Strategic Balanced Portfolio invests in equity and debt
securities, its shareholders will take on the risks that come with investing
in those types of securities. Investors also run the risk that the portfolio
will be more heavily invested in one type of security when it would be better
to invest in the other type of security.
HOW HAVE THE PORTFOLIOS PERFORMED?
- --------------------------------------------------------------------------------
The bar charts and tables below illustrate how the performance of the
portfolios has varied from year to year. The following bar charts show the
investment returns of each portfolio since its inception. The table following
each bar chart compares each portfolio's average annual returns for the
periods indicated to those of a broad-based securities market index. Past
performance does not guarantee future results.
3
<PAGE>
SIRACH GROWTH PORTFOLIO
[GRAPHIC APPEARS HERE]
*From the portfolio's inception (3/22/96) through 12/31/96.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_)
<TABLE>
<CAPTION>
Since
Average annual return for periods ended 12/31/98 1 Year 5 Years Inception
==================================================================================
<S> <C> <C> <C>
Sirach Growth Portfolio
-----------------------------------------------------------------------------------
S&P 500 Index
</TABLE>
SIRACH STRATEGIC BALANCED PORTFOLIO
[GRAPHIC APPEARS HERE]
*From the portfolio's inception (3/7/97) through 12/31/97.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_)
<TABLE>
<CAPTION>
Since
Average annual return for periods ended 12/31/98 1 Year 5 Years Inception
======================================================================================
<S> <C> <C> <C>
Sirach Strategic Balanced Portfolio
------------------------------------------------------------------------------------------
S&P 500 Index
------------------------------------------------------------------------------------------
Lehman Brothers Government/Corporate Index
</TABLE>
SIRACH EQUITY PORTFOLIO
[Bar chart to be inserted here for calendar year ended 1998.]
The information in the bar chart above and the table below provides some
indication of the risks of investing in the portfolio by comparing its
performance with a broad measure of market performance.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_)
<TABLE>
<CAPTION>
Average annual return for periods ended 12/31/98 1 Year
====================================================================
<S> <C>
Sirach Equity Portfolio
--------------------------------------------------------------------
</TABLE>
4
<PAGE>
S&P 500 Index
SIRACH SPECIAL EQUITY PORTFOLIO
[GRAPHIC APPEARS HERE]
*From the portfolio's inception (3/22/96) through 12/31/96.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_).
<TABLE>
<CAPTION>
Average annual return for periods ended 12/31/98 1 Year
=====================================================================
<S> <C>
Sirach Special Equity Portfolio
---------------------------------------------------------------------
S&P Midcap 400 Index
</TABLE>
SIRACH BOND PORTFOLIO
[GRAPHIC APPEARS HERE]
*From the portfolio's inception (11/7/97) through 12/31/97.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_).
<TABLE>
<CAPTION>
Average annual return for periods ended 12/31/98 1 Year
=====================================================================
<S> <C>
Sirach Bond Portfolio
---------------------------------------------------------------------
Lehman Brothers Government/Corporate Index
</TABLE>
WHAT ARE THE PORTFOLIOS' FEES AND EXPENSES?
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM THE ASSETS OF A
PORTFOLIO)
This table describes the fees and expenses that you may pay if you buy and
hold shares of a portfolio. This table is presented in the format required by
the Securities and Exchange Commission (SEC) and may not reflect the actual
expenses you would have paid as a shareholder in the portfolios.
5
<PAGE>
<TABLE>
<CAPTION>
Sirach Sirach
Sirach Special Strategic Sirach
Growth Equity Balanced Equity Sirach Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Management fees
--------------------------------------------------------------------------------------------------------------------
Service (12b-1) Fees 0.25% 0.25% 0.25% 0.25% 0.25%
--------------------------------------------------------------------------------------------------------------------
Other Expenses
--------------------------------------------------------------------------------------------------------------------
Total Expenses
====================================================================================================================
</TABLE>
ACTUAL FEES AND EXPENSES
The ratios stated in the table are higher than the expenses you would have
actually paid as an investor in these portfolios. Due to certain expense
limits by the adviser and expense offsets, investors in the portfolios
actually paid the following total operating expenses during the fiscal year
ended October 31, 1998:
<TABLE>
<CAPTION>
Sirach Sirach
Sirach Special Strategic
Growth Equity Balanced Sirach Equity Sirach Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
====================================================================================================================
<S> <C> <C> <C> <C> <C>
Actual Expenses
====================================================================================================================
</TABLE>
EXAMPLE
This example can help you to compare the cost of investing in these portfolios
to the cost of investing in other mutual funds. It assumes that you invest
$10,000 in a portfolio for the periods shown and then redeem all of your
shares at the end of those periods. It also assumes a 5% return on your
investment each year and that the portfolio's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
Sirach Sirach
Sirach Special Strategic Sirach Sirach
Growth Equity Balanced Equity Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year
--------------------------------------------------------------------------------------------
3 Years
--------------------------------------------------------------------------------------------
5 Years
--------------------------------------------------------------------------------------------
10 Years
</TABLE>
6
<PAGE>
INVESTING WITH THE UAM FUNDS
BUYING SHARES
- -----------------------------------------------------------------
TO OPEN AN ACCOUNT TO BUY MORE SHARES
---------------------------------------------------------------
By Mail Send a check or Send a check and, if
money order and possible, the "Invest
your account by Mail" stub that
application to the accompanied your
UAM Funds. Make statement to the UAM
checks payable to Funds. Be sure your
"UAM Funds" (the check identifies
UAM Funds will not clearly your name,
accept third-party account number and the
checks). portfolio into which
you want to invest.
---------------------------------------------------------------
By Wire Call the UAM Funds Call the UAM Funds to
for an account get a wire control
number and wire number and wire your
control number and money to the UAM Funds.
then send your
completed account
application to the
UAM Funds.
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: portfolio
name/account number/
account name/wire
control number
---------------------------------------------------------------
By Automatic Not Available To set up a plan, mail
Investment Plan a completed application
(Via ACH) to the UAM Funds. To
cancel or change a
plan, write to the UAM
Funds. Allow up to 15
days to create the plan
and 3 days to cancel or
change it.
---------------------------------------------------------------
Minimum $2,500, except $100
Investments IRAs ($500) and
spousal IRAs ($250)
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
7
<PAGE>
REDEEMING SHARES
- ------------------------------------------------------------------
By Mail Send a letter signed by all registered
parties on the account to UAM Funds
specifying the portfolio, the account
number and the dollar amount or number of
shares you wish to redeem. Certain
shareholders may have to include additional
documents.
-----------------------------------------------------------------
By Telephone You must first establish the telephone
redemption privilege (and, if desired, the
wire redemption privilege) by completing
the appropriate sections of the account
application.
Call 1-877-UAM-Link to redeem your shares.
Based on your instructions, the UAM Funds
will mail your proceeds to you or wire them
to your bank.
------------------------------------------------------------
By If your account balance is at least
Systematic $10,000, you may transfer as little as $100
Withdrawal per month from your UAM account to your
Plan (Via financial institution.
ACH) To participate in this service, you must
complete the appropriate sections of the
account application and mail it to the UAM
Funds.
EXCHANGE SHARES
- --------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the same
class of any other UAM Fund by writing to or calling the UAM Funds. Before
exchanging your shares, read the prospectus of the UAM Fund for which you want
to exchange, which you may obtain from the UAM Funds. You may not exchange
shares represented by certificates over the telephone. You may only exchange
shares between accounts with identical registrations (i.e., the same names and
addresses).
TRANSACTION POLICIES
- --------------------------------------------------------------------------------
CALCULATING YOUR SHARE PRICE
You may buy, sell or exchange shares of a UAM Fund at a price equal to its net
asset value (NAV) next computed after it receives your order. The portfolios
calculate their NAVs as of the close of trading on the New York Stock Exchange
(NYSE) (generally 4:00 p.m. Eastern Time) on each day the NYSE is open.
Therefore, to receive the NAV on any given day, the UAM Funds must accept your
order by the close of trading on the NYSE that day. Otherwise, you will
receive the NAV that is calculated on the close of trading on the following
day. The UAM Funds are open for business on the same days as the NYSE, which
is closed on weekends and certain holidays.
8
<PAGE>
BUYING OR SELLING SHARES THROUGH A FINANCIAL INTERMEDIARY
You may buy, exchange or redeem shares of the UAM Funds through a financial
intermediary (such as a financial planner or adviser). Generally, to buy or
sell shares at the NAV on any given day, your financial intermediary must
receive your order by the close of trading on the NYSE that day. Your
financial intermediary is responsible for transmitting all subscription and
redemption requests, investment information, documentation and money to the
UAM Funds on time.
Certain financial intermediaries have agreements with the UAM Funds that allow
them to enter confirmed purchase or redemption orders on behalf of clients and
customers. Under this arrangement, the financial intermediary must send your
payment to the UAM Funds by the time they price their shares on the following
day. If your financial intermediary fails to do so, it may be responsible for
any resulting fees or losses.
CALCULATING NAV
The UAM Funds calculate their NAV by adding the total value of their assets,
subtracting their liabilities and then dividing the result by the number of
shares outstanding. The UAM Funds value their investments with readily
available market quotations at market value. Investments that do not have
readily available market quotations are valued at fair value, according to
guidelines established by the UAM Funds. The UAM Funds may also value
securities at fair value when events occur that make established valuation
methods (such as stock exchange closing prices) unreliable. The UAM Funds
value debt securities that will mature in 60 days or less amortized cost,
which approximates market value.
IN-KIND TRANSACTIONS
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares of a portfolio with securities instead of cash. In addition, the UAM
Funds may pay all or part of your redemption proceeds with securities instead
of cash.
PAYMENT OF REDEMPTION PROCEEDS
The UAM Funds will pay for all shares redeemed within seven days after they
receive a redemption request in proper order. If you redeem shares that were
purchased by check, you will not receive your redemption proceeds until the
check has cleared, which may take up to 15 days. You may avoid these delays
by paying for shares with a certified check, bank check or money order.
SIGNATURE GUARANTEE
You must have your signature guaranteed when (1) you want the proceeds from
your redemption sent to a person or address different from that registered on
the account, or (2) you request a transfer of your shares.
9
<PAGE>
You may obtain a signature guarantee from most banks, savings institutions,
securities dealers, national securities exchanges, registered securities
associations, clearing agencies and other guarantor institutions. A notary
public cannot guarantee a signature.
TELEPHONE TRANSACTIONS
The UAM Funds will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine; they may be liable for any losses if
they fail to do so. The UAM Funds will be responsible for any loss, liability,
cost or expense for following instructions received by telephone that it
reasonably believes to be genuine.
RIGHTS RESERVED BY THE UAM FUNDS
Purchases
At any time and without notice, the UAM Funds may:
. Stop offering shares of a portfolio.
. Reject any purchase order.
. Bar an investor engaged in a pattern of excessive trading from buying
shares of any portfolio. (Excessive trading can hurt the performance of a
portfolio by disrupting its management and by increasing its expenses.)
Redemptions
The UAM Funds may suspend your right to redeem if:
. An emergency exists and a portfolio cannot dispose of its investments or
fairly determine their value.
. Trading on the NYSE is restricted.
. The SEC tells the UAM Funds to delay redemptions.
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail.
Exchanges
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders.
. Reject any request for an exchange.
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
10
<PAGE>
ACCOUNT POLICIES
SMALL ACCOUNTS
- --------------------------------------------------------------------------------
The UAM Funds may redeem your shares without your permission if the value of
your account falls below 50% of the required minimum initial investment, but
not because of a drop in the value of your shares caused by market
fluctuations. This provision does not apply to retirement accounts and certain
other accounts.
DISTRIBUTIONS
- --------------------------------------------------------------------------------
Normally, the portfolios distribute their net investment income quarterly. In
addition, they distribute any net capital gains once a year. The UAM Funds
will automatically reinvest dividends and distributions in additional shares
of the portfolio, unless you elect on your account application to receive them
in cash.
FEDERAL TAXES
- --------------------------------------------------------------------------------
The following is a summary of the federal income tax consequences of investing
in the UAM Funds. You may also have to pay state and local taxes on your
investment. You should always consult your tax advisor for specific guidance
regarding the tax effect of your investment in the UAM Funds.
TAXES ON DISTRIBUTIONS
The distributions of the portfolios will generally be taxable to shareholders
as ordinary income or capital gains (which may be taxable at different rates
depending on the length of time the portfolio held the relevant assets). You
will be subject to income tax on these distributions regardless of whether
they are paid in cash or reinvested in additional shares. Once a year UAM
Funds will send you a statement showing the types and total amount of
distributions you received during the previous year.
You should note that if you purchase shares just before a distribution, the
purchase price would reflect the amount of the upcoming distribution. In this
case, you would be taxed on the entire amount of the distribution received,
even though, as an economic matter, the distribution simply constitutes a
return of your investment. This is known as "buying into a dividend" and
should be avoided.
TAXES ON EXCHANGES AND REDEMPTIONS
When you redeem or exchange shares in any portfolio, you may recognize a gain
or loss for income tax purposes. This gain or loss will be based on the
difference between your tax basis in the shares and the amount you receive for
them. (To aid in computing your tax basis, you generally should retain your
11
<PAGE>
account statements for the periods during which you held shares.) Any loss
realized on shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividends that were received
with respect to the shares.
The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other tax-
qualified plan) will not be currently taxable, but they may be taxable at some
time in the future.
BACKUP WITHHOLDING
By law, the UAM Funds must withhold 31% of your distributions and proceeds if
you have not provided complete, correct taxpayer information.
12
<PAGE>
FUND DETAILS
PRINCIPAL INVESTMENTS AND RISKS OF THE PORTFOLIOS
- --------------------------------------------------------------------------------
The following is a brief description of the principal investment strategies
the Sirach Portfolios may employ in seeking their objectives. This discussion
is in addition to the discussion set forth in the "PORTFOLIO SUMMARY." For
more information concerning these investment practices and their associated
risks, please read the "PORTFOLIO SUMMARY" and the statement of additional
information (SAI). You can also find information on each portfolio's recent
strategies and holdings in the current annual/semiannual report. The portfolio
may change these strategies without shareholder approval.
SIRACH GROWTH, EQUITY AND SPECIAL EQUITY PORTFOLIOS
Sirach Growth and Equity Portfolios invest in companies of all sizes. Sirach
Special Equity Portfolio invests primarily in companies that have market
capitalizations of $100 million to $4 billion. Each portfolio may invest in
common stocks, preferred stocks, securities convertible or exchangeable into
common stock and rights or warrants to purchase common stocks.
The adviser invests the assets of the portfolio in equity securities of
companies that rank high on its proprietary ranking system. The adviser's
system ranks securities according to decile using historical earnings growth
and consistency, earnings acceleration, prospective earnings "surprise"
probabilities, relative price strength and valuation. The adviser further
narrows the list of potential investments using traditional fundamental
security analysis, focusing particular attention on identifying the factors
influencing earnings, understanding competitive advantages and examining
earnings. The adviser believes that companies that have ranked highly
according to its analysis are likely to provide superior rates of return over
an extended period relative to the stock market in general.
RISKS OF INVESTING IN EQUITY SECURITIES
Equity securities may lose value because of factors affecting the securities
markets generally, such as adverse changes in economic conditions, the general
outlook for corporate earnings, interest rates or investor sentiment. These
circumstances may lead to long periods of poor performance, such as during a
"bear market." Equity securities may also lose value because of factors
affecting an entire industry, such as increases in production costs, or
factors directly related to that company, such as decisions made by its
management.
The Sirach Growth and Equity Portfolios may invest in growth stocks, which are
stocks of companies that the adviser believes have earnings that will grow
relatively rapidly. These growth stocks typically trade at higher multiples of
13
<PAGE>
current earnings than other stocks. Therefore, the values of growth stocks may
be more sensitive to changes in current or expected earnings than the values
of other stocks.
SIRACH BOND PORTFOLIO
Sirach Bond Portfolio normally invests at least 75% of its total assets in a
diversified mix of dollar-denominated, investment-grade debt securities. Debt
securities are securities issued by the U.S. government and its agencies,
corporate debt securities, mortgage-backed and asset-backed securities, Yankee
bonds, commercial paper and certificates of deposit. These securities may
have varying interest rate schedules and maturities (dates when debt
securities are due and payable). Asset-backed and mortgage-backed securities
are securities that are backed by pools of loans or mortgages assembled for
sale to investors by various governmental agencies and private issuers.
Mortgage-backed securities may generally take two forms: pass-throughs and
collateralized mortgage obligations (CMOs).
The adviser believes that preserving principal in periods of rising interest
rates should lead to above-average returns over the long run. The adviser
seeks to reduce negative changes in NAV by adjusting the average maturity
and/or duration (a measure of the investment life of a security) of the
portfolio based on its assessment of current economic conditions and trends,
the Federal Reserve Board's management of monetary policy, fiscal policy,
inflation expectations, government and private credit demands and global
conditions. Ordinarily, the weighted average maturity of the portfolio will
range between eight and twelve years and its weighted average duration will
range between four and six years.
In addition, the adviser tries to emphasize (1) relative values and interest
rate spreads within selected maturity ranges, credit qualities and coupons,
and (2) the marketability of individual issues and diversification within the
portfolio.
Risks of Investing in Debt Securities
The value of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up the value of the bond will go
down, and vice versa). Interest rate changes may cause people to pay off
mortgage-backed and asset-backed securities earlier or later than expected,
which may shorten or lengthen the average maturity. Variations to average
maturity may cause the portfolio's share price and yield to fall.
The credit rating or financial condition of an issuer may affect the value of
a debt security. Generally, the lower the quality rating of a security, the
greater the risks that the issuer will fail to pay interest and return
principal. To compensate investors for taking on increased risk, issuers with
lower credit ratings usually offer their investors higher interest rates. If
an issuer defaults or becomes unable to honor its financial obligations, the
bond may lose some or all of its value.
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and
14
<PAGE>
repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade. The adviser may retain securities that are downgraded, if it
believes that keeping those securities is warranted.
SIRACH STRATEGIC BALANCED PORTFOLIO
The adviser manages Sirach Strategic Balanced Portfolio to take advantage of
its equity and debt strategies. The portfolio may invest in a combination of
stocks, bonds and short-term cash equivalents. Normally, the portfolio will
invest 25% to 50% of its assets in fixed-income securities and 35% to 70% of
its assets in equity securities. While the adviser can vary the composition of
the portfolio within those ranges, it will typically invest approximately 55-
60% of the portfolio's assets in equity securities and 40-45% in debt
securities. The portfolio will invest at least 25% of its total assets in
senior debt securities, including preferred stock.
OTHER INVESTMENT PRACTICES AND STRATEGIES
- --------------------------------------------------------------------------------
As described below, the portfolios may invest in derivatives and foreign
securities and may deviate from its investment strategy from time to time. In
addition, the portfolios may employ investment practices that are not
described in this prospectus, such as repurchase agreements, when-issued and
forward commitment transactions, lending of securities, borrowing and other
techniques. For more information concerning the risks associated with these
investment practices, you should read the SAI.
FOREIGN INVESTMENTS
Each portfolio may invest up to 20% of its assets in American Depositary
Receipts (ADRs). ADRs are certificates evidencing ownership of shares of a
foreign issuer that are issued by depository banks and generally trade on an
established market in the United States or elsewhere. Although they are
alternatives to directly purchasing the underlying foreign securities in their
national markets and currencies, ADRs continue to be subject to many of the
risks associated with investing directly in foreign securities.
Foreign securities, especially those of companies in emerging markets, can be
riskier and more volatile than domestic securities. Adverse political and
economic developments or changes in the value of foreign currency can make it
harder for a portfolio to sell its securities and could reduce the value of
your shares. Changes in tax and accounting standards and difficulties
obtaining information about foreign companies can negatively affect investment
decisions.
In January 1999, certain European nations will begin to use the new European
common currency, called the Euro. The nations that use the Euro will have the
same monetary policy regardless of their domestic economy, which could have
adverse effects on those economies. In addition, the method
15
<PAGE>
by which the conversion to the Euro is implemented could negatively affect the
investments of a portfolio.
DERIVATIVES
Sirach Bond and Strategic Balanced Portfolios may buy and sell futures and
options. Derivatives are often more volatile than other investments and may
magnify a portfolio's gains or losses. A portfolio may lose money if the
adviser:
. Fails to predict correctly the direction in which the underlying asset or
economic factor will move.
. Judges market conditions incorrectly.
. Employs a strategy that does not correlate well with the investments of the
portfolio.
SHORT-TERM INVESTING
At times, the adviser may decide to suspend the normal investment activities
of a portfolio by investing up to 100% of its assets in a variety of
securities, such as U.S. government and other high quality and short-term debt
obligations. The adviser may temporarily adopt a defensive position to reduce
changes in the value of a portfolio's shares that may result from adverse
market, economic, political or other developments.
When the adviser pursues a defensive strategy, a portfolio may not profit from
favorable developments that it would have otherwise profited from if it were
pursuing its normal strategies. Likewise, these strategies may prevent a
portfolio from achieving its stated objectives.
PORTFOLIO TURNOVER
The portfolios may buy and sell investments relatively often. Such a strategy
often involves higher expenses, including brokerage commissions, and may
increase the amount of capital gains (and, in particular, short-term gains)
realized by a portfolio. Shareholders must pay tax on such capital gains.
YEAR 2000
- --------------------------------------------------------------------------------
Many computer programs in use today cannot distinguish the year 2000 from the
year 1900 because of the way they encode and calculate dates. Consequently,
these programs may not be able to perform necessary functions and could
disrupt the operations of the UAM Funds or financial markets in general. The
year 2000 issue affects all companies and organizations, including those that
provide services to the UAM Funds and those in which the UAM Funds invest.
The UAM Funds and their advisers, administrator, distributor and transfer
agent are taking steps they believe are reasonably necessary to address any
portfolio-related year 2000-related computer problems. They are actively
working on necessary changes to their own computer systems to prepare for the
year 2000 and expect that their systems will be adapted before that date.
16
<PAGE>
They are also requesting information on each service provider's state of
readiness and contingency plan. However, at this time the degree to which the
year 2000 issue will affect the UAM Funds' investments or operations cannot be
predicted. Any negative consequences could adversely affect your investment in
the UAM Funds.
INVESTMENT MANAGEMENT
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Sirach Capital Management, Inc., located at 3323 One Union Square, Seattle,
Washington 98101, is the investment adviser to each of the portfolios. The
adviser manages and supervises the investment of each portfolio's assets on a
discretionary basis. The adviser, an affiliate of United Asset Management
Corporation, has provided investment management services to corporations,
pension and profit sharing plans, 401(k) and thrift plans, trusts, estates and
other institutions and individuals since 1970.
The adviser has voluntarily agreed to limit the expenses of these portfolios.
To maintain this expense limit, the adviser may waive a portion of its
advisory fee and/or reimburse certain expenses of the portfolios. The adviser
intends to continue its expense limitation until further notice. Set forth
below are the expense limits of the portfolios and the amounts they paid to
the adviser during the fiscal year ended October 31, 1998, both of which are
expressed as a percentage of average net assets.
<TABLE>
<CAPTION>
Sirach Sirach
Sirach Special Strategic Sirach Sirach
Growth Equity Balanced Equity Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Management fees
-------------------------------------------------------------------------------------------------
Expenses Limit
</TABLE>
For more information on Sirach Capital Management's investment services please
call (206) 624-3800.
PORTFOLIO MANAGERS
Teams of investment professionals are primarily responsible for the day-to-day
management of the portfolios. Listed below are the investment professionals
that comprise those teams and a description of their business experience
during the past five years.
<TABLE>
<CAPTION>
Manager/Title With Adviser Experience
----------------------------------------------------------------------------------------------------------
<S> <C>
Sirach Equity Management Team manages Sirach Growth and Equity Portfolios and the equity portion of
Sirach Strategic Balanced Portfolios.
Harvey G. Bateman Mr. Bateman joined Sirach Capital Management in 1988, where he has
Principal managed equity accounts since 1989.
-----------------------------------------------------------------------------------------------------------
Sharon Rowley, CFA Ms. Rowley joined Sirach Capital Management in 1998. Before that
-----------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Manager/Title With
Adviser Experience
- -----------------------------------------------------------------------------------------------------------
<S> <C>
Principal/Portfolio she was a Principal at Seafirst Investment Counselors where she managed
Manager equity, bond and balanced accounts for high net worth individuals and
institutional clients.
- -----------------------------------------------------------------------------------------------------------
James P. Kieburtz Mr. Kieburtz joined Sirach Capital Management in 1994. Before that, he
Principal/Portfolio Manager was a Systems Engineer specializing in financial account applications
at the accounting firm of Hagen, Kurth & Perman.
- -----------------------------------------------------------------------------------------------------------
Sirach Small Cap Equity Management Team manages Sirach Special Equity Portfolio
Harvey G. Bateman You may find Mr. Bateman's biography under Equity Management
Principal Team above.
- -----------------------------------------------------------------------------------------------------------
Stefan W. Cobb Mr. Cobb joined Sirach Capital Management in 1994. Before that, he was
Principal a Vice President at the investment-banking firm of Robertson, Stephens
& Company where he was engaged in institutional sales.
- -----------------------------------------------------------------------------------------------------------
James P. Kieburtz You may find Mr. Kieburtz's biography under Equity Management Team
Principal above.
- -----------------------------------------------------------------------------------------------------------
Sirach Fixed Income Management Team manages Sirach Bond Portfolio and the debt portion of Sirach
Strategic Balanced Portfolio
Craig F. Hintze Mr. Hintze joined Sirach Capital Management, Inc. in 1996 when Olympic
Principal Capital Management merged with Sirach Capital Management. Before the
merger, he was a Principal of Olympic Capital Management where he had
managed fixed-income portfolios for institutional clients since 1982.
- -----------------------------------------------------------------------------------------------------------
John F. Dagres Mr. Dagres joined Sirach Capital Management, Inc. in 1996 when Olympic
Principal Capital Management merged with Sirach Capital Management. Before the
merger, he was a Principal of Olympic Capital Management where he had
managed fixed income portfolios for institutional clients since 1982.
- -----------------------------------------------------------------------------------------------------------
Stephen J. Romano Mr. Romano joined Sirach Capital Management in 1991. Before that, he
Principal was a Senior Investment Officer at Seattle-First National Bank where he
managed equity and fixed income portfolios for private banking clients.
- -----------------------------------------------------------------------------------------------------------
Larry J. Katz Mr. Katz joined Sirach Capital Management in 1996. Before that, he was
Principal a Senior Analyst at Frank Russell Company from 1994 until 1996, an
independent consultant during 1993 and a Senior Portfolio Manager at
Puget Sound Savings Bank from 1984 through 1992.
</TABLE>
ADVISER'S HISTORICAL PERFORMANCE
The adviser manages separate accounts of equity securities and fixed-income
securities that have the same investment objectives as Sirach Equity Portfolio
and Sirach Bond Portfolio, respectively. The adviser manages these accounts
using techniques and strategies substantially similar, though not always
identical, to those used to manage the portfolios. Composites of the
performance of all of these separate accounts are listed below. The
performance data for the managed accounts reflects deductions for all fees and
expenses. Because separately managed accounts may have different fees and
expenses than the portfolios, their investment returns may differ from those
of the portfolios. All fees and expenses of the separate accounts were less
than the operating expenses of the portfolios. If the performance of the
managed accounts was adjusted to reflect fees and expenses of the portfolios,
the composites' performance would have been lower.
The separately managed accounts are not subject to investment limitations,
diversification requirements, and other restrictions imposed by the Investment
18
<PAGE>
Company Act of 1940 and the Internal Revenue Code. If they were, their
returns might have been lower. The performance of these separate accounts is
not intended to predict or suggest the performance of the Sirach Equity
Portfolio or Sirach Bond Portfolio.
<TABLE>
<CAPTION>
Sirach Capital
Management --
Equity Composite* S&P 500 Index+
---------------------------------------------------------------------------
<S> <C> <C>
Calendar Years Ended:
---------------------------------------------------------------------------
1981
---------------------------------------------------------------------------
1982
---------------------------------------------------------------------------
1983
---------------------------------------------------------------------------
1984
---------------------------------------------------------------------------
1985
---------------------------------------------------------------------------
1986
---------------------------------------------------------------------------
1987
---------------------------------------------------------------------------
1988
---------------------------------------------------------------------------
1989
---------------------------------------------------------------------------
1990
---------------------------------------------------------------------------
1991
---------------------------------------------------------------------------
1992
---------------------------------------------------------------------------
1993
---------------------------------------------------------------------------
1994
---------------------------------------------------------------------------
1995
---------------------------------------------------------------------------
1996
---------------------------------------------------------------------------
1997
---------------------------------------------------------------------------
1998
---------------------------------------------------------------------------
Annualized Return For Various
Periods Ended 12/31/98 (annualized)
1-year
---------------------------------------------------------------------------
5-years
---------------------------------------------------------------------------
10-years
---------------------------------------------------------------------------
Since inception (__/__/__)
---------------------------------------------------------------------------
Cumulative Since Inception
(__/__/__)
</TABLE>
* The adviser's performance results reflect a blending of 95% of the actual
return from the equity only portion of its equity composite with 5% of the
return from the Salomon Brothers 3-Month Treasury Bill rate. Results are
based on the actual performance of an asset weights composite of full
discretionary, non-restricted, unleveraged accounts.
+ The S&P 500 Index is an unmanaged index composite of 400 industrial, 40
financial, 40 utilities and 20 transportation stocks. It assumes that
dividends are reinvested and is generally considers representative of large
U.S. large capitalization stocks.
<TABLE>
<CAPTION>
Sirach Capital
Management -- Lehman Brothers
Fixed Income Aggregate Bond
Composite* Index+
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Calendar Years Ended:
1980 6.23% 2.70%
----------------------------------------------------------------------------------------------------------
1981 13.27% 6.25%
----------------------------------------------------------------------------------------------------------
1982 13.31% 32.62%
----------------------------------------------------------------------------------------------------------
1983 6.63% 8.35%
----------------------------------------------------------------------------------------------------------
1984 14.68% 15.15%
----------------------------------------------------------------------------------------------------------
1985 21.21% 22.10%
----------------------------------------------------------------------------------------------------------
1986 14.38% 15.26%
----------------------------------------------------------------------------------------------------------
1987 3.20% 2.76%
----------------------------------------------------------------------------------------------------------
1988 9.80% 7.89%
----------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
<TABLE>
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
1989 13.94% 14.53%
----------------------------------------------------------------------------------------------------------
1990 7.62% 8.96%
----------------------------------------------------------------------------------------------------------
1991 18.54% 16.00%
----------------------------------------------------------------------------------------------------------
1992 8.13% 7.40%
----------------------------------------------------------------------------------------------------------
1993 11.65% 9.75%
----------------------------------------------------------------------------------------------------------
1994 (1.90)% (2.92)%
----------------------------------------------------------------------------------------------------------
1995 18.71% 18.47%
----------------------------------------------------------------------------------------------------------
1996 4.81% 3.63%
----------------------------------------------------------------------------------------------------------
1997 9.90% 9.65%
----------------------------------------------------------------------------------------------------------
1998
----------------------------------------------------------------------------------------------------------
Annualized Return For Various Periods Ended
12/31/98 (annualized)
6 months
----------------------------------------------------------------------------------------------------------
1-year
----------------------------------------------------------------------------------------------------------
5-years
----------------------------------------------------------------------------------------------------------
10-years
----------------------------------------------------------------------------------------------------------
Since inception (1/1/80)
----------------------------------------------------------------------------------------------------------
Cumulative Since Inception (1/1/80)
</TABLE>
* The adviser's average annual management fee over the periods shown was
0.30%. During the period shown the adviser's individual account fees
ranged from 0.20% to 0.30%. Net returns to investors vary depending on
the management fee.
+ The Lehman Brothers Aggregate Bond Index is an unmanaged index, which
assumes that dividends are reinvested. The adviser considers it to be
representative of they types of in which the adviser invested for
purposes of its the composite number.
SHAREHOLDER SERVICING ARRANGEMENTS
- --------------------------------------------------------------------------------
DISTRIBUTION PLANS
The UAM Funds have adopted distribution plans and shareholder services plans
under Rule 12b-1 of the Investment Company Act of 1940 that permit them to pay
broker-dealers, financial institutions and other third parties for marketing,
distribution and shareholder services. The UAM Funds' 12b-1 plans allow the
portfolios to pay up to 1.00% of their average daily net assets annually for
these services. However, the board of the UAM Funds has currently authorized
the portfolios to pay only 0.25% per year. The board may increase the amounts
the portfolios pay, up to the plan maximum, at any time. Because
Institutional Service Class Shares pay these fees out of their assets on an
ongoing basis, over time, your shares may cost more than if you had paid
another type of sales charge. Long-term shareholders may pay more than the
economic equivalent of the maximum front-end sales charges permitted by rules
of the National Association of Securities Dealers, Inc.
SHAREHOLDER SERVICING
Certain financial intermediaries (service agents) may charge their clients
account fees for buying or redeeming shares of the UAM Funds, which are not
subject to the Fund's Distribution Plan or Shareholder Servicing Plan. These
fees may include transaction fees and/or service fees paid from the assets of
the UAM Funds attributable to the service agent. The UAM Funds do not pay
these fees on shares purchased directly from UAM Fund Distributors. The
service agents may provide shareholder services to their clients that are not
available to a shareholder dealing directly with the UAM Funds. Each service
20
<PAGE>
agent is responsible for transmitting to its clients a schedule of any such
fees and information regarding any additional or different purchase or
redemption conditions. You should consult your service agent for information
regarding these fees and conditions.
Anyone entitled to receive compensation for selling or servicing shares of the
UAM Funds may receive different compensation with respect to one particular
class of shares over another.
The adviser may pay its affiliated companies for referring investors to a
portfolio. The adviser and its affiliates may, at their own expense, pay
qualified service providers for marketing, shareholder servicing, record-
keeping and/or other services performed with respect to a portfolio.
UAM Fund Distributors, the adviser and certain of their other affiliates also
participate, as of the date of this prospectus, in an arrangement with Salomon
Smith Barney under which Salomon Smith Barney provides certain defined
contribution plan marketing and shareholder services and receives from such
entities an amount equal to up to 33.3% of the portion of the investment
advisory fees attributable to the invested assets of Salomon Smith Barney's
eligible customer accounts without regard to any expense limitation in
addition to amounts payable to all selling dealers. The UAM Funds also
compensates Salomon Smith Barney for services it provides to certain defined
contribution plan shareholders that are not otherwise provided by the UAM
Funds' administrator.
The UAM Funds also offer Institutional Class shares, which do not pay
marketing or shareholder servicing fees, and Adviser Class shares, which
impose a sales load and fees for marketing and shareholder servicing, for
certain of its portfolios. Not all of the UAM Funds offer all of these
classes.
21
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
financial performance of each portfolio for the past five years. The financial
highlights table comes from the financial statements of the portfolio and
reflects the financial results for a single portfolio share. The total returns
in the table represent the rate that an investor would have earned on an
investment in the portfolio (assuming reinvestment of all dividends and
distributions). PricewaterhouseCoopers LLP has audited he financial statements
and the unqualified opinion of PricewaterhouseCoopers, LLP of the portfolio
are included in the annual report of the portfolios, which is available upon
request.
<TABLE>
<CAPTION>
SIRACH GROWTH PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended October 31, 1998 1997 1996 1995 1994+
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value Beginning of Period $ 14.01 $ 11.35 $ 9.66 $ 10.00
-----------------------------------------------------------------------------------------------------------------
Income from Investment Operations 0.12 0.12 0.15 0.10
Net Investment Income
Net Gains or losses on Securities
(Realized and Unrealized) 3.55 2.65 1.70 (0.36)
-----------------------------------------------------------------------------------------------------------------
Total From Investment 3.67 2.77 1.85 (0.26)
Operations
-----------------------------------------------------------------------------------------------------------------
Less Distributions (0.13) (0.11) (0.16) (0.08)
Net Investment Income
Capital Gains (2.11) -- -- --
Returns of Capital
-----------------------------------------------------------------------------------------------------------------
Total Distributions (2.24) (0.11) (0.16) (0.08)
-----------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 15.44 $ 14.01 $ 11.35 $ 9.66
-----------------------------------------------------------------------------------------------------------------
Total Return 30.86% 24.52% 19.33% (2.58)% #
-----------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Period
(Thousands) $ 132,530 $ 128,982 $ 114,787 $ 80,944
Ratio of Expenses to Average
Net Assets 0.90% 0.87% 0.86% 0.92%
Ratio of Net Investment Income to Average
Net Assets 0.84% 0.97% 1.48% 1.13%*
Portfolio Turnover Rate 138% 151% 119% 141%
Ratio of Expenses to Average 0.90% 0.86% 0.84% --
Net Assets Including Expense Offsets
</TABLE>
+ For the period December 1, 1993 (commencement of operations) to October
31, 1993.
* Annualized
# Not annualized
22
<PAGE>
<TABLE>
<CAPTION>
SIRACH SPECIAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------------------------------
Fiscal Year Ended October 31, 1998 1997 1996#
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Year $ 17.97 $ 16.54
------------------------------------------------------------------------------------------------------
Income from Investment Operations (0.11) (0.01)
Net Investment Income
Net Gains or losses on Securities (Realized 0.97 1.44
and Unrealized)
------------------------------------------------------------------------------------------------------
Total From Investment Operations 0.86 1.43
------------------------------------------------------------------------------------------------------
Less Distributions -- --
Net Investment Income
Capital Gains (3.92) --
------------------------------------------------------------------------------------------------------
Total Distributions (3.92) --
------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 14.91 $ 17.97
------------------------------------------------------------------------------------------------------
Total Return 7.91% 8.65%**
------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data $ 1,977 $ 1,007
Net Assets, End of Year (Thousands)
Ratio of Expenses to Average Net Assets 1.14% 1.12%*
Ratio of Net Investment Income to Average Net Assets (0.78) (0.64)%*
Portfolio Turnover Rate 114% 129%
Ratio of Expenses to Average Net Assets 1.14% 1.12%*
Including Expense Offsets
</TABLE>
<TABLE>
<CAPTION>
SIRACH SRATEGIC BALANCED PORTFOLIO
- ----------------------------------------------------------------------------------------------------------
Fiscal Year Ended October 31, 1998 1997#
<S> <C> <C>
--------------------------------------------------------------------------------------------------------
Net Asset Value Beginning of Year $ 11.26
--------------------------------------------------------------------------------------------------------
Income from Investment Operations 0.19
Net Investment Income
Net Gains or losses on Securities (Realized and
Unrealized) 1.21
--------------------------------------------------------------------------------------------------------
Total From Investment Operations 1.40
--------------------------------------------------------------------------------------------------------
Less Distributions
Net Investment Income (0.22)
Capital Gains --
--------------------------------------------------------------------------------------------------------
Total Distributions (0.22)
--------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 12.44
--------------------------------------------------------------------------------------------------------
Total Return 12.57%**
--------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data $ 378
Net Assets, End of Year (Thousands)
Ratio of Expenses to Average Net Assets 1.22%*
Ratio of Net Investment Income to Average Net Assets 2.71%*
Portfolio Turnover Rate 128%
Ratio of Expenses to Average Net Assets Including 1.22%*
Expense Offsets
</TABLE>
# For the period March 22, 1996 (commencement of operations) to October 31,
1996.
* Annualized
** Not annualized
23
<PAGE>
THE SIRACH PORTFOLIOS
For investors who want more information about the Sirach Portfolios, the
following documents are available upon request.
ANNUAL/SEMI-ANNUAL REPORT
The annual and semi-annual reports of the Sirach Portfolios provide additional
information about their investments. In each annual report, you will also
find a discussion of the market conditions and investment strategies that
significantly affected the performance of the Sirach Portfolios during the
last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains additional detailed information about the Sirach Portfolios
and is incorporated by reference into (legally part of) this prospectus.
Investors can receive free copies of these materials, request other
information about the portfolios and make shareholder inquiries by writing to
or calling:
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
You can review, for a fee, the reports of the portfolio and SAI by writing to
the SEC's Public Reference Section, Washington, D.C. 20459-6009, or by calling
the SEC at 1-800-SEC-0330. You can get free copies of this information on the
SEC's Internet site at http://www.sec.gov.
------------------
The portfolio's Investment Company Act of 1940 file is 811-5683.
[LOGO]
24
<PAGE>
UAM Funds
Funds for the Informed Investor
THE STERLING PARTNERS' PORTFOLIOS
INSTITUTIONAL CLASS PROSPECTUS , 199_
Sterling Partners' Equity Portfolio
Sterling Partners' Small Cap Value Portfolio
Sterling Partners' Balanced Portfolio
[LOGO OF UAM FUNDS APPEARS HERE]
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PORTFOLIO SUMMARY................................................. 1
What are the Objectives of the Portfolios?....................... 1
What are the Principal Investment Strategies of the Portfolios?.. 1
What are the Principal Risks of the Portfolio.................... 2
How have the Portfolios Performed?............................... 3
What are the Portfolios' Fees and Expenses?...................... 5
INVESTING WITH THE UAM FUNDS...................................... 6
Buying Shares.................................................... 6
Redeeming Shares................................................. 7
Exchanging Shares................................................ 7
Transaction Policies............................................. 7
ACCOUNT POLICIES.................................................. 10
Small Accounts................................................... 10
Distributions.................................................... 10
Federal Taxes.................................................... 10
FUND DETAILS...................................................... 12
Principal Investments and Risks of the Portfolios................ 12
Other Investment Practices and Strategies........................ 14
Year 2000........................................................ 15
Investment Management............................................ 16
Shareholder Servicing Arrangements............................... 18
FINANCIAL HIGHLIGHTS.............................................. 19
Sterling Partners' Equity Portfolio.............................. 19
Sterling Partners' Small Cap Value Portfolio..................... 20
Sterling Partners' Balanced Portfolio............................ 20
</TABLE>
<PAGE>
PORTFOLIO SUMMARY
WHAT ARE THE OBJECTIVES OF THE PORTFOLIOS?
- --------------------------------------------------------------------------------
Listed below are the investment objectives of the Sterling Partners'
Portfolios. The Sterling Partners' Portfolios cannot guarantee they will meet
their investment objectives. A portfolio may not change its investment
objective without shareholder approval.
STERLING PARTNERS' EQUITY PORTFOLIO
Sterling Partners' Equity Portfolio seeks to provide maximum long-term total
return consistent with reasonable risk to principal, by investing primarily in
common stocks.
STERLING PARTNERS' SMALL CAP VALUE PORTFOLIO
Sterling Partners' Small Cap Value Portfolio seeks to provide maximum long-
term total return consistent with reasonable risk to principal by investing
primarily in equity securities of smaller companies, in terms of market
capitalization.
STERLING PARTNERS' BALANCED PORTFOLIO
Sterling Partners' Balanced Portfolio seeks to provide maximum long-term
return consistent with reasonable risk to principal, by investing in a
balanced portfolio of common stocks and fixed-income securities.
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE PORTFOLIOS?
- --------------------------------------------------------------------------------
The following is a brief description of the principal investment strategies of
the Sterling Partners' Portfolios. For more information see "PRINCIPAL
INVESTMENTS AND RISKS OF THE PORTFOLIOS."
STERLING PARTNERS' EQUITY AND SMALL CAP VALUE PORTFOLIOS
The adviser selects individual equity securities for the portfolios using an
approach that is designed to identify equities priced at a discount from the
estimated value of their underlying businesses.
Sterling Partners' Equity Portfolio normally invests primarily in common
stocks. The portfolio will focus on companies with market capitalizations
over $1 billion at the time of purchase. Sterling Partners' Small Cap Value
Portfolio normally invests at least 65% of its total assets in equity
securities of companies with market capitalizations of $1 billion or less.
The adviser intends to fully invest both portfolios and normally expects that
cash reserves will represent a relatively small portion of each portfolio's
assets (generally 10% or less).
1
<PAGE>
STERLING PARTNERS' BALANCED PORTFOLIO
Sterling Partners' Balanced Portfolio incorporates within a single investment
vehicle the adviser's equity and debt investment disciplines. Typically, the
portfolio will invest approximately 60% of its assets in equity securities and
40% in debt securities and cash. While the portfolio may invest in companies
of any size, the majority of equity securities held by the portfolio will have
market capitalizations over $500 million. The debt portion of the portfolio
will primarily consist of investment-grade debt securities.
WHAT ARE THE PRINCIPAL RISKS OF THE PORTFOLIO
- --------------------------------------------------------------------------------
The following is a summary of the principal risks associated with investing in
the portfolios. For more information see "PRINCIPAL INVESTMENTS AND RISKS
OF THE PORTFOLIOS."
RISKS COMMON TO ALL MUTUAL FUNDS
At any time, your investment in a mutual fund may be worth more or less than
the price you originally paid for it. You may lose money by investing in any
mutual fund because:
. The value of the securities it owns changes, sometimes rapidly and
unpredictably.
. The mutual fund is not successful in reaching its goal because of its
strategy or because it did not implement its strategy properly.
. Unforeseen occurrences in the securities markets negatively affect the
mutual fund.
STERLING PARTNERS' EQUITY PORTFOLIO AND STERLING PARTNERS' SMALL CAP VALUE
PORTFOLIO
Since the portfolios invest mainly in equity securities, their principal risks
are those of investing in equity securities, which may include sudden,
unpredictable drops in value or long periods of decline in value. Equity
securities may lose value because of factors affecting the securities markets
generally, an entire industry or a particular company.
Sterling Partners' Equity and Small Cap Value Portfolios are value oriented
and may not perform as well as certain other types of equity mutual funds
during periods when value stocks are out of favor.
Investors in the Sterling Partners' Small Cap Value Portfolio take on
additional risks that come with investing in stocks of smaller companies,
which can be riskier than investing in larger, more mature companies. Smaller
companies may be more vulnerable to adverse developments than larger companies
because they tend to have more narrow product lines and more limited financial
resources. Their stocks may trade less frequently and in limited volume.
2
<PAGE>
STERLING PARTNERS' BALANCED PORTFOLIO
To the extent that Sterling Partners' Balanced Portfolio invests in equity
securities, its Shareholders that invest in the portfolio take on the risks
that come with investing in equity securities discussed above.
To the extent the portfolio invests in debt securities, the value of its
investments could fall because:
. Of market conditions and economic and political events.
. Interest rates rise, which tends to cause the value of debt securities to
fall.
. A security's credit rating worsens or its issuer becomes unable to honor
its financial obligations.
Investors also run the risk that the portfolio will be more heavily invested
in one type of security when it would be better to invest in the other type of
security.
HOW HAVE THE PORTFOLIOS PERFORMED?
- --------------------------------------------------------------------------------
The bar charts and tables below illustrate how the performance of the
portfolios has varied from year to year. The following bar charts show the
investment returns of each portfolio since its inception. The table following
each bar chart compares each portfolio's average annual returns for the
periods indicated to those of a broad-based securities market index. Past
performance does not guarantee future results.
STERLING PARTNERS' EQUITY PORTFOLIO
[GRAPH APPEARS HERE]
* From the portfolio's inception (5/15/91) through 12/31/91.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_)
<TABLE>
<CAPTION> Since
Average annual return for periods ended 12/31/98 1 Year 5 Years Inception
================================================================================================
<S> <C> <C> <C>
Sterling Partners' Equity Portfolio
================================================================================================
S&P 500 Index
</TABLE>
3
<PAGE>
STERLING PARTNERS' SMALL CAP VALUE PORTFOLIO
[GRAPH APPEARS HERE]
* From the portfolio's inception (1/2/97) through 12/31/97.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_)
<TABLE>
<CAPTION>
Since
Average annual return for periods ended 12/31/98 1 Year Inception
====================================================================================
<S> <C> <C>
Sterling Partners' Small Cap Value Portfolio
====================================================================================
Russell 2000 Index
</TABLE>
STERLING PARTNERS' BALANCED PORTFOLIO
[GRAPH APPEARS HERE]
* From the portfolio's inception (3/15/91) through 12/31/91.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_)
<TABLE>
<CAPTION>
Since
Average annual return for periods ended 12/31/98 1 Year 5 Years Inception
=================================================================================================
<S> <C> <C> <C>
Sterling Partners' Balanced Portfolio
-------------------------------------------------------------------------------------------------
S&P 500 Index*
-------------------------------------------------------------------------------------------------
Lehman Brothers Government/Corporate Index#
-------------------------------------------------------------------------------------------------
Balanced Index
</TABLE>
* The S&P 500 Index is an unmanaged index composite of 400 industrial, 40
financial, 40 utilities and 20 transportation stocks.
# The Lehman Brothers Government/Corporate Index is an unmanaged index
composed of a combination of the Government and Corporate Bond Indices. The
Government Index includes public obligations of the U.S. Treasury, issues
of Government agencies, and corporate debt backed by the U.S. Government.
The Corporate Bond Index includes investment-grade fixed-rate
nonconvertible corporate debt, Yankee Bonds and nonconvertible debt issued
by or guaranteed by foreign or international governments and agencies. All
issues have maturities of at least one year and outstanding par value of at
least $100 million for U.S. Government issues and $25 million for others.
+ Balanced Index is a combined index of which 60% reflects S&P 500 Index and
40% the Lehman Brother Government/Corporate Index.
4
<PAGE>
WHAT ARE THE PORTFOLIOS' FEES AND EXPENSES?
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM THE ASSETS OF
A PORTFOLIO)
This table describes the fees and expenses that you may pay if you buy and
hold shares of a portfolio. This table is presented in the format required by
the Securities and Exchange Commission (SEC) and may not reflect the actual
expenses you would have paid as a shareholder in the portfolios.
<TABLE>
<CAPTION>
Sterling Partners' Sterling Partners'
Sterling Partners' Small Cap Value Balanced
Equity Portfolio Portfolio Portfolio
==================================================================================
<S> <C> <C> <C>
Management fees
----------------------------------------------------------------------------------
Other Expenses
----------------------------------------------------------------------------------
Total Expenses
----------------------------------------------------------------------------------
</TABLE>
ACTUAL FEES AND EXPENSES
The ratios stated in the table above are higher than the expenses you would
have actually paid as an investor in these portfolios. Due to certain expense
limits by the adviser and expense offsets, investors in the Sterling Partners'
Portfolios actually paid the following total operating expenses during the
fiscal year ended October 31, 1998:
<TABLE>
<CAPTION>
Sterling Partners' Sterling Partners'
Sterling Partners' Small Cap Value Balanced
Equity Portfolio Portfolio Portfolio
==================================================================================
<S> <C> <C> <C>
Actual Expenses
==================================================================================
</TABLE>
EXAMPLE
This example can help you to compare the cost of investing in these portfolios
to the cost of investing in other mutual funds. It assumes that you invest
$10,000 in a portfolio for the periods shown and then redeem all of your
shares at the end of those periods. It also assumes a 5% return on your
investment each year and that the portfolio's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
Sterling Partners'
Sterling Partners' Small Cap Value Sterling Partners'
Equity Portfolio Portfolio Balanced Portfolio
==================================================================================
<S> <C> <C> <C>
1 Year
----------------------------------------------------------------------------------
3 Years
----------------------------------------------------------------------------------
5 Years
----------------------------------------------------------------------------------
10 Years
</TABLE>
5
<PAGE>
INVESTING WITH THE UAM FUNDS
<TABLE>
<CAPTION>
BUYING SHARES
- -----------------------------------------------------------------------
TO OPEN AN ACCOUNT TO BUY MORE SHARES
-------------------------------------------------------------------
<S> <C> <C>
By Mail Send a check or Send a check and, if
money order and possible, the "Invest
your account by Mail" stub that
application to the accompanied your
UAM Funds. Make statement to the UAM
checks payable to Funds. Be sure your
"UAM Funds" (the check identifies
UAM Funds will not clearly your name,
accept third-party account number and the
checks). portfolio into which
you want to invest.
-------------------------------------------------------------------
By Wire Call the UAM Funds Call the UAM Funds to
for an account get a wire control
number and wire number and wire your
control number and money to the UAM Funds.
then send your
completed account
application to the
UAM Funds.
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: portfolio
name/account number/
account name/wire
control number
-------------------------------------------------------------------
By Automatic Not Available To set up a plan, mail
Investment Plan a completed application
(Via ACH) to the UAM Funds. To
cancel or change a
plan, write to the UAM
Funds. Allow up to 15
days to create the plan
and 3 days to cancel or
change it.
-------------------------------------------------------------------
Minimum $2,500, except IRAs $100
Investments ($500) and spousal IRAs
($250)
</TABLE>
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
6
<PAGE>
REDEEMING SHARES
- --------------------------------------------------------------------------------
By Mail Send a letter signed by all registered parties on the
account to UAM Funds specifying the portfolio, the account
number and the dollar amount or number of shares you wish to
redeem. Certain shareholders may have to include additional
documents.
- --------------------------------------------------------------------------------
By Telephone You must first establish the telephone redemption privilege
(and, if desired, the wire redemption privilege) by
completing the appropriate sections of the account
application. Call 1-877-UAM-Link to redeem your shares.
Based on your instructions, the UAM Funds will mail your
proceeds to you or wire them to your bank.
- --------------------------------------------------------------------------------
By If your account balance is at least $10,000, you may
Systematic transfer as little as $100 per month from your UAM account
Withdrawal to your financial institution. To participate in this
Plan (Via service, you must complete the appropriate sections of the
ACH) account application and mail it to the UAM Funds.
EXCHANGE SHARES
- --------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the same
class of any other UAM Fund by writing to or calling the UAM Funds. Before
exchanging your shares, read the prospectus of the UAM Fund for which you want
to exchange, which you may obtain from the UAM Funds. You may not exchange
shares represented by certificates over the telephone. You may only exchange
shares between accounts with identical registrations (i.e., the same names and
addresses).
TRANSACTION POLICIES
- --------------------------------------------------------------------------------
CALCULATING YOUR SHARE PRICE
You may buy, sell or exchange shares of a UAM Fund at a price equal to its net
asset value (NAV) next computed after it receives your order. The portfolios
calculate their NAVs as of the close of trading on the New York Stock Exchange
(NYSE) (generally 4:00 p.m. Eastern Time) on each day the NYSE is open.
Therefore, to receive the NAV on any given day, the UAM Funds must accept your
order by the close of trading on the NYSE that day. Otherwise, you will
receive the NAV that is calculated on the close of trading on the following
day. The UAM Funds are open for business on the same days as the NYSE, which
is closed on weekends and certain holidays.
7
<PAGE>
Buying or Selling Shares through a Financial Intermediary
You may buy, exchange or redeem shares of the UAM Funds through a financial
intermediary (such as a financial planner or adviser). Generally, to buy or
sell shares at the NAV on any given day, your financial intermediary must
receive your order by the close of trading on the NYSE that day. Your
financial intermediary is responsible for transmitting all subscription and
redemption requests, investment information, documentation and money to the
UAM Funds on time.
Certain financial intermediaries have agreements with the UAM Funds that allow
them to enter confirmed purchase or redemption orders on behalf of clients and
customers. Under this arrangement, the financial intermediary must send your
payment to the UAM Funds by the time they price their shares on the following
day. If your financial intermediary fails to do so, it may be responsible for
any resulting fees or losses.
CALCULATING NAV
The UAM Funds calculate their NAV by adding the total value of their assets,
subtracting their liabilities and then dividing the result by the number of
shares outstanding. The UAM Funds value their investments with readily
available market quotations at market value. Investments that do not have
readily available market quotations are valued at fair value, according to
guidelines established by the UAM Funds. The UAM Funds may also value
securities at fair value when events occur that make established valuation
methods (such as stock exchange closing prices) unreliable. The UAM Funds
value debt securities that will mature in 60 days or lessat amortized cost,
which approximates market value.
IN-KIND TRANSACTIONS
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares of a portfolio with securities instead of cash. In addition, the UAM
Funds may pay all or part of your redemption proceeds with securities instead
of cash.
PAYMENT OF REDEMPTION PROCEEDS
The UAM Funds will pay for all shares redeemed within seven days after they
receive a redemption request in proper order. If you redeem shares that were
purchased by check, you will not receive your redemption proceeds until the
check has cleared, which may take up to 15 days. You may avoid these delays
by paying for shares with a certified check, bank check or money order.
SIGNATURE GUARANTEE
You must have your signature guaranteed when (1) you want the proceeds from
your redemption sent to a person or address different from that registered on
the account, or (2) you request a transfer of your shares.
8
<PAGE>
You may obtain a signature guarantee from most banks, savings institutions,
securities dealers, national securities exchanges, registered securities
associations, clearing agencies and other guarantor institutions. A notary
public cannot guarantee a signature.
TELEPHONE TRANSACTIONS
The UAM Funds will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine; they may be liable for any losses if
they fail to do so. The UAM Funds will be responsible for any loss, liability,
cost or expense for following instructions received by telephone that it
reasonably believes to be genuine.
RIGHTS RESERVED BY THE UAM FUNDS
Purchases
At any time and without notice, the UAM Funds may:
. Stop offering shares of a portfolio.
. Reject any purchase order.
. Bar an investor engaged in a pattern of excessive trading from buying shares
of any portfolio. (Excessive trading can hurt the performance of a portfolio
by disrupting its management and by increasing its expenses.)
Redemptions
The UAM Funds may suspend your right to redeem if:
. An emergency exists and a portfolio cannot dispose of its investments or
fairly determine their value.
. Trading on the NYSE is restricted.
. The SEC tells the UAM Funds to delay redemptions.
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail.
Exchanges
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written notice
to shareholders.
. Reject any request for an exchange.
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
9
<PAGE>
ACCOUNT POLICIES
SMALL ACCOUNTS
- --------------------------------------------------------------------------------
The UAM Funds may redeem your shares without your permission if the value of
your account falls below 50% of the required minimum initial investment, but
not because of a drop in the value of your shares caused by market
fluctuations. This provision does not apply to retirement accounts and certain
other accounts.
DISTRIBUTIONS
- --------------------------------------------------------------------------------
Normally, the portfolios distribute their net investment income quarterly. In
addition, they distribute any net capital gains once a year. The UAM Funds
will automatically reinvest dividends and distributions in additional shares
of the portfolio, unless you elect on your account application to receive them
in cash.
FEDERAL TAXES
- --------------------------------------------------------------------------------
The following is a summary of the federal income tax consequences of investing
in these portfolios. You may also have to pay state and local taxes on your
investment. You should always consult your tax advisor for specific guidance
regarding the tax effect of your investment in the UAM Funds.
TAXES ON DISTRIBUTIONS
The distributions of the portfolios will generally be taxable to shareholders
as ordinary income or capital gains (which may be taxable at different rates
depending on the length of time the portfolio held the relevant assets). You
will be subject to income tax on these distributions regardless of whether
they are paid in cash or reinvested in additional shares. Once a year UAM
Funds will send you a statement showing the types and total amount of
distributions you received during the previous year.
You should note that if you purchase shares just before a distribution, the
purchase price would reflect the amount of the upcoming distribution. In this
case, you would be taxed on the entire amount of the distribution received,
even though, as an economic matter, the distribution simply constitutes a
return of your investment. This is known as "buying into a dividend" and
should be avoided.
TAXES ON EXCHANGES AND REDEMPTIONS
When you redeem or exchange shares in any portfolio, you may recognize a gain
or loss for income tax purposes. This gain or loss will be based on the
difference between your tax basis in the shares and the amount you receive for
them. (To aid in computing your tax basis, you generally should retain your
10
<PAGE>
account statements for the periods during which you held shares.) Any loss
realized on shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividends that were received
with respect to the shares.
The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other tax-
qualified plan) will not be currently taxable, but they may be taxable at some
time in the future.
To the extent a portfolio invests in foreign securities, it may be subject to
foreign withholding taxes with respect to dividends or interest the portfolios
received from sources in foreign countries. The portfolios may elect to treat
some of those taxes as a distribution to shareholders, which would allow
shareholders to offset some of their U.S. federal income tax.
BACKUP WITHHOLDING
By law, the UAM Funds must withhold 31% of your distributions and proceeds if
you have not provided complete, correct taxpayer information.
11
<PAGE>
FUND DETAILS
PRINCIPAL INVESTMENTS AND RISKS OF THE PORTFOLIOS
- --------------------------------------------------------------------------------
The following is a brief description of the principal investment strategies
the Sterling Partners' Portfolios may employ in seeking their objectives. This
discussion is in addition to the discussion set forth in the "PORTFOLIO
SUMMARY." For more information concerning these investment practices and their
associated risks, please read the "PORTFOLIO SUMMARY" and the statement of
additional information (SAI). You can also find information on each
portfolio's recent strategies and holdings in the annual/semiannual report.
The portfolio may change these strategies without shareholder approval.
STERLING PARTNERS' EQUITY AND SMALL CAP VALUE PORTFOLIOS
Sterling Partners' Equity Portfolio normally invests at least 65% of its total
assets in common stocks. The portfolio may invest in companies of any size,
but will focus on those with market capitalizations over $1 billion at the
time of purchase. Sterling Partners' Small Cap Value Portfolio normally
invests at least 65% of its total assets in equity securities of companies
with market capitalizations of $1 billion or less. The adviser intends to
fully invest both portfolios and normally expects that cash reserves will
represent a relatively small percentage of each portfolio's assets (generally
10% or less).
Using the approach described below, each portfolio may invest in common
stocks, preferred stocks, securities convertible or exchangeable into common
stock, and rights or warrants to purchase common stocks.
EQUITY SELECTION PROCESS
The adviser's stock selection process focuses on identifying securities that
are priced below the estimated value of the underlying business. The adviser
approaches each investment as a businessman would approach a private
transaction, which means that it examines all factors relevant to the worth of
an ongoing business using traditional fundamental securities analysis. Such
factors include balance sheet quality, normalized earnings power, industry
stability, capital intensity, reinvestment opportunities, and management
talent. This "businessman's approach" is designed to produce a high quality
portfolio.
The adviser's sell discipline is as important as its buy discipline. For every
stock it buys, the adviser defines in writing the thesis for owning it. Each
thesis rests on the fundamental factors noted above. The adviser reviews any
stock that underperforms its sector against a pre-written outline and sells
those that fail to demonstrate fundamental progress in keeping with the
original thesis.
For Sterling Partners' Equity and Balanced Portfolios, another important
aspect of the adviser's approach is an emphasis on diversification across a
wide range of industries. The adviser divides the S&P 500 into industry
groupings,
12
<PAGE>
and uses the groupings as a comparison yardstick for the portfolio. The
adviser seeks a healthy representation within each sector because it believes
this may allow it to control volatility within an acceptable range.
RISKS OF INVESTING IN EQUITY SECURITIES
Equity securities may lose value because of factors affecting the securities
markets generally, such as adverse changes in economic conditions, the general
outlook for corporate earnings, interest rates or investor sentiment. These
circumstances may lead to long periods of poor performance, such as during a
"bear market." Equity securities may also lose value because of factors
affecting an entire industry, such as increases in production costs, or
factors directly related to that company, such as decisions made by its
management.
Undervalued companies may have experienced adverse business developments or
other events that have caused their stocks to be out of favor. If the
adviser's assessment of a company is wrong, or if the market does not
recognize the value of the company, the price of its stock may fail to meet
expectations and the portfolio's share price may suffer. A value-oriented
portfolio may not perform as well as certain other types of mutual funds
during periods when value stocks are out of favor.
STERLING PARTNERS' BALANCED PORTFOLIO
Sterling Partners' Balanced Portfolio incorporates within a single investment
vehicle the adviser's equity and fixed-income investment disciplines.
Typically, the portfolio will invest approximately 60% of its assets in equity
securities and 40% in debt securities and cash, although it may vary its
composition as market conditions warrant. The portfolio will invest at least
25% of its total assets in senior debt securities, including debt securities
and preferred stocks.
While the portfolio may invest in equity securities of companies of any size,
the majority of the stocks it owns will have a market capitalization over $500
million. The adviser selects individual equity securities for the portfolio
using the approach described above for Sterling Partners' Equity and Small Cap
Value Portfolios, which is designed to identify equities priced at a discount
from the estimated value of their underlying businesses.
The debt portion of the portfolio will primarily consist of investment-grade
debt securities. Debt securities are securities issued by the U.S. government
and its agencies, corporate debt securities, mortgage-backed and asset-backed
securities, commercial paper and certificates of deposit. These securities
may have varying interest rate schedules and maturities (dates when debt
securities are due and payable). Asset-backed and mortgage-backed securities
are securities that are backed by pools of loans or mortgages assembled for
sale to investors by various governmental agencies and private issuers.
Mortgage-backed securities may generally take two forms: pass-throughs and
collateralized mortgage obligations (CMOs).
The adviser believes debt securities are opportunities for capital
appreciation, sources of liquidity and a means to reduce overall portfolio
volatility. The
13
<PAGE>
management of the debt segment of the portfolio consists of three important
steps. First, the adviser uses proprietary analytical tools to manage the
interest rate risk of the portfolio. After arriving at an appropriate average
maturity for the portfolio, the adviser uses a "top down" approach to select
the most attractively valued sectors for the fixed-income securities. Finally,
it analyzes the spectrum of the yield curve to identify the most desirable
maturities at which to invest the portfolio. The adviser's fixed-income
strategy emphasizes quality and capital preservation.
RISKS OF INVESTING IN DEBT SECURITIES
The value of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up the value of the bond will go
down, and vice versa). Interest rate changes may cause people to pay off
mortgage-backed and asset-backed securities earlier or later than expected,
which may shorten or lengthen the average maturity. Variations to average
maturity may cause the portfolio's share price and yield to fall.
The credit rating or financial condition of an issuer may affect the value of
a debt security. Generally, the lower the quality rating of a security, the
greater the risks that the issuer will fail to pay interest and return
principal. To compensate investors for taking on increased risk, issuers with
lower credit ratings usually offer their investors higher interest rates. If
an issuer defaults or becomes unable to honor its financial obligations, the
bond may lose some or all of its value.
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade. The adviser may retain securities that are downgraded, if
it believes that keeping those securities is warranted.
OTHER INVESTMENT PRACTICES AND STRATEGIES
- --------------------------------------------------------------------------------
As described below, the portfolios may invest in derivatives and foreign
securities and may deviate from its investment strategy from time to time. In
addition, the portfolios may employ investment practices that are not
described in this prospectus, such as repurchase agreements, when-issued and
forward commitment transactions, lending of securities, borrowing and other
techniques. For more information concerning the risks associated with these
investment practices, you should read the SAI.
FOREIGN INVESTMENTS
Sterling Partners' Balanced, Equity and Small Cap Value Portfolios may invest
up to 20% of their assets in American Depositary Receipts (ADRs). ADRs are
certificates evidencing ownership of shares of a foreign issuer that are
issued by depository banks and generally trade on an established market in the
United
14
<PAGE>
States or elsewhere. Although they are alternatives to directly purchasing the
underlying foreign securities in their national markets and currencies, ADRs
continue to be subject to many of the risks associated with investing directly
in foreign securities.
Foreign securities, especially those of companies in emerging markets, can be
riskier and more volatile than domestic securities. Adverse political and
economic developments or changes in the value of foreign currency can make it
harder for a portfolio to sell its securities and could reduce the value of
your shares. Changes in tax and accounting standards and difficulties
obtaining information about foreign companies can negatively affect investment
decisions.
In January 1999, certain European nations will begin to use the new European
common currency, called the Euro. The nations that use the Euro will have the
same monetary policy regardless of their domestic economy, which could have
adverse effects on those economies. In addition, the method by which the
conversion to the Euro is implemented could negatively affect the investments
of a portfolio.
DERIVATIVES
Each portfolio may buy and sell derivatives, including futures and options.
Derivatives are often more volatile than other investments and may magnify a
portfolio's gains or losses. A portfolio may lose money if the adviser:
. Fails to predict correctly the direction in which the underlying asset or
economic factor will move.
. Judges market conditions incorrectly.
. Employs a strategy that does not correlate well with the investments of the
portfolio.
SHORT-TERM INVESTING
At times, the adviser may decide to suspend the normal investment activities
of a portfolio by investing up to 100% of its assets in a variety of
securities, such as U.S. government and other high quality and short-term debt
obligations. The adviser may temporarily adopt a defensive position to reduce
changes in the value of a portfolio's shares that may result from adverse
market, economic, political or other developments.
When the adviser pursues a defensive strategy, a portfolio may not profit from
favorable developments that it would have otherwise profited from if it were
pursuing its normal strategies. Likewise, these strategies may prevent a
portfolio from achieving its stated objectives.
YEAR 2000
- --------------------------------------------------------------------------------
Many computer programs in use today cannot distinguish the year 2000 from the
year 1900 because of the way they encode and calculate dates. Consequently,
these programs may not be able to perform necessary functions
15
<PAGE>
and could disrupt the operations of the UAM Funds or financial markets in
general. The year 2000 issue affects all companies and organizations,
including those that provide services to the UAM Funds and those in which the
UAM Funds invest.
The UAM Funds and their advisers, administrator, distributor and transfer
agent are taking steps they believe are reasonably necessary to address any
portfolio-related year 2000-related computer problems. They are actively
working on necessary changes to their own computer systems to prepare for the
year 2000 and expect that their systems will be adapted before that date. They
are also requesting information on each service provider's state of readiness
and contingency plan. However, at this time the degree to which the year 2000
issue will affect the UAM Funds' investments or operations cannot be
predicted. Any negative consequences could adversely affect your investment in
the UAM Funds.
INVESTMENT MANAGEMENT
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Sterling Capital Management Company, a North Carolina corporation located at
One First Union Center, 301 S. College Street, Suite 3200, Charlotte, North
Carolina 28202, is the investment adviser to each of the portfolios. The
adviser manages and supervises the investment of each portfolio's assets on a
discretionary basis. The adviser, an affiliate of United Asset Management
Corporation, has provided investment management services to corporations,
pension and profit sharing plans, trusts, estates and other institutions and
individuals since 1970.
The adviser has voluntarily agreed to limit the expenses of the portfolios.
To maintain this expense limit, the adviser may waive a portion of its
advisory fee and/or reimburse certain expenses of the portfolios. The adviser
intends to continue its expense limitation until further notice. Set forth
below are the expense limits of the portfolios and the amounts they paid to
the adviser during the fiscal year ended October 31, 1998, both of which are
expressed as a percentage of average net assets.
<TABLE>
<CAPTION>
Sterling Partners'
Sterling Partners' Small Cap Value Sterling Partners'
Equity Portfolio Portfolio Balanced Portfolio
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees % % %
--------------------------------------------------------------------------------------
Expense Limit 0.99% 1.25% 1.11%
</TABLE>
Since 1982, the adviser has participated in the distribution of the North
Carolina Capital Management Trust, which consists of a bond fund and a money
market fund. North Carolina Capital Management Trust, is offered to public
units in North Carolina and is the first such fund to be registered with the
Securities and Exchange Commission.
16
<PAGE>
PORTFOLIO MANAGERS
An investment policy committee is responsible for the day-to-day management of
the portfolios.
ADVISER'S HISTORICAL PERFORMANCE
The adviser manages separate accounts of equity securities that have the same
investment objectives as Sterling Partners' Small Cap Value Portfolio. The
adviser manages these accounts using techniques and strategies substantially
similar, though not always identical, to those used to manage the portfolios.
Composites of the performance of all of these separate accounts are listed
below. The performance data for the managed accounts reflects deductions for
all fees and expenses. Because separately managed accounts may have different
fees and expenses than the portfolio, their investment returns may differ from
those of the portfolios. All fees and expenses of the separate accounts were
less than the operating expenses of the portfolios. Had the performance of
the managed accounts been adjusted to reflect fees and expenses of the
portfolios, the composites' performance would have been lower.
The separately managed accounts are not subject to investment limitations,
diversification requirements, and other restrictions imposed by the Investment
Company Act of 1940 and the Internal Revenue Code. If they were, their
returns might have been lower. The performance of these separate accounts is
not intended to predict or suggest the performance of the Sterling Partners'
Small Cap Value Portfolio.
<TABLE>
<CAPTION>
Sterling Capital
Management
Company -- Small
Cap Value Russell 2000
Composite* Index+
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Calendar Years Ended:
1996 40.19% 16.49%
------------------------------------------------------------------------------------------------------------
1997
------------------------------------------------------------------------------------------------------------
1998
------------------------------------------------------------------------------------------------------------
Annualized Return For Various Periods Ended
12/31/98 (annualized)
1-year
------------------------------------------------------------------------------------------------------------
Since inception (__/__/96)
------------------------------------------------------------------------------------------------------------
Cumulative Since Inception (_/_/96)
</TABLE>
* The adviser's average annual management fee over the periods shown was
assumed to be 1.00% annually. Net returns to investors vary depending on
the management fee. Sterling Partners' Small Cap Value Portfolio is charged
a 1.00% advisory fee.
+ The Russell 2000 Index consists of the 2,000 smallest of the 3,000 largest
stocks. The list is rebalanced each year on June 30. If a stock is taken
over or goes bankrupt, it is not replaced until rebalancing. Therefore,
there can be fewer than 2,000 stocks in the Russell 2000 Index. The index is
an equity market capitalization weighted index available from Frank Russell
& Co. on a monthly basis. The adviser considers it to be representative of
securities similar to those in which the adviser invests for the purpose of
its composite performance numbers.
17
<PAGE>
SHAREHOLDER SERVICING ARRANGEMENTS
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICING
Certain financial intermediaries (service agents) may charge their clients
account fees for buying or redeeming shares of the UAM Funds. These fees may
include transaction fees and/or service fees paid by the UAM Funds from their
assets attributable to the service agent. The UAM Funds do not pay these fees
on shares purchased directly from UAM Fund Distributors. The service agents
may provide shareholder services to their clients that are not available to a
shareholder dealing directly with the UAM Funds. Each service agent is
responsible for transmitting to its clients a schedule of any such fees and
information regarding any additional or different purchase or redemption
conditions. You should consult your service agent for information regarding
these fees and conditions.
The adviser may pay its affiliated companies for referring investors to the
portfolio. The adviser and its affiliates may, at their own expense, pay
qualified service providers for marketing, shareholder servicing, record-
keeping and/or other services performed with respect to the portfolios.
UAM Fund Distributors, the adviser and certain of their other affiliates also
participate, as of the date of this prospectus, in an arrangement with Salomon
Smith Barney under which Salomon Smith Barney provides certain defined
contribution plan marketing and shareholder services and receives 0.15% of the
portion of the daily net asset value of Institutional Class Shares held by
Salomon Smith Barney's eligible customer accounts in addition to amounts
payable to all selling dealers. The UAM Funds also compensate Salomon Smith
Barney for services it provides to certain defined contribution plan
shareholders that are not otherwise provided by the UAM Funds' administrator.
The UAM Funds also offer Institutional Service Class shares, which pay
marketing or shareholder servicing fees, and Adviser Class shares, which
impose a sales load and fees for marketing and shareholder servicing, for
certain of its portfolios. Not all of the UAM Funds offer all of these
classes.
18
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
financial performance of each portfolio for the past five years. The financial
highlights table comes from the financial statements of the portfolio and
reflects the financial results for a single portfolio share. The total returns
in the table represent the rate that an investor would have earned on an
investment in the portfolio (assuming reinvestment of all dividends and
distributions). PricewaterhouseCoopers LLP has audited the financial
statements of the portfolio. The financial statements and the unqualified
opinion of PricewaterhouseCoopers, LLP are included in the annual report of
the portfolios, which is available upon request.
<TABLE>
<CAPTION>
STERLING PARTNERS' EQUITY PORTFOLIO
- -------------------------------------------------------------------------------------------------
Fiscal Year Ended October 31, 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $ 15.72 $ 13.69 $ 12.54 $ 12.39
-------------------------------------------------------------------------------------------------
Income from Investment Operations 0.15 0.15 0.21 0.16
Net Investment Income
Net Gains or Losses on Securities
(Realized and Unrealized) 4.55 3.01 1.73 0.27
-------------------------------------------------------------------------------------------------
Total From Investment 4.70 3.16 1.94 0.43
Operations
-------------------------------------------------------------------------------------------------
Less Distributions
Net Investment Income (0.16) (0.16) (0.20) (0.15)
Capital Gains (1.56) (0.97) (0.59) (0.13)
-------------------------------------------------------------------------------------------------
Total Distributions (1.72) (1.13) (0.79) (0.28)
-------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 18.70 $ 15.72 $ 13.69 $ 12.54
-------------------------------------------------------------------------------------------------
Total Return+ 32.46% 24.76% 16.61% 3.50%
-------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Year
(Thousands) $ 49,886 $ 32,943 $ 31,969 $ 23,352
Ratio of Expenses to Average Net
Assets 0.99% 0.99% 1.00% 0.99%
Ratio of Net Investment Income to Average
Net Assets 0.86% 1.01% 1.64% 1.34%
Portfolio Turnover Rate 57% 78% 135% 73%
Ratio of Voluntary Waived Fees
and Expenses Assumed by Adviser
to Average Net Assets 0.16% 0.21% 0.23% 0.32%
Ratio of Expenses to Average Net
Assets Including Expense Offsets 0.99% 0.99% 0.99% --
</TABLE>
+ Total return would have been lower had certain fees not been waived and
expenses assumed by the adviser during the periods.
19
<PAGE>
STERLING PARTNERS' SMALL CAP VALUE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal Year Ended October 31, 1998 1997#
----------------------------------------------------------------------
<S> <C> <C>
Net Asset Value Beginning of Year $ 10.00
----------------------------------------------------------------------
Income from Investment Operations 0.01
Net Investment Income
Net Gains or losses on Securities (Realized
and Unrealized) 3.72
----------------------------------------------------------------------
Total From Investment Operations 3.73
----------------------------------------------------------------------
Less Distributions
Net Investment Income Dividends (0.01)
Capital Gains Distributions --
----------------------------------------------------------------------
Total Distributions (0.01)
----------------------------------------------------------------------
Net Asset Value, End of Year $ 13.72
----------------------------------------------------------------------
Total Return 37.34%**
----------------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Year (Thousands) $ 19,888
Ratio of Expenses to Average Net Assets 1.25%
Ratio of Net Investment Income to Average Net Assets 0.06%
Portfolio Turnover Rate 50%
Ratio of Voluntary Waived Fees and
Expenses Assumed by Adviser to Average
Net Assets 0.85%*
Ratio of Expenses to Average Net Assets
Including Expense Offsets 1.25%*
</TABLE>
<TABLE>
<CAPTION>
STERLING PARTNERS' BALANCED PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------------
Fiscal year Ended October 31, 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Asset Value Beginning of Year $ 12.55 $ 11.86 $ 11.13 $ 11.51
------------------------------------------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 0.32 0.34 0.46 0.32
Net Gains or losses on Securities (Realized
and Unrealized) 2.32 1.38 1.04 (0.25)
------------------------------------------------------------------------------------------------------------------
Total From Investment
Operations 2.64 1.72 1.50 0.07
------------------------------------------------------------------------------------------------------------------
Less Distributions
Net Investment Income Dividends (0.31) (0.36) (0.45) (0.32)
Capital Gains Distributions (0.97) (0.67) (0.32) (0.13)
------------------------------------------------------------------------------------------------------------------
Total Distributions (1.28) (1.03) (0.77) (0.45)
------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 13.91 $ 12.55 $ 11.86 $ 11.13
------------------------------------------------------------------------------------------------------------------
Total Return 22.58% 15.52% 14.23% 0.66%
------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Year
(Thousands) $ 78,283 $ 58,691 $ 65,933 $ 64,673
Ratio of Expenses to Average Net Assets 1.07% 1.03% 0.96% 1.01%
Ratio of Net Investment Income to Average Net Assets 2.47% 2.77% 3.96% 3.05%
Portfolio Turnover Rate 133%+ 84% 130% 70%
Ratio of Voluntary Waived Fees and
Expenses Assumed by Adviser to Average
Net Assets -- -- -- --
Ratio of Expenses to Average Net Assets
Including Expense Offsets 1.07% 1.02% 0.96% --
</TABLE>
# For the period January 2, 1997 (commencement of operations) to October
31, 1997
+ The turnover rate is higher than normally anticipated due to increased
shareholder activity within the portfolio.
* Annualized.
** Not annualized.
20
<PAGE>
THE STERLING PARTNERS' PORTFOLIOS
For investors who want more information about the Sterling Partners'
Portfolios, the following documents are available upon request.
ANNUAL/SEMI-ANNUAL REPORTS
The annual and semi-annual reports of the Sterling Partners' Portfolios
provide additional information about their investments. In each annual
report, you will also find a discussion of the market conditions and
investment strategies that significantly affected the performance of the
Sterling Partners' Portfolios during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains additional detailed information about the Sterling Partners'
Portfolios and is incorporated by reference into (legally part of) this
prospectus.
Investors can receive free copies of these materials, request other
information about the portfolios and make shareholder inquiries by writing to
or calling:
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
You can review, for a fee, the reports of the portfolio and SAI by writing to
the SEC's Public Reference Section, D.C. 20459-6009, or by calling the SEC at
1-800-SEC-0330. You can get copies of this information for free, on the SEC's
Internet site at http://www.sec.gov.
------------------
The portfolio's Investment Company Act of 1940 file is 811-5683.
[LOGO OF UAM APPEARS HERE]
<PAGE>
UAM FUNDS
Funds for the Informed Investor
THE TS&W PORTFOLIOS
INSTITUTIONAL CLASS PROSPECTUS , 199_
TS&W Equity Portfolio
TS&W International Equity Portfolio
TS&W Fixed Income Portfolio
TS&W Balance Portfolio
[LOGO]
The Securities and Exchange Commission has not approved of disapproved
these securities or passed upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
PORTFOLIO SUMMARY................................................. 1
What are the Objectives of the Portfolios?....................... 1
What are the Principal Investment Strategies of the Portfolios?.. 1
What are the Principal Risks of the Portfolio.................... 2
How have the Portfolios Performed?............................... 3
What are the Portfolios' Fees and Expenses?...................... 5
INVESTING WITH THE UAM FUNDS...................................... 7
Buying Shares.................................................... 7
Redeeming Shares................................................. 8
Exchanging Shares................................................ 8
Transaction Policies............................................. 8
ACCOUNT POLICIES.................................................. 12
Small Accounts................................................... 12
Distributions.................................................... 12
Federal Taxes.................................................... 12
FUND DETAILS...................................................... 14
Principal Investments and Risks of the Portfolios................ 14
Other Investment Practices and Strategies........................ 18
Year 2000........................................................ 19
Investment Management............................................ 20
Shareholder Servicing Arrangements............................... 21
FINANCIAL HIGHLIGHTS.............................................. 23
TS&W Equity Portfolio............................................ 23
TS&W International Equity Portfolio.............................. 24
TS&W Fixed Income Portfolio...................................... 24
</TABLE>
<PAGE>
PORTFOLIO SUMMARY
WHAT ARE THE OBJECTIVES OF THE PORTFOLIOS?
- --------------------------------------------------------------------------------
Listed below are the investment objectives of the TS&W Portfolios. The TS&W
Portfolios cannot guarantee they will meet their investment objectives. A
portfolio may not change its investment objective without shareholder
approval.
TS&W EQUITY PORTFOLIO
TS&W Equity Portfolio seeks maximum long-term total return consistent with
reasonable risk to principal, by investing in a diversified portfolio of
common stocks of relatively large companies.
TS&W INTERNATIONAL EQUITY PORTFOLIO
TS&W International Equity Portfolio seeks maximum long-term total return
consistent with reasonable risk to principal, by investing in a diversified
portfolio of common stocks of primarily non-United States (U.S.) issuers on a
world-wide basis.
TS&W FIXED INCOME PORTFOLIO
TS&W Fixed Income Portfolio seeks maximum long-term total return consistent
with reasonable risk to principal, by investing primarily in investment grade
debt securities of varying maturities.
TS&W BALANCED PORTFOLIO
TS&W Balanced Portfolio seeks maximum long-term total return consistent with
reasonable risk to principal, by investing in a diversified portfolio of
common stocks of established companies and investment grade debt securities.
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE PORTFOLIOS?
- --------------------------------------------------------------------------------
The following is a brief description of the principal investment strategies of
the TS&W Portfolios. For more information see "PRINCIPAL INVESTMENTS AND RISKS
OF THE PORTFOLIOS."
TS&W EQUITY PORTFOLIO
Normally, TS&W Equity Portfolio invests at least 65% of its assets in a
diversified portfolio of common stocks of companies that are among the largest
companies in terms of revenues, assets and market capitalization. The adviser
intends to invest in companies with above-average financial characteristics in
terms of balance sheet strength and profitability levels and, which, the
adviser believes are undervalued at the time of purchase. The portfolio
expects capital return to be the predominant component of its total return.
1
<PAGE>
TS&W INTERNATIONAL EQUITY PORTFOLIO
Under normal circumstances, TS&W International Equity Portfolio will invest at
least 65% of its assets in equity securities of foreign companies representing
at least three countries other than the United States. The adviser will
emphasize established companies in individual foreign markets and will attempt
to stress companies and markets that it believes are undervalued. The
portfolio expects capital growth to be the predominant component of its total
return.
TS&W FIXED INCOME PORTFOLIO
TS&W Fixed Income Portfolio normally invests at least 65% of its total assets
in a diversified mix of investment-grade debt securities. The adviser will
adjust the maturity and/or duration of the portfolio based on its assessment
of current economic conditions and trends and monetary and fiscal policies.
Over the complete economic cycle, the weighted maturity of the portfolio is
expected to range from six and twelve years and its duration will range from
four to six years. The total return of the portfolio will vary according to,
among other factors, interest rate changes and the average maturity and/or
duration of the portfolio.
In selecting securities for the portfolio, the adviser tries to: (1) emphasize
relative values within selected maturity ranges, (2) take advantage of
relative values and interest rate spreads among various credit qualities,
issue types and coupons, and (3) emphasize the marketability of individual
issues and diversification within the portfolio.
TS&W BALANCED PORTFOLIO
The adviser manages TS&W Balanced Portfolio to take advantage of its equity
and debt strategies. The portfolio typically invests 55% of its assets in
common stocks, 35% in debt securities and 10% in cash equivalents. The total
return of the portfolio will consist of both income and capital growth,
although, the relative proportions of which will vary according to its
underlying investments.
WHAT ARE THE PRINCIPAL RISKS OF THE PORTFOLIO
- --------------------------------------------------------------------------------
The following is a summary of the principal risks associated with investing in
the portfolios. For more information see "PRINCIPAL INVESTMENTS AND RISKS OF
THE PORTFOLIOS."
RISKS COMMON TO ALL MUTUAL FUNDS
At any time, your investment in a mutual fund may be worth more or less than
the price you originally paid for it. You may lose money by investing in any
mutual fund because:
. The value of the securities it owns changes, sometimes rapidly and
unpredictably.
. The mutual fund is not successful in reaching its goal because of its
strategy or because it did not implement its strategy properly.
2
<PAGE>
. Unforeseen occurrences in the securities markets negatively affect the
mutual fund.
TS&W EQUITY AND INTERNATIONAL PORTFOLIOS
Since the portfolios invest mainly in equity securities, their principal risks
are those of investing in equity securities, which may include sudden,
unpredictable drops in value or long periods of decline in value. Equity
securities may lose value because of factors affecting the securities markets
generally, an entire industry or a particular company.
TS&W INTERNATIONAL EQUITY PORTFOLIO
Foreign securities, especially those of companies in emerging markets, can be
riskier and more volatile than domestic securities. Adverse political and
economic developments or changes in the value of foreign currency can make it
harder for a portfolio to sell its securities and could reduce the value of
your shares. Differences in tax and accounting standards and difficulties in
obtaining information about foreign companies can negatively affect investment
decisions.
TS&W FIXED INCOME PORTFOLIO
Since the portfolio invests in debt securities, the value of its investments
could fall because:
. Of market conditions and economic and political events.
. Interest rates rise, which tends to cause the value of debt securities to
fall.
. A security's credit rating worsens or its issuer becomes unable to honor
its financial obligations.
TS&W BALANCED PORTFOLIO
To the extent TS&W Balanced Portfolio invests in equity and debt securities,
its shareholders will take on the risks that come with investing in those
types of securities. Investors also run the risk that the portfolio will be
more heavily invested in one type of security when it would be better to
invest in the other type of security.
HOW HAVE THE PORTFOLIOS PERFORMED?
- --------------------------------------------------------------------------------
The bar charts and tables below illustrate how the performance of the
portfolios has varied from year to year. The following bar charts show the
investment returns of each portfolio since its inception. The table following
each bar chart compares each portfolio's average annual returns for the
periods indicated to those of a broad-based securities market index. Past
performance does not guarantee future results.
3
<PAGE>
TS&W EQUITY PORTFOLIO
[GRAPH APPEARS HERE]
*From the portfolio's inception (7/17/92) through 12/31/92.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_)
<TABLE>
<CAPTION>
Since
Average annual return for periods ended 12/31/98 1 Year 5 Years Inception
===============================================================================================================
<S> <C> <C> <C>
TS&W Equity Portfolio
- ---------------------------------------------------------------------------------------------------------------
S&P 500 Index
</TABLE>
TS&W INTERNATIONAL EQUITY PORTFOLIO
[GRAPH APPEARS HERE]
*From the portfolio's inception (12/18/92) through 12/31/92.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_)
<TABLE>
<CAPTION>
Since
Average annual return for periods ended 12/31/98 1 Year 5 Years Inception
===============================================================================================================
<S> <C> <C> <C>
TS&W International Equity Portfolio
- ---------------------------------------------------------------------------------------------------------------
Morgan Stanley Capital International EAFE Index
</TABLE>
4
<PAGE>
TS&W FIXED INCOME PORTFOLIO
[GRAPH APPEARS HERE]
*From the portfolio's inception (7/17/92) through 12/31/92.
Highest quarter: __.__% (___ quarter 199_). Lowest quarter: -__.__% (___
quarter 199_)
<TABLE>
<CAPTION>
Since
Average annual return for periods ended 12/31/98 1 Year 5 Years Inception
===============================================================================================================
<S> <C> <C> <C>
TS&W Fixed Income Portfolio
===============================================================================================================
Lehman Brothers Government/Corporate Index
</TABLE>
WHAT ARE THE PORTFOLIOS' FEES AND EXPENSES?
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM THE ASSETS OF A
PORTFOLIO)
This table describes the fees and expenses that you may pay if you buy and
hold shares of a portfolio. This table is presented in the format required by
the Securities and Exchange Commission (SEC) and may not reflect the actual
expenses you would have paid as a shareholder in the portfolios.
<TABLE>
<CAPTION>
TS&W Int'l TS&W Fixed TS&W
TS&W Equity Equity Income Balanced
Portfolio Portfolio Portfolio Portfolio*
================================================================================
<S> <C> <C> <C> <C>
Management fees
- --------------------------------------------------------------------------------
Other Expenses
- --------------------------------------------------------------------------------
Total Expenses
================================================================================
</TABLE>
* The ratios shown in the table for TS&W Balanced Portfolio are based on
estimates for its next fiscal year.
ACTUAL FEES AND EXPENSES
The ratios stated in the table above are higher than the expenses you would
have actually paid as an investor in these portfolios. Due to expense offsets,
investors in the portfolios actually paid the following total operating
expenses during the fiscal year ended October 31, 1998:
<TABLE>
<CAPTION>
TS&W Equity TS&W Int'l Equity TS&W Fixed
Portfolio Portfolio Income Portfolio
================================================================================
<S> <C> <C> <C>
Actual Expenses
================================================================================
</TABLE>
5
<PAGE>
EXAMPLE
This example can help you to compare the cost of investing in these portfolios
to the cost of investing in other mutual funds. It assumes that you invest
$10,000 in a portfolio for the periods shown and then redeem all of your
shares at the end of those periods. It also assumes a 5% return on your
investment each year and that the portfolio's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
TS&W Fixed
TS&W Equity TS&W Int'l Income TS&W Balanced
Portfolio Equity Portfolio Portfolio Portfolio
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year
- --------------------------------------------------------------------------------
3 Years
- --------------------------------------------------------------------------------
5 Years
- --------------------------------------------------------------------------------
10 Years
- --------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
INVESTING WITH THE UAM FUNDS
<TABLE>
<CAPTION>
BUYING SHARES
- --------------------------------------------------------------------------------
TO OPEN AN ACCOUNT TO BUY MORE SHARES
- --------------------------------------------------------------------------------
<S> <C> <C>
By Mail Send a check or money Send a check and, if possible,
order and your account the "Invest by Mail" stub that
application to the UAM accompanied your statement to
Funds. Make checks the UAM Funds. Be sure your
payable to "UAM Funds" check identifies clearly your
(the UAM Funds will not name, account number and the
accept third-party portfolio into which you want
checks). to invest.
- --------------------------------------------------------------------------------
By Wire Call the UAM Funds for an Call the UAM Funds to get a
account number and wire wire control number and wire
control number and then your money to the UAM Funds.
send your completed
account application to
the UAM Funds.
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: portfolio name/account number/
account name/wire control number
- --------------------------------------------------------------------------------
By Automatic Not Available To set up a plan, mail a
Investment Plan completed application to the
(Via ACH) UAM Funds. To cancel or change
a plan, write to the UAM
Funds. Allow up to 15 days to
create the plan and 3 days to
cancel or change it.
- --------------------------------------------------------------------------------
Minimum $2,500, except IRAs $100
Investments ($500) and spousal IRAs
($250)
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
</TABLE>
7
<PAGE>
REDEEMING SHARES
- --------------------------------------------------------------------------------
By Mail Send a letter signed by all registered parties on the
account to UAM Funds specifying the portfolio, the
account number and the dollar amount or number of shares
you wish to redeem. Certain shareholders may have to
include additional documents.
- --------------------------------------------------------------------------------
By Telephone You must first establish the telephone redemption
privilege (and, if desired, the wire redemption
privilege) by completing the appropriate sections of the
account application.
Call 1-877-UAM-Link to redeem your shares. Based on your
instructions, the UAM Funds will mail your proceeds to
you or wire them to your bank.
- --------------------------------------------------------------------------------
By If your account balance is at least $10,000, you may
Systematic transfer as little as $100 per month from your UAM
Withdrawal Plan account to your financial institution.
(Via ACH)
To participate in this service, you must complete the
appropriate sections of the account application and mail
it to the UAM Funds
EXCHANGING SHARES
- --------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the same
class of any other UAM Fund by writing to or calling the UAM Funds. Before
exchanging your shares, read the prospectus of the UAM Fund for which you want
to exchange, which you may obtain from the UAM Funds. You may not exchange
shares represented by certificates over the telephone. You may only exchange
shares between accounts with identical registrations (i.e., the same names and
addresses).
TRANSACTION POLICIES
- --------------------------------------------------------------------------------
CALCULATING YOUR SHARE PRICE
You may buy, sell or exchange shares of a UAM Fund at a price equal to its net
asset value (NAV) next computed after receives your order. The portfolios
calculate their NAVs as of the close of trading on the New York Stock Exchange
(NYSE) (generally 4:00 p.m. Eastern Time) on each day the NYSE is open.
Therefore, to receive the NAV on any given day, the UAM Funds must accept your
order by the close of trading on the NYSE that day. Otherwise, you will
receive the NAV that is calculated on the close of trading on the following
day. The UAM Funds are open for business on the same days as the NYSE, which
is closed on weekends and certain holidays.
Securities that are traded on foreign exchanges may trade on days when a
portfolio does not price its shares. Consequently, the value of the
portfolios
8
<PAGE>
may change on days when you are unable to purchase or redeem shares of the
portfolios.
BUYING OR SELLING SHARES THROUGH A FINANCIAL INTERMEDIARY
You may buy, exchange or redeem shares of the UAM Funds through a financial
intermediary (such as a financial planner or adviser). Generally, to buy or
sell shares at the NAV on any given day, your financial intermediary must
receive your order by the close of trading on the NYSE that day. Your
financial intermediary is responsible for transmitting all subscription and
redemption requests, investment information, documentation and money to the
UAM Funds on time.
Certain financial intermediaries have agreements with the UAM Funds that allow
them to enter confirmed purchase or redemption orders on behalf of clients and
customers. Under this arrangement, the financial intermediary must send your
payment to the UAM Funds by the time they price their shares on the following
day. If your financial intermediary fails to do so, it may be responsible for
any resulting fees or losses.
CALCULATING NAV
The UAM Funds calculate their NAV by adding the total value of their assets,
subtracting their liabilities and then dividing the result by the number of
shares outstanding. The UAM Funds value their investments with readily
available market quotations at market value. Investments that do not have
readily available market quotations are valued at fair value, according to
guidelines established by the UAM Funds. The UAM Funds may also value
securities at fair value when events occur that make established valuation
methods (such as stock exchange closing prices) unreliable. The UAM Funds
value debt securities that will mature in 60 days or less at amortized cost,
which approximates market value.
IN-KIND TRANSACTIONS
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares of a UAM Fund with securities instead of cash. In addition, the UAM
Funds may pay all or part of your redemption proceeds with securities instead
of cash.
PAYMENT OF REDEMPTION PROCEEDS
The UAM Funds will pay for all shares redeemed within seven days after they
receive a redemption request in proper order. If you redeem shares that were
purchased by check, you will not receive your redemption proceeds until the
check has cleared, which may take up to 15 days. You may avoid these delays
by paying for shares with a certified check, bank check or money order.
9
<PAGE>
SIGNATURE GUARANTEE
You must have your signature guaranteed when (1) you want the proceeds from
your redemption sent to a person or address different from that registered on
the account, or (2) you request a transfer of your shares.
You may obtain a signature guarantee from most banks, savings institutions,
securities dealers, national securities exchanges, registered securities
associations, clearing agencies and other guarantor institutions. A notary
public cannot guarantee a signature.
TELEPHONE TRANSACTIONS
The UAM Funds will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine; they may be liable for any losses if
they fail to do so. The UAM Funds will be responsible for any loss, liability,
cost or expense for following instructions received by telephone that it
reasonably believes to be genuine.
RIGHTS RESERVED BY THE UAM FUNDS
PURCHASES
At any time and without notice, the UAM Funds may:
. Stop offering shares of a portfolio.
. Reject any purchase order.
. Bar an investor engaged in a pattern of excessive trading from buying
shares of any portfolio. (Excessive trading can hurt the performance of a
portfolio by disrupting its management and by increasing its expenses.)
REDEMPTIONS
The UAM Funds may suspend your right to redeem if:
. An emergency exists and a portfolio cannot dispose of its investments or
fairly determine their value.
. Trading on the NYSE is restricted.
. The SEC tells the UAM Funds to delay redemptions.
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail.
EXCHANGES
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders.
. Reject any request for an exchange.
10
<PAGE>
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
11
<PAGE>
ACCOUNT POLICIES
SMALL ACCOUNTS
- --------------------------------------------------------------------------------
The UAM Funds may redeem your shares without your permission if the value of
your account falls below 50% of the required minimum initial investment, but
not because of a drop in the value of your shares caused by market
fluctuations. This provision does not apply to retirement accounts and certain
other accounts.
DISTRIBUTIONS
- --------------------------------------------------------------------------------
Normally, TS&W Equity and Balanced Portfolios distribute their net investment
income quarterly. TS&W International Equity Portfolio distributes its net
investment income annually. TS&W Fixed Income declares its net investment
income daily and distributes monthly. In addition, the portfolios distribute
any net capital gains once a year. The UAM Funds will automatically reinvest
dividends and distributions in additional shares of the portfolio, unless you
elect on your account application to receive them in cash.
FEDERAL TAXES
- --------------------------------------------------------------------------------
The following is a summary of the federal income tax consequences of investing
in these portfolios. You may also have to pay state and local taxes on your
investment. You should always consult your tax advisor for specific guidance
regarding the tax effect of your investment in the UAM Funds.
TAXES ON DISTRIBUTIONS
The distributions of the portfolios will generally be taxable to shareholders
as ordinary income or capital gains (which may be taxable at different rates
depending on the length of time the portfolio held the relevant assets). You
will be subject to income tax on these distributions regardless of whether
they are paid in cash or reinvested in additional shares. Once a year UAM
Funds will send you a statement showing the types and total amount of
distributions you received during the previous year.
You should note that if you purchase shares just before a distribution, the
purchase price would reflect the amount of the upcoming distribution. In this
case, you would be taxed on the entire amount of the distribution received,
even though, as an economic matter, the distribution simply constitutes a
return of your investment. This is known as "buying into a dividend" and
should be avoided.
TAXES ON EXCHANGES AND REDEMPTIONS
When you redeem or exchange shares in any portfolio, you may recognize a gain
or loss for income tax purposes. This gain or loss will be based on the
12
<PAGE>
difference between your tax basis in the shares and the amount you receive for
them. (To aid in computing your tax basis, you generally should retain your
account statements for the periods during which you held shares.) Any loss
realized on shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividends that were received
with respect to the shares.
The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other tax-
qualified plan) will not be currently taxable, but they may be taxable at some
time in the future.
To the extent a portfolio invests in foreign securities, it may be subject to
foreign withholding taxes with respect to dividends or interest the portfolios
received from sources in foreign countries. The portfolios may elect to treat
some of those taxes as a distribution to shareholders, which would allow
shareholders to offset some of their U.S. federal income tax.
BACKUP WITHHOLDING
By law, the UAM Funds must withhold 31% of your distributions and proceeds if
you have not provided complete, correct taxpayer information.
13
<PAGE>
FUND DETAILS
PRINCIPAL INVESTMENTS AND RISKS OF THE PORTFOLIOS
- --------------------------------------------------------------------------------
The following is a brief description of the principal investment strategies
the TS&W Portfolios may employ in seeking their objectives. This discussion
is in addition to the discussion set forth in the "PORTFOLIO SUMMARY." For
more information concerning these investment practices and their associated
risks, please read the "PORTFOLIO SUMMARY" and the statement of additional
information (SAI). You can find information on each portfolio's recent
strategies and holdings in the annual/semiannual report. The portfolio may
change these strategies without shareholder approval.
TS&W EQUITY PORTFOLIO
Normally, TS&W Equity Portfolio invests at least 65% of its assets in a
diversified portfolio of common stocks of companies that are relatively large
in terms of revenues and assets and in companies with market capitalizations
that exceed $300 million. Although the portfolio will draw its holdings from
primarily larger, more seasoned or established companies, it may also invest
in companies of varying size as measured by assets, sales or capitalization.
The portfolio will emphasize common stocks, but may also invest in preferred
stocks, securities convertible or exchangeable into common stock and rights or
warrants to purchase common stocks.
The adviser pursues a relative value-oriented philosophy and attempts to be
risk averse believing that preserving capital in weak market environments
should lead to above-average returns over the long run. Typically, the adviser
prefers to invest in companies that possess above-average financial
characteristics in terms of balance sheet strength and profitability measures
and yet are attractively valued relative to the market. Normally, the
portfolio will be diversified and contain quality securities.
The adviser's stock selection process combines an economic top-down approach
with valuation and fundamental analysis. The adviser looks for areas of the
economy that will exhibit relative strength by analyzing the economy and
historical corporate earnings trends. Through valuation analysis, the adviser
seeks undervalued sectors, industries and companies in the market. In
conducting its assessment, the adviser uses tools and measures such as a
dividend discount model, relative value screens, price/earnings ratios, price
to book ratios and dividend yields. Fundamental analysis is performed on
industries and companies to verify their potential attractiveness for
investment. The adviser invests in stocks of companies that it expects will
benefit from economic trends and that are attractively valued relative to
their fundamentals and other companies in the market.
The adviser sells securities are sold when economic, valuation, and
fundamental criteria are no longer met, when more attractive alternatives are
14
<PAGE>
found, or when reduced risk returns from cash equivalents appear to be more
attractive.
TS&W Equity Portfolio also may invest up to 20% of its assets in American
Depositary Receipts (ADRs). ADRs are certificates evidencing ownership of
shares of a foreign issuer that are issued by depository banks and generally
trade on an established market in the United States or elsewhere. Although
they are alternatives to directly purchasing the underlying foreign securities
in their national markets and currencies, ADRs continue to be subject to many
of the risks associated with investing directly in foreign securities
discussed below under TS&W International Equity Portfolio.
RISKS OF INVESTING IN EQUITY SECURITIES
Equity securities may lose value because of factors affecting the securities
markets generally, such as adverse changes in economic conditions, the general
outlook for corporate earnings, interest rates or investor sentiment. These
circumstances may lead to long periods of poor performance, such as during a
"bear market." Equity securities may also lose value because of factors
affecting an entire industry, such as increases in production costs, or
factors directly related to that company, such as decisions made by its
management.
TS&W INTERNATIONAL EQUITY PORTFOLIO
TS&W International Equity Portfolio invests primarily in a diversified
portfolio of common stocks of non-United States issuers on a worldwide basis.
Generally, the portfolio will invest in equity securities of established
companies listed on U.S. or foreign securities exchanges, but it may also
invest in securities traded over-the-counter. Although the portfolio will
emphasize larger, more seasoned or established companies, it may invest in
companies of varying size as measured by assets, sales or capitalization. The
portfolio will invest primarily in securities of companies domiciled in
developed countries, but may also invest in developing countries. The
portfolio will normally invest at least 65% of its assets in equity securities
of foreign companies representing at least three countries other than the
United States and currently intends to invest in at least 15 countries other
than the United States.
The portfolio seeks to invest in companies the adviser believes will benefit
from global trends, promising business or product developments. The adviser
also looks for specific country opportunities resulting from changing
economic, social and political trends. In selecting securities, the adviser
stresses economic analysis, fundamental security analysis and valuation
analysis. It is expected that investments will be diversified throughout the
world and within markets to minimize specific country and currency risks.
The portfolio also may invest in the types of investment-grade debt securities
described under TS&W Fixed Income Portfolio when the adviser believes the
potential for total return from debt securities will equal or exceed that
available from investments in equity securities.
15
<PAGE>
RISKS OF INVESTING IN FOREIGN SECURITIES
Foreign securities, foreign currencies, and securities issued by U.S. entities
with substantial foreign operations may involve significant risks in addition
to the risks inherent in U.S. investments.
Local political, economic, regulatory or social instability, military action
or unrest, or adverse diplomatic developments may affect the value of foreign
investments. A foreign government may act adversely to the interests of U.S.
investors. Such actions may include expropriation or nationalization of
assets, confiscatory taxation and other restrictions on U.S. investment.
The securities of foreign companies are often denominated in foreign
currencies. Since the portfolio's net asset value is denominated in U.S.
dollars, changes in foreign currency rates and in exchange control regulations
may positively or negatively affect the value of its securities. In January
1999, certain European nations will begin to use the new European common
currency, called the Euro. The nations that use the Euro will have the same
monetary policy regardless of their domestic economy, which could have adverse
effects on those economies. In addition, the method by which the conversion
to the Euro is implemented could negatively affect the investments of a
portfolio.
Foreign stock markets, while growing in volume and sophistication, are
generally not as developed as those in the U.S. and securities of some foreign
issuers may be less liquid and more volatile than securities of comparable
U.S. issuers. In addition, the costs associated with foreign investments,
including withholding taxes, brokerage commissions and custodial costs, are
generally higher than with U.S. investments.
Foreign countries have different legal systems and different regulations
concerning financial disclosure, accounting and auditing standards than the
U.S. This could make corporate financial information more difficult to obtain
or understand and less reliable than information about U.S. companies.
Investing in emerging markets may magnify the risks of foreign investing.
Security prices in emerging markets can be significantly more volatile than
those in more developed markets, reflecting the greater uncertainties of
investing in less established markets and economies. In particular, countries
with emerging markets may have relatively unstable governments, may present
the risks of nationalization of businesses, restrictions on foreign ownership
and prohibitions on the repatriation of assets. They also may protect
property rights less than more developed countries. The economies of countries
with emerging markets may be based on only a few industries, may be highly
vulnerable to changes in local or global trade conditions and may suffer from
extreme and volatile debt burdens or inflation rates. Local securities markets
may trade a small number of securities and may be unable to respond
effectively to increases in trading volume, potentially making prompt
liquidation of holdings difficult or impossible at times.
16
<PAGE>
TS&W FIXED INCOME PORTFOLIO
Normally, TS&W Fixed Income Portfolio invests at least 65% of its assets in a
diversified mix of investment-grade debt securities. Debt securities are
securities issued by the U.S. government and its agencies, corporate debt
securities, mortgage-backed and asset-backed securities, commercial paper and
certificates of deposit. These securities may have varying interest rate
schedules and maturities (dates when debt securities are due and payable).
Asset-backed and mortgage-backed securities are securities that are backed by
pools of loans or mortgages assembled for sale to investors by various
governmental agencies and private issuers. Mortgage-backed securities may
generally take two forms: pass-throughs and collateralized mortgage
obligations (CMOs).
The portfolio may invest up to 20% of its total assets in fixed-income
securities that are below investment-grade (junk bonds) and in preferred
stocks and convertible securities, which also have fixed-income
characteristics.
The adviser expects to manage the portfolio actively to meet its investment
objectives. The adviser attempts to be risk averse believing that preserving
principal in periods of rising interest rates should lead to above-average
returns over the long run. The structure of the portfolio will be largely
determined by the adviser's assessment of current economic conditions and
trends, the Federal Reserve Board's management of monetary policy, fiscal
policy, inflation expectations, government and private credit demands and
global conditions. Once the adviser has carefully analyzed these factors, it
will formulate an outlook for the direction of interest rates and will adjust
the maturity and/or duration(a measure of the investment life of a security)
of the portfolio accordingly. Over the complete economic cycle, the weighted
maturity of the portfolio is expected to range from six and twelve years and
its duration will range from four to six years.
In addition, the adviser tries to emphasize (1) relative values and interest
rate spreads within selected maturity ranges, credit qualities and coupons,
and (2) the marketability of individual issues and diversification within the
portfolio.
RISKS OF INVESTING IN DEBT SECURITIES
The value of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up the value of the bond will go
down, and vice versa). Interest rate changes may cause people to pay off
mortgage-backed and asset-backed securities earlier or later than expected,
which may shorten or lengthen the average maturity. Variations to average
maturity may cause the portfolio's share price and yield to fall.
The credit rating or financial condition of an issuer may affect the value of
a debt security. Generally, the lower the quality rating of a security, the
greater the risks that the issuer will fail to pay interest and return
principal. To compensate investors for taking on increased risk, issuers with
lower credit ratings usually offer their investors higher interest rates. If
an issuer defaults or becomes unable to honor its financial obligations, the
bond may lose some or all of its value.
17
<PAGE>
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade. The adviser may retain securities that are downgraded, if
it believes that keeping those securities is warranted.
Debt securities rated below investment-grade (junk bonds) are highly
speculative securities that are usually issued by smaller, less credit worthy
and/or highly leveraged (indebted) companies. A corporation may issue a junk
bond because of a corporate restructuring or other similar event. Compared
with investment-grade bonds, junk bonds carry a greater degree of risk and are
less likely to make payments of interest and principal. Market developments
and the financial and business condition of the corporation issuing these
securities influences their price and liquidity more than changes in interest
rates, when compared to investment-grade debt securities. Insufficient
liquidity in the junk bond market may make it more difficult to dispose of
junk bonds and may cause a portfolio to experience sudden and substantial
price declines. A lack of reliable, objective data or market quotations may
make it more difficult to value junk bonds accurately.
TS&W BALANCED PORTFOLIO
TS&W Balanced Portfolio is designed to provide a single vehicle with which to
participate in the adviser's equity and debt strategies combined with the
adviser's asset allocation decisions. The portfolio may invest in a
combination of equity and debt securities and other short-term cash
equivalents. Normally, the portfolio will invest 25% to 40% of its assets in
debt securities and 40% to 70% of its assets in equity securities. While, the
adviser may vary the composition of the portfolio within those ranges, it will
typically invest approximately 55% of the assets of the portfolio in equity
securities, 35% in debt securities and 10% in cash equivalents. The portfolio
may hold cash equivalent investments when deemed appropriate by the adviser.
The portfolio will invest at least 25% of its assets in senior debt
securities, including preferred stock.
In addition to, or as an alternative to, investing in shares of foreign based
companies, the portfolio may invest up to 15% of its the total assets in TS&W
International Equity Portfolio. The adviser will select equity and debt
securities using approaches identical to those set forth above for TS&W Equity
Portfolio and TS&W Fixed Income Portfolio, respectively.
OTHER INVESTMENT PRACTICES AND STRATEGIES
- --------------------------------------------------------------------------------
As described below, the portfolios may invest in derivatives and may deviate
from their investment strategies from time to time. In addition, they may
employ investment practices that are not described in this prospectus, such as
repurchase agreements, when-issued and forward commitment transactions,
18
<PAGE>
lending of securities, borrowing and other techniques. For more information
concerning the risks associated with these investment practices, you should
read the SAI.
DERIVATIVES
TS&W International Equity Portfolio may by and sell derivatives, including
futures and options. Derivatives are often more volatile than other
investments and may magnify a portfolio's gains or losses. A portfolio may
lose money if the adviser:
. Fails to predict correctly the direction in which the underlying asset or
economic factor will move.
. Judges market conditions incorrectly.
. Employs a strategy that does not correlate well with the investments of the
portfolio.
SHORT-TERM INVESTING
At times, the adviser may decide to suspend the normal investment activities
of a portfolio by investing up to 100% of its assets in a variety of
securities, such as U.S. government and other high quality and short-term debt
obligations. The adviser may temporarily adopt a defensive position to reduce
changes in the value of a portfolio's shares that may result from adverse
market, economic, political or other developments.
When the adviser pursues a defensive strategy, a portfolio may not profit from
favorable developments that it would have otherwise profited from if it were
pursuing its normal strategies. Likewise, these strategies may prevent a
portfolio from achieving its stated objectives.
YEAR 2000
- --------------------------------------------------------------------------------
Many computer programs in use today cannot distinguish the year 2000 from the
year 1900 because of the way they encode and calculate dates. Consequently,
these programs may not be able to perform necessary functions and could
disrupt the operations of the UAM Funds or financial markets in general. The
year 2000 issue affects all companies and organizations, including those that
provide services to the UAM Funds and those in which the UAM Funds invest.
The UAM Funds and their advisers, administrator, distributor and transfer
agent are taking steps they believe are reasonably necessary to address any
portfolio-related year 2000-related computer problems. They are actively
working on necessary changes to their own computer systems to prepare for the
year 2000 and expect that their systems will be adapted before that date.
They are also requesting information on each service provider's state of
readiness and contingency plan. However, at this time the degree to which the
year 2000 issue will affect the UAM Funds' investments or operations cannot
19
<PAGE>
be predicted. Any negative consequences could adversely affect your
investment in the UAM Funds.
INVESTMENT MANAGEMENT
- ---------------------------------------------------------------------------
INVESTMENT ADVISER
Thompson, Siegel & Walmsley, Inc., a Virginia corporation located at 5000
Monument Avenue, Richmond, Virginia 23230, is the investment adviser to
each of the portfolios. The adviser manages and supervises the investment
of each portfolio's assets on a discretionary basis. The adviser, an
affiliate of United Asset Management Corporation, has provided investment
management services to corporations, pension and profit-sharing plans,
401(k) and thrift plans, trusts, estates and other institutions and
individuals since 1970. During last fiscal year ended October 31, 1998, the
portfolios paid the adviser; the following fees which are expressed as a
percentage of average net assets:
<TABLE>
<CAPTION>
TS&W Equity TS&W Int'l Equity TS&W Balanced TSW Fixed Income
Portfolio Portfolio Portfolio Portfolio
---------------------------------------------------------------------------
<S> <C> <C> <C>
% % % %
</TABLE>
For more information on the adviser's investment services, please
call (804) 353-4500.
PORTFOLIO MANAGERS
TS&W BALANCED, EQUITY AND FIXED INCOME PORTFOLIOS
Investment committees are primarily responsible for the day-to-day
management of TS&W Balanced, Equity and Fixed Income Portfolios. Listed
below are the investment professionals of the adviser that comprise those
committees and a description of their business experience during the past
five years.
<TABLE>
<CAPTION>
Name & Title Experience
--------------------------------------------------------------------------------------------------
<S> <C>
John T. Siegel, CFA Princeton University, B.A., 1961; United States Navy,
Managing Director Officer, 1961-1965; University of Virginia Graduate School
of Business Administration, M.B.A., 1967; Chartered
Financial Analyst; Chartered Investment Counsel; Co-
founder of Thompson, Siegel & Walmsley, Inc. in 1969.
--------------------------------------------------------------------------------------------------
Matthew G. Thompson, CFA Washington & Lee University, B.S. Commerce, 1964;
University of Virginia Graduate School of Business
Administration, M.B.A., 1966; Chartered Financial Analyst;
Chartered Investment Counsel; Co-founder of Thompson,
Siegel & Walmsley, Inc. in 1969.
--------------------------------------------------------------------------------------------------
Horace P. Whitworth, II, CFA, CPA University of Virginia, B.S. Commerce, 1978; Chartered
Vice President Financial Analyst; Chartered Investment Counsel;
Thompson, Siegel & Walmsley, Inc., 1986 -- Present.
--------------------------------------------------------------------------------------------------
Paul A. Ferwerda, CFA University, B.S. Finance, 1979; Duke University,
Vice President Fuqua School of Business, M.B.A., 1982; Chartered
Financial Analyst; Chartered Investment Counsel;
Thompson, Siegel & Walmsley, Inc., 1987 -- Present.
--------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Name & Title Experience
--------------------------------------------------------------------------------------------------
<S> <C>
Charles A. Gomer, III University of North Carolina, Chapel Hill, A.B., 1971;
Vice President University of Richmond, M.S., 1978; Thompson, Siegel &
Walmsley, Inc. 1991 -- Present.
--------------------------------------------------------------------------------------------------
G.D. Rothenberg, CFA University of Virginia, B.A., 1975; UCLA Graduate School of
Vice President Management, M.B.A., 1979; Chartered Financial Analyst;
Chartered Investment Counsel; Thompson, Siegel & Walmsley,
Inc., 1992 -- Present. Before joining the adviser in 1992,
Mr. Rothenberg was involved in international investment
management at Scudder, Stevens & Clark, Inc.
--------------------------------------------------------------------------------------------------
Elizabeth Cabell Jennings, CFA The College of William and Mary, B.A. Economics, 1985;
Vice President Chartered Financial Analyst; Chartered Investment Counsel;
Thompson, Siegel & Walmsley, Inc., 1986 -- Present.
--------------------------------------------------------------------------------------------------
Alan C. Ashworth, CFA The College of William and Mary, B.B.A. Management, 1985;
Vice President Chartered Financial Analyst; Thompson, Siegel & Walmsley,
Inc., 1987 -- Present.
--------------------------------------------------------------------------------------------------
Stuart R. Davies, CFA Birmingham Southern College, B.S. Chemistry/Economics,
Vice President 1985; Virginia Commonwealth University, M.S. Finance, 1994;
Chartered Financial Analyst; Chartered Investment Counsel;
Thompson, Siegel & Walmsley, Inc. 1992 -- Present.
--------------------------------------------------------------------------------------------------
John G. Jordan, III, CFA University of Virginia, B.S., Commerce, 1990; Chartered
Portfolio Manager/Analyst Financial Analyst; Chartered Investment Counsel; Thompson,
Siegel & Walmsley, Inc., 1991 -- Present.
--------------------------------------------------------------------------------------------------
J. Shelton Horsley, IV, CFA University of Virginia, B.A., 1985; University of Virginia,
Portfolio Manager/Analyst M.B.A., 1991; Thompson, Siegel & Walmsley, Inc., 1994 --
Present.
--------------------------------------------------------------------------------------------------
Brandon H. Harrell, CFA Wake Forest University, B.A. Economics, 1982; George Mason
Portfolio Manager/Analyst University, M.B.A., 1990; Chartered Financial Analyst;
Thompson, Siegel & Walmsley, Inc., 1996 --Present.
--------------------------------------------------------------------------------------------------
Gordon Goodykoontz, CFA Virginia Polytechnic Institute, BA Business, 1962;
Senior Vice President University of Virginia, MBA, 1966; Chartered Financial
Analyst; Thompson, Siegel & Walmsley, Inc. 1997 -- Present.
</TABLE>
TS&W INTERNATIONAL EQUITY PORTFOLIO
G.D. Rothenberg is primarily responsible for the day-to-day management of
TS&W International Equity Portfolio and has been since its inception in
December of 1992. Supporting Mr. Rothenberg with financial investment
research are Brandon H. Harrell and John G. Jordan, III. The biographical
information of Messrs. Rothernberg, Harrell and Jordan is set forth above.
SHAREHOLDER SERVICING ARRANGEMENTS
- ---------------------------------------------------------------------------
SHAREHOLDER SERVICING
Certain financial intermediaries (service agents) may charge their clients
account fees for buying or redeeming shares of the UAM Funds. These fees
may include transaction fees and/or service fees paid by the UAM Funds from
their assets attributable to the service agent. The UAM Funds do not pay
these fees on shares purchased directly from UAM Fund Distributors. The
service agents may provide shareholder services to their clients that are
not available to a shareholder dealing directly with the UAM Funds. Each
service
21
<PAGE>
agent is responsible for transmitting to its clients a schedule of any such
fees and information regarding any additional or different purchase or
redemption conditions. You should consult your service agent for
information regarding these fees and conditions.
The adviser may pay its affiliated companies for referring investors to the
portfolio. The adviser and its affiliates may, at their own expense, pay
qualified service providers for marketing, shareholder servicing, record-
keeping and/or other services performed with respect to the portfolios.
UAM Fund Distributors, the adviser and certain of their other affiliates
also participate, as of the date of this prospectus, in an arrangement with
Salomon Smith Barney under which Salomon Smith Barney provides certain
defined contribution plan marketing and shareholder services and receives
0.15% of the portion of the daily net asset value of Institutional Class
Shares held by Salomon Smith Barney's eligible customer accounts in
addition to amounts payable to all selling dealers. The UAM Funds also
compensate Salomon Smith Barney for services it provides to certain defined
contribution plan shareholders that are not otherwise provided by the UAM
Funds' administrator.
The UAM Funds also offer Institutional Service Class shares, which pay
marketing or shareholder servicing fees, and Adviser Class shares, which
impose a sales load and fees for marketing and shareholder servicing, for
certain of its portfolios. Not all of the UAM Funds offer all of these
classes.
22
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
financial performance of each portfolio for the past five years. The
financial highlights table comes from the financial statements of the
portfolio and reflects the financial results for a single portfolio share.
The total returns in the table represent the rate that an investor would
have earned on an investment in the portfolio (assuming reinvestment of all
dividends and distributions). PricewaterhouseCoopers LLP has audited the
financial statements and the unqualified opinion of PricewaterhouseCooper,
LLP are included in the annual report of the portfolios, which is available
upon request.
TS&W EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal Year Ended October 31, 1998 1997 1996 1995 1994
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 14.48 $ 12.47 $ 11.23 $ 11.02
--------------------------------------------------------------------------------------------------------------
Income from Investment
Operations
Net Investment Income 0.27 0.26 0.23 0.19
Net Gains or losses on Securities
(Realized and Unrealized) 3.25 2.34 1.34 0.33
--------------------------------------------------------------------------------------------------------------
Total From Investment Operations 3.52 2.60 1.57 0.52
--------------------------------------------------------------------------------------------------------------
Less Distributions
Net Investment Income (0.27) (0.26) (0.22) (0.18)
Capital Gains (1.21) (0.33) (0.11) (0.13)
--------------------------------------------------------------------------------------------------------------
Total Distributions (1.48) (0.59) (0.33) (0.31)
--------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 16.52 $ 14.48 $ 12.47 $ 11.23
==============================================================================================================
Total Return 26.31% 21.45% 14.32% 4.82%
==============================================================================================================
Ratios/Supplemental Data
Net Assets, End of Year (Thousands) $ 95,582 $ 81,554 $ 60,352 $ 38,379
Ratio of Expenses to Average Net Assets 0.99% 1.01% 1.01% 1.10%
Ratio of Net Investment Income to Average Net Assets 1.72% 1.93% 2.04% 1.74%
Portfolio Turnover Rate 42% 40% 17% 23%
Ratio of Expenses to Average Net Assets
Including Expense Offsets 0.9% 1.01% 0.99% --
</TABLE>
23
<PAGE>
TS&W INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal Year Ended October 31, 1998 1997 1996 1995 1994
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 14.22 $ 13.22 $ 13.85 $ 12.54
---------------------------------------------------------------------------------------------------------------------
Income from InvestmentOperations
Net Investment Income 0.07 0.10 0.13 0.07
Net Gains or losses on Securities
(Realized and Unrealized) 1.05 1.04 (0.31) 1.29
---------------------------------------------------------------------------------------------------------------------
Total From Investment Operations 1.12 1.14 (0.18) 1.36
---------------------------------------------------------------------------------------------------------------------
Less Distributions
Net Investment Income (0.11) (0.14) (0.09) (0.05)
Capital Gains (0.09) -- (0.36) --
---------------------------------------------------------------------------------------------------------------------
Total Distributions (0.20) (0.14) (045) (0.05)
---------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 15.14 $ 14.22 $ 13.22 $ 13.85
=====================================================================================================================
Total Return 7.94% 8.71% 1.11% 10.87%
=====================================================================================================================
Ratios/Supplemental Data
Net Assets, End of Year (Thousands) $115,500 $103,339 $ 77,553 $ 49,362
Ratio of Expenses to Average Net Assets 1.30% 1.35% 1.32% 1.38%
Ratio of Net Investment Income to Average Net Assets 0.47% 0.84% 1.29% 0.70%
Portfolio Turnover Rate 45% 25% 23% 30%
Ratio of Expenses to Average Net Assets
Including Expense Offsets 1.30% 1.34% 1.30% --
</TABLE>
TS&W FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal Year Ended October 31, 1998 1997 1996 1995 1994
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 10.30 $ 10.42 $ 9.60 $ 10.75
---------------------------------------------------------------------------------------------------------------------
Income from InvestmentOperations
Net Investment Income 0.59 0.56 0.56 0.47
Net Gains or losses on Securities
(Realized and Unrealized) 0.24 (0.12) 0.82 (1.05)
---------------------------------------------------------------------------------------------------------------------
Total From Investment Operations 0.83 0.44 1.38 (0.58)
---------------------------------------------------------------------------------------------------------------------
Less Distributions
Net Investment Income (0.59) (0.56) (0.56) (0.47)
Capital Gains -- -- -- (0.10)
---------------------------------------------------------------------------------------------------------------------
Total Distributions (0.59) (0.56) (0.56) (0.57)
---------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 10.54 $ 10.30 $ 10.42 $ 9.60
=====================================================================================================================
Total Return 8.40% 4.40% 14.73% (5.46)%
=====================================================================================================================
Ratios/Supplemental Data
Net Assets, End of Year (Thousands) $ 67,987 $ 61,692 $ 46,677 $ 32,118
Ratio of Expenses to Average Net
Assets 0.72% 0.77% 0.76% 1.02%
Ratio of Net Investment Income to Average Net
Assets 5.79% 5.50% 5.56% 4.73%
Portfolio Turnover Rate 36% 59% 25% 27%
Ratio of Expenses to Average Net
Assets Including Expense Offsets 0.72% 0.77% 0.75& --
</TABLE>
24
<PAGE>
THE TS&W PORTFOLIOS
For investors who want more information about the TS&W Portfolios, the
following documents are available upon request.
ANNUAL/SEMI-ANNUAL REPORTS
The annual and semi-annual reports of the TS&W Portfolios provide additional
information about their investments. In each annual report, you will also
find a discussion of the market conditions and investment strategies that
significantly affected the performance of the TS&W Portfolios during the last
fiscal year.
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains additional detailed information about the TS&W Portfolios and
is incorporated by reference into (legally part of) this prospectus.
Investors can receive free copies of these materials, request other
information about the portfolios and make shareholder inquiries by writing to
or calling:
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
You can review, for a fee, the reports of the portfolio and SAI by writing to
the SEC's Public Reference Section, D.C. 20459-6009, or by calling the SEC at
1-800-SEC-0330. You can get copies of this information for free, on the SEC's
Internet site at http://www.sec.gov.
------------------
The portfolio's Investment Company Act of 1940 file is 811-5683.
[LOGO]
25
<PAGE>
PART B
UAM FUNDS, INC.
The following Statements of Additional Information are included in this Post-
Effective Amendment No. 53, filed on November __, 1998.
. Acadian Emerging Markets Portfolio Institutional Class Shares.
. The C&B Portfolios Institutional Class Shares.
. The DSI Portfolios Institutional Class and Institutional Service Class
Shares.
. FMA Small Company Portfolio Institutional Class and Institutional
Service Class Shares.
. ICM Portfolios Institutional Class Shares.
. The McKee Portfolios Institutional Class Shares.
. The NWQ Portfolios Institutional Class and Institutional Service Class
Shares.
. Rice, Hall, James Small Cap Portfolio and Rice, Hall, James
Small/Mid Cap Portfolio Institutional Class Shares .
. SAMI Preferred Stock Income Portfolio Institutional Class Shares.
. Sirach Portfolios Institutional Class and Institutional Service Class
Shares.
. Sterling Partners' Portfolios Institutional Class and Institutional
Service Class Shares .
. The TS&W Portfolios Institutional Class Shares.
<PAGE>
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
THE ACADIAN EMERGING MARKETS PORTFOLIO
INSTITUTIONAL CLASS SHARES
STATEMENT OF ADDITIONAL INFORMATION
__________, 1999
This statement of additional information (SAI) is not a prospectus. However,
you should read it in conjunction with the Prospectus of The Acadian Emerging
Markets Portfolio Institutional Class Shares dated ______, 1999. You may
obtain a Prospectus for the portfolio by contacting the UAM Funds at the
address listed above.
1
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
DEFINITIONS............................................................................... 1
THE FUND.................................................................................. 1
DESCRIPTION OF THE PORTFOLIO AND ITS INVESTMENTS AND RISKS................................ 1
Equity Securities........................................................................ 1
Debt Securities.......................................................................... 2
Derivatives.............................................................................. 6
Foreign Securities....................................................................... 10
Investment Companies..................................................................... 14
Repurchase Agreements.................................................................... 14
Securities Lending....................................................................... 14
Short-Term Investments................................................................... 14
When-Issued, Forward Commitment and Delayed Delivery Transactions........................ 15
Restricted Securities.................................................................... 16
INVESTMENT POLICIES....................................................................... 16
Fundamental Investment Policies.......................................................... 16
Non-Fundamental Policies................................................................. 17
MANAGEMENT OF THE PORTFOLIO............................................................... 17
CODE OF ETHICS............................................................................ 18
PRINCIPAL HOLDERS OF SECURITIES........................................................... 18
INVESTMENT ADVISORY AND OTHER SERVICES.................................................... 19
Investment Adviser....................................................................... 19
Distributor.............................................................................. 20
Administrative Services.................................................................. 20
Custodian................................................................................ 22
Independent Public Accountant............................................................ 22
BROKERAGE ALLOCATION AND OTHER PRACTICES.................................................. 22
Selection of Brokers..................................................................... 22
Simultaneous Transactions................................................................ 22
Brokerage Commissions.................................................................... 22
CAPITAL STOCK AND OTHER SECURITIES........................................................ 23
Description Of Shares And Voting Rights.................................................. 23
Dividends and Capital Gains Distributions................................................ 23
PURCHASE REDEMPTION AND PRICING OF SHARES................................................. 24
Purchase of Shares....................................................................... 24
Redemption of Shares..................................................................... 24
Exchange Privilege....................................................................... 26
Transfer Of Shares....................................................................... 26
Valuation of Shares...................................................................... 26
PERFORMANCE CALCULATIONS.................................................................. 27
Total Return............................................................................. 27
Yield.................................................................................... 27
Comparisons.............................................................................. 28
TAXES..................................................................................... 28
EXPENSES.................................................................................. 29
FINANCIAL STATEMENTS...................................................................... 29
</TABLE>
1
<PAGE>
DEFINITIONS
The "Fund" is UAM Funds, Inc.
The term "adviser" means Acadian Asset Management, Inc., the Fund's investment
adviser.
UAM is United Asset Management Corporation.
UAMFSI is UAM Fund Services, Inc., the Fund's administrator.
UAMFDI is UAM Fund Distributors, Inc., the Fund's distributor.
UAMSSC is UAM Fund Shareholder Servicing Center, the Fund's sub-shareholder-
servicing agent.
CGFSC is Chase Global Funds Service Company, the Fund's sub-administrator.
UAM Funds Complex includes UAM Funds, Inc., UAM Funds Trust, UAM Funds Trust
II and all of their portfolios.
The terms "the portfolio" is used to refer to the Acadian Emerging Markets
Portfolio, while " portfolio" or "portfolios" refers to some or all
portfolios of the UAM Funds Complex.
The terms "board" and "governing board" refer to the Fund's Board of Directors
as a group, while "board member" refers to a single member of the board.
All other defined terms, which are not otherwise defined in this SAI, have the
same meaning in the SAI as they do in the prospectus of The Acadian Emerging
Markets Portfolio.
THE FUND
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 Fund changed its
name to "UAM Funds, Inc." The Fund's principal executive office is located at
One International Place, Boston, MA 02110; shareholders should direct all
correspondence to the address listed on the cover of this SAI.
The Fund is an open-end, management investment company under the Investment
Company Act of 1940. The Acadian Emerging Markets Portfolio is a non-
diversified series of the Fund. This means that, with respect to 50% of its
total assets, it will be able to invest more than 5% of its assets in the
obligations of a single issuer. See also "INVESTMENT POLICIES' - below. To
the extent the portfolio invests a significant portion of its assets in the
securities of a particular issuer, it will be subject to an increased risk of
loss if the market value of such issuer's securities declines.
DESCRIPTION OF THE PORTFOLIO AND ITS INVESTMENTS AND RISKS
EQUITY SECURITIES
- -------------------------------------------------------------------------------
The portfolio may invest in equity securities such as common and preferred
stocks. While investing in stocks allows the portfolio to participate in the
benefits of owning a company, the portfolio must accept the risks of
ownership. Unlike bondholders, who have preference to a company's earnings
and cash flow, preferred stockholders followed by common stockholders in
order of priority, are entitled only to the residual amount after a company
meets its other obligations. For this reason, the value of a company's stock
will usually react more strongly to actual or perceived changes in the
company's financial condition or prospects than its debt obligations.
Stockholders of a company that fares poorly can lose money.
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 values 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
1
<PAGE>
value of a preferred stock than in a more senior debt security with similar
stated yield characteristics. Types of preferred stocks include adjustable-
rate preferred stock, fixed dividend preferred stock, perpetual preferred
stock, and sinking fund preferred stock.
STOCK MARKET RISK
Stock markets tend to move in cycles with short or extended periods of rising
and falling stock prices. The value of a company's stock may fall because of:
. Factors that directly relate to that company, such as decisions made by its
management or lower demand for the company's products or services.
. Factors affecting an entire industry, such as increases in production
costs.
. Changes in financial market conditions that are relatively unrelated to the
company or its industry, such as changes in interest rates, currency
exchange rates or inflation rates.
RIGHTS AND WARRANTS
The portfolio may purchase warrants and rights, which are securities
permitting, but not obligating, their holder to purchase the underlying
securities at a predetermined price. Generally, warrants and stock purchase
rights do not carry with them the right to receive dividends or exercise
voting rights with respect to the underlying securities, and they do not
represent any rights in the assets of the issuer. Therefore, an investment in
warrants and rights may entail greater risk than certain other types of
investments. In addition, the value of warrants and rights does not
necessarily change with the value of the underlying securities, and they cease
to have value if they are not exercised on or prior to their expiration date.
Investment in warrants and rights increases the potential profit or loss to be
realized from the investment of a given amount of a portfolio's assets as
compared with investing the same amount in the underlying stock.
CONVERTIBLE SECURITIES
A portfolio may purchase corporate bonds, debentures and preferred stock that
are convertible into common stock. In exchange for the conversion feature,
many corporations will pay a lower rate of interest on convertible securities
than debt securities of the same corporation.
Convertible corporate bonds, debentures and preferred stock are subject to the
same risks as similar securities without the convertible feature. In
addition, their market price tends to go up if the stock price moves up. For
this reason, convertible securities are more volatile in price during times of
steady interest rates than other types of fixed income securities.
DEBT SECURITIES
- -------------------------------------------------------------------------------
Debt securities are used by corporations and governments to borrow money from
investors. Most debt securities promise a variable or fixed rate of return
and repayment of the amount borrowed at maturity. Some debt securities, such
as zero-coupon bonds, do not pay current interest and are purchased at a
discount from their face value. Debt securities may include, among other
things, all types of bills, notes, bonds, mortgage-backed securities or asset-
backed securities.
The total return of a debt instrument is composed of two elements: the
percentage change in the security's price and interest income earned. The
YIELD TO MATURITY of a debt security estimates its total return only if the
price of the debt security remains unchanged during the holding period and
coupon interest is reinvested at the same yield to maturity. The total return
of a debt instrument, therefore, will be determined not only by how much
interest is earned, but also by how much the price of the security and
interest rates change.
INTEREST RATES
The price of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up, the value of the bond will go
down, and vice versa). One can estimate the anticipated change in the price of
a fixed rate security for each 1% shift in interest rates by using a risk
measure known as EFFECTIVE DURATION. An effective duration of 4 years, for
example, would suggest that for each 1% reduction in interest rates at all
maturity levels, the price of a security is estimated to increase by 4%. An
increase in rates by the same magnitude is estimated to reduce the price of
the security by 4%. By knowing the yield and the effective duration of a debt
security, one can estimate total return based on an expectation of how much
interest rates, in general, will change.
While serving as a good estimator of prospective returns, effective duration
is an imperfect measure. While lower interest rates generally improve the
value of a fixed income portfolio, lower interest rates may also introduce
certain risks which may
2
<PAGE>
independently cause the share price of the portfolio to fall. Lower rates
motivate people to pay off mortgage-backed and asset-backed securities earlier
than expected, which introduces REINVESTMENT RISK. Reinvesting portfolio
assets at lower rates may reduce the yield of the portfolio. The unexpected
timing of mortgage and asset-backed prepayments caused by the variations in
interest rates may also shorten or lengthen the AVERAGE MATURITY of the
portfolio. Neglecting this drift in average maturity may have the unintended
effect of increasing or reducing the effective duration of the portfolio which
may in turn adversely affect the expected performance of the portfolio.
CREDIT RATING
Coupon interest is offered to investors of fixed income securities as
compensation for assuming risk, although short-term U.S. treasury securities,
such as 3 month treasury bills, are considered "risk free." Corporate
securities offer higher yields than U.S. treasuries because their payment of
interest and complete repayment of principal is less certain. The credit
rating or financial condition of an issuer may affect the value of a debt
security. Generally, the lower the quality rating of a security, the greater
the risks that the issuer will fail to pay interest and return principal. To
compensate investors for taking on increased risk, issuers with lower credit
ratings usually offer their investors a higher "risk premium" in the form of
higher interest rates above comparable U.S. treasuries.
Changes in investor confidence regarding the certainty of interest and
principal payments of a fixed income corporate security will result in an
adjustment to this "risk premium." Since an issuer's outstanding debt carries
a fixed coupon, adjustments to the risk premium must occur in the price, which
effects the yield to maturity of the bond. If an issuer defaults or becomes
unable to honor its financial obligations, the bond may lose some or all of
its value
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade. The adviser may retain securities that are downgraded, if
it believes that keeping those securities is warranted.
Rating agencies are organizations that assign ratings to securities based
primarily on the rating agency's assessment of the issuer's financial
strength. The portfolios currently use ratings compiled by Standard and
Poor's Ratings Services, Duff & Phelps Rating Co., Fitch IBCA, Inc. and,
Moody's Investor Services. Credit ratings are only an agency's opinion, not an
absolute standard of quality, and they do not reflect an evaluation of market
risk. APPENDIX A contains further information concerning the ratings of
certain rating agencies and their significance.
The adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time a portfolio buys it. A rating
agency may change its credit ratings at any time. The adviser monitors the
rating of the security and will take appropriate actions if a rating agency
reduces the security's rating. A portfolio is not obligated to dispose of
securities whose issuers subsequently are in default or which are downgraded
below the above-stated ratings
INVESTMENT-GRADE FIXED-INCOME SECURITIES
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade.
JUNK BONDS
Debt securities rated below investment-grade (junk bonds) are highly
speculative securities that are usually issued by smaller, less credit worthy
and/or highly leveraged (indebted) companies. A corporation may issue a junk
bond because of a corporate restructuring or other similar event. Compared
with investment-grade bonds, junk bonds carry a greater degree of risk and are
less likely to make payments of interest and principal. Market developments
and the financial and business condition of the corporation issuing these
securities influences their price and liquidity more than changes in interest
rates, when compared to investment-grade debt securities. Insufficient
liquidity in the junk bond market may make it more difficult to dispose of
junk bonds and may cause a portfolio to experience sudden and substantial
price declines. A lack of reliable, objective data or market quotations may
make it more difficult to value junk bonds accurately.
U.S. GOVERNMENT SECURITIES
For a discussion of these securities see "SHORT-TERM INVESTMENTS - GOVERNMENT
SECURITIES," below.
3
<PAGE>
CORPORATE BONDS
For a discussion of these securities see "SHORT-TERM INVESTMENTS - CORPORATE
BONDS," below.
MORTGAGE-BACKED SECURITIES AND MORTGAGE PASS-THROUGH SECURITIES
Mortgage-backed securities are interests in pools of mortgage loans that
various governmental, government-related and private organizations assemble as
securities for sale to investors. Mortgage-backed securities differ from other
forms of debt securities because they make monthly payments that consist of
both interest and principal payments. (Other debt securities normally provide
for periodic payment of interest in fixed amounts with principal payments at
maturity or specified call dates.) In effect, these payments are a "pass-
through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of such
securities.
Governmental entities, private insurers and the mortgage poolers may insure or
guaranty the timely payment of interest and principal of these pools through
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance and letters of credit issue the insurance and
guarantees. The adviser will consider such insurance and guarantees and the
creditworthiness of the issuers thereof in determining whether a mortgage-
related security meets its investment quality standards. It is possible that
the private insurers or guarantors will not meet their obligations under the
insurance policies or guarantee arrangements.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.
Government National Mortgage Association (GNMA)
GNMA, a wholly owned U.S. government corporation within the Department of
Housing and Urban Development, is the principal governmental guarantor of
mortgage-related securities. GNMA, which is backed by the faith and credit of
the U.S. government, guarantees the timely payment of principal and interest
on securities issued by institutions approved by GNMA and backed by pools of
FHA-insured or VA-guaranteed mortgages. GNMA does not guarantee the market
value or yield of mortgage-backed securities or the value of portfolio shares.
To buy GNMA securities, a portfolio may have to pay a premium over the
maturity value of the underlying mortgages, which the portfolio may lose if
prepayment occurs.
Federal National Mortgage Association (FNMA)
FNMA is a government-sponsored corporation owned entirely by private
stockholders. FNMA, which is regulated by the Secretary of Housing and Urban
development, purchases conventional mortgages from a list of approved
seller/servicers, including 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, but are not backed by the
full faith and credit of the U.S. government.
Federal Home Loan Mortgage Corporation (FHLMC)
FHLMC is a corporate instrumentality of the U.S. government whose stock is
owned by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970
to increase the availability of mortgage credit for residential housing. FHLMC
issues Participation Certificates (PCs) which represent interests in
conventional mortgages from its national portfolio. Like FNMA, FHLMC
guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the U.S.
government.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. In addition to
guaranteeing the mortgage-related security, such issuers may service and/or
have originated the underlying mortgage loans. Pools created by these issuers
generally offer a higher rate of interest than pools created by GNMA, FNMA &
FHLMC because they are not guaranteed by a government agency.
Risk of Investing in Mortgage-Backed Securities
Yield characteristics of mortgage-backed securities differ from those of
traditional fixed income securities. The major differences include interest
and principal payments that are more frequent (usually monthly), adjustable
interest rates, and the possibility
4
<PAGE>
that prepayments of principal may be made substantially earlier than their
final distribution dates so that the price of the security will generally
decline when interest rates rise.
The portfolio may fail to recover fully its investment in mortgage-backed
securities notwithstanding any direct or indirect governmental, agency or
other guarantee because the counter-party failed to meet its commitments.
Changes in interest rates and a variety of economic, geographic, social and
other factors, such as the sale of the underlying property, refinancing or
foreclosure, can cause the loans underlying a mortgage-backed security to be
repaid sooner than expected. If the prepayment rates increase, a portfolio may
have to reinvest its principal at a rate of interest that is lower than the
rate on existing mortgage-backed securities. Conversely, when interest rates
are rising many mortgage-backed securities will see a decline in the
prepayment rate, extending their average life. Extending the average life of a
mortgage-backed security increases the risk of depreciation due to future
increases in market interest rates. For these reasons, mortgage-backed
securities may be less effective than other types of U.S. government
securities as a means of "locking in" interest rates.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)
CMOs are hybrids between mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, CMOs usually pay interest and prepaid principal
semiannually. While whole mortgage loans may collateralize CMOs, portfolios of
mortgage-backed securities guaranteed by GNMA, FHLMC, or FNMA, and their
income streams more typically collateralize them.
A REMIC is a CMO that qualifies for special tax treatment under the Internal
Revenue Code of 1986, as amended, and invests in certain mortgages primarily
secured by interests in real property and other permitted investments.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC certificate, often referred to as a
"tranche," is issued at a specific interest rate and must be fully retired by
its final distribution date. Generally, all classes of CMOs or REMIC
certificates pay or accrue interest monthly. Investing in the lowest tranche
of CMOs and REMIC certificates involves risks similar to those associated with
investing in equity securities.
OTHER ASSET-BACKED SECURITIES
A broad range of assets, including automobile loans, computer leases and
credit card receivables, are being securitized in pass-through structures
similar to the mortgage pass-through or CMO structures described above. In
general, the collateral supporting these securities is of shorter maturity
than mortgage loans and is less likely to experience substantial prepayments
with interest rate fluctuations.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the
benefit of any security interest in the related assets, which raises the
possibility that recoveries on repossessed collateral may not be available to
support payments on these securities. For example, credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which allow debtors
to reduce their balances by offsetting certain amounts owed on the credit
cards. Most issuers of asset-backed securities backed by automobile
receivables permit the servicers of such receivables to retain possession of
the underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the rated asset-backed securities. Because
of the large number of vehicles involved and technical requirements under
state laws, the trustee for the holders of asset-backed securities backed by
automobile receivables may not have a proper security interest in all of the
obligations backing such receivables.
To lessen the effect of failures by obligors on underlying assets to make
payments, the entity administering the pool of assets may agree to ensure the
receipt of payments on the underlying pool occurs in a timely fashion
("liquidity protection"). In addition, asset-backed securities may obtain
insurance, such as guarantees, policies or letters of credit obtained by the
issuer or sponsor from third parties, for some or all of the assets in the
pool ("credit support"). Delinquency or loss more than that anticipated or
failure of the credit support could adversely affect the return on an
investment in such a security.
A portfolio may also invest in residual interests in asset-backed securities,
which is the excess cash flow remaining after making required payments on the
securities and paying related administrative expenses. The amount of residual
cash flow resulting from a particular issue of asset-backed securities depends
in part on the characteristics of the underlying assets, the coupon rates on
the securities, prevailing interest rates, the amount of administrative
expenses and the actual prepayment experience on the underlying assets.
STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities are derivative multiple-class mortgage-
backed securities. Stripped mortgage-backed securities usually have two
classes that receive different proportions of interest and principal
distributions on a pool of mortgage assets. Typically, one class will receive
some of the interest and most of the principal, while the other class will
receive most of
5
<PAGE>
the interest and the remaining principal. In extreme cases, one class will
receive all of the interest ("interest only" or "IO" class) while the other
class will receive the entire principal (the "principal only" or "PO" class).
The cash flows and yields on IOs and POs are extremely sensitive to the rate
of principal payments (including prepayments) on the underlying mortgage loans
or mortgage-backed securities. A rapid rate of principal payments may
adversely affect the yield to maturity of IOs. Slower than anticipated
prepayments of principal may adversely affect the yield to maturity of a PO.
The yields and market risk of interest only and principal only stripped
mortgage-backed securities, respectively, may be more volatile than those of
other fixed income securities, including traditional mortgage-backed
securities.
YANKEE BONDS
Yankee bonds are dollar-denominated bonds issued inside the United States by
foreign entities. Investment in these securities involve certain risks which
are not typically associated with investing in domestic securities. See
"FOREIGN SECURITIES".
ZERO COUPON BONDS
These securities make no periodic payments of interest, but instead are sold
at a discount from their face value. When held to maturity, their entire
income, which consists of accretion of discount, comes from the difference
between the issue price and their value at maturity. The amount of the
discount rate varies depending on factors including the time remaining until
maturity, prevailing interest rates, the security's liquidity and the issuer's
credit quality. The market value of zero coupon securities may exhibit greater
price volatility than ordinary debt securities because a stripped security
will have a longer duration than an ordinary debt security with the same
maturity. A portfolio's investments in pay-in-kind, delayed and zero coupon
bonds may require it to sell certain of its portfolio securities to generate
sufficient cash to satisfy certain income distribution requirements.
These securities may include U.S. Treasury securities that have had their
interest payments ("coupons") separated from the underlying principal
("corpus") by their holder, typically a custodian bank or investment brokerage
firm. Once the holder of the security has stripped or separated corpus and
coupons, it may sell each component separately. The principal or corpus is
then sold at a deep discount because the buyer receives only the right to
receive a future fixed payment on the security and does not receive any rights
to periodic interest (cash) payments. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold
bundled in such form. The underlying U.S. Treasury security is held in book-
entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. Under a Federal Reserve program
known as "STRIPS" or "Separate Trading of Registered Interest and Principal of
Securities," a portfolio can record its beneficial ownership of the coupon or
corpus directly in the book-entry record-keeping system.
DERIVATIVES
- -------------------------------------------------------------------------------
Derivatives are financial instruments whose value is based on an underlying
asset, such as a stock or a bond, or an underlying economic factor, such as an
interest rate or an index. A portfolio tries to minimize its loss by investing
in derivatives to protect them from broad fluctuations in market prices,
interest rates or foreign currency exchange rates. Investing in derivatives
for these purposes is known as "hedging." When hedging is successful, the
portfolio will have offset any depreciation in the value of its portfolio
securities by the appreciation in the value of the derivative position.
Although techniques other than the sale and purchase of derivatives could be
used to control the exposure of the portfolio to market fluctuations, the use
of derivatives may be a more effective means of hedging this exposure. The
following derivatives may be purchased by the portfolio:
FUTURES
A futures contract is an agreement between two parties whereby one party is
obligated to buy and the other is obligated to sell a financial instrument at
an agreed upon price and time. The parties to a futures contract do not have
to pay for or deliver the underlying financial instrument until the delivery
date. The parties to a futures contract can hold the contract until its
delivery date, although in many cases they close the contract early by taking
an opposite position in an identical contract. The financial instrument
underlying the contract may be a stock, stock index, bond, bond index,
interest rate, foreign exchange rate or other similar instrument. A portfolio
will incur commission expenses in both opening and closing futures positions.
Futures contracts are traded in the United States on commodity exchanges or
boards of trade -- known as "contract markets" -- approved for such trading
and regulated by the Commodity Futures Trading Commission, a federal agency.
These contract markets standardize the terms, including the maturity date and
underlying financial instrument, of all futures contracts.
6
<PAGE>
Contract markets require both the purchaser and seller to deposit "initial
margin" with a futures broker, known as a futures commission merchant, when
they enter into the contract. Initial margin deposits are typically equal to a
percentage of the contract's value. After they open a futures contract, the
parties to the transaction must compare the purchase price of the contract to
its daily market value. If the value of the futures contract changes in such a
way that a party's position declines, that party must make additional
"variation margin" payments so that the margin payment is adequate. On the
other hand, the value of the contract may change in such a way that there is
excess margin on deposit, possibly entitling the party that has a gain to
receive all or a portion of this amount.
A portfolio may take a "short position" by selling futures contracts on
securities it owns or on securities with characteristics similar to those of
securities it owns. For example, when a portfolio expects interest rates to
rise or securities prices to fall, it can seek to offset a decline in the
value of its holdings by selling futures contracts so that a portfolio is
obligated to sell the securities at a future lower price. When a portfolio's
short hedging position is successful, the appreciation in the value of the
futures position will offset substantially any depreciation in the value of
the holdings of the portfolio. On the other hand, a decline in the value of
the futures position would offset any unanticipated appreciation in the value
of the holdings of the portfolio.
On other occasions, a portfolio may take a "long" position by purchasing
futures contracts. For example, when a portfolio expects interest rates to
fall or securities' prices to rise, it can seek to secure a better rate or
price than might later be available by purchasing a futures contract. A
portfolio may also buy futures contracts as a substitute for transactions in
securities, to alter the investment characteristics of portfolio securities or
to gain or increase its exposure to a particular securities market.
OPTIONS
An option is a contract between two parties for the purchase and sale of a
financial instrument for a specified price (known as the "strike price" or
"exercise price") at any time during the option period. Unlike a futures
contract, an option grants a right (not an obligation) to buy or sell a
financial instrument. Generally, a seller of an option can grant a buyer two
kinds of rights: a "call" (the right to buy the security) or a "put" (the
right to sell the security). Options have various types of underlying
instruments, including specific securities, indices of securities prices,
foreign currencies, interest rates and futures contracts. Options may be
traded on an exchange (exchange-traded-options) or may be customized
agreements between the parties (over-the-counter or "OTC options"). Like
futures, a financial intermediary, known as a clearing corporation,
financially backs exchange-traded options. However, OTC options have no such
intermediary and are subject to the risk that the counter-party will not
fulfill its obligations under the contract.
Purchasing Put and Call Options
When a portfolio purchases a put option, it buys the right to sell the
instrument underlying the option at a fixed strike price. In return for this
right, the portfolio pays the current market price for the option (known as
the "option premium"). A portfolio may purchase put options to offset or hedge
against a decline in the market value of its securities ("protective puts") or
to benefit from a decline in the price of securities that it does not own.
The portfolio would ordinarily realize a gain if, during the option period,
the value of the underlying securities decreased below the exercise price
sufficiently to cover the premium and transaction costs. However, if the price
of the underlying instrument does not fall enough to offset the cost of
purchasing the option, a put buyer would lose the premium and related
transaction costs.
Call options are similar to put options, except that the portfolio obtains the
right to purchase, rather than sell, the underlying instrument at the option's
strike price. A portfolio would normally purchase call options in anticipation
of an increase in the market value of securities it owns or wants to buy. A
portfolio would ordinarily realize a gain if, during the option period, the
value of the underlying instrument exceeded the exercise price plus the
premium paid and related transaction costs. Otherwise, the portfolio would
realize either no gain or a loss on the purchase of the call option.
The purchaser of an option may terminate its position by:
. Allowing it to expire and losing its entire premium;
. Exercising the option and either selling (in the case of a put option) or
buying (in the case of a call option) the underlying instrument at the
strike price; or
. Closing it out in the secondary market at its current price.
Selling (Writing) Put and Call Options
When a portfolio writes a call option it assumes an obligation to sell
specified securities to the holder of the option at a specified price if the
option is exercised at any time before the expiration date. Similarly, when a
portfolio writes a put option it assumes an obligation to purchase specified
securities from the option holder at a specified price if the option is
exercised at any time
7
<PAGE>
before the expiration date. A portfolio may terminate its position in an
exchange-traded put option before exercise by buying an option identical to
the one it has written. Similarly, it may cancel an over-the-counter option by
entering into an offsetting transaction with the counter-party to the option.
A portfolio could try to hedge against an increase in the value of securities
it would like to acquire by writing a put option on those securities. If
security prices rise, the portfolio would expect the put option to expire and
the premium it received to offset the increase in the security's value. If
security prices remain the same over time, the portfolio would hope to profit
by closing out the put option at a lower price. If security prices fall, the
portfolio may lose an amount of money equal to the difference between the
value of the security and the premium it received. Writing covered put options
may deprive a portfolio of the opportunity to profit from a decrease in the
market price of the securities it would like to acquire.
The characteristics of writing call options are similar to those of writing
put options, except that call writers expect to profit if prices remain the
same or fall. A portfolio could try to hedge against a decline in the value
of securities it already owns by writing a call option. If the price of that
security falls as expected, the portfolio would expect the option to expire
and the premium it received to offset the decline of the security's value.
However, the portfolio must be prepared to deliver the underlying instrument
in return for the strike price, which may deprive it of the opportunity to
profit from an increase in the market price of the securities it holds.
A portfolio is permitted only to write covered options. A portfolio can cover
a call option by owning, at the time of selling the option:
. The underlying security (or securities convertible into the underlying
security without additional consideration), index, interest rate, foreign
currency or futures contract.
. A call option on the same security or index with the same or lesser
exercise price.
. A call option on the same security or index with a greater exercise price,
with the difference between the exercise prices maintained as a segregated
account containing cash, or liquid securities.
. Cash, or liquid securities equal to at least the market value of the
optioned securities, interest rate, foreign currency or futures contract.
. In the case of an index, a portfolio of securities that corresponds to the
index.
. A portfolio can cover a put option by, at the time of selling the option:
. Entering into a short position in the underlying security.
. Purchasing a put option on the same security, index, interest rate, foreign
currency or futures contract with the same or greater exercise price.
. Purchasing a put option on the same security, index, interest rate, foreign
currency or futures contract with a lesser exercise price, with the
difference between the exercise prices maintained as a segregated account
containing cash, U.S. government securities or liquid securities.
. Maintaining the entire exercise price in liquid securities.
Options on Securities Indices
Options on securities indices are similar to options on securities, except
that the exercise of securities index options requires cash settlement
payments and does not involve the actual purchase or sale of securities. In
addition, securities index options are designed to reflect price fluctuations
in a group of securities or segment of the securities market rather than price
fluctuations in a single security.
Options on Futures
An option on a futures contract provides the holder with the right to buy a
futures contract (in the case of a call option) or sell a futures contract (in
the case of a put option) at a fixed time and price. Upon exercise of the
option by the holder, the contract market clearing house establishes a
corresponding short position for the writer of the option (in the case of a
call option) or a corresponding long position (in the case of a put option).
If the option is exercised, the parties will be subject to the futures
contracts. In addition, the writer of an option on a futures contract is
subject to initial and variation margin requirements on the option position.
Options on futures contracts are traded on the same contract market as the
underlying futures contract.
8
<PAGE>
The buyer or seller of an option on a futures contract may terminate the
option early by purchasing or selling an option of the same series (i.e., the
same exercise price and expiration date) as the option previously purchased or
sold. The difference between the premiums paid and received represents the
trader's profit or loss on the transaction.
A portfolio may purchase put and call options on futures contracts instead of
selling or buying futures contracts. A portfolio may buy a put option on a
futures contract for the same reasons it would sell a futures contract. It
also may purchase such put options in order to hedge a long position in the
underlying futures contract. A portfolio may buy call options on futures
contracts for the same purpose as the actual purchase of the futures
contracts, such as in anticipation of favorable market conditions.
A portfolio may write a call option on a futures contract to hedge against a
decline in the prices of the instrument underlying the futures contracts. If
the price of the futures contract at expiration were below the exercise price,
the portfolio would retain the option premium, which would offset, in part,
any decline in the value of its portfolio securities.
The writing of a put option on a futures contract is similar to the purchase
of the futures contracts, except that, if market price declines, the portfolio
would pay more than the market price for the underlying instrument. The
premium received on the sale of the put option, less any transaction costs,
would reduce the net cost to the portfolio.
Combined Positions
A portfolio may purchase and write options in combination with each other, or
in combination with futures or forward contracts, to adjust the risk and
return characteristics of the overall position. For example, a portfolio could
construct a combined position whose risk and return characteristics are
similar to selling a futures contract by purchasing a put option and writing a
call option on the same underlying instrument. Alternatively, a portfolio
could write a call option at one strike price and buy a call option at a lower
price to reduce the risk of the written call option in the event of a
substantial price increase. Because combined options positions involve
multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.
ADDITIONAL RISKS OF DERIVATIVES
While transactions in derivatives may reduce certain risks, these transactions
themselves entail certain other risks. For example, unanticipated changes in
interest rates, securities prices or currency exchange rates may result in a
poorer overall performance of the portfolio than if it had not entered into
any derivatives transactions. Derivatives may magnify a portfolio's gains or
losses, causing it to make or lose substantially more than it invested.
When used for hedging purposes, increases in the value of the securities a
portfolio holds or intends to acquire should offset any losses incurred with a
derivative. Purchasing derivatives for purposes other than hedging could
expose the portfolio to greater risks.
Correlation of Prices
The portfolio's ability to hedge its securities through derivatives depends on
the degree to which price movements in the underlying index or instrument
correlate with price movements in the relevant securities. In the case of poor
correlation, the price of the securities a portfolio is hedging may not move
in the same amount, or even in the same direction as the hedging instrument.
The adviser will try to minimize this risk by investing only in those
contracts whose behavior it expects to resemble the portfolio securities it is
trying to hedge. However, if the portfolio's prediction of interest and
currency rates, market value, volatility or other economic factors is
incorrect, the portfolio may lose money, or may not make as much money as it
could have.
Derivative prices can diverge from the prices of their underlying instruments,
even if the characteristics of the underlying instruments are very similar to
the derivative. Listed below are some of the factors that may cause such a
divergence.
. Current and anticipated short-term interest rates, changes in volatility of
the underlying instrument, and the time remaining until expiration of the
contract.
. A difference between the derivatives and securities markets, including
different levels of demand, how the instruments are traded, the imposition
of daily price fluctuation limits or trading of an instrument stops.
. Differences between the derivatives, such as different margin requirements,
different liquidity of such markets and the participation of speculators in
such markets.
Derivatives based upon a narrower index of securities, such as those of a
particular industry group, may present greater risk than derivatives based on
a broad market index. Since narrower indices are made up of a smaller number
of securities, they are more susceptible to rapid and extreme price
fluctuations because of changes in the value of those securities.
9
<PAGE>
While currency futures and options values are expected to correlate with
exchange rates, they may not reflect other factors that affect the value of
the investments of a portfolio. A currency hedge, for example, should protect
a yen-denominated security from a decline in the yen, but will not protect a
portfolio against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of a portfolio's foreign-denominated
investments changes in response to many factors other than exchange rates, it
may not be possible to match the amount of currency options and futures to the
value of the portfolio's investments precisely over time.
Lack Of Liquidity
Before a futures contract or option is exercised or expires, a portfolio can
terminate it only by entering into a closing purchase or sale transaction.
This requires a secondary market for such instruments on the exchange where
the portfolio originally entered into the transaction. If there is no
secondary market for the contract, or the market is illiquid, a portfolio may
have to purchase or sell the instrument underlying the contract, make or
receive a cash settlement or meet ongoing variation margin requirements. The
inability to close out derivative positions could have an adverse impact on
the ability of the portfolio to hedge its investments and may prevent a
portfolio from realizing profits or limiting its losses.
Derivatives may become illiquid (i.e., difficult to sell at a desired time and
price) under a variety of market conditions. For example:
. During periods of market volatility, a commodity exchange may suspend or
limit trading in a particular derivative instrument, an entire category of
derivatives or all derivatives.
. A portfolio may have difficulty liquidating its existing positions or
recovering excess variation margin payments because of exchange or clearing
house equipment failures, government intervention, insolvency of a
brokerage firm or clearing house or other disruptions of normal trading
activity.
. Investors may lose interest in a particular derivative or category of
derivatives.
Management Risk
If the adviser incorrectly predicts stock market and interest rate trends, a
portfolio may lose money by investing in derivatives. For example, if a
portfolio were to write a call option based on its adviser's expectation that
the price of the underlying security would fall, but the price were to rise
instead, the portfolio could be required to sell the security upon exercise at
a price below the current market price. Similarly, if a portfolio were to
write a put option based on the adviser's expectation that the price of the
underlying security would rise, but the price were to fall instead, the
portfolio could be required to purchase the security upon exercise at a price
higher than the current market price.
Margin
Because of the low margin deposits required upon the opening of a derivative
position, such transactions involve an extremely high degree of leverage.
Consequently, a relatively small price movement in a derivative may result in
an immediate and substantial loss (as well as gain) to the portfolio and it
may lose more than it originally invested in the derivative.
If the price of a futures contract changes adversely, a portfolio may have to
sell securities at a time when it is disadvantageous to do so to meet its
minimum daily margin requirement. A portfolio may lose its margin deposits if
a broker with whom it has an open futures contract or related option becomes
insolvent or declares bankruptcy.
FOREIGN SECURITIES
- -------------------------------------------------------------------------------
RISKS OF FOREIGN SECURITIES
Foreign securities, foreign currencies, and securities issued by U.S. entities
with substantial foreign operations may involve significant risks in addition
to the risks inherent in U.S. investments.
Local political, economic, regulatory, or social instability, military action
or unrest, or adverse diplomatic developments may affect the value of foreign
investments. A foreign government may take actions adverse to the interests
of U.S. investors, including expropriation or nationalization of assets,
confiscatory taxation and other restrictions on U.S. investment.
Foreign Currency Risk
The securities of foreign companies are frequently denominated in foreign
currencies. The portfolio's net asset value is denominated in U.S. dollars.
Thus, changes in foreign currency rates and in exchange control regulations
may positively or
10
<PAGE>
negatively affect the value of the securities of a portfolio. A portfolio also
may incur costs to convert foreign currencies into U.S. dollars and vice
versa. In addition:
. Foreign currency exchange rates reflect relative values of two currencies,
usually the U.S. dollar and the foreign currency in question.
. Complex political and economic factors applicable to the issuing country
may affect the value of U.S. dollars and foreign currencies.
. The actions of U.S. and foreign governments may affect significantly the
currency exchange rates.
. Government intervention may increase risks involved in purchasing or
selling foreign currency options, forward contracts and futures contracts,
since exchange rates may not be free to fluctuate in response to other
market forces.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
round-lot transactions in the inter-bank market and thus may not reflect
exchange rates for smaller odd-lot transactions (less than $1 million) where
rates may be less favorable. The inter-bank market in foreign currencies is a
global, around-the-clock market. To the extent that a market is closed while
the markets for the underlying currencies remain open, certain markets may not
always reflect significant price and rate movements.
The portfolio does not intend to invest in any security in a country where the
currency is not freely convertible to U.S. dollars, unless the portfolio has
obtained the necessary governmental licensing to convert such currency or
other appropriately licensed or sanctioned contractual guarantee to protect
such investment against loss of that currency's external value, or the
portfolio has a reasonable expectation at the time the investment is made that
such governmental licensing or other appropriately licensed or sanctioned
guarantee would be obtained or that the currency in which the security is
quoted would be freely convertible at the time of any proposed sale of the
security by the portfolio.
The Euro
The single currency for the European Economic and Monetary Union ("EMU"), the
Euro, is scheduled to replace the national currencies for participating member
countries over a period that begins on January 1, 1999 and ends in July 2002.
At the end of that period, use of the Euro will be compulsory and countries in
the EMU will no longer maintain separate currencies in any form. Until then,
however, each country and issuers within each country are free to choose
whether to use the Euro.
On January 1, 1999, existing national currencies will become denominations of
the Euro at fixed rates according to practices prescribed by the European
Monetary Institute and the Euro will become available as a book-entry
currency. Beginning on or about that date, the portfolio expects member
states to begin conducting financial market transactions in Euro and
redenominating many investments, currency balances and transfer mechanisms
into Euro. The portfolio also anticipates pricing, trading, settling and
valuing investments whose nominal values remain in their existing domestic
currencies in Euro. Accordingly, the portfolio expects the conversion to the
Euro to impact investments in countries that will adopt the Euro in all
aspects of the investment process, including trading, foreign exchange,
payments, settlements, cash accounts, custody and accounting. Some of the
uncertainties surrounding the conversion to the Euro include:
. Will the payment and operational systems of banks and other financial
institutions be ready by the scheduled launch date?
. Will the conversion to the Euro have legal consequences on outstanding
financial contracts that refer to existing currencies rather than Euro?
. How will existing currencies be exchanged into Euro?
. Will suitable clearing and settlement payment systems for the new currency
be created?
Forward Foreign Currency Exchange Contracts
A forward foreign currency contract involves an obligation to purchase or sell
a specific amount of currency at a future date or date range at a specific
price. In the case of a cancelable forward contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
Forward foreign currency exchange contracts differ from foreign currency
futures contracts in certain respects. Unlike futures contracts, forward
contracts
. do not have standard maturity dates or amounts (i.e., the parties to the
contract may fix the maturity date and the amount).
11
<PAGE>
. are traded in the inter-bank markets conducted directly between currency
traders (usually large commercial banks) and their customers, as opposed to
futures contracts which are traded in only on exchanges regulated by the
CFTC.
. do not require an initial margin deposit.
. may be closed by entering into a closing transaction with the currency
trader who is a party to the original forward contract, as opposed to a
commodities exchange.
Foreign Currency Hedging Strategies
A "settlement hedge" or "transaction hedge" is designed to protect a portfolio
against an adverse change in foreign currency values between the date a
security is purchased or sold and the date on which payment is made or
received. Entering into a forward contract for the purchase or sale of the
amount of foreign currency involved in an underlying security transaction for
a fixed amount of U.S. dollars "locks in" the U.S. dollar price of the
security. A portfolio may also use forward contracts to purchase or sell a
foreign currency when it anticipates purchasing or selling securities
denominated in foreign currency, even if it has not yet selected the specific
investments.
A portfolio may also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. Such a hedge,
sometimes referred to as a "position hedge," would tend to offset both
positive and negative currency fluctuations, but would not offset changes in
security values caused by other factors. A portfolio could also hedge the
position by selling another currency expected to perform similarly to the
currency in which the portfolio's investment is denominated. This type of
hedge, sometimes referred to as a "proxy hedge," could offer advantages in
terms of cost, yield, or efficiency, but generally would not hedge currency
exposure as effectively as a direct hedge into U.S. dollars. Proxy hedges may
result in losses if the currency used to hedge does not perform similarly to
the currency in which the hedged securities are denominated.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities that a portfolio owns or intends to
purchase or sell. They simply establish a rate of exchange that one can
achieve at some future point in time. Additionally, these techniques tend to
minimize the risk of loss due to a decline in the value of the hedged currency
and to limit any potential gain that might result from the increase in value
of such currency.
A portfolio may enter into forward contracts to shift its investment exposure
from one currency into another. Such transactions may call for the delivery of
one foreign currency in exchange for another foreign currency, including
currencies in which its securities are not then denominated. This may include
shifting exposure from U.S. dollars to a foreign currency, or from one foreign
currency to another foreign currency. This type of strategy, sometimes known
as a "cross-hedge," will tend to reduce or eliminate exposure to the currency
that is sold, and increase exposure to the currency that is purchased. Cross-
hedges protect against losses resulting from a decline in the hedged currency,
but will cause a portfolio to assume the risk of fluctuations in the value of
the currency it purchases. Cross hedging transactions also involve the risk of
imperfect correlation between changes in the values of the currencies
involved.
It is difficult to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward or futures contract.
Accordingly, a portfolio may have to purchase additional foreign currency on
the spot market if the market value of a security it is hedging is less than
the amount of foreign currency it is obligated to deliver. Conversely, a
portfolio may have to sell on the spot market some of the foreign currency it
received upon the sale of a security if the market value of such security
exceeds the amount of foreign currency it is obligated to deliver.
Stock Exchange And Market Risk
The adviser anticipates that in most cases an exchange or over-the-counter
(OTC) market located outside of the United States will be the best available
market for foreign securities. Foreign stock markets, while growing in volume
and sophistication, are generally not as developed as those in the United
States, and securities of some foreign issuers may be less liquid and more
volatile than securities of comparable U.S. issuers. Foreign security trading,
settlement and custodial practices are often less developed than those in U.S.
markets. This may lead to increased risk or substantial delays in case of a
failed trade or the insolvency of, or breach of duty by, a foreign broker-
dealer, securities depository or foreign sub-custodian. In addition, the costs
associated with foreign investments, including withholding taxes, brokerage
commissions and custodial costs, are generally higher than with U.S.
investments.
Legal System And Regulation Risks
Foreign countries have different legal systems and different regulations
concerning financial disclosure, accounting, and auditing standards.
Corporate financial information that would be disclosed under U.S. law may not
be available. Foreign accounting
12
<PAGE>
and auditing standards may render a foreign corporate balance sheet more
difficult to understand and interpret than one subject to U.S. law and
standards. Foreign markets may offer less protection to investors than U.S.
markets such as:
. Foreign accounting, auditing, and financial reporting requirements may
render a foreign corporate balance sheet more difficult to understand and
interpret than one subject to U.S. law and standards.
. Adequate public information on foreign issuers may not be available, and it
may be difficult to secure dividends and information regarding corporate
actions on a timely basis.
. In general, there is less overall governmental supervision and regulation
of securities exchanges, brokers, and listed companies than in the United
States.
. OTC markets tend to be less regulated than stock exchange markets and, in
certain countries, may be totally unregulated.
. Economic or political concerns may influence regulatory enforcement and may
make it difficult for investors to enforce their legal rights.
. Restrictions on transferring securities within the United States or to U.S.
persons may make a particular security less liquid than foreign securities
of the same class that are not subject to such restrictions.
EMERGING MARKETS
Investing in emerging markets may magnify the risks of foreign investing.
Security prices in emerging markets can be significantly more volatile than
those in more developed markets, reflecting the greater uncertainties of
investing in less established markets and economies. In particular, countries
with emerging markets may have (1) relatively unstable governments, (2) may
present the risks of nationalization of businesses, restrictions on foreign
ownership and prohibitions on the repatriation of assets, and (3) may have
less protection of property rights than more developed countries. The
economies of countries with emerging markets may be based on only a few
industries, may be highly vulnerable to changes in local or global trade
conditions, and may suffer from extreme and volatile debt burdens or inflation
rates. Local securities markets may trade a small number of securities and may
be unable to respond effectively to increases in trading volume, potentially
making prompt liquidation of holdings difficult or impossible at times.
Certain foreign governments levy withholding taxes on dividend and interest
income. Although in some countries a portfolio may recover a portion of these
taxes, the portion they cannot recover will reduce the income the portfolio
receives from its investments. The portfolio does not expect such foreign
withholding taxes to have a significant impact on performance.
There are over 130 countries which, in the opinion of the adviser, are
generally considered to be emerging or developing countries by the
international financial community, approximately 40 of which have stock
markets. These countries generally include every national in the world except
the United States, Canada, Japan, Australia, New Zealand, and most nations
located in Western Europe. Investing in many emerging countries is not
feasible or may involve unacceptable political risks.
Investment Funds
Some emerging countries have laws and regulations that currently preclude
direct foreign investment in the securities of their companies. However,
indirect foreign investment in the securities of companies listed and traded
on the stock exchanges in these countries is permitted by certain emerging
countries through investment funds which have been specifically authorized.
The portfolio may invest in these investment funds subject to the provisions
of the Investment Act of 1940, as amended ("1940 Act"), and other applicable
law. If the portfolio invests in such investment funds, the portfolio's
shareholders will bear not only their proportionate share of the expenses of
the portfolio (including operating expenses and the fees of the adviser), but
also will bear indirectly bear similar expenses of the underlying investment
funds.
AMERICAN DEPOSITARY RECEIPTS (ADRS)
American Depositary Receipts (ADRs) are certificates evidencing ownership of
shares of a foreign issuer. These certificates are issued by depository banks
and generally trade on an established market in the United States or
elsewhere. A custodian bank or similar financial institution in the issuer's
home country holds the underlying shares in trust. The depository bank may not
have physical custody of the underlying securities at all times and may charge
fees for various services, including forwarding dividends and interest and
corporate actions. ADRs are alternatives to directly purchasing the underlying
foreign securities in their national markets and currencies. However, ADRs
continue to be subject to many of the risks associated with investing directly
in foreign securities.
13
<PAGE>
INVESTMENT COMPANIES
- -------------------------------------------------------------------------------
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-ended 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 received permission from the SEC to allow each of its portfolios
to invest, for cash management purposes, the greater of 5% of its total assets
or $2.5 million in the UAM DSI Money Market Portfolio, provided that the
investment is consistent with the portfolio's investment policies and
restrictions. Based upon the portfolio's assets invested in the UAM DSI Money
Market Portfolio, the investing portfolio's adviser will waive its investment
advisery and any other fees earned as a result of the portfolio's investment
in the UAM DSI Money Market Portfolio. The investing portfolio will bear
expenses of the UAM DSI Money Market Portfolio on the same basis as all of its
other shareholders.
REPURCHASE AGREEMENTS
- --------------------------------------------------------------------------------
In a repurchase agreement, a portfolio buys a security for a relatively short
period (usually not more than 7 days) and simultaneously agrees to sell it
back at a specified date and price. A portfolio normally uses repurchase
agreements to earn income on assets that are not invested. A portfolio will
require the counter-party to the agreement to deliver securities serving as
collateral for each repurchase agreement to its custodian either physically or
in book-entry form. The counter party must add to the collateral whenever the
price of the repurchase agreement rises (i.e., the borrower "marks to the
market" on a daily basis).
If the seller of the security declares bankruptcy or otherwise becomes
financially unable to buy back the security, the portfolio's right to sell
the security may be restricted. In addition, the value of the security might
decline before the portfolio can sell it and the portfolio might incur
expenses in enforcing its rights.
SECURITIES LENDING
- --------------------------------------------------------------------------------
To earn additional income, the portfolio may lend up to one-third of its total
assets (including the value of the collateral for the loans) at fair market
value to broker- dealers or other financial institutions. A portfolio may
reinvest any cash collateral in short-term securities and money market funds.
A portfolio will only lend its securities if:
. The borrower provides collateral at least equal to the market value of the
securities loaned.
. The collateral pledged and maintained by the borrower must consist of cash,
an irrevocable letter of credit issued by a domestic U.S. bank or
securities issued or guaranteed by the U.S. government.
. The borrower adds to the collateral whenever the price of the securities
loaned rises (i.e., the borrower "marks to the market" on a daily basis).
. The portfolio can terminate the loan at any time; and
. The portfolio receives reasonable interest on the loan (which may include
the portfolio investing any cash collateral in interest bearing short-term
investments).
These risks are similar to the ones involved with repurchase agreements. When
a portfolio lends securities, there is a risk that it will lose money because
the borrower fails to return the securities involved in the transaction. In
addition, the borrower may become financially unable to honor its contractual
obligations, which may delay or prevent a portfolio from liquidating the
collateral.
SHORT-TERM INVESTMENTS
- --------------------------------------------------------------------------------
To earn a return on uninvested assets, meet anticipated redemptions, or for
temporary defensive purposes, a portfolio may invest a portion of its assets
in the short-term investments described below.
BANK OBLIGATIONS
A portfolio will only invest in a security issued by a commercial bank if the
bank:
. Has total assets of at least $1 billion, or the equivalent in other
currencies;
. Is a U.S. bank and a member of the Federal Deposit Insurance Corporation;
and
14
<PAGE>
. Is a foreign branch of a U.S. bank and the Adviser believes the security is
of an investment quality comparable with other debt securities that a
portfolio may purchase.
Time deposits
Time deposits are non-negotiable deposits, such as savings accounts or
certificates of deposit, held by a financial institution for a fixed term with
the understanding that the depositor can withdraw its money only by giving
notice to the institution. However, there may be early withdrawal penalties
depending upon market conditions and the remaining maturity of the obligation.
A portfolio may only purchase time deposits maturing from two business days
through seven calendar days.
Certificates of Deposit
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or savings and loan association for a definite
period of time and earning a specified return.
Banker's Acceptance
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).
COMMERCIAL PAPER
Commercial paper constitutes short-term obligations with maturities ranging
from 2 to 270 days issued by banks, corporations and other borrowers. Such
investments are unsecured and usually discounted. A portfolio may invest in
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. See APPENDIX A for a description
of commercial paper ratings.
U.S. GOVERNMENT SECURITIES
The portfolio may buy debt securities that are issued or guaranteed by the
U.S. Treasury or by an agency or instrumentality of the U.S. government. Some
U.S. government securities, such as Treasury bills, notes and bonds are
supported by the full faith and credit of the U.S. government. Others,
however, are supported only by the right of the instrumentality to borrow from
the U.S. government.
While U.S. government securities are guaranteed as to principal and interest,
their market value is not guaranteed. U.S. government securities are subject
to the same interest rate and credit risks as other fixed income securities.
However, since U.S. government securities are of the highest quality, the
credit risk is minimal. The U.S. government does not guarantee the net asset
value of the assets of a portfolio.
CORPORATE BONDS
A portfolio may buy corporate bonds and notes that are considered investment
grade securities. Investment grade securities have received one of the four
highest grades assigned by a rating agency, or determined to be of comparable
quality by the adviser. Corporations issue bonds and notes to raise money for
working capital or for capital expenditures such as plant construction,
equipment purchases and expansion. In return for the money loaned to the
corporation by investors, the corporation promises to pay investors interest,
and repay the principal amount of the bond or note.
Like other debt securities, corporate debt securities involve a risk that the
corporate issuer will not make timely payment of either interest or principal,
or may default entirely. In addition, the market price of corporate debt
securities may go down because of changes in interest rates.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED DELIVERY TRANSACTIONS
- -------------------------------------------------------------------------------
A when-issued security is one whose terms are available and for which a market
exists, but which have not been issued. In a forward delivery transaction, a
portfolio contracts to purchase securities for a fixed price at a future date
beyond customary settlement time. "Delayed delivery" refers to securities
transactions on the secondary market where settlement occurs in the future. In
each of these transactions, the parties fix the payment obligation and the
interest rate that they will receive on the securities at the time the parties
enter the commitment; however, they do not pay money or delivery securities
until a later date. Typically, no income accrues on securities a portfolio
has committed to purchase before the securities are delivered, although the
15
<PAGE>
portfolio may earn income on securities it has in a segregated account. A
portfolio will only enter into these types of transactions with the intention
of actually acquiring the securities, but may sell them before the settlement
date.
A portfolio uses when-issued, delayed-delivery and forward delivery
transactions to secure what it considers an advantageous price and yield at
the time of purchase. When a portfolio engages in when-issued, delayed-
delivery and forward delivery transactions, it relies on the other party to
consummate the sale. If the other party fails to complete the sale, the
portfolio may miss the opportunity to obtain the security at a favorable price
or yield.
When purchasing a security on a when-issued, delayed delivery, or forward
delivery basis, the portfolio assumes the rights and risks of ownership of the
security, including the risk of price and yield changes. At the time of
settlement, the market value of the security may be more or less than the
purchase price. The yield available in the market when the delivery takes
place also may be higher than those obtained in the transaction itself.
Because a portfolio does not pay for the security until the delivery date,
these risks are in addition to the risks associated with its other
investments.
RESTRICTED SECURITIES
- -------------------------------------------------------------------------------
A portfolio may purchase restricted securities that are not registered for
sale to the general public but which are eligible for resale to qualified
institutional investors under Rule 144A of the Securities Act of 1933. Under
the supervision of the Fund's board, the adviser determines the liquidity of
such investments by considering all relevant factors. Provided that a dealer
or institutional trading market in such securities exists, these restricted
securities are not treated as illiquid securities for purposes of a
portfolio'' investment limitations. The priced realized from the sales of
these securities could be more or less than those originally paid by the
portfolio or less than what may be considered the fair value of such
securities.
INVESTMENT POLICIES
Whenever an investment limitation sets forth a percentage limitation on
investment or utilization of assets, such limitation shall (with the exception
of a limitation relating to borrowing) be determined immediately after and as
a result of a portfolio's acquisition of such security or other asset.
Accordingly, any later increase or decrease resulting from a change in values,
net assets or other circumstances will not be considered when determining
whether the investment complies with the investment limitations of the
portfolio.
FUNDAMENTAL INVESTMENT POLICIES
- -------------------------------------------------------------------------------
The following investment limitations are fundamental, which means the
portfolio cannot change them without shareholder approval. The portfolio will
not:
. borrow, except from banks and as a temporary measure for extraordinary or
emergency purposes and then, in no event, in excess of 33 1/3% of the
portfolio's gross assets valued at the lower of market or cost;
. invest in physical commodities or contracts on physical commodities;
. invest more than 25% of its total assets in companies within a single
industry; however, there are no limitations on investments made in
instruments issued or guaranteed by the U.S. government and its agencies
when the portfolio adopts a temporary defensive position;
. issue senior securities, as defined in the Investment Company Act of 1940,
as amended, except that this restriction shall not be deemed to prohibit
the portfolio from (1) making any permitted borrowings, mortgages or
pledges, or (2) entering into options, futures or repurchase transactions.
. make loans except by purchasing debt securities in accordance with its
investment objective and policies, or entering into repurchase agreements,
or by lending its portfolio securities to banks, brokers, dealers and other
financial institutions so long as the loans are not inconsistent with the
Investment Company Act of 1940, as amended, and the rules and regulations
or interpretations of the SEC;
. 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;
. underwrite the securities of other issuers.
16
<PAGE>
NON-FUNDAMENTAL POLICIES
- -------------------------------------------------------------------------------
In addition to the policies described above, the following limitations are
non-fundamental (i.e., the portfolio may change them without shareholder
approval) policies. The portfolio will not:
. with respect to 50% of its assets, invest more than 5% of its total assets
at the time of purchase in securities of any single issuer (other than
obligations issued or guaranteed as to principal and interest by the U.S.
government or any of its agencies or instrumentalities);
. with respect to 50% of its assets, purchase more than 10% of any class of
the outstanding voting securities of any issuer; invest for the purpose of
exercising control over management of any company;
. invest in stock or bond futures and/or options on futures unless (1) not
more than 5% of the portfolio's assets are required as deposit to secure
obligations under such futures and/or options on futures contracts
provided, however, that in the case of an option that is in-the-money at
the time of purchase, the in-the-money amount may be excluded in computing
such 5% and (2) not more than 20% of the portfolio's assets are invested in
stock or bond futures and options;
. 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;
. invest more than an aggregate of 15% of the net 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; and
. pledge, mortgage, or hypothecate any of its assets to an extent greater
than 10% of its total assets at fair market value; purchase additional
securities when borrowings exceed 5% of total assets; purchase on margin
or sell short, except as permitted herein;
MANAGEMENT OF THE PORTFOLIO
The business of the Fund is managed by its governing board, which, in turn,
elects officers who are responsible for the day-to-day operations of the Fund
and who execute policies formulated by the board. The Fund pays each board
member who is not also an officer or affiliated person (independent board
member) a $150 quarterly retainer fee per active portfolio per quarter and a
$2,000 meeting fee. In addition, each independent board member is reimbursed
for travel and other expenses incurred while attending board meetings. The
$2,000 meeting fee and expense reimbursements are aggregated for all of the
board members and allocated proportionately among the portfolios of the UAM
Funds complex. The Fund does not pay the remaining board members, each of whom
are affiliated with the Fund, for their services as board members. UAM or its
affiliates or CGFSC pay the Fund's officers.
The following table lists the board members and officers of the Fund and
provides information regarding their present positions, date of birth, address,
principal occupations during the past five years, aggregate compensation
received from the Fund and total compensation received from the UAM Funds
complex.
<TABLE>
<CAPTION>
TOTAL
AGGREGATE COMPENSATION
POSITION COMPENSATION FROM FROM UAM FUNDS
NAME, ADDRESS, DOB UAM PRINCIPAL OCCUPATIONS DURING THE PAST 5 YEARS REGISTRANT AS OF COMPLEX AS OF
FUNDS, INC. OCTOBER 31 , 1998 OCTOBER 31, 1998
<S> <C> <C> <C> <C>
John T. Bennett, Jr. Director President of Squam Investment Management Company,
College Road -- RFD 3 Inc. and Great Island Investment Company, Inc.;
Meredith, NH 03253 President of Bennett Management Company from 1988
1/26/29 to 1993.
- -----------------------------------------------------------------------------------------------------------------------------------
Nancy J. Dunn Director Vice President for Finance and Administration and
10 Garden Street Treasurer of Radcliffe College since 1991.
Cambridge, MA 02138
8/14/51
- -----------------------------------------------------------------------------------------------------------------------------------
William A. Humenuk Director Executive Vice President and Chief Administrative
100 King Street West Officer of Philip Services Corp.; Director, Hofler
P.O. Box 2440, LCD-1, Corp.; Formerly, a Partner in the Philadelphia
Hamilton Ontario, office of the law firm Dechert Price & Rhoads.
Canada L8N-4J6
4/21/42
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
TOTAL
AGGREGATE COMPENSATION
POSITION COMPENSATION FROM FROM UAM FUNDS
UAM REGISTRANT AS OF COMPLEX AS OF
NAME, ADDRESS, DOB FUNDS, INC. PRINCIPAL OCCUPATIONS DURING THE PAST 5 YEARS OCTOBER 31, 1998 OCTOBER 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Philip D. English Director President and Chief Executive Officer of
16 West Madison Street Broventure Company, Inc.; Chairman of the Board
Baltimore, MD 21201 of Chektec Corporation and Cyber Scientific, Inc
8/5/48
- -----------------------------------------------------------------------------------------------------------------------------------
Norton H. Reamer* Director, Chairman, Chief Executive Officer and a Director 0 0
One International Place President and of United Asset Management Corporation; Director,
Boston, MA 02110 Chairman Partner or Trustee of each of the Investment
3/21/35 Companies of the Eaton Vance Group of Mutual Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Peter M. Whitman, Jr.* Director President and Chief Investment Officer of Dewey 0 0
One Financial Center Square Investors Corporation since 1988; Director
Boston, MA 02111 and Chief Executive Officer of H.T. Investors, Inc.,
7/1/43 formerly a subsidiary of Dewey Square.
- -----------------------------------------------------------------------------------------------------------------------------------
William H. Park Vice President Executive Vice President and Chief Financial Officer 0 0
One International Place of United Asset Management Corporation.
Boston, MA 02110
9/19/47
- -----------------------------------------------------------------------------------------------------------------------------------
Gary L. French Treasurer President of UAMFSI and UAMFDI, formerly Vice 0 0
211 Congress Street President of Operations, Development and Control
Boston, MA 02110 of Fidelity Investments in 1995; Treasurer of the
7/4/51 Fidelity Group of Mutual Funds from 1991 to 1995.
- -----------------------------------------------------------------------------------------------------------------------------------
Michael E. DeFao Secretary Vice President and General Counsel of UAMFSI and 0 0
211 Congress Street UAMFDI; Associate Attorney of Ropes & Gray
Boston, MA 02110 (a law firm) from 1993 to 1995.
2/28/68
- -----------------------------------------------------------------------------------------------------------------------------------
Robert R. Flaherty Assistant Vice President of UAMFSI; formerly Manager of Fund 0 0
211 Congress Street Treasurer Administration and Compliance of CGFSC from 1995 to
Boston, MA 02110 1996; Deloitte & Touche LLP from 1985 to 1995,
9/18/63 Senior Manager.
- -----------------------------------------------------------------------------------------------------------------------------------
Michael J. Leary Assistant Vice President of Chase Global Funds Services Company 0 0
73 Tremont Street Treasurer since 1993. Manager of Audit at Ernst & Young from
Boston, MA 02108 1988 to 1993.
11/23/65
- -----------------------------------------------------------------------------------------------------------------------------------
Michelle Azrialy Assistant Assistant Treasurer of Chase Global Funds Services 0 0
73 Tremont Street Secretary Company since 1996. Senior Public Accountant with
Boston, MA 02108 Price Waterhouse LLP from 1991 to 1994.
4/12/69
</TABLE>
____
*These board members are "interested persons" of the Fund as that term is
defined in the 1940 Act.
CODE OF ETHICS
The Fund has adopted a Code of Ethics that restricts to a certain extent
personal transactions by access persons of the Fund and imposes certain
disclosure and reporting obligations.
PRINCIPAL HOLDERS OF SECURITIES
As of ____________, 1998, the members of the governing board and officers of
the Fund as a group owned less than 1% of the Fund's outstanding shares.
As of ____________, 1998, the following persons or organizations held of
record or beneficially 5% or more of the shares of a portfolio:
Percentage of
Name and Address of Shareholder Shares Owned Portfolio Class
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
18
<PAGE>
Any persons or organizations listed above as owning 25% or more of the
outstanding shares of a portfolio may be presumed to "control" (as that term
is defined in the 1940 Act) the 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 the
portfolio.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
- -------------------------------------------------------------------------------
CONTROL OF ADVISER
The adviser is located at Two International Place, 26th Floor, Boston, MA
02110. The adviser is a wholly-owned subsidiary of UAM and has provided
investment management services to corporations, pension and profit-sharing
plans, 401(k) and thrift plans, trusts, estates and other institutions and
individuals since 1970.
UAM is 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 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. Several UAM
Affiliated Firms also act as investment advisers to separate series or
portfolios of the UAM Funds complex.
INVESTMENT ADVISORY AGREEMENT
Service Performed by Adviser
Pursuant to the Investment Advisory Agreement (Advisory Agreement) between the
Fund, on behalf of the portfolio, and the adviser, the adviser has agreed to:
. Manage the investment and reinvestment of the assets of the portfolio.
. Continuously review, supervise and administer the investment program of the
portfolio.
. Determine in its discretion the securities a portfolio will buy or sell and
the portion of its assets such portfolio will hold uninvested.
Limitation of Liability
In the absence of (1) willful misfeasance, bad faith, or gross negligence of
the part of the adviser in the performance of its obligations and duties under
the Advisory Agreement, (2) reckless disregard by the adviser of its
obligations and duties under the Advisory Agreement, or (3) a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation
for services, the Adviser shall not be subject to any liability whatsoever to
the Fund, for any error of judgment, mistake of law or any other act or
omission in the course of, or connected with, rendering services under the
Advisory Agreement.
Continuing an Advisory Agreement
Unless sooner terminated, an Advisory Agreement shall continue for periods of
one year so long as such continuance is specifically approved at least
annually (a) by a majority of those members of the governing board of the Fund
who are not parties to the Advisory Agreement or interested persons of any
such party and (b) by a majority of the governing board of the Fund or a
majority of the shareholders of the portfolio. An Advisory Agreement may be
terminated at any time by the Fund, without the payment of any penalty, by
vote of a majority of the portfolio' shareholders on 60 days' written notice
to the Adviser. The adviser may terminate the Advisory Agreements at any time,
without the payment of any penalty, upon 90 days' written notice to the Fund.
An Advisory Agreement will automatically and immediately terminate if it is
assigned.
19
<PAGE>
Investment Advisory Fee
For its services, the adviser receives an advisory fee calculated by applying
the annual percentage rates listed below to the average daily net assets of
the portfolio for the month. The adviser's fee is paid in monthly
installments.
Annual Percentage Rate
- -------------------------------------------------------------------------------
Acadian Emerging Markets Portfolio 1.00%
- -------------------------------------------------------------------------------
Expense Limitation
The adviser may voluntarily agree to limit the expenses of the portfolio. The
adviser may further reduce its compensation to the extent that the expenses of
a portfolio exceeds such lower expense limitation as the adviser may, by
notice to the portfolio, declare to be appropriate. The expenses subject to
this limitation are exclusive of brokerage commissions, interest, taxes,
deferred organizational and extraordinary expenses and, if the Fund has a
distribution plan, payments required under such plan. The prospectus describes
the terms of any expense limitation that are in effect from time to time.
PHILOSOPHY AND STYLE
The adviser's investment philosophy follows a rigorous, proven approach which
it calls enhanced value investing. The adviser believes that over the long
term, empirical evidence shows that value investing results in superior
returns. The adviser enhances the efficacy of time-proven fundamental value
measures by incorporating a number of growth-related factors, such as price
momentum and trends in analysts' earnings estimates, to target undervalued
companies that also have strong prospects for future outperformance. The
adviser's approach is implemented via a highly disciplined and structured
process, which utilizes proprietary sophisticated technology and a multi-
factor model for investment decision-making. The adviser maintains 25 years
of proprietary data on over 16,000 securities and 40 countries. From over a
decade of detailed statistical analysis of this data, the adviser has isolated
the investment factors it believes are most likely to lead to superior
investment returns. In the adviser's unique process, these factors are
weighted and combined on a market-by--market basis to identify the most
attractive securities in each market.
REPRESENTATIVE INSTITUTIONAL CLIENTS
As of the date of this SAI, the adviser's representative institutional clients
included USAir, Inc., E.I. DuPont de Nemours Co., Inc., Fluor Corporation,
RJR Nabisco and SEI Investment Management.
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.
DISTRIBUTOR
- -------------------------------------------------------------------------------
UAMFDI serves as the Fund's distributor. The Fund offers its shares
continuously. While UAMFDI will use its best efforts to sell shares of the
Fund, it is not obligated to sell any particular amount of shares. UAMFDI
receives no compensation for its services, and any amounts it may receive
under a Service and Distribution Plan are passed through in their entirety to
third parties. UAMFDI, an affiliate of UAM, is located at 211 Congress
Street, Boston, Massachusetts 02110.
ADMINISTRATIVE SERVICES
- -------------------------------------------------------------------------------
ADMINISTRATOR
Pursuant to a Fund Administration Agreement with the Fund, UAMFSI manages,
administers and conducts the general business activities of the Fund. As a
part of its responsibilities, UAMFSI provides and oversees the provision by
various third parties of administrative, fund accounting, dividend disbursing
and transfer agent services for the Fund. UAMFSI, an affiliate of UAM, has its
principal office at 211 Congress Street, Boston, Massachusetts 02110.
UAMFSI will bear all expenses in connection with the performance of its
services under the Fund Administration Agreement. Other expenses to be
incurred in the operation of the Fund will be borne by the Fund or other
parties, including
. Taxes, interest, brokerage fees and commissions.
. Salaries and fees of officers and members of the Board who are not
officers, directors, shareholders or employees of an affiliate of UAM,
including UAMFSI, UAMFDI or the adviser.
. SEC fees and state Blue-Sky fees.
20
<PAGE>
. EDGAR filing fees.
. Processing services and related fees.
. Advisory and administration fees.
. Charges and expenses of pricing and data services, independent public
accountants and custodians.
. Insurance premiums including fidelity bond premiums.
. Outside legal expenses.
. Costs of maintenance of corporate existence.
. Typesetting and printing of prospectuses for regulatory purposes and for
distribution to current shareholders of the Fund.
. Printing and production costs of shareholders' reports and corporate
meetings.
. Cost and expenses of Fund stationery and forms.
. Costs of special telephone and data lines and devices.
. Trade association dues and expenses.
. Any extraordinary expenses and other customary Fund expenses.
Unless sooner terminated, the Fund Administration Agreement shall continue in
effect from year to year provided the board specifically approves such
continuance at least annually. The Board or UAMFSI may terminate the Fund
Administration Agreement, without penalty, on not less than ninety (90) days'
written notice. The Fund Administration Agreement shall automatically
terminate upon its assignment by UAMFSI without the prior written consent of
the Fund.
UAMFSI will from time to time employ or associate with such person or persons
as may be fit to assist them in the performance of the Fund Administration
Agreement. Such person or persons may be officers and employees who are
employed by both UAMFSI and the Fund. UAMFSI will pay such person or persons
for such employment. The Fund will not incur any obligations with respect to
such persons.
SUB-ADMINISTRATOR
UAMFSI has subcontracted some of the its administrative and fund accounting
services to CGFSC, an affiliate of The Chase Manhattan Bank, by a Mutual Funds
Service Agreement dated April 15, 1996. CGFSC is located at 73 Tremont Street,
Boston, Massachusetts 02108.
SUB-TRANSFER AGENT AND SUB-SHAREHOLDER SERVICING AGENT
UAMFSI has subcontracted its transfer agent and dividend-disbursing agent
services to DST Systems, Inc. under an Agency Agreement between UAMFSI and DST
Systems Inc. DST Systems, Inc., is located at P.O. Box 419534, Kansas City,
Missouri 64141-6534.
UAMSSC serves as sub-shareholder servicing agent for the Fund under an
agreement between UAMSSC and UAMFSI. The principal place of business of UAMSSC
is 825 Duportail Road, Wayne, Pennsylvania 19087.
ADMINISTRATIVE FEES
In exchange for administrative services, the portfolio pays a four-part fee to
UAMFSI as follows:
A. A portfolio specific fee to UAMFSI calculated from the aggregate net
assets of the portfolio at the following rates:
ANNUAL RATE
Acadian Emerging Markets Portfolio 0.06%
B. An annual base fee that UAMFSI pays to CGFSC for its sub-administration and
other services calculated at the annual rate of $52,500 for the first
operational class; $7,500 for each additional operational class; and 0.04%
of their pro rata share of the combined assets of the UAM Funds.
C. An annual base fee that UAMFSI pays to DST Systems, Inc. for its services
as transfer agent and dividend-disbursing agent equal to $10,500 for the
first operational class and $10,500 for each additional class.
21
<PAGE>
D. An annual base fee that UAMFSI pays to UAMSSC for its services as sub-
shareholder-servicing agent equal to $7,500 for the first operational class
and $2,500 for each additional class.
The portfolio also pays certain account and transaction fees and out-of-pocket
expenses that may be based on the number of open and closed accounts, the type
of account or the services provided to the account.
SHAREHOLDER SERVICING ARRANGEMENTS
UAM and any of its 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. The adviser may also compensate its affiliated
companies for referring investors to the portfolios.
CUSTODIAN
- --------------------------------------------------------------------------------
The Chase Manhattan Bank, 3 Chase MetroTech Center, Brooklyn, New York 11245,
provides for the custody of the Fund's assets pursuant to the terms of a
custodian agreement with the Fund.
INDEPENDENT PUBLIC ACCOUNTANT
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as independent accountants for the Fund.
BROKERAGE ALLOCATION AND OTHER PRACTICES
SELECTION OF BROKERS
- --------------------------------------------------------------------------------
The Advisory Agreement authorizes the adviser to select the brokers or dealers
that will execute the purchases and sales of investment securities for a
portfolio. The Advisory Agreement also directs the adviser to use its best
efforts to obtain the best execution with respect to all transactions for a
portfolio. The adviser may select brokers based on research, statistical and
pricing services they provide to the adviser. Information and research
provided by a broker will be in addition to, and not instead of, the services
the adviser is required to perform under the Advisory Agreement. In so doing,
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. The adviser may place portfolio orders with
qualified broker-dealers who refer clients to the adviser.
SIMULTANEOUS TRANSACTIONS
- --------------------------------------------------------------------------------
The adviser makes investment decisions for a portfolio independently of
decisions made for its other clients. When a security is suitable for the
investment objective of more than one client, it may be prudent for the
adviser to engage in a simultaneous transaction, that is, buy or sell the same
security for more than one client. The adviser strives to allocate such
transactions among its clients, including the portfolio, in a fair and
reasonable manner. Although there is no specified formula for allocating such
transactions, the Fund's governing board periodically reviews the various
allocation methods used by the adviser, and the results of such allocations.
BROKERAGE COMMISSIONS
- --------------------------------------------------------------------------------
EQUITY SECURITIES
Generally, equity securities are bought and sold through brokerage
transactions for which commissions are payable. Purchases from underwriters
will include the underwriting commission or concession, and purchases from
dealers serving as market makers will include a dealer's mark-up or reflect a
dealer's mark-down.
22
<PAGE>
DEBT SECURITIES
Debt securities are usually bought and sold directly from the issuer or an
underwriter or market maker for the securities. Generally, each Fund will not
pay brokerage commissions for such purchases. When a debt security is bought
from an underwriter, the purchase price will usually include an underwriting
commission or concession. The purchase price for securities bought from
dealers serving as market makers will similarly include the dealer's mark up
or reflect a dealer's mark down. When a portfolio executes transactions in
the over-the-counter market, it will deal with primary market makers unless
prices that are more favorable are otherwise obtainable.
CAPITAL STOCK AND OTHER SECURITIES
DESCRIPTION OF SHARES AND VOTING RIGHTS
- --------------------------------------------------------------------------------
The Fund's Articles of Incorporation, as amended, permit its governing board
to issue three billion shares of common stock, with a $.001 par value. The
governing board has the power to create and designate one or more series
(portfolios) or classes of shares of common stock and to classify or
reclassify any unissued shares at any time and without shareholder approval.
When issued and paid for, the shares of each series and class of the Fund are
fully paid and nonassessable, and have no pre-emptive rights or preference as
to conversion, exchange, dividends, retirement or other features.
The shares of each series and class have non-cumulative voting rights, which
means that the holders of more than 50% of the shares voting for the election
of members of the governing board can elect all of the members if they choose
to do so. On each matter submitted to a vote of the shareholders, 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. Shares of all classes will vote together as a single class except
when otherwise required by law or as determined by the members of the Fund's
governing board.
If the Fund is liquidated, the shareholders of the portfolio or any class
thereof are entitled to receive the net assets belonging to that portfolio, or
in the case of a class, belonging to that portfolio and allocable to that
class. The Fund will distribute is net assets to its shareholders in
proportion to the number of shares of that portfolio or class thereof held by
them and recorded on the books of the Fund. The liquidation of any portfolio
or class thereof may be authorized at any time by vote of a majority of the
members of the governing board.
The governing board has authorized three classes of shares, Institutional,
Institutional Service and Adviser. The three classes represent interests in
the same assets of a portfolio and, except as discussed below, are identical
in all respects. Unlike Institutional and Adviser Class Shares, Institutional
Service Class Shares bear certain expenses related to shareholder servicing
and the distribution of such shares and have exclusive voting rights with
respect to matters relating to such distribution expenditures. The Adviser
Class Shares impose a sales load on purchases. The classes also have
different exchange privileges. The net income attributable to Institutional
Service Class Shares and the dividends payable on Institutional Service Class
Shares will be reduced by the amount of the shareholder servicing and
distribution fees; accordingly, the net asset value of the Institutional
Service Class Shares will be reduced by such amount to the extent a portfolio
has undistributed net income.
The Fund will not hold annual meetings except when required to by the
Investment Company Act of 1940, as amended, or other applicable law.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund tries to distribute substantially all of the net investment income of
a portfolio and net realized capital gains so as to avoid income taxes on its
dividends and distributions and the imposition of the federal excise tax on
undistributed income and capital gains. However, the Fund cannot predict the
time or amount of any such dividends or distributions.
Distributions by a portfolio reduce its net asset value (NAV"). A
distribution that reduces the NAV of a portfolio below its cost basis is
taxable as described in the prospectus of the portfolio, although from an
investment standpoint, it is a return of capital. If you buy shares of a
portfolio on or before the "record date" -- the date that establishes which
shareholders will receive an upcoming distribution -- for a distribution, you
will receive some of the money you invested as a taxable distribution.
Unless the shareholder elects otherwise in writing, all dividend and capital
gains distributions are automatically received in additional shares of a
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
23
<PAGE>
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.
The portfolio will be treated as a separate entity (and hence as a separate
"regulated investment company") for federal tax purposes. The portfolio will
distribute its net capital gains to its investors, but will not offset (for
federal income tax purposes) such gains against any net capital losses of
another portfolio.
PURCHASE REDEMPTION AND PRICING OF SHARES
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
Service Agents may enter confirmed purchase orders on behalf of their
customers. If shares of a Portfolio are purchased in this manner, the Service
Agent must receive your investment order before the close of trading on the
New York Stock Exchange ("NYSE") and transmit it to UAMSSC before the close of
its business day to receive that day's share price. UAMSSC must receive proper
payment for the order by the time the portfolio is priced on the following
business day. Service Agents are responsible to their customers and the Fund
for timely transmission of all subscription and redemption requests,
investment information, documentation and money.
Purchases of shares of a Portfolio will be made in full and fractional shares
of the Portfolio calculated to three decimal places. Certificates for
fractional shares will not be issued. Certificates for whole shares will not
be issued except at the written request of the shareholder.
The Fund reserves the right in its sole discretion 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.
IN-KIND PURCHASES
If accepted by the Fund, shareholders may purchase shares of a portfolio in
exchange for securities that are eligible for acquisition by the portfolio.
Securities to be exchanged that are accepted by the Fund will be valued as
described under "VALUATION OF SHARES" at the next determination of net asset
value after 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 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:
. At the time of exchange, such securities are eligible to be included in the
portfolio (current market quotations must be readily available for such
securities).
. The investor represents and agrees that all securities offered to be
exchanged are liquid securities and not subject to any restrictions upon
their sale by the Portfolio under the Securities Act of 1933, or otherwise.
. The value of any such securities (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.
Investors who are subject to Federal taxation upon exchange may realize a gain
or loss for Federal income tax purposes depending upon the cost of securities
or local currency exchanged. Investors interested in such exchanges should
contact the adviser.
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
When you redeem, your shares may be worth more or less than the price you paid
for them depending on the market value of the investments held by the
portfolio.
BY MAIL
Requests to redeem shares must include:
24
<PAGE>
. Share certificates, if issued.
. A letter of instruction or an 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.
. Any required signature guarantees (see "SIGNATURE GUARANTEES").
. Any other necessary legal documents, if required, in the case of estates,
trusts, guardianships, custodianships, corporations, pension and profit
sharing plans and other organizations.
BY TELEPHONE
The following tasks cannot be accomplished by telephone:
. Changing the name of the commercial bank or the account designated to
receive redemption proceeds (this can be accomplished only by a written
request signed by each shareholder, with each signature guaranteed).
. Redemption of certificated shares by telephone.
The Fund and its Sub-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, as well as 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. The Fund or Sub-Transfer Agent may
be liable for any losses due to unauthorized or fraudulent telephone
instructions if the Fund or the Sub-Transfer Agent does not employ the
procedures described above. Neither the Fund nor the Sub-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.
REDEMPTIONS-IN-KIND
If the governing board determines that it would be detrimental to the best
interests of remaining shareholders of the Fund to make payment wholly or
partly in cash, the Fund may pay redemption proceeds in whole or in part by a
distribution in-kind of liquid securities held by a Portfolio in lieu of cash
in conformity with applicable rules of the SEC. Investors may incur brokerage
charges on the sale of portfolio securities received in payment of
redemptions.
However, the Fund has made an election with the SEC 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 SEC. 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 governing board believes 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 under "Valuation of Shares." A redeeming shareholder
would normally incur brokerage expenses if these securities were converted to
cash.
SIGNATURE GUARANTEES
To protect your account, the Fund and its sub-transfer agent 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
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 that 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.
25
<PAGE>
OTHER REDEMPTION INFORMATION
Normally, the Fund will pay for all shares redeemed under proper procedures
within one business day of and no more than seven days after the receipt of
the request, or earlier if required under applicable law. 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 determined by
the SEC.
The Fund may suspend redemption privileges or postpone the date of payment
. During any period that both the NYSE and custodian bank are closed, or
trading on the NYSE is restricted as determined by the Commission.
. 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.
. For such other periods as the Commission may permit.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
The exchange privilege is only available with respect to portfolios qualified
for sale in the shareholder's state of residence. Exchanges are based on the
respective net asset values of the shares involved. The Institutional Class
and Institutional Service Class Shares of UAM Funds do not charge a sales
commission or charge of any kind.
Neither the Fund nor any of its service providers will be responsible for the
authenticity of the exchange instructions received by telephone. The
governing board of the Fund may restrict the exchange privilege at any time.
Such instructions may include limiting the amount or frequency of exchanges
and may be for the purpose of assuring such exchanges do not disadvantage the
Fund and its shareholders.
TRANSFER OF SHARES
- --------------------------------------------------------------------------------
Shareholders may transfer shares of each portfolio to another person by making
a written request to the Fund. Your request should clearly identify the
account and number of shares you wish to transfer. All registered owners
should sign the request 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
"Signature Guarantees." As in the case of redemptions, the written request
must be received in good order before any transfer can be made.
VALUATION OF SHARES
- --------------------------------------------------------------------------------
The Fund does not price its shares on those days when the New York Stock
Exchange is closed, which are currently: New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day; Good Friday; Memorial Day; Independence Day; Labor
Day; Thanksgiving Day; and Christmas Day.
EQUITY SECURITIES
Equity securities listed on a securities exchange for which market quotations
are readily available are valued at the last quoted sale price of the day.
Price information on listed securities is taken from the exchange where the
security is primarily traded. Unlisted equity securities and listed
securities not traded on the valuation date for which market quotations are
readily available are valued neither exceeding the asked prices nor less than
the bid prices. Quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents. The converted value is based upon the
bid price of the foreign currency against U.S. dollars quoted by any major
bank or by a broker.
DEBT SECURITIES
Debt securities are valued according to the broadest and most representative
market, which will ordinarily be the over-the-counter market. Debt securities
may be valued based on prices provided by a pricing service when such prices
are believed to reflect the fair market value of such securities. Securities
purchased with remaining maturities of 60 days or less are valued at amortized
cost when the Board of Directors determines that amortized cost reflects fair
value.
OTHER ASSETS
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 governing board.
26
<PAGE>
PERFORMANCE CALCULATIONS
The portfolio measures performance by calculating yield and total return. Both
yield and total return figures are based on historical earnings and are not
intended to indicate future performance. Performance quotations by investment
companies are subject to rules adopted by the SEC, 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 SEC.
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 SEC. An explanation of the method used to compute or express
performance follows.
Performance is calculated separately for Institutional Class and Service Class
Shares. Dividends paid by a Portfolio with respect to Institutional Class and
Service Class Shares, to the extent any dividends are paid, will be calculated
in the same manner at the same time on the same day and will be in the same
amount, except that service fees, distribution charges and any incremental
transfer agency costs relating to Service Class Shares will be borne
exclusively by that class.
TOTAL RETURN
- --------------------------------------------------------------------------------
Total return is the change in value of an investment in a portfolio over a
given period, assuming reinvestment of any dividends and capital gains. A
cumulative or aggregate total return reflects actual performance over a stated
period of time. An average annual total return is a hypothetical rate of
return that, if achieved annually, would have produced the same cumulative
total return if performance had been constant over the entire period.
The average annual total return of a 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 one, five and ten-year period and the deduction of
all applicable Fund expenses on an annual basis. Since Institutional Service
Class Shares bear additional service and distribution expenses, their average
annual total return will generally be lower than that of the Institutional
Class Shares.
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).
The average annual total rates of return of the Institutional Class Shares of
the portfolio are as follows:
<TABLE>
<CAPTION>
One Year Ended Five Years Ended Since Inception
October 31, 1998 October 31, 1998 Through Year Ended
October 31, 1998 Inception Date
<S> <C> <C> <C> <C>
Acadian Emerging Markets 6/17/93
Portfolio
Institutional Class Shares
</TABLE>
YIELD
- --------------------------------------------------------------------------------
Yield refers to the income generated by an investment in a portfolio over a
given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all funds. As this
differs from other accounting methods, the quoted yield may not equal the
income actually paid to shareholders.
The 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. Since Institutional Service Class Shares bear additional service
and distribution expenses, their yield will generally be lower than that of
the Institutional Class Shares.
Yield is obtained using the following formula:
27
<PAGE>
Yield = 2((a-b)/(cd)+1)(Degree)-1
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
- --------------------------------------------------------------------------------
The portfolio's performance may be compared to data prepared by independent
services which monitor the performance of investment companies, data reported
in financial and industry publications, and various indices as further
described in the portfolio' SAI. This information may also be included in
sales literature and advertising.
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. Please see APPENDIX B for publications, indices and averages that
may be used.
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 portfolio, 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
portfolio to calculate its performance. In addition, there can be no assurance
that the portfolio will continue this performance as compared to such other
averages.
TAXES
In order for the portfolio to continue to qualify for federal income tax
treatment as a regulated investment company under the Internal Revenue Code of
1986, as amended, 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, as applicable.
The portfolio will distribute to shareholders annually any net capital gains
that have been recognized for federal income tax purposes. Shareholders will
be advised on the nature of the payments.
If for any taxable year the portfolio does not qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code, all of
the portfolio's taxable income would be subject to tax at regular corporate
rates without any deduction for distributions to shareholders. In this event,
the portfolio's distributions to shareholders would be taxable as ordinary
income to the extent of the current and accumulated earnings and profits of
the particular portfolio, and would be eligible for the dividends received
deduction in the case of corporate shareholders. The portfolio intends to
qualify as a "regulated investment company" each year.
Dividends and interest received by portfolio may give rise to withholding and
other taxes imposed by foreign countries. These taxes would reduce the
portfolio's dividends but are included in the taxable income reported on your
tax statement if the portfolio qualifies for this tax treatment and elects to
pass it through to you. Consult a tax adviser for more information regarding
deductions and credits for foreign taxes.
28
<PAGE>
EXPENSES
<TABLE>
<CAPTION>
Investment Investment Sub-
Advisory Fees Advisory Fees Administrator Administrator Brokerage
Paid Waived Fee (UAMFSI) Fee (CGFSC) Commissions
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Acadian Emerging Markets
Portfolio
1998
- ------------------------------------------------------------------------------------------------------------------------------------
1997 $551,585 -0- $140,787 $89,053 $184,776
- ------------------------------------------------------------------------------------------------------------------------------------
1996 $862,391 -0- $105,671 $83,905 $181,022
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
FINANCIAL STATEMENTS
The Financial Statements for the portfolio for the fiscal year ended October
31, 1998, the Financial Highlights for the respective periods presented, and
the report thereon by PricewaterhouseCoopers LLP, the Fund's independent
accountant, which appear in portfolio's 1998 Annual Report, are incorporated
by reference into this Statement of Additional Information. No other parts
are incorporated by reference herein. Copies of the 1998 Annual Report may be
obtained free of charge by telephoning the UAM Funds at the telephone number
appearing on the front page of this Statement of Additional Information.
29
<PAGE>
UAM FUNDS
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
THE C & B PORTFOLIOS
C & B Equity Portfolio
C & B Equity Portfolio for Taxable Investors
C & B Mid Cap Equity Portfolio
C & B Balanced Portfolio
Institutional Class Shares
Statement of Additional Information
__________, 1999
This statement of additional information (SAI) is not a prospectus. However,
you should read it in conjunction with the Prospectus of The C & B Portfolios
Institutional Class Shares dated _____, 1999. You may obtain a Prospectus for
The C & B Portfolios by contacting the UAM Funds at the address listed above.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
DEFINITIONS......................................................... 1
THE FUND............................................................ 1
DESCRIPTION OF PORTFOLIOS AND THEIR INVESTMENTS AND RISKS........... 1
Equity Securities.................................................. 1
Debt Securities (C & B Balanced Portfolio)........................ 2
Derivatives........................................................ 6
Foreign Securities................................................. 10
Investment Companies............................................... 12
Repurchase Agreements.............................................. 13
Securities Lending................................................. 13
Short-Term Investments............................................. 13
When-Issued, Forward Commitment and Delayed Delivery Transactions.. 14
Restricted Securities.............................................. 15
INVESTMENT POLICIES................................................. 15
MANAGEMENT OF THE PORTFOLIOS........................................ 16
CODE OF ETHICS...................................................... 17
PRINCIPAL HOLDERS OF SECURITIES..................................... 17
INVESTMENT ADVISORY AND OTHER SERVICES.............................. 18
Investment adviser................................................. 18
Distributor........................................................ 19
Administrative Services............................................ 19
Custodian.......................................................... 21
Independent Public Accountant...................................... 21
BROKERAGE ALLOCATION AND OTHER PRACTICES............................ 21
Selection of Brokers............................................... 21
Simultaneous Transactions.......................................... 21
Brokerage Commissions.............................................. 21
CAPITAL STOCK AND OTHER SECURITIES.................................. 22
Description Of Shares And Voting Rights............................ 22
Dividends and Capital Gains Distributions.......................... 22
PURCHASE REDEMPTION AND PRICING OF SHARES........................... 23
Purchase of Shares................................................. 23
Redemption of Shares............................................... 23
Exchange Privilege................................................. 25
Transfer Of Shares................................................. 25
Valuation of Shares................................................ 25
PERFORMANCE CALCULATIONS............................................ 26
Total Return....................................................... 26
Yield.............................................................. 26
Comparisons........................................................ 27
TAXES............................................................... 27
EXPENSES............................................................ 28
FINANCIAL STATEMENTS................................................ 28
</TABLE>
1
<PAGE>
DEFINITIONS
The "Fund" is UAM Funds, Inc.
The term "adviser" means Cooke & Bieler, Inc., the Fund's investment adviser.
UAM is United Asset Management Corporation.
UAMFSI is UAM Fund Services, Inc., the Fund's administrator.
UAMFDI is UAM Fund Distributors, Inc., the Fund's distributor.
UAMSSC is UAM Fund Shareholder Servicing Center, the Fund's sub-shareholder-
servicing agent.
CGFSC is Chase Global Funds Service Company, the Fund's sub-administrator.
UAM Funds Complex includes UAM Funds, Inc., UAM Funds Trust, UAM Funds Trust
II and all of their portfolios.
The term "portfolios" is used to refer to The C & B Portfolios as a group,
while "portfolio" refers to a single C & B Portfolio.
The terms "board" and "governing board" refer to the Fund's Board of Directors
as a group, while "board member" refers to a single member of the board.
All other defined terms, which are not otherwise defined in this SAI, have the
same meaning in the SAI as they do in the prospectus of The C & B Portfolios.
THE FUND
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 Fund changed its
name to "UAM Funds, Inc." The Fund's principal executive office is located at
One International Place, Boston, MA 02110; shareholders should direct all
correspondence to the address listed on the cover of this SAI.
The Fund is an open-end, management investment company under the Investment
Company Act of 1940. The C & B Portfolios are a diversified series of the
Fund. This means that with respect to 75% of its total assets, the portfolio
may not invest more than 5% of its total assets in the securities of any one
issuer (except U.S. government securities). The remaining 25% of its total
assets are not subject to this restriction. To the extent the portfolio
invests a significant portion of its assets in the securities of a particular
issuer, it will be subject to an increased risk of loss if the market value of
such issuer's securities declines.
DESCRIPTION OF PORTFOLIOS AND THEIR INVESTMENTS AND RISKS
EQUITY SECURITIES
- --------------------------------------------------------------------------------
Some of the portfolios may invest in equity securities such as common and
preferred stocks. While investing in stocks allows a portfolio to participate
in the benefits of owning a company, a portfolio must accept the risks of
ownership. Unlike bondholders, who have preference to a company's earnings
and cash flow, preferred stockholders followed by common stockholders in order
of priority, are entitled only to the residual amount after a company meets
its other obligations. For this reason, the value of a company's stock will
usually react more strongly to actual or perceived changes in the company's
financial condition or prospects than its debt obligations. Stockholders of a
company that fares poorly can lose money.
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 values 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. Types of preferred stocks
2
<PAGE>
include adjustable-rate preferred stock, fixed dividend preferred stock,
perpetual preferred stock, and sinking fund preferred stock.
STOCK MARKET RISK
Stock markets tend to move in cycles with short or extended periods of rising
and falling stock prices. The value of a company's stock may fall because of:
. Factors that directly relate to that company, such as decisions made by its
management or lower demand for the company's products or services.
. Factors affecting an entire industry, such as increases in production
costs.
. Changes in financial market conditions that are relatively unrelated to the
company or its industry, such as changes in interest rates, currency
exchange rates or inflation rates.
RIGHTS AND WARRANTS
A portfolio may purchase warrants and rights, which are securities permitting,
but not obligating, their holder to purchase the underlying securities at a
predetermined price. Generally, warrants and stock purchase rights do not
carry with them the right to receive dividends or exercise voting rights with
respect to the underlying securities, and they do not represent any rights in
the assets of the issuer. Therefore, an investment in warrants and rights may
entail greater risk than certain other types of investments. In addition, the
value of warrants and rights does not necessarily change with the value of the
underlying securities, and they cease to have value if they are not exercised
on or prior to their expiration date. Investment in warrants and rights
increases the potential profit or loss to be realized from the investment of a
given amount of a portfolio's assets as compared with investing the same
amount in the underlying stock.
CONVERTIBLE SECURITIES
A portfolio may purchase corporate bonds, debentures and preferred stock that
are convertible into common stock. In exchange for the conversion feature,
many corporations will pay a lower rate of interest on convertible securities
than debt securities of the same corporation.
Convertible corporate bonds, debentures and preferred stock are subject to the
same risks as similar securities without the convertible feature. In
addition, their market price tends to go up if the stock price moves up. For
this reason, convertible securities are more volatile in price during times of
steady interest rates than other types of fixed income securities.
DEBT SECURITIES (C & B BALANCED PORTFOLIO)
- --------------------------------------------------------------------------------
Debt securities are used by corporations and governments to borrow money from
investors. Most debt securities promise a variable or fixed rate of return and
repayment of the amount borrowed at maturity. Some debt securities, such as
zero-coupon bonds, do not pay current interest and are purchased at a discount
from their face value. Debt securities may include, among other things, all
types of bills, notes, bonds, mortgage-backed securities or asset-backed
securities.
The total return of a debt instrument is composed of two elements: the
percentage change in the security's price and interest income earned. The
YIELD TO MATURITY of a debt security estimates its total return only if the
price of the debt security remains unchanged during the holding period and
coupon interest is reinvested at the same yield to maturity. The total return
of a debt instrument, therefore, will be determined not only by how much
interest is earned, but also by how much the price of the security and
interest rates change.
INTEREST RATES
The price of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up, the value of the bond will go
down, and vice versa). One can estimate the anticipated change in the price of
a fixed rate security for each 1% shift in interest rates by using a risk
measure known as EFFECTIVE DURATION. An effective duration of 4 years, for
example, would suggest that for each 1% reduction in interest rates at all
maturity levels, the price of a security is estimated to increase by 4%. An
increase in rates by the same magnitude is estimated to reduce the price of
the security by 4%. By knowing the yield and the effective duration of a debt
security, one can estimate total return based on an expectation of how much
interest rates, in general, will change.
While serving as a good estimator of prospective returns, effective duration
is an imperfect measure. While lower interest rates generally improve the
value of a fixed income portfolio, lower interest rates may also introduce
certain risks which may independently cause the share price of the portfolio
to fall. Lower rates motivate people to pay off mortgage-backed and asset-
2
<PAGE>
backed securities earlier than expected, which introduces REINVESTMENT RISK.
Reinvesting portfolio assets at lower rates may reduce the yield of the
portfolio. The unexpected timing of mortgage and asset-backed prepayments
caused by the variations in interest rates may also shorten or lengthen the
AVERAGE MATURITY of the portfolio. Neglecting this drift in average maturity
may have the unintended effect of increasing or reducing the effective
duration of the portfolio which may in turn adversely affect the expected
performance of the portfolio.
CREDIT RATING
Coupon interest is offered to investors of fixed income securities as
compensation for assuming risk, although short-term U.S. treasury securities,
such as 3 month treasury bills, are considered "risk free." Corporate
securities offer higher yields than U.S. treasuries because their payment of
interest and complete repayment of principal is less certain. The credit
rating or financial condition of an issuer may affect the value of a debt
security. Generally, the lower the quality rating of a security, the greater
the risks that the issuer will fail to pay interest and return principal. To
compensate investors for taking on increased risk, issuers with lower credit
ratings usually offer their investors a higher "risk premium" in the form of
higher interest rates above comparable U.S. treasuries.
Changes in investor confidence regarding the certainty of interest and
principal payments of a fixed income corporate security will result in an
adjustment to this "risk premium." Since an issuer's outstanding debt carries
a fixed coupon, adjustments to the risk premium must occur in the price, which
effects the yield to maturity of the bond. If an issuer defaults or becomes
unable to honor its financial obligations, the bond may lose some or all of
its value
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade. The adviser may retain securities that are downgraded, if
it believes that keeping those securities is warranted.
Rating agencies are organizations that assign ratings to securities based
primarily on the rating agency's assessment of the issuer's financial
strength. The portfolios currently use ratings compiled by Standard and
Poor's Ratings Services, Duff & Phelps Rating Co., Fitch IBCA, Inc. and,
Moody's Investor Services. Credit ratings are only an agency's opinion, not an
absolute standard of quality, and they do not reflect an evaluation of market
risk. APPENDIX A contains further information concerning the ratings of
certain rating agencies and their significance.
The adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time a portfolio buys it. A rating
agency may change its credit ratings at any time. The adviser monitors the
rating of the security and will take appropriate actions if a rating agency
reduces the security's rating. A portfolio is not obligated to dispose of
securities whose issuers subsequently are in default or which are downgraded
below the above-stated ratings
INVESTMENT-GRADE FIXED-INCOME SECURITIES
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade.
JUNK BONDS
Debt securities rated below investment-grade (junk bonds) are highly
speculative securities that are usually issued by smaller, less credit worthy
and/or highly leveraged (indebted) companies. A corporation may issue a junk
bond because of a corporate restructuring or other similar event. Compared
with investment-grade bonds, junk bonds carry a greater degree of risk and are
less likely to make payments of interest and principal. Market developments
and the financial and business condition of the corporation issuing these
securities influences their price and liquidity more than changes in interest
rates, when compared to investment-grade debt securities. Insufficient
liquidity in the junk bond market may make it more difficult to dispose of
junk bonds and may cause a portfolio to experience sudden and substantial
price declines. A lack of reliable, objective data or market quotations may
make it more difficult to value junk bonds accurately.
U.S. GOVERNMENT SECURITIES
For a discussion of these securities see "SHORT-TERM INVESTMENTS - GOVERNMENT
SECURITIES," below.
3
<PAGE>
CORPORATE BONDS
For a discussion of these securities see "SHORT-TERM INVESTMENTS - CORPORATE
BONDS," below.
MORTGAGE-BACKED SECURITIES AND MORTGAGE PASS-THROUGH SECURITIES
Mortgage-backed securities are interests in pools of mortgage loans that
various governmental, government-related and private organizations assemble as
securities for sale to investors. Mortgage-backed securities differ from other
forms of debt securities because they make monthly payments that consist of
both interest and principal payments. (Other debt securities normally provide
for periodic payment of interest in fixed amounts with principal payments at
maturity or specified call dates.) In effect, these payments are a "pass-
through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of such
securities.
Governmental entities, private insurers and the mortgage poolers may insure or
guaranty the timely payment of interest and principal of these pools through
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance and letters of credit issue the insurance and
guarantees. The adviser will consider such insurance and guarantees and the
creditworthiness of the issuers thereof in determining whether a mortgage-
related security meets its investment quality standards. It is possible that
the private insurers or guarantors will not meet their obligations under the
insurance policies or guarantee arrangements.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.
Government National Mortgage Association (GNMA)
GNMA, a wholly owned U.S. government corporation within the Department of
Housing and Urban Development, is the principal governmental guarantor of
mortgage-related securities. GNMA, which is backed by the faith and credit of
the U.S. government, guarantees the timely payment of principal and interest
on securities issued by institutions approved by GNMA and backed by pools of
FHA-insured or VA-guaranteed mortgages. GNMA does not guarantee the market
value or yield of mortgage-backed securities or the value of portfolio shares.
To buy GNMA securities, a portfolio may have to pay a premium over the
maturity value of the underlying mortgages, which the portfolio may lose if
prepayment occurs.
Federal National Mortgage Association (FNMA)
FNMA is a government-sponsored corporation owned entirely by private
stockholders. FNMA, which is regulated by the Secretary of Housing and Urban
development, purchases conventional mortgages from a list of approved
seller/servicers, including 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, but are not backed by the
full faith and credit of the U.S. government.
Federal Home Loan Mortgage Corporation (FHLMC)
FHLMC is a corporate instrumentality of the U.S. government whose stock is
owned by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970
to increase the availability of mortgage credit for residential housing. FHLMC
issues Participation Certificates (PCs) which represent interests in
conventional mortgages from its national portfolio. Like FNMA, FHLMC
guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the U.S.
government.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. In addition to
guaranteeing the mortgage-related security, such issuers may service and/or
have originated the underlying mortgage loans. Pools created by these issuers
generally offer a higher rate of interest than pools created by GNMA, FNMA &
FHLMC because they are not guaranteed by a government agency.
Risk of Investing in Mortgage-Backed Securities
Yield characteristics of mortgage-backed securities differ from those of
traditional fixed income securities. The major differences include interest
and principal payments that are more frequent (usually monthly), adjustable
interest rates, and the possibility
4
<PAGE>
that prepayments of principal may be made substantially earlier than their
final distribution dates so that the price of the security will generally
decline when interest rates rise.
The portfolio may fail to recover fully its investment in mortgage-backed
securities notwithstanding any direct or indirect governmental, agency or
other guarantee because the counter-party failed to meet its commitments.
Changes in interest rates and a variety of economic, geographic, social and
other factors, such as the sale of the underlying property, refinancing or
foreclosure, can cause the loans underlying a mortgage-backed security to be
repaid sooner than expected. If the prepayment rates increase, a portfolio may
have to reinvest its principal at a rate of interest that is lower than the
rate on existing mortgage-backed securities. Conversely, when interest rates
are rising many mortgage-backed securities will see a decline in the
prepayment rate, extending their average life. Extending the average life of a
mortgage-backed security increases the risk of depreciation due to future
increases in market interest rates. For these reasons, mortgage-backed
securities may be less effective than other types of U.S. government
securities as a means of "locking in" interest rates.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)
CMOs are hybrids between mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, CMOs usually pay interest and prepaid principal
semiannually. While whole mortgage loans may collateralize CMOs, portfolios of
mortgage-backed securities guaranteed by GNMA, FHLMC, or FNMA, and their
income streams more typically collateralize them.
A REMIC is a CMO that qualifies for special tax treatment under the Internal
Revenue Code of 1986, as amended, and invests in certain mortgages primarily
secured by interests in real property and other permitted investments.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC certificate, often referred to as a
"tranche," is issued at a specific interest rate and must be fully retired by
its final distribution date. Generally, all classes of CMOs or REMIC
certificates pay or accrue interest monthly. Investing in the lowest tranche
of CMOs and REMIC certificates involves risks similar to those associated with
investing in equity securities.
OTHER ASSET-BACKED SECURITIES
A broad range of assets, including automobile loans, computer leases and
credit card receivables, are being securitized in pass-through structures
similar to the mortgage pass-through or CMO structures described above. In
general, the collateral supporting these securities is of shorter maturity
than mortgage loans and is less likely to experience substantial prepayments
with interest rate fluctuations.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the
benefit of any security interest in the related assets, which raises the
possibility that recoveries on repossessed collateral may not be available to
support payments on these securities. For example, credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which allow debtors
to reduce their balances by offsetting certain amounts owed on the credit
cards. Most issuers of asset-backed securities backed by automobile
receivables permit the servicers of such receivables to retain possession of
the underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the rated asset-backed securities. Because
of the large number of vehicles involved and technical requirements under
state laws, the trustee for the holders of asset-backed securities backed by
automobile receivables may not have a proper security interest in all of the
obligations backing such receivables.
To lessen the effect of failures by obligors on underlying assets to make
payments, the entity administering the pool of assets may agree to ensure the
receipt of payments on the underlying pool occurs in a timely fashion
("liquidity protection"). In addition, asset-backed securities may obtain
insurance, such as guarantees, policies or letters of credit obtained by the
issuer or sponsor from third parties, for some or all of the assets in the
pool ("credit support"). Delinquency or loss more than that anticipated or
failure of the credit support could adversely affect the return on an
investment in such a security.
A portfolio may also invest in residual interests in asset-backed securities,
which is the excess cash flow remaining after making required payments on the
securities and paying related administrative expenses. The amount of residual
cash flow resulting from a particular issue of asset-backed securities depends
in part on the characteristics of the underlying assets, the coupon rates on
the securities, prevailing interest rates, the amount of administrative
expenses and the actual prepayment experience on the underlying assets.
STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities are derivative multiple-class mortgage-
backed securities. Stripped mortgage-backed securities usually have two
classes that receive different proportions of interest and principal
distributions on a pool of mortgage assets. Typically, one class will receive
some of the interest and most of the principal, while the other class will
receive most of
5
<PAGE>
the interest and the remaining principal. In extreme cases, one class will
receive all of the interest ("interest only" or "IO" class) while the other
class will receive the entire principal (the "principal only" or "PO" class).
The cash flows and yields on IOs and POs are extremely sensitive to the rate
of principal payments (including prepayments) on the underlying mortgage loans
or mortgage-backed securities. A rapid rate of principal payments may
adversely affect the yield to maturity of IOs. Slower than anticipated
prepayments of principal may adversely affect the yield to maturity of a PO.
The yields and market risk of interest only and principal only stripped
mortgage-backed securities, respectively, may be more volatile than those of
other fixed income securities, including traditional mortgage-backed
securities.
ZERO COUPON BONDS
These securities make no periodic payments of interest, but instead are sold
at a discount from their face value. When held to maturity, their entire
income, which consists of accretion of discount, comes from the difference
between the issue price and their value at maturity. The amount of the
discount rate varies depending on factors including the time remaining until
maturity, prevailing interest rates, the security's liquidity and the issuer's
credit quality. The market value of zero coupon securities may exhibit greater
price volatility than ordinary debt securities because a stripped security
will have a longer duration than an ordinary debt security with the same
maturity. A portfolio's investments in pay-in-kind, delayed and zero coupon
bonds may require it to sell certain of its portfolio securities to generate
sufficient cash to satisfy certain income distribution requirements.
These securities may include U.S. Treasury securities that have had their
interest payments ("coupons") separated from the underlying principal
("corpus") by their holder, typically a custodian bank or investment brokerage
firm. Once the holder of the security has stripped or separated corpus and
coupons, it may sell each component separately. The principal or corpus is
then sold at a deep discount because the buyer receives only the right to
receive a future fixed payment on the security and does not receive any rights
to periodic interest (cash) payments. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold
bundled in such form. The underlying U.S. Treasury security is held in book-
entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. Under a Federal Reserve program
known as "STRIPS" or "Separate Trading of Registered Interest and Principal of
Securities," a portfolio can record its beneficial ownership of the coupon or
corpus directly in the book-entry record-keeping system.
DERIVATIVES
- --------------------------------------------------------------------------------
Derivatives are financial instruments whose value is based on an underlying
asset, such as a stock or a bond, or an underlying economic factor, such as an
interest rate or an index. A portfolio tries to minimize its loss by investing
in derivatives to protect them from broad fluctuations in market prices,
interest rates or foreign currency exchange rates. Investing in derivatives
for these purposes is known as "hedging." When hedging is successful, the
portfolio will have offset any depreciation in the value of its portfolio
securities by the appreciation in the value of the derivative position.
Although techniques other than the sale and purchase of derivatives could be
used to control the exposure of the portfolio to market fluctuations, the use
of derivatives may be a more effective means of hedging this exposure.
FUTURES
A futures contract is an agreement between two parties whereby one party is
obligated to buy and the other is obligated to sell a financial instrument at
an agreed upon price and time. The parties to a futures contract do not have
to pay for or deliver the underlying financial instrument until the delivery
date. The parties to a futures contract can hold the contract until its
delivery date, although in many cases they close the contract early by taking
an opposite position in an identical contract. The financial instrument
underlying the contract may be a stock, stock index, bond, bond index,
interest rate, foreign exchange rate or other similar instrument. A portfolio
will incur commission expenses in both opening and closing futures positions.
Each portfolio may invest in stock futures and options, and C&B Balanced
Portfolio may also invest in bond futures and options and interest rate
futures contracts.
Futures contracts are traded in the United States on commodity exchanges or
boards of trade -- known as "contract markets" -- approved for such trading
and regulated by the Commodity Futures Trading Commission, a federal agency.
These contract markets standardize the terms, including the maturity date and
underlying financial instrument, of all futures contracts. Contract markets
require both the purchaser and seller to deposit "initial margin" with a
futures broker, known as a futures commission merchant, when they enter into
the contract. Initial margin deposits are typically equal to a percentage of
the
6
<PAGE>
contract's value. After they open a futures contract, the parties to the
transaction must compare the purchase price of the contract to its daily
market value. If the value of the futures contract changes in such a way that
a party's position declines, that party must make additional "variation
margin" payments so that the margin payment is adequate. On the other hand,
the value of the contract may change in such a way that there is excess margin
on deposit, possibly entitling the party that has a gain to receive all or a
portion of this amount.
A portfolio may take a "short position" by selling futures contracts on
securities it owns or on securities with characteristics similar to those of
securities it owns. For example, when a portfolio expects interest rates to
rise or securities prices to fall, it can seek to offset a decline in the
value of its holdings by selling futures contracts so that a portfolio is
obligated to sell the securities at a future lower price. When a portfolio's
short hedging position is successful, the appreciation in the value of the
futures position will offset substantially any depreciation in the value of
the holdings of the portfolio. On the other hand, a decline in the value of
the futures position would offset any unanticipated appreciation in the value
of the holdings of the portfolio.
On other occasions, a portfolio may take a "long" position by purchasing
futures contracts. For example, when a portfolio expects interest rates to
fall or securities' prices to rise, it can seek to secure a better rate or
price than might later be available by purchasing a futures contract. A
portfolio may also buy futures contracts as a substitute for transactions in
securities, to alter the investment characteristics of portfolio securities or
to gain or increase its exposure to a particular securities market.
OPTIONS
An option is a contract between two parties for the purchase and sale of a
financial instrument for a specified price (known as the "strike price" or
"exercise price") at any time during the option period. Unlike a futures
contract, an option grants a right (not an obligation) to buy or sell a
financial instrument. Generally, a seller of an option can grant a buyer two
kinds of rights: a "call" (the right to buy the security) or a "put" (the
right to sell the security). Options have various types of underlying
instruments, including specific securities, indices of securities prices,
foreign currencies, interest rates and futures contracts. Options may be
traded on an exchange (exchange-traded-options) or may be customized
agreements between the parties (over-the-counter or OTC options). Like
futures, a financial intermediary, known as a clearing corporation,
financially backs exchange-traded options. However, OTC options have no such
intermediary and are subject to the risk that the counter-party will not
fulfill its obligations under the contract.
Purchasing Put and Call Options
When a portfolio purchases a put option, it buys the right to sell the
instrument underlying the option at a fixed strike price. In return for this
right, the portfolio pays the current market price for the option (known as
the "option premium"). A portfolio may purchase put options to offset or hedge
against a decline in the market value of its securities ("protective puts") or
to benefit from a decline in the price of securities that it does not own.
The portfolio would ordinarily realize a gain if, during the option period,
the value of the underlying securities decreased below the exercise price
sufficiently to cover the premium and transaction costs. However, if the price
of the underlying instrument does not fall enough to offset the cost of
purchasing the option, a put buyer would lose the premium and related
transaction costs.
Call options are similar to put options, except that the portfolio obtains the
right to purchase, rather than sell, the underlying instrument at the option's
strike price. A portfolio would normally purchase call options in anticipation
of an increase in the market value of securities it owns or wants to buy. A
portfolio would ordinarily realize a gain if, during the option period, the
value of the underlying instrument exceeded the exercise price plus the
premium paid and related transaction costs. Otherwise, the portfolio would
realize either no gain or a loss on the purchase of the call option.
The purchaser of an option may terminate its position by:
. Allowing it to expire and losing its entire premium;
. Exercising the option and either selling (in the case of a put option) or
buying (in the case of a call option) the underlying instrument at the
strike price; or
. Closing it out in the secondary market at its current price.
Selling (Writing) Put and Call Options
When a portfolio writes a call option it assumes an obligation to sell
specified securities to the holder of the option at a specified price if the
option is exercised at any time before the expiration date. Similarly, when a
portfolio writes a put option it assumes an obligation to purchase specified
securities from the option holder at a specified price if the option is
exercised at any time before the expiration date. A portfolio may terminate
its position in an exchange-traded put option before exercise by buying an
7
<PAGE>
option identical to the one it has written. Similarly, it may cancel an over-
the-counter option by entering into an offsetting transaction with the
counter-party to the option.
A portfolio could try to hedge against an increase in the value of securities
it would like to acquire by writing a put option on those securities. If
security prices rise, the portfolio would expect the put option to expire and
the premium it received to offset the increase in the security's value. If
security prices remain the same over time, the portfolio would hope to profit
by closing out the put option at a lower price. If security prices fall, the
portfolio may lose an amount of money equal to the difference between the
value of the security and the premium it received. Writing covered put options
may deprive a portfolio of the opportunity to profit from a decrease in the
market price of the securities it would like to acquire.
The characteristics of writing call options are similar to those of writing
put options, except that call writers expect to profit if prices remain the
same or fall. A portfolio could try to hedge against a decline in the value
of securities it already owns by writing a call option. If the price of that
security falls as expected, the portfolio would expect the option to expire
and the premium it received to offset the decline of the security's value.
However, the portfolio must be prepared to deliver the underlying instrument
in return for the strike price, which may deprive it of the opportunity to
profit from an increase in the market price of the securities it holds.
A portfolio is permitted only to write covered options. A portfolio can cover
a call option by owning, at the time of selling the option:
. The underlying security (or securities convertible into the underlying
security without additional consideration), index, interest rate, foreign
currency or futures contract.
. A call option on the same security or index with the same or lesser
exercise price.
. A call option on the same security or index with a greater exercise price,
with the difference between the exercise prices maintained as a segregated
account containing cash, U.S. government securities or other liquid high-
grade debt securities.
. Cash, U.S. government securities or other liquid high-grade debt or equity
securities equal to at least the market value of the optioned securities,
interest rate, foreign currency or futures contract.
. In the case of an index, a portfolio of securities that corresponds to the
index.
A portfolio can cover a put option by, at the time of selling the option:
. Entering into a short position in the underlying security.
. Purchasing a put option on the same security, index, interest rate, foreign
currency or futures contract with the same or greater exercise price.
. Purchasing a put option on the same security, index, interest rate, foreign
currency or futures contract with a lesser exercise price, with the
difference between the exercise prices maintained as a segregated account
containing cash, U.S. government securities or other liquid high-grade debt
securities.
. Maintaining the entire exercise price in liquid high-grade debt securities.
Options on Securities Indices
Options on securities indices are similar to options on securities, except
that the exercise of securities index options requires cash settlement
payments and does not involve the actual purchase or sale of securities. In
addition, securities index options are designed to reflect price fluctuations
in a group of securities or segment of the securities market rather than price
fluctuations in a single security.
Options on Futures
An option on a futures contract provides the holder with the right to buy a
futures contract (in the case of a call option) or sell a futures contract (in
the case of a put option) at a fixed time and price. Upon exercise of the
option by the holder, the contract market clearing house establishes a
corresponding short position for the writer of the option (in the case of a
call option) or a corresponding long position (in the case of a put option).
If the option is exercised, the parties will be subject to the futures
contracts. In addition, the writer of an option on a futures contract is
subject to initial and variation margin requirements on the option position.
Options on futures contracts are traded on the same contract market as the
underlying futures contract.
8
<PAGE>
The buyer or seller of an option on a futures contract may terminate the
option early by purchasing or selling an option of the same series (i.e., the
same exercise price and expiration date) as the option previously purchased or
sold. The difference between the premiums paid and received represents the
trader's profit or loss on the transaction.
A portfolio may purchase put and call options on futures contracts instead of
selling or buying futures contracts. A portfolio may buy a put option on a
futures contract for the same reasons it would sell a futures contract. It
also may purchase such put options in order to hedge a long position in the
underlying futures contract. A portfolio may buy call options on futures
contracts for the same purpose as the actual purchase of the futures
contracts, such as in anticipation of favorable market conditions.
A portfolio may write a call option on a futures contract to hedge against a
decline in the prices of the instrument underlying the futures contracts. If
the price of the futures contract at expiration were below the exercise price,
the portfolio would retain the option premium, which would offset, in part,
any decline in the value of its portfolio securities.
The writing of a put option on a futures contract is similar to the purchase
of the futures contracts, except that, if market price declines, the portfolio
would pay more than the market price for the underlying instrument. The
premium received on the sale of the put option, less any transaction costs,
would reduce the net cost to the portfolio.
Combined Positions
A portfolio may purchase and write options in combination with each other, or
in combination with futures or forward contracts, to adjust the risk and
return characteristics of the overall position. For example, a portfolio could
construct a combined position whose risk and return characteristics are
similar to selling a futures contract by purchasing a put option and writing a
call option on the same underlying instrument. Alternatively, a portfolio
could write a call option at one strike price and buy a call option at a lower
price to reduce the risk of the written call option in the event of a
substantial price increase. Because combined options positions involve
multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.
ADDITIONAL RISKS OF DERIVATIVES
While transactions in derivatives may reduce certain risks, these transactions
themselves entail certain other risks. For example, unanticipated changes in
interest rates, securities prices or currency exchange rates may result in a
poorer overall performance of the portfolio than if it had not entered into
any derivatives transactions. Derivatives may magnify a portfolio's gains or
losses, causing it to make or lose substantially more than it invested.
When used for hedging purposes, increases in the value of the securities a
portfolio holds or intends to acquire should offset any losses incurred with a
derivative. Purchasing derivatives for purposes other than hedging could
expose the portfolio to greater risks.
Correlation of Prices
The portfolio's ability to hedge its securities through derivatives depends on
the degree to which price movements in the underlying index or instrument
correlate with price movements in the relevant securities. In the case of poor
correlation, the price of the securities a portfolio is hedging may not move
in the same amount, or even in the same direction as the hedging instrument.
The adviser will try to minimize this risk by investing only in those
contracts whose behavior it expects to resemble the portfolio securities it is
trying to hedge. However, if the portfolio's prediction of interest and
currency rates, market value, volatility or other economic factors is
incorrect, the portfolio may lose money, or may not make as much money as it
could have.
Derivative prices can diverge from the prices of their underlying instruments,
even if the characteristics of the underlying instruments are very similar to
the derivative. Listed below are some of the factors that may cause such a
divergence.
. Current and anticipated short-term interest rates, changes in volatility of
the underlying instrument, and the time remaining until expiration of the
contract.
. A difference between the derivatives and securities markets, including
different levels of demand, how the instruments are traded, the imposition
of daily price fluctuation limits or trading of an instrument stops.
. Differences between the derivatives, such as different margin requirements,
different liquidity of such markets and the participation of speculators in
such markets.
Derivatives based upon a narrower index of securities, such as those of a
particular industry group, may present greater risk than derivatives based on
a broad market index. Since narrower indices are made up of a smaller number
of securities, they are more susceptible to rapid and extreme price
fluctuations because of changes in the value of those securities.
9
<PAGE>
While currency futures and options values are expected to correlate with
exchange rates, they may not reflect other factors that affect the value of
the investments of a portfolio. A currency hedge, for example, should protect
a Yen-denominated security from a decline in the Yen, but will not protect a
portfolio against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of a portfolio's foreign-denominated
investments changes in response to many factors other than exchange rates, it
may not be possible to match the amount of currency options and futures to the
value of the portfolio's investments precisely over time.
LACK OF LIQUIDITY
Before a futures contract or option is exercised or expires, a portfolio can
terminate it only by entering into a closing purchase or sale transaction.
This requires a secondary market for such instruments on the exchange where
the portfolio originally entered into the transaction. If there is no
secondary market for the contract, or the market is illiquid, a portfolio may
have to purchase or sell the instrument underlying the contract, make or
receive a cash settlement or meet ongoing variation margin requirements. The
inability to close out derivative positions could have an adverse impact on
the ability of the portfolio to hedge its investments and may prevent a
portfolio from realizing profits or limiting its losses.
Derivatives may become illiquid (i.e., difficult to sell at a desired time and
price) under a variety of market conditions. For example:
. During periods of market volatility, a commodity exchange may suspend or
limit trading in a particular derivative instrument, an entire category of
derivatives or all derivatives.
. A portfolio may have difficulty liquidating its existing positions or
recovering excess variation margin payments because of exchange or clearing
house equipment failures, government intervention, insolvency of a
brokerage firm or clearing house or other disruptions of normal trading
activity.
. Investors may lose interest in a particular derivative or category of
derivatives.
MANAGEMENT RISK
If the adviser incorrectly predicts stock market and interest rate trends, a
portfolio may lose money by investing in derivatives. For example, if a
portfolio were to write a call option based on its adviser's expectation that
the price of the underlying security would fall, but the price were to rise
instead, the portfolio could be required to sell the security upon exercise at
a price below the current market price. Similarly, if a portfolio were to
write a put option based on the adviser's expectation that the price of the
underlying security would rise, but the price were to fall instead, the
portfolio could be required to purchase the security upon exercise at a price
higher than the current market price.
MARGIN
Because of the low margin deposits required upon the opening of a derivative
position, such transactions involve an extremely high degree of leverage.
Consequently, a relatively small price movement in a derivative may result in
an immediate and substantial loss (as well as gain) to the portfolio and it
may lose more than it originally invested in the derivative.
If the price of a futures contract changes adversely, a portfolio may have to
sell securities at a time when it is disadvantageous to do so to meet its
minimum daily margin requirement. A portfolio may lose its margin deposits if
a broker with whom it has an open futures contract or related option becomes
insolvent or declares bankruptcy.
FOREIGN SECURITIES
- --------------------------------------------------------------------------------
AMERICAN DEPOSITARY RECEIPTS (ADRS)
American Depositary Receipts (ADRs) are certificates evidencing ownership of
shares of a foreign issuer. These certificates are issued by depository banks
and generally trade on an established market in the United States or
elsewhere. A custodian bank or similar financial institution in the issuer's
home country holds the underlying shares in trust. The depository bank may not
have physical custody of the underlying securities at all times and may charge
fees for various services, including forwarding dividends and interest and
corporate actions. ADRs are alternatives to directly purchasing the underlying
foreign securities in their national markets and currencies. However, ADRs
continue to be subject to many of the risks associated with investing directly
in foreign securities.
10
<PAGE>
RISKS OF FOREIGN SECURITIES
Foreign securities, foreign currencies, and securities issued by U.S. entities
with substantial foreign operations may involve significant risks in addition
to the risks inherent in U.S. investments.
Local political, economic, regulatory, or social instability, military action
or unrest, or adverse diplomatic developments may affect the value of foreign
investments. A foreign government may take actions adverse to the interests
of U.S. investors, including expropriation or nationalization of assets,
confiscatory taxation and other restrictions on U.S. investment.
FOREIGN CURRENCY RISK
The securities of foreign companies are frequently denominated in foreign
currencies. A portfolios' net asset value is denominated in U.S. Dollars.
Thus, changes in foreign currency rates and in exchange control regulations
may positively or negatively affect the value of the securities of a
portfolio. A portfolio also may incur costs to convert foreign currencies
into U.S. dollars and vice versa. In addition:
. Foreign currency exchange rates reflect relative values of two currencies,
usually the U.S. dollar and the foreign currency in question.
. Complex political and economic factors applicable to the issuing country
may affect the value U.S. dollars and foreign currencies.
. The actions of U.S. and foreign governments may affect significantly the
currency exchange rates.
. government intervention may increase risks involved in purchasing or
selling foreign currency options, forward contracts and futures contracts,
since exchange rates may not be free to fluctuate in response to other
market forces.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
round-lot transactions in the inter-bank market and thus may not reflect
exchange rates for smaller odd-lot transactions (less than $1 million) where
rates may be less favorable. The inter-bank market in foreign currencies is a
global, around-the-clock market. To the extent that a market is closed while
the markets for the underlying currencies remain open, certain markets may not
always reflect significant price and rate movements.
THE EURO
The single currency for the European Economic and Monetary Union (EMU), the
Euro, is scheduled to replace the national currencies for participating member
countries over a period that begins on January 1, 1999, and ends in July 2002.
At the end of that period, use of the Euro will be compulsory and countries in
the EMU will no longer maintain separate currencies in any form. Until then,
however, each country and issuers within each country are free to choose
whether to use the Euro.
On January 1, 1999, existing national currencies will become denominations of
the Euro at fixed rates according to practices prescribed by the European
Monetary Institute and the Euro will become available as a book-entry
currency. Beginning on or about that date, the portfolio expects member
states to begin conducting financial market transactions in Euro and
redenominating many investments, currency balances and transfer mechanisms
into Euro. The portfolios also anticipate pricing, trading, settling and
valuing investments whose nominal values remain in their existing domestic
currencies in Euro. Accordingly, the portfolios expect the conversion to the
Euro to impact investments in countries that will adopt the Euro in all
aspects of the investment process including, trading, foreign exchange,
payments, settlements, cash accounts, custody and accounting will be impacted.
Some of the uncertainties surrounding the conversion to the Euro, include
. Will the payment and operational systems of banks and other financial
institutions be ready by the scheduled launch date?
. Will the conversion to the Euro have legal consequences on outstanding
financial contracts that refer to existing currencies rather than Euro?
. How will existing currencies be exchanged into Euro?
. Will suitable clearing and settlement payment systems for the new currency
be created?
STOCK EXCHANGE AND MARKET RISK
The adviser anticipates that in most cases an exchange or over-the-counter
(OTC) market located outside of the United States will be the best available
market for foreign securities. Foreign stock markets, while growing in volume
and sophistication, are generally not as developed as those in the United
States, and securities of some foreign issuers may be less liquid and more
11
<PAGE>
volatile than securities of comparable U.S. issuers. Foreign security trading,
settlement and custodial practices are often less developed than those in U.S.
markets. This may lead to increased risk or substantial delays in case of a
failed trade or the insolvency of, or breach of duty by, a foreign broker-
dealer, securities depository or foreign sub-custodian. In addition, the costs
associated with foreign investments, including withholding taxes, brokerage
commissions and custodial costs, are generally higher than with U.S.
investments.
LEGAL SYSTEM AND REGULATION RISKS
Foreign countries have different legal systems and different regulations
concerning financial disclosure, accounting, and auditing standards.
Corporate financial information that would be disclosed under U.S. law may not
be available. Foreign accounting and auditing standards may render a foreign
corporate balance sheet more difficult to understand and interpret than one
subject to U.S. law and standards. Foreign markets may offer less protection
to investors than U.S. markets:
. Foreign accounting, auditing, and financial reporting requirements may
render a foreign corporate balance sheet more difficult to understand and
interpret than one subject to U.S. law and standards.
. Adequate public information on foreign issuers may not be available, and it
may be difficult to secure dividends and information regarding corporate
actions on a timely basis.
. In general, there is less overall governmental supervision and regulation
of securities exchanges, brokers, and listed companies than in the United
States.
. OTC markets tend to be less regulated than stock exchange markets and, in
certain countries, may be totally unregulated.
. Economic or political concerns may influence regulatory enforcement and may
make it difficult for investors to enforce their legal rights.
. Restrictions on transferring securities within the United States or to U.S.
persons may make a particular security less liquid than foreign securities
of the same class that are not subject to such restrictions.
EMERGING MARKETS
Investing in emerging markets may magnify the risks of foreign investing.
Security prices in emerging markets can be significantly more volatile than
those in more developed markets, reflecting the greater uncertainties of
investing in less established markets and economies. In particular, countries
with emerging markets may have (1) relatively unstable governments, (2) may
present the risks of nationalization of businesses, restrictions on foreign
ownership and prohibitions on the repatriation of assets, and (3) may have
less protection of property rights than more developed countries. The
economies of countries with emerging markets may be based on only a few
industries, may be highly vulnerable to changes in local or global trade
conditions, and may suffer from extreme and volatile debt burdens or inflation
rates. Local securities markets may trade a small number of securities and may
be unable to respond effectively to increases in trading volume, potentially
making prompt liquidation of holdings difficult or impossible at times.
Certain foreign governments levy withholding taxes on dividend and interest
income. Although in some countries a portfolio may recover a portion of these
taxes, the portion they cannot recover will reduce the income the portfolio
receives from its investments. The portfolios do not expect such foreign
withholding taxes to have a significant impact on performance.
INVESTMENT COMPANIES
- --------------------------------------------------------------------------------
The portfolios reserve the right to invest up to 10% of their total assets,
calculated at the time of investment, in the securities of other open-ended 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 advisor fee paid by the portfolio.
The Fund has received permission from the SEC to allow each of its portfolios
to invest, for cash management purposes, the greater of 5% of its total assets
or $2.5 million in the UAM DSI Money Market Portfolio, provided that the
investment is consistent with the portfolio's investment policies and
restrictions. Based upon the portfolio's assets invested in the UAM 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 UAM DSI Money Market Portfolio. The investing portfolio will bear
expenses of the UAM DSI Money Market Portfolio on the same basis as all of its
other shareholders.
12
<PAGE>
REPURCHASE AGREEMENTS
- --------------------------------------------------------------------------------
In a repurchase agreement, a portfolio buys a security for a relatively short
period (usually not more than 7 days) and simultaneously agrees to sell it
back at a specified date and price. A portfolio normally uses repurchase
agreements to earn income on assets that are not invested. A portfolio will
require the counter-party to the agreement to deliver securities serving as
collateral for each repurchase agreement to its custodian either physically or
in book-entry form. The counter party must add to the collateral whenever the
price of the repurchase agreement rises (i.e., the borrower "marks to the
market" on a daily basis).
If the seller of the security declares bankruptcy or otherwise becomes
financially unable to buy back the security, the portfolio's right to sell the
security may be restricted. In addition, the value of the security might
decline before the portfolio can sell it and the portfolio might incur
expenses in enforcing its rights.
SECURITIES LENDING
- --------------------------------------------------------------------------------
To earn additional income, the portfolios may lend up to one-third of their
total assets (including the value of the collateral for the loans) at fair
market value to broker- dealers or other financial institutions. A portfolio
may reinvest any cash collateral in short-term securities and money market
funds. A portfolio will only lend its securities if
. The borrower provides collateral at least equal to the market value of the
securities loaned.
. The collateral pledged and maintained by the borrower must consist of cash,
an irrevocable letter of credit issued by a domestic U.S. bank or
securities issued or guaranteed by the U.S. government.
. The borrower adds to the collateral whenever the price of the securities
loaned rises (i.e., the borrower "marks to the market" on a daily basis).
. The portfolio can terminate the loan at any time; and
. The portfolio receives reasonable interest on the loan (which may include
the Portfolio investing any cash collateral in interest bearing short-term
investments).
These risks are similar to the ones involved with repurchase agreements. When
a portfolio lends securities, there is a risk that it will lose money because
the borrower fails to return the securities involved in the transaction. In
addition, the borrower may become financially unable to honor its contractual
obligations, which may delay or prevent the portfolio from liquidating the
collateral.
SHORT-TERM INVESTMENTS
- --------------------------------------------------------------------------------
To earn a return on uninvested assets, meet anticipated redemptions, or for
temporary defensive purposes, each portfolio may invest a portion of its
assets in the short-term investments described below.
BANK OBLIGATIONS
A portfolio will only invest in a security issued by a commercial bank if the
bank:
. Has total assets of at least $1 billion, or the equivalent in other
currencies;
. Is a U.S. bank and a member of the Federal Deposit Insurance Corporation;
and
. Is a foreign branch of a U.S. bank and the adviser believes the security is
of an investment quality comparable with other debt securities that a
portfolio may purchase.
Time Deposits
Time deposits are non-negotiable deposits, such as savings accounts or
certificates of deposit, held by a financial institution for a fixed term with
the understanding that the depositor can withdraw its money only by giving
notice to the institution. However, there may be early withdrawal penalties
depending upon market conditions and the remaining maturity of the obligation.
A portfolio may only purchase time deposits maturing from two business days
through seven calendar days.
13
<PAGE>
CERTIFICATES OF DEPOSIT
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or savings and loan association for a definite
period of time and earning a specified return.
BANKER'S ACCEPTANCE
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).
COMMERCIAL PAPER
Commercial paper constitutes short-term obligations with maturities ranging
from 2 to 270 days issued by banks, corporations and other borrowers. Such
investments are unsecured and usually discounted. A portfolio may invest in
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. See APPENDIX A for a description
of commercial paper ratings.
U.S. GOVERNMENT SECURITIES
A portfolio may buy debt securities that are issued or guaranteed by the
U.S. Treasury or by an agency or instrumentality of the U.S. government. Some
U.S. government securities, such as Treasury bills, notes and bonds are
supported by the full faith and credit of the U.S. government. Others,
however, are supported only by the right of the instrumentality to borrow from
the U.S. government.
While U.S. government securities are guaranteed as to principal and interest,
their market value is not guaranteed. U.S. government securities are subject
to the same interest rate and credit risks as other fixed income securities.
However, since U.S. government securities are of the highest quality, the
credit risk is minimal. The U.S. government does not guarantee the net asset
value of the assets of a portfolio.
CORPORATE BONDS
A portfolio may buy corporate bonds and notes that are considered investment
grade securities. Investment grade securities have received one of the four
highest grades assigned by a rating agency, or determined to be of comparable
quality by the adviser. Corporations issue bonds and notes to raise money for
working capital or for capital expenditures such as plant construction,
equipment purchases and expansion. In return for the money loaned to the
corporation by investors, the corporation promises to pay investors interest,
and repay the principal amount of the bond or note.
Like other debt securities, corporate debt securities involve a risk that the
corporate issuer will not make timely payment of either interest or principal,
or may default entirely. In addition, the market price of corporate debt
securities may go down because of changes in interest rates.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED DELIVERY TRANSACTIONS
- --------------------------------------------------------------------------------
A when-issued security is one whose terms are available and for which a market
exists, but which have not been issued. In a forward delivery transaction, a
portfolio contracts to purchase securities for a fixed price at a future date
beyond customary settlement time. "Delayed delivery" refers to securities
transactions on the secondary market where settlement occurs in the future. In
each of these transactions, the parties fix the payment obligation and the
interest rate that they will receive on the securities at the time the parties
enter the commitment; however, they do not pay money or delivery securities
until a later date. Typically, no income accrues on securities a portfolio has
committed to purchase before the securities are delivered, although the
portfolio may earn income on securities it has in a segregated account. A
portfolio will only enter into these types of transactions with the intention
of actually acquiring the securities, but may sell them before the settlement
date.
A portfolio uses when-issued, delayed-delivery and forward delivery
transactions to secure what it considers being an advantageous price and yield
at the time of purchase. When a portfolio engages in when-issued, delayed-
delivery and forward delivery transactions, it relies on the other party to
consummate the sale. If the other party fails to complete the sale, the
portfolio may miss the opportunity to obtain the security at a favorable price
or yield.
When purchasing a security on a when-issued, delayed delivery, or forward
delivery basis, the portfolio assumes the rights and risks of ownership of the
security, including the risk of price and yield changes. At the time of
settlement, the market value of the security may be more or less than the
purchase price. The yield available in the market when the delivery takes
place also may
14
<PAGE>
be higher than those obtained in the transaction itself. Because a portfolio
does not pay for the security until the delivery date, these risks are in
addition to the risks associated with its other investments.
RESTRICTED SECURITIES
- --------------------------------------------------------------------------------
Each portfolio may purchase restricted securities that are not registered for
sale to the general public but which are eligible for resale to qualified
institutional investors under Rule 144A of the Securities Act of 1933. Under
the supervision of the Fund's board, the adviser determines the liquidity of
such investments by considering all relevant factors. Provided that a dealer
or institutional trading market in such securities exists, these restricted
securities are not treated as illiquid securities for purposes of a
portfolio's investment limitations. The priced realized from the sales of
these securities could be more or less than those originally paid by the
portfolio or less than what may be considered the fair value of such
securities.
INVESTMENT POLICIES
Whenever an investment limitation sets forth a percentage limitation on
investment or utilization of assets, such limitation shall (with the exception
of a limitation relating to borrowing be determined immediately after and as a
result of a portfolio's acquisition of such security or other asset.
Accordingly, any later increase or decrease resulting from a change in values,
net assets or other circumstances will not be considered when determining
whether the investment complies with the investment limitations of the
portfolio.
The following investment limitations are fundamental, which means a portfolio
cannot change them without shareholder approval. Each portfolio will not:
. with respect to 75% of its assets, invest more than 5% of its total assets
at the time of purchase in securities of any single issuer (other than
obligations issued or guaranteed as to principal and interest by the of the
U.S. government or any if its agencies or instrumentalities);
. with respect to 75% of its assets, purchase more than 10% of any class of
the outstanding voting securities of any issuer;
. borrow money, except (1) 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
(2) a portfolio may not purchase additional securities when borrowings
exceed 5% of total assets;
. invest for the purpose of exercising control over management of any
company;
. invest in commodities except that each portfolio may invest in futures
contracts and options to the extent that not more than 5% of a portfolio's
assets are required as deposit to secure obligations under futures
contracts;
. Invest more than 25% of its assets in companies within a single industry;
however, there are no limitations on investments made in instruments issued
or guaranteed by the U.S. government, and its agencies when a portfolio
adopts a temporary defensive position;
. 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;
. issue senior securities, as defined in the Investment Company Act of 1940,
as amended, except that this restriction shall not be deemed to prohibit a
portfolio from (1) making any permitted borrowings, mortgages or pledges,
or (2) entering into options, futures or repurchase transactions;
. make loans except by purchasing debt securities in accordance with its
investment objective and policies, or entering into repurchase agreements,
or by lending its portfolio securities to banks, brokers, dealers and other
financial institutions so long as such loans are in compliance with the
Investment Company Act of 1940, as amended, and the Rules and Regulations
or interpretations of the SEC;
. pledge, mortgage, or hypothecate any of its assets to an extent greater
than 10% of its total assets at fair market value;
. purchase on margin or sell short, except as specified above;
. purchase or retain securities of an issuer if those officers and board
members or its investment adviser owning more than 1/2 of 1% of such
securities together own more than 5% of such securities;
15
<PAGE>
. 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;
. underwrite the securities of other issuers or invest more than an aggregate
of 10% of the net 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;
and
. write or acquire options or interests in oil, gas or other mineral
exploration or development programs.
MANAGEMENT OF THE PORTFOLIOS
The business of the Fund is managed by its governing board, which, in turn,
elects officers who are responsible for the day-to-day operations of the Fund
and who execute policies formulated by the board. The Fund pays each board
member who is not also an officer or affiliated person (independent board
member) a $150 quarterly retainer fee per active portfolio per quarter and a
$2,000 meeting fee. In addition, each independent board member is reimbursed
for travel and other expenses incurred while attending board meetings. The
$2,000 meeting fee and expense reimbursements are aggregated for all of the
board members and allocated proportionately among the portfolios of the UAM
Funds complex. The Fund does not pay the remaining board members, each of whom
are affiliated with the Fund, for their services as board members.. UAM or its
affiliates or CGFSC pay the Fund's officers.
The following table lists the board members and officers of the Fund and
provides information regarding their present positions, date of birth,
address, principal occupations during the past five years, aggregate
compensation received from the Fund and total compensation received from the
UAM Funds complex.
<TABLE>
<CAPTION>
TOTAL
AGGREGATE COMPENSATION
POSITION COMPENSATION FROM FROM UAM
UAM REGISTRANT AS OF FUNDS COMPLEX AS
NAME, ADDRESS, DOB FUNDS, INC PRINCIPAL; OCCUPATIONS DURING THE PAST 5 YEARS OCTOBER 31, 1998 OF OF OCTOBER 31, 1998
<S> <C> <C> <C> <C>
John T. Bennett, Jr Director President of Squam Investment Management Company,
College Road - RFD 3 Inc. and Creol Island Investment Company, Inc,
Meredith, NH 03253 President of Bennett Management Company from 1998 to
1/26/29 1993.
- -------------------------------------------------------------------------------------------------------------------------------
Nancy J. Dunn Director Vice President for Finance and Administration and
10 Garden Street Treasurer of Radcliffe College since 1991.
Cambridge, MA 02138
8/14/51
- -------------------------------------------------------------------------------------------------------------------------------
William A. Humenuk Director Executive Vice President and Chief Administrative
100 King Street West Officer of Philip Services Corp.; Director, Hofler
P.O. Box 2440, LCD-1, Corp.; Formerly, a Partner in the Philadelphia
Hamilton Ontario, office of the law firm Dechert Price & Rhoads.
Canada L8N-4J6
4/21/42
- -------------------------------------------------------------------------------------------------------------------------------
Philip D. English Director President and Chief Executive Officer of
16 West Madison Street Broventure Company, Inc.; Chairman of the
Baltimore, MD 21201 Board of Chektec Corporation and Cyber
8/5/48 Scientific, Inc
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
TOTAL
AGGREGATE FROM UAM
POSITION COMPENSATION FROM COMPENSATION
UAM REGISTRANT AS OF FUNDS COMPLEX AS
NAME, ADDRESS, DOB FUNDS, INC PRINCIPAL OCCUPATIONS DURING THE PAST 5 YEARS OCTOBER 31, 1998 OF OCTOBER 31, 1998
<S> <C> <C> <C> <C>
Norton H. Reamer* Director, Chairman, Chief Executive Officer and a Director 0 0
One International Place President of United Asset Management Corporation; Director,
Boston, MA 02110 and Partner or Trustee of each of the Investment
3/21/35 Chairman Companies of the Eaton Vance Group of
Mutual Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
Peter M. Whitman, Jr.* Director President and Chief Investment Officer of Dewey 0 0
One Financial Center Square Investors Corporation since 1988; Director
Boston, MA 02111 and Chief Executive Officer of H.T. Investors,
7/1/43 Inc., formerly a subsidiary of Dewey Square.
- ------------------------------------------------------------------------------------------------------------------------------------
William H. Park Vice Executive Vice President and Chief Financial 0 0
One International Place President Officer of United Asset Management Corporation.
Boston, MA 02110
9/19/47
- ------------------------------------------------------------------------------------------------------------------------------------
Gary L. French Treasurer President of UAMFSI and UAMFDI, formerly Vice 0 0
211 Congress Street President of Operations, Development and
Boston, MA 02110 Control of Fidelity Investments in 1995;
7/4/51 Treasurer of the Fidelity Group of Mutual Funds
from 1991 to 1995.
- ------------------------------------------------------------------------------------------------------------------------------------
Michael E. DeFao Secretary Vice President and General Counsel of UAMFSI 0 0
211 Congress Street and UAMFDI; Associate Attorney of Ropes &
Boston, MA 02110 Gray (a law firm) from 1993 to 1995.
2/28/68
- ------------------------------------------------------------------------------------------------------------------------------------
Robert R. Flaherty Assistant Vice President of UAMFSI; formerly Manager 0 0
211 Congress Street Treasurer of Fund Administration and Compliance of
Boston, MA 02110 CGFSC from 1995 to 1996; Deloitte & Touche
9/18/63 LLP from 1985 to 1995, Senior Manager.
- ------------------------------------------------------------------------------------------------------------------------------------
Michael J. Leary Assistant Vice President of Chase Global Funds 0 0
73 Tremont Street Treasurer Services Company since 1993. Manager of
Boston, MA 02108 Audit at Ernst & Young from 1988 to 1993.
11/23/65
- ------------------------------------------------------------------------------------------------------------------------------------
Michelle Azrialy Assistant Assistant Treasurer of Chase Global Funds 0 0
73 Tremont Street Secretary Services Company since 1996. Senior Public
Boston, MA 02108 Accountant with Price Waterhouse LLP from
4/12/69 1991 to 1994.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
____
*These board members are "interested persons" of the Fund as that term is
defined in the 1940 Act.
CODE OF ETHICS
The Fund has adopted a Code of Ethics that restricts to a certain extent
personal transactions by access persons of the Fund and imposes certain
disclosure and reporting obligations.
PRINCIPAL HOLDERS OF SECURITIES
As of ____________, 1998, the members of the governing board and officers of
the Fund as a group owned less than 1% of the Fund's outstanding shares.
As of ____________, 1998, the following persons or organizations held of
record or beneficially 5% or more of the shares of a portfolio:
<TABLE>
<CAPTION>
Percentage of
Name and Address of Shareholder Shares Owned Portfolio Class
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
Any persons or organizations listed above as owning 25% or more of the
outstanding shares of a portfolio may be presumed to "control" (as that term
is defined in the 1940 Act) the 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 the
portfolio.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
CONTROL OF ADVISER
The adviser is located at 1700 Market Street, Philadelphia, PA 19103. The
adviser is a wholly-owned subsidiary of UAM and has provided investment
management services to corporations, pension and profit-sharing plans, 401(k)
and thrift plans, trusts, estates and other institutions and individuals since
1970.
UAM is 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 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. Several UAM
Affiliated Firms also act as investment advisers to separate series or
portfolios of the UAM Funds complex.
INVESTMENT ADVISORY AGREEMENT
SERVICE PERFORMED BY ADVISER
Pursuant to each Investment Advisory Agreement (Advisory Agreements) between
the Fund, on behalf of each portfolio, and the adviser, the adviser has agreed
to:
. Manage the investment and reinvestment of the assets of the portfolios.
. Continuously review, supervise and administer the investment program of the
portfolios.
. Determine in its discretion the securities a portfolio will buy or sell and
the portion of its assets such portfolio will hold uninvested.
LIMITATION OF LIABILITY
In the absence of (1) willful misfeasance, bad faith, or gross negligence of
the part of the adviser in the performance of its obligations and duties under
the Advisory Agreements, (2) reckless disregard by the adviser of its
obligations and duties under the Advisory Agreements, or (3) a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation
for services, the adviser shall not be subject to any liability whatsoever to
the Fund, for any error of judgment, mistake of law or any other act or
omission in the course of, or connected with, rendering services under the
Advisory Agreements.
CONTINUING AN ADVISORY AGREEMENT
Unless sooner terminated, an Advisory Agreement shall continue for periods of
one year so long as such continuance is specifically approved at least
annually (a) by a majority of those members of the governing board of the Fund
who are not parties to the Advisory Agreement or interested persons of any
such party and (b) by a majority of the governing board of the Fund or a
majority of the shareholders of the portfolio. An Advisory Agreement may be
terminated at any time by the Fund, without the payment of any penalty, by
vote of a majority of the portfolios' shareholders on 60 days' written notice
to the adviser. The adviser may terminate the Advisory Agreements at any time,
without the payment of any penalty, upon 90 days' written notice to the Fund.
An Advisory Agreement will automatically and immediately terminate if it is
assigned.
18
<PAGE>
INVESTMENT ADVISORY FEE
For its services, the adviser receives an advisory fee calculated by applying
the annual percentage rates listed below to the average daily net assets of
the portfolio for the month. The adviser's fee is paid in monthly
installments.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
ANNUAL PERCENTAGE RATE
- -------------------------------------------------------------------------
<S> <C>
- -------------------------------------------------------------------------
C & B Equity Portfolio 0.625%
- -------------------------------------------------------------------------
C & B Balanced Portfolio 0.625%
- -------------------------------------------------------------------------
C & B Equity Portfolio for Taxable Investors 0.625%
- -------------------------------------------------------------------------
C & B Mid Cap Equity Portfolio 0.625%
</TABLE>
EXPENSE LIMITATION
The adviser may voluntarily agree to limit the expenses of the portfolios.
The adviser may further reduce its compensation to the extent that the
expenses of a portfolio exceed such lower expense limitation as the adviser
may, by notice to the portfolio, declare to be appropriate. The expenses
subject to this limitation are exclusive of brokerage commissions, interest,
taxes, deferred organizational and extraordinary expenses and, if the Fund has
a distribution plan, payments required under such plan. The prospectus
describes the terms of any expense limitation that are in effect from time to
time.
PHILOSOPHY AND STYLE
The adviser bases its philosophy and process on selecting high quality, risk
adverse stocks. An emphasis on value is designed to protect assets in down
markets. The stock selection process is geared towards finding companies with
high quality earnings which are sustainable in a wide range of economic
environments. Key criteria include companies with strong balance sheets, a
proven management team and low debt. On the fixed income side, the adviser is
a conservative, quality-oriented bond manager.
REPRESENTATIVE INSTITUTIONAL CLIENTS
As of the date of this SAI, the adviser's representative institutional clients
included Baptist Health System, Mayo Foundation, Wisconsin Energy Corp. and
Princeton University.
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.
DISTRIBUTOR
- --------------------------------------------------------------------------------
UAMFDI serves as the Fund's distributor. The Fund offers its shares
continuously. While UAMFDI will use its best efforts to sell shares of the
Fund, it is not obligated to sell any particular amount of shares. UAMFDI
receives no compensation for its services, and any amounts it may receive
under a Service and Distribution Plan are passed through in their entirety to
third parties. UAMFDI, an affiliate of UAM, is located at 211 Congress Street,
Boston, Massachusetts 02110.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
ADMINISTRATOR
Pursuant to a Fund Administration Agreement with the Fund, UAMFSI manages,
administers and conducts the general business activities of the Fund. As a
part of its responsibilities, UAMFSI provides and oversees the provision by
various third parties of administrative, fund accounting, dividend disbursing
and transfer agent services for the Fund. UAMFSI, an affiliate of UAM, has its
principal office at 211 Congress Street, Boston, Massachusetts 02110.
UAMFSI will bear all expenses in connection with the performance of its
services under the Fund Administration Agreement. Other expenses to be
incurred in the operation of the Fund will be borne by the Fund or other
parties, including
. Taxes, interest, brokerage fees and commissions.
. Salaries and fees of officers and members of the Board who are not
officers, directors, shareholders or employees of an affiliate of UAM,
including UAMFSI, UAMFDI or the adviser.
. SEC fees and states Blue-Sky fees.
. EDGAR filing fees.
. Processing services and related fees.
19
<PAGE>
. Advisory and administration fees.
. Charges and expenses of pricing and data services, independent public
accountants and custodians.
. Insurance premiums including fidelity bond premiums.
. Outside legal expenses.
. Costs of maintenance of corporate existence.
. Typesetting and printing of prospectuses for regulatory purposes and for
distribution to current shareholders of the Fund.
. Printing and production costs of shareholders' reports and corporate
meetings.
. Cost and expenses of Fund stationery and forms.
. Costs of special telephone and data lines and devices.
. Trade association dues and expenses.
. Any extraordinary expenses and other customary Fund expenses.
Unless sooner terminated, the Fund Administration Agreement shall continue in
effect from year to year provided the board specifically approves such
continuance at least annually. The Board or UAMFSI may terminate the Fund
Administration Agreement, without penalty, on not less than ninety (90) days'
written notice. The Fund Administration Agreement shall automatically
terminate upon its assignment by UAMFSI without the prior written consent of
the Fund.
UAMFSI will from time to time employ or associate with such person or persons
as may be fit to assist them in the performance of the Fund Administration
Agreement. Such person or persons may be officers and employees who are
employed by both UAMFSI and the Fund. UAMFSI will pay such person or persons
for such employment. The Fund will not incur any obligations with respect to
such persons.
SUB-ADMINISTRATOR
UAMFSI has subcontracted some of the its administrative and fund accounting
services to CGFSC, an affiliate of The Chase Manhattan Bank, by a Mutual Funds
Service Agreement dated April 15, 1996. CGFSC is located at 73 Tremont Street,
Boston, Massachusetts 02108.
SUB-TRANSFER AGENT AND SUB-SHAREHOLDER SERVICING AGENT
UAMFSI has subcontracted its transfer agent and dividend-disbursing agent
services to DST Systems, Inc. under an Agency Agreement between UAMFSI and DST
Systems Inc. DST Systems, Inc., is located at P.O. Box 419534, Kansas City,
Missouri 64141-6534.
UAMSSC serves as sub-shareholder servicing agent for the Fund under an
agreement between UAMSSC and UAMFSI. The principal place of business of UAMSSC
is 825 Duportail Road, Wayne, Pennsylvania 19087.
ADMINISTRATIVE FEES
In exchange for administrative services, each portfolio pays a four-part fee
to UAMFSI as follows:
A. A portfolio specific fee to UAMFSI calculated from the aggregate net
assets of each portfolio at the following rates:
<TABLE>
<CAPTION>
ANNUAL RATE
<S> <C>
C & B Balanced Portfolio 0.06%
------------------------------------------------------------------------------
C & B Equity Portfolio 0.04%
------------------------------------------------------------------------------
C & B Portfolio for Taxable Investors 0.04%
------------------------------------------------------------------------------
C & B Mid Cap Portfolio 0.04%
</TABLE>
B. An annual base fee that UAMFSI pays to CGFSC for its $52,500 for the first
operational class; sub-administration and other services calculated at
$7,500 for each additional operational class; the annual rate of and 0.04%
of their pro rata share of the combined assets of the UAM Funds.
C. An annual base fee that UAMFSI pays to DST Systems, Inc. for its services
as transfer agent and dividend-disbursing agent equal to $10,500 for the
first operational class and $10,500 for each additional class.
20
<PAGE>
D. An annual base fee that UAMFSI pays to UAMSSC for its services as sub-
shareholder-servicing agent equal to $7,500 for the first operational
class and $2,500 for each additional class.
Each portfolio also pays certain account and transaction fees and out-of-
pocket expenses that may be based on the number of open and closed
accounts, the type of account or the services provided to the account.
SHAREHOLDER SERVICING ARRANGEMENTS
UAM and any of its 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. The adviser may also compensate its
affiliated companies for referring investors to the portfolios.
CUSTODIAN
- --------------------------------------------------------------------------------
The Chase Manhattan Bank, 3 Chase MetroTech Center, Brooklyn, New York
11245, provides for the custody of the Fund's assets pursuant to the terms
of a custodian agreement with the Fund.
INDEPENDENT PUBLIC ACCOUNTANT
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts
02110, serves as independent accountants for the Fund.
BROKERAGE ALLOCATION AND OTHER PRACTICES
SELECTION OF BROKERS
- --------------------------------------------------------------------------------
The Advisory Agreements authorize the adviser to select the brokers or
dealers that will execute the purchases and sales of investment securities
for a portfolio. The Advisory Agreement also directs the adviser to use its
best efforts to obtain the best execution with respect to all transactions
for a portfolio. The adviser may select brokers based on research,
statistical and pricing services they provide to the adviser. Information
and research provided by a broker will be in addition to, and not instead
of, the services the adviser is required to perform under the Advisory
Agreement. In so doing, 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. The adviser may place
portfolio orders with qualified broker-dealers who refer clients to the
adviser.
SIMULTANEOUS TRANSACTIONS
- --------------------------------------------------------------------------------
The adviser makes investment decisions for a portfolio independently of
decisions made for its other clients. When a security is suitable for the
investment objective of more than one client, it may be prudent for the
adviser to engage in a simultaneous transaction, that is, buy or sell the
same security for more than one client. The adviser strives to allocate
such transactions among its clients, including the portfolios, in a fair
and reasonable manner. Although there is no specified formula for
allocating such transactions, the Fund's governing board periodically
reviews the various allocation methods used by the adviser, and the results
of such allocations.
BROKERAGE COMMISSIONS
- --------------------------------------------------------------------------------
EQUITY SECURITIES
Generally, equity securities are bought and sold through brokerage
transactions for which commissions are payable. Purchases from underwriters
will include the underwriting commission or concession, and purchases from
dealers serving as market makers will include a dealer's mark-up or reflect
a dealer's mark-down.
21
<PAGE>
DEBT SECURITIES
Debt securities are usually bought and sold directly from the issuer or an
underwriter or market maker for the securities. Generally, each Fund will
not pay brokerage commissions for such purchases. When a debt security is
bought from an underwriter, the purchase price will usually include an
underwriting commission or concession. The purchase price for securities
bought from dealers serving as market makers will similarly include the
dealer's mark up or reflect a dealer's mark down. When a portfolio executes
transactions in the over-the-counter market, it will deal with primary
market makers unless prices that are more favorable are otherwise
obtainable.
CAPITAL STOCK AND OTHER SECURITIES
DESCRIPTION OF SHARES AND VOTING RIGHTS
- --------------------------------------------------------------------------------
The Fund's Articles of Incorporation, as amended, permit its governing
board to issue three billion shares of common stock, with a $.001 par
value. The governing board has the power to create and designate one or
more series (portfolios) or classes of shares of common stock and to
classify or reclassify any unissued shares at any time and without
shareholder approval. When issued and paid for, the shares of each series
and class of the Fund are fully paid and nonassessable, and have no pre-
emptive rights or preference as to conversion, exchange, dividends,
retirement or other features.
The shares of each series and class have non-cumulative voting rights,
which means that the holders of more than 50% of the shares voting for the
election of members of the governing board can elect all of the members if
they choose to do so. On each matter submitted to a vote of the
shareholders, 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. Shares of all classes will vote
together as a single class except when otherwise required by law or as
determined by the members of the Fund's governing board.
If the Fund is liquidated, the shareholders of each portfolio or any class
thereof are entitled to receive the net assets belonging to that portfolio,
or in the case of a class, belonging to that portfolio and allocable to
that class. The Fund will distribute is net assets to its shareholders in
proportion to the number of shares of that portfolio or class thereof held
by them and recorded on the books of the Fund. The liquidation of any
portfolio or class thereof may be authorized at any time by vote of a
majority of the members of the governing board.
The governing board has authorized three classes of shares, Institutional,
Institutional Service and Adviser. The three classes represent interests in
the same assets of a portfolio and, except as discussed below, are
identical in all respects. Unlike Institutional and Adviser Class Shares,
Institutional Service Class Shares bear certain expenses related to
shareholder servicing and the distribution of such shares and have
exclusive voting rights with respect to matters relating to such
distribution expenditures. The Adviser Class Shares impose a sales load on
purchases. The classes also have different exchange privileges. The net
income attributable to Institutional Service Class Shares and the dividends
payable on Institutional Service Class Shares will be reduced by the amount
of the shareholder servicing and distribution fees; accordingly, the net
asset value of the Institutional Service Class Shares will be reduced by
such amount to the extent a portfolio has undistributed net income.
The Fund will not hold annual meetings except when required to by the
Investment Company Act of 1940, as amended, or other applicable law.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund tries to distribute substantially all of the net investment income
of a portfolio and net realized capital gains so as to avoid income taxes
on its dividends and distributions and the imposition of the federal excise
tax on undistributed income and capital gains. However, the Fund cannot
predict the time or amount of any such dividends or distributions.
Distributions by a portfolio reduce its net asset value ("NAV"). A
distribution that reduces the NAV of a portfolio below its cost basis is
taxable as described in the prospectus of the portfolios, although from an
investment standpoint, it is a return of capital. If you buy shares of a
portfolio on or before the "record date" -- the date that establishes which
shareholders will receive an upcoming distribution -- for a distribution,
you will receive some of the money you invested as a taxable distribution.
Unless the shareholder elects otherwise in writing, all dividend and
capital gains distributions are automatically received in additional shares
of a 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
22
<PAGE>
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 will be treated as a separate entity (and hence as a
separate "regulated investment company") for federal tax purposes. Each
portfolio will distribute its net capital gains to its investors, but will
not offset (for federal income tax purposes) such gains against any net
capital losses of another portfolio.
PURCHASE REDEMPTION AND PRICING OF SHARES
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
Service Agents may enter confirmed purchase orders on behalf of their
customers. If shares of a Portfolio are purchased in this manner, the
Service Agent must receive your investment order before the close of
trading on the New York Stock Exchange ("NYSE") and transmit it to UAMSSC
before the close of its business day to receive that day's share price.
UAMSSC must receive proper payment for the order by the time the portfolio
is priced on the following business day. Service Agents are responsible to
their customers and the Fund for timely transmission of all subscription
and redemption requests, investment information, documentation and money.
Purchases of shares of a Portfolio will be made in full and fractional
shares of the Portfolio calculated to three decimal places. Certificates
for fractional shares will not be issued. Certificates for whole shares
will not be issued except at the written request of the shareholder.
The Fund reserves the right in its sole discretion 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.
IN-KIND PURCHASES
If accepted by the Fund, shareholders may purchase shares of a portfolio in
exchange for securities that are eligible for acquisition by the portfolio.
Securities to be exchanged that are accepted by the Fund will be valued as
described under "VALUATION OF SHARES" at the next determination of net
asset value after 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 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:
. At the time of exchange, such securities are eligible to be included in
the portfolio (current market quotations must be readily available for
such securities).
. The investor represents and agrees that all securities offered to be
exchanged are liquid securities and not subject to any restrictions upon
their sale by the Portfolio under the Securities Act of 1933, or
otherwise.
. The value of any such securities (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.
Investors who are subject to Federal taxation upon exchange may realize a
gain or loss for Federal income tax purposes depending upon the cost of
securities or local currency exchanged. Investors interested in such
exchanges should contact the adviser.
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
When you redeem, your shares may be worth more or less than the price you
paid for them depending on the market value of the investments held by the
portfolio.
BY MAIL
Requests to redeem shares must include:
23
<PAGE>
. Share certificates, if issued.
. A letter of instruction or an 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.
. Any required signature guarantees (see "SIGNATURE GUARANTEES").
. Any other necessary legal documents, if required, in the case of
estates, trusts, guardianships, custodianships, corporations, pension
and profit sharing plans and other organizations.
BY TELEPHONE
The following tasks cannot be accomplished by telephone:
. Changing the name of the commercial bank or the account designated to
receive redemption proceeds (this can be accomplished only by a written
request signed by each shareholder, with each signature guaranteed).
. Redemption of certificated shares by telephone.
The Fund and its Sub-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, as well as 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.
The Fund or Sub-Transfer Agent may be liable for any losses due to
unauthorized or fraudulent telephone instructions if the Fund or the Sub-
Transfer Agent does not employ the procedures described above. Neither the
Fund nor the Sub-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.
REDEMPTIONS-IN-KIND
If the governing board determines that it would be detrimental to the best
interests of remaining shareholders of the Fund to make payment wholly or
partly in cash, the Fund may pay redemption proceeds in whole or in part by
a distribution in-kind of liquid securities held by a Portfolio in lieu of
cash in conformity with applicable rules of the SEC. Investors may incur
brokerage charges on the sale of portfolio securities received in payment
of redemptions.
However, the Fund has made an election with the SEC 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 SEC. 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 governing board believes 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 under "Valuation of Shares'. A
redeeming shareholder would normally incur brokerage expenses if these
securities were converted to cash.
SIGNATURE GUARANTEES
To protect your account, the Fund and its sub-transfer agent 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
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 that 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.
24
<PAGE>
OTHER REDEMPTION INFORMATION
Normally, the Fund will pay for all shares redeemed under proper procedures
within one business day of and no more than seven days after the receipt of
the request, or earlier if required under applicable law. 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
determined by the SEC.
The Fund may suspend redemption privileges or postpone the date of payment
. During any period that both the NYSE and custodian bank are closed, or
trading on the NYSE is restricted as determined by the Commission.
. 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.
. For such other periods as the Commission may permit.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
The exchange privilege is only available with respect to portfolios that
are qualified for sale in the shareholder's state of residence. Exchanges
are based on the respective net asset values of the shares involved. The
Institutional Class and Institutional Service Class Shares of UAM Funds do
not charge a sales commission or charge of any kind.
Neither the Fund nor any of its service providers will be responsible for
the authenticity of the exchange instructions received by telephone. The
governing board of the Fund may restrict the exchange privilege at any
time. Such instructions may include limiting the amount or frequency of
exchanges and may be for the purpose of assuring such exchanges do not
disadvantage the Fund and its shareholders.
TRANSFER OF SHARES
- --------------------------------------------------------------------------------
Shareholders may transfer shares of each portfolio to another person by
making a written request to the Fund. Your request should clearly identify
the account and number of shares you wish to transfer. All registered
owners should sign the request 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 "Signature Guarantees". As in the case of redemptions,
the written request must be received in good order before any transfer can
be made.
VALUATION OF SHARES
- --------------------------------------------------------------------------------
The Fund does not price its shares on those days when the New York Stock
Exchange is closed, which are currently: New Year's Day; Dr. Martin Luther
King, Jr. Day; Presidents' Day; Good Friday; Memorial Day; Independence
Day; Labor Day; Thanksgiving Day; and Christmas Day.
EQUITY SECURITIES
Equity securities listed on a securities exchange for which market
quotations are readily available are valued at the last quoted sale price
of the day. Price information on listed securities is taken from the
exchange where the security is primarily traded. Unlisted equity securities
and listed securities not traded on the valuation date for which market
quotations are readily available are valued neither exceeding the asked
prices nor less than the bid prices. Quotations of foreign securities in a
foreign currency are converted to U.S. dollar equivalents. The converted
value is based upon the bid price of the foreign currency against U.S.
dollars quoted by any major bank or by a broker.
DEBT SECURITIES
Debt securities are valued according to the broadest and most
representative market, which will ordinarily be the over-the-counter
market. Debt securities may be valued based on prices provided by a pricing
service when such prices are believed to reflect the fair market value of
such securities. Securities purchased with remaining maturities of 60 days
or less are valued at amortized cost when the Board of Directors determines
that amortized cost reflects fair value.
OTHER ASSETS
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 governing board.
25
<PAGE>
PERFORMANCE CALCULATIONS
The portfolios measure performance by calculating yield and total return.
Both yield and total return figures are based on historical earnings and
are not intended to indicate future performance. Performance quotations by
investment companies are subject to rules adopted by the SEC, 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 SEC. 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 SEC. An explanation of the method
used to compute or express performance follows.
Performance is calculated separately for Institutional Class and Service
Class Shares. Dividends paid by a Portfolio with respect to Institutional
Class and Service Class Shares, to the extent any dividends are paid, will
be calculated in the same manner at the same time on the same day and will
be in the same amount, except that service fees, distribution charges and
any incremental transfer agency costs relating to Service Class Shares will
be borne exclusively by that class.
TOTAL RETURN
- --------------------------------------------------------------------------------
Total return is the change in value of an investment in a portfolio over a
given period, assuming reinvestment of any dividends and capital gains. A
cumulative or aggregate total return reflects actual performance over a
stated period of time. An average annual total return is a hypothetical
rate of return that, if achieved annually, would have produced the same
cumulative total return if performance had been constant over the entire
period.
The average annual total return of a 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 one, five and ten-year period
and the deduction of all applicable Fund expenses on an annual basis. Since
Institutional Service Class Shares bear additional service and distribution
expenses, their average annual total return will generally be lower than
that of the Institutional Class Shares.
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).
The average annual total rates of return of the Institutional Class of the
Portfolios are as follows:
<TABLE>
<CAPTION> Since Inception
One Year Ended Five Years Ended Through Year Ended
October 31, 1998 October 31, 1998 October 31, 1998 Inception Date
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
C & B Equity Portfolio
Institutional Class Shares 5/15/90
- ------------------------------------------------------------------------------------------------------------------------------------
C & B Balanced Portfolio
Institutional Class Shares 12/29/89
- ------------------------------------------------------------------------------------------------------------------------------------
C & B Equity Portfolio for Taxable Investors
Institutional Class Shares N/A 1/12/97
- ------------------------------------------------------------------------------------------------------------------------------------
C & B Mid Cap Equity Portfolio
Institutional Class Shares N/A N/A 2/18/98
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
YIELD
- --------------------------------------------------------------------------------
Yield refers to the income generated by an investment in a portfolio over a
given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all funds. As this
differs from other accounting methods, the quoted yield may not equal the
income actually paid to shareholders.
26
<PAGE>
The 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. Since Institutional Service Class Shares bear additional
service and distribution expenses, their yield will generally be lower than
that of the Institutional Class Shares.
Yield is obtained using the following formula:
Yield = 2((a-b)/(cd)+1)/6/-1
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
- --------------------------------------------------------------------------------
The Portfolios' performance may be compared to data prepared by independent
services which monitor the performance of investment companies, data
reported in financial and industry publications, and various indices as
further described in the Portfolios' SAI. This information may also be
included in sales literature and advertising.
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. Please see APPENDIX B for publications, indices and
averages that may be used.
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 each
portfolio, 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 each portfolio to calculate its performance. In addition,
there can be no assurance that each portfolio will continue this
performance as compared to such other averages.
TAXES
In order for a portfolio to continue to qualify for federal income tax
treatment as a regulated investment company under the Internal Revenue Code
of 1986, as amended, 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, as applicable.
Each portfolio will distribute to shareholders annually any net capital
gains that have been recognized for federal income tax purposes.
Shareholders will be advised on the nature of the payments.
If for any taxable year a portfolio does not qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code, all of
the portfolio's taxable income would be subject to tax at regular corporate
rates without any deduction for distributions to shareholders. In this
event, a portfolio's distributions to shareholders would be taxable as
ordinary income to the extent of the current and accumulated earnings and
profits of the particular portfolio, and would be eligible for the
dividends received deduction in the case of corporate shareholders. The
portfolios intend to qualify as a "regulated investment company" each year.
Dividends and interest received by each portfolio may give rise to
withholding and other taxes imposed by foreign countries. These taxes would
reduce each portfolio's dividends but are included in the taxable income
reported on your tax statement if each portfolio qualifies for this tax
treatment and elects to pass it through to you. Consult a tax adviser for
more information regarding deductions and credits for foreign taxes.
27
<PAGE>
EXPENSES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Investment Investment Sub-
Advisory Fees Advisory Fees Administrator Administrator Brokerage
Paid Waived Fee (UAMFSI) Fee (CGFSC) Commissions
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
C & B Equity Portfolio
1998
1998
---------------------------------------------------------------------------------------------------------------------------
1997 $ 882,890 -0- $194,278 $137,773 $170,908
---------------------------------------------------------------------------------------------------------------------------
1996 $1,345,533 -0- $271,427 $230,298 $196,407
---------------------------------------------------------------------------------------------------------------------------
C & B Balanced portfolio
1998
---------------------------------------------------------------------------------------------------------------------------
1997 $ 89,715 $54,862 $ 90,736 $ 76,870 $ 14,006
---------------------------------------------------------------------------------------------------------------------------
1996 $ 77,383 $66,224 $ 84,334 $ 77,007 $ 10,972
---------------------------------------------------------------------------------------------------------------------------
C & B Equity Portfolio for Taxable
Investors
1998
---------------------------------------------------------------------------------------------------------------------------
1997* -0- $ 3,003 $ 23,712 $ 23,521 $ 1,054
---------------------------------------------------------------------------------------------------------------------------
C & B Mid Cap Equity Portfolio
1998**
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* During the period from February 12, 1997 (initial offering) to October 31,
1997.
**During the period from February 18, 1998 (initial offering) to October 31,
1998.
FINANCIAL STATEMENTS
The Financial Statements for each portfolio for the fiscal year ended October
31, 1998, the Financial Highlights for the respective periods presented, the
report thereon by PricewaterhouseCoopers LLP, the Fund's independent
accountant, which appear in portfolio's 1998 Annual Report, are incorporated
by reference into this Statement of Additional Information. No other parts are
incorporated by reference herein. Copies of the 1998 Annual Report may be
obtained free of charge by telephoning the UAM Funds at the telephone number
appearing on the front page of this Statement of Additional Information.
<PAGE>
UAM FUNDS
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
THE DSI PORTFOLIOS
DSI Balanced Portfolio
DSI Disciplined Value Portfolio
DSI Limited Maturity Bond Portfolio
DSI Money Market Portfolio
DSI Small Cap Value Portfolio
Institutional Class Shares
DSI Disciplined Value Portfolio
Institutional Service Class Shares
Statement of Additional Information
__________, 1999
This statement of additional information (SAI) is not a prospectus. However, you
should read it in conjunction with the Prospectus of The DSI Portfolios
Institutional Class Shares dated ______, 1999 and the Prospectus of The DSI
Disciplined Value Portfolio's Institutional Service Class Shares dated
_____,1999. You may obtain a Prospectus for the appropriate DSI portfolio by
contacting the UAM Funds at the address listed above.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
UAM FUNDS................................................................................................................... 1
DEFINITIONS................................................................................................................. 1
THE FUND.................................................................................................................... 1
DESCRIPTION OF THE PORTFOLIO AND ITS INVESTMENTS AND RISKS.................................................................. 1
Equity Securities (DSI Balanced, Disciplined Value and Small Cap Value Portfolios)........................................ 1
Debt Securities (DSI Balanced, Limited Maturity Bond and Money Market Portfolios).......................................... 2
Derivatives (All except DSI Money market portfolio)........................................................................ 6
Foreign Securities......................................................................................................... 10
Investment Companies....................................................................................................... 14
Repurchase Agreements...................................................................................................... 14
Securities Lending......................................................................................................... 14
Short-Term Investments..................................................................................................... 14
When-Issued, Forward Commitment and Delayed Delivery Transactions.......................................................... 15
Restricted Securities...................................................................................................... 16
INVESTMENT POLICIES......................................................................................................... 16
Fundamental Investment Policies (DSI Disciplined Value, DSI Limited Maturity Bond, DSI Money Market Portfolios)............ 16
Fundamental Policies ( DSI Balanced Portfolio)............................................................................ 17
Non-Fundamental Policies ( DSI Balanced Portfolio)........................................................................ 18
Fundamental Policies ( DSI Small Cap Value Portfolio)..................................................................... 18
Non-Fundamental Policies ( DSI Small Cap Value Portfolio)................................................................. 18
MANAGEMENT OF THE PORTFOLIO................................................................................................. 19
CODE OF ETHICS.............................................................................................................. 20
PRINCIPAL HOLDERS OF SECURITIES............................................................................................. 20
INVESTMENT ADVISORY AND OTHER SERVICES...................................................................................... 21
Investment Adviser......................................................................................................... 21
Distributor................................................................................................................ 22
Administrative Services.................................................................................................... 22
Custodian.................................................................................................................. 24
Independent Public Accountant.............................................................................................. 24
Service And Distribution Plan (DSI Disciplined Value Portfolio)............................................................ 24
BROKERAGE ALLOCATION AND OTHER PRACTICES.................................................................................... 26
Selection of Brokers....................................................................................................... 26
Simultaneous Transactions.................................................................................................. 26
Brokerage Commissions...................................................................................................... 27
CAPITAL STOCK AND OTHER SECURITIES.......................................................................................... 27
Description Of Shares And Voting Rights.................................................................................... 27
Dividends and Capital Gains Distributions.................................................................................. 27
PURCHASE REDEMPTION AND PRICING OF SHARES................................................................................... 28
Purchase of Shares......................................................................................................... 28
Redemption of Shares....................................................................................................... 29
Exchange Privilege......................................................................................................... 30
Transfer Of Shares......................................................................................................... 30
Valuation of Shares........................................................................................................ 30
PERFORMANCE CALCULATIONS.................................................................................................... 31
Total Return............................................................................................................... 31
Yield...................................................................................................................... 32
Yield (DSI Money Market Portfolio)......................................................................................... 32
Comparisons................................................................................................................ 33
TAXES....................................................................................................................... 33
EXPENSES.................................................................................................................... 34
FINANCIAL STATEMENTS........................................................................................................ 34
</TABLE>
1
<PAGE>
DEFINITIONS
The "Fund" is UAM Funds, Inc.
The term "adviser" means Dewey Square Investors Corporation, the Fund's
investment adviser.
UAM is United Asset Management Corporation.
UAMFSI is UAM Fund Services, Inc., the Fund's administrator.
UAMFDI is UAM Fund Distributors, Inc., the Fund's distributor.
UAMSSC is UAM Fund Shareholder Servicing Center, the Fund's sub-shareholder-
servicing agent.
CGFSC is Chase Global Funds Service Company, the Fund's sub-administrator.
UAM Funds Complex includes UAM Funds, Inc., UAM Funds Trust, UAM Funds Trust
II and all of their portfolios.
The term "portfolios" is used to refer to the DSI Portfolios as a group, while
"portfolio" refers to a single DSI Portfolio.
The terms "board" and "governing board" refer to the Fund's Board of Directors
as a group, while "board member" refers to a single member of the board.
All other defined terms, which are not otherwise defined in this SAI, have the
same meaning in the SAI as they do in the prospectuses of The DSI Portfolios.
THE FUND
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 Fund changed its
name to "UAM Funds, Inc." The Fund's principal executive office is located at
One International Place, Boston, MA 02110; shareholders should direct all
correspondence to the address listed on the cover of this SAI.
The Fund is an open-end, management investment company under the Investment
Company Act of 1940. The DSI Portfolios are a diversified series of the Fund
This means that with respect to 75% of its total assets, the portfolios may
not invest more than 5% of their respective total assets in the securities of
any one issuer (except U.S. government securities). The remaining 25% of its
total assets are not subject to this restriction. To the extent the Fund
invests a significant portion of its assets in the securities of a particular
issuer, it will be subject to an increased risk of loss if the market value of
such issuer's securities declines.
DESCRIPTION OF THE PORTFOLIOS AND ITS INVESTMENTS AND RISKS
EQUITY SECURITIES (DSI BALANCED, DISCIPLINED VALUE AND SMALL CAP VALUE
PORTFOLIOS)
- --------------------------------------------------------------------------------
Some of the portfolios may invest in equity securities such as common and
preferred stocks. While investing in stocks allows the portfolios to
participate in the benefits of owning a company, the portfolios must accept
the risks of ownership. Unlike bondholders, who have preference to a
company's earnings and cash flow, preferred stockholders followed by common
stockholders in order of priority, are entitled only to the residual amount
after a company meets its other obligations. For this reason, the value of a
company's stock will usually react more strongly to actual or perceived
changes in the company's financial condition or prospects than its debt
obligations. Stockholders of a company that fares poorly can lose money.
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 values 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. Types of preferred stocks
1
<PAGE>
include adjustable-rate preferred stock, fixed dividend preferred stock,
perpetual preferred stock, and sinking fund preferred stock.
STOCK MARKET RISK
Stock markets tend to move in cycles with short or extended periods of rising
and falling stock prices. The value of a company's stock may fall because of:
. Factors that directly relate to that company, such as decisions made by its
management or lower demand for the company's products or services.
. Factors affecting an entire industry, such as increases in production
costs.
. Changes in financial market conditions that are relatively unrelated to the
company or its industry, such as changes in interest rates, currency
exchange rates or inflation rates.
RIGHTS AND WARRANTS
The portfolios may purchase warrants and rights, which are securities
permitting, but not obligating, their holder to purchase the underlying
securities at a predetermined price. Generally, warrants and stock purchase
rights do not carry with them the right to receive dividends or exercise
voting rights with respect to the underlying securities, and they do not
represent any rights in the assets of the issuer. Therefore, an investment in
warrants and rights may entail greater risk than certain other types of
investments. In addition, the value of warrants and rights does not
necessarily change with the value of the underlying securities, and they cease
to have value if they are not exercised on or prior to their expiration date.
Investment in warrants and rights increases the potential profit or loss to be
realized from the investment of a given amount of a portfolio's assets as
compared with investing the same amount in the underlying stock.
CONVERTIBLE SECURITIES
Certain of the portfolios may purchase corporate bonds, debentures and
preferred stock that are convertible into common stock. In exchange for the
conversion feature, many corporations will pay a lower rate of interest on
convertible securities than debt securities of the same corporation.
Convertible corporate bonds, debentures and preferred stock are subject to the
same risks as similar securities without the convertible feature. In
addition, their market price tends to go up if the stock price moves up. For
this reason, convertible securities are more volatile in price during times of
steady interest rates than other types of fixed income securities.
DEBT SECURITIES (DSI BALANCED, LIMITED MATURITY BOND AND MONEY MARKET
PORTFOLIOS)
- --------------------------------------------------------------------------------
Debt securities are used by corporations and governments to borrow money from
investors. Most debt securities promise a variable or fixed rate of return
and repayment of the amount borrowed at maturity. Some debt securities, such
as zero-coupon bonds, do not pay current interest and are purchased at a
discount from their face value. Debt securities may include, among other
things, all types of bills, notes, bonds, mortgage-backed securities or asset-
backed securities.
The total return of a debt instrument is composed of two elements: the
percentage change in the security's price and interest income earned. The
YIELD TO MATURITY of a debt security estimates its total return only if the
price of the debt security remains unchanged during the holding period and
coupon interest is reinvested at the same yield to maturity. The total return
of a debt instrument, therefore, will be determined not only by how much
interest is earned, but also by how much the price of the security and
interest rates change.
INTEREST RATES
The price of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up, the value of the bond will go
down, and vice versa). One can estimate the anticipated change in the price of
a fixed rate security for each 1% shift in interest rates by using a risk
measure known as EFFECTIVE DURATION. An effective duration of 4 years, for
example, would suggest that for each 1% reduction in interest rates at all
maturity levels, the price of a security is estimated to increase by 4%. An
increase in rates by the same magnitude is estimated to reduce the price of
the security by 4%. By knowing the yield and the effective duration of a debt
security, one can estimate total return based on an expectation of how much
interest rates, in general, will change.
While serving as a good estimator of prospective returns, effective duration
is an imperfect measure. While lower interest rates generally improve the
value of a fixed income portfolio, lower interest rates may also introduce
certain risks which may independently cause the share price of the portfolios
to fall. Lower rates motivate people to pay off mortgage-backed and asset-
2
<PAGE>
backed securities earlier than expected, which introduces REINVESTMENT RISK.
Reinvesting portfolio assets at lower rates may reduce the yield of the
portfolio. The unexpected timing of mortgage and asset-backed prepayments
caused by the variations in interest rates may also shorten or lengthen the
AVERAGE MATURITY of the portfolios. Neglecting this drift in average maturity
may have the unintended effect of increasing or reducing the effective
duration of the portfolios which may in turn adversely affect the expected
performance of the portfolios.
CREDIT RATING
Coupon interest is offered to investors of fixed income securities as
compensation for assuming risk, although short-term U.S. treasury securities,
such as 3 month treasury bills, are considered "risk free." Corporate
securities offer higher yields than U.S. treasuries because their payment of
interest and complete repayment of principal is less certain. The credit
rating or financial condition of an issuer may affect the value of a debt
security. Generally, the lower the quality rating of a security, the greater
the risks that the issuer will fail to pay interest and return principal. To
compensate investors for taking on increased risk, issuers with lower credit
ratings usually offer their investors a higher "risk premium" in the form of
higher interest rates above comparable U.S. treasuries.
Changes in investor confidence regarding the certainty of interest and
principal payments of a fixed income corporate security will result in an
adjustment to this "risk premium." Since an issuer's outstanding debt carries
a fixed coupon, adjustments to the risk premium must occur in the price, which
effects the yield to maturity of the bond. If an issuer defaults or becomes
unable to honor its financial obligations, the bond may lose some or all of
its value
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade. The adviser may retain securities that are downgraded, if
it believes that keeping those securities is warranted.
Rating agencies are organizations that assign ratings to securities based
primarily on the rating agency's assessment of the issuer's financial
strength. The portfolios currently use ratings compiled by Standard and
Poor's Ratings Services, Duff & Phelps Rating Co., Fitch IBCA, Inc. and,
Moody's Investor Services. Credit ratings are only an agency's opinion, not an
absolute standard of quality, and they do not reflect an evaluation of market
risk. APPENDIX A contains further information concerning the ratings of
certain rating agencies and their significance.
The adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time a portfolio buys it. A rating
agency may change its credit ratings at any time. The adviser monitors the
rating of the security and will take appropriate actions if a rating agency
reduces the security's rating. A portfolio is not obligated to dispose of
securities whose issuers subsequently are in default or which are downgraded
below the above-stated ratings
INVESTMENT-GRADE FIXED-INCOME SECURITIES
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade.
JUNK BONDS (NOT APPLICABLE TO DSI MONEY MARKET PORTFOLIO)
Debt securities rated below investment-grade (junk bonds) are highly
speculative securities that are usually issued by smaller, less credit worthy
and/or highly leveraged (indebted) companies. A corporation may issue a junk
bond because of a corporate restructuring or other similar event. Compared
with investment-grade bonds, junk bonds carry a greater degree of risk and are
less likely to make payments of interest and principal. Market developments
and the financial and business condition of the corporation issuing these
securities influences their price and liquidity more than changes in interest
rates, when compared to investment-grade debt securities. Insufficient
liquidity in the junk bond market may make it more difficult to dispose of
junk bonds and may cause a portfolio to experience sudden and substantial
price declines. A lack of reliable, objective data or market quotations may
make it more difficult to value junk bonds accurately.
U.S. GOVERNMENT SECURITIES
For a discussion of these securities see "SHORT-TERM INVESTMENTS - GOVERNMENT
SECURITIES," below.
3
<PAGE>
CORPORATE BONDS
For a discussion of these securities see "SHORT-TERM INVESTMENTS - CORPORATE
BONDS," below.
MORTGAGE-BACKED SECURITIES AND MORTGAGE PASS-THROUGH SECURITIES
Mortgage-backed securities are interests in pools of mortgage loans that
various governmental, government-related and private organizations assemble as
securities for sale to investors. Mortgage-backed securities differ from other
forms of debt securities because they make monthly payments that consist of
both interest and principal payments. (Other debt securities normally provide
for periodic payment of interest in fixed amounts with principal payments at
maturity or specified call dates.) In effect, these payments are a "pass-
through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of such
securities.
Governmental entities, private insurers and the mortgage poolers may insure or
guaranty the timely payment of interest and principal of these pools through
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance and letters of credit issue the insurance and
guarantees. The adviser will consider such insurance and guarantees and the
creditworthiness of the issuers thereof in determining whether a mortgage-
related security meets its investment quality standards. It is possible that
the private insurers or guarantors will not meet their obligations under the
insurance policies or guarantee arrangements.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.
Government National Mortgage Association (GNMA)
GNMA, a wholly owned U.S. government corporation within the Department of
Housing and Urban Development, is the principal governmental guarantor of
mortgage-related securities. GNMA, which is backed by the faith and credit of
the U.S. government, guarantees the timely payment of principal and interest
on securities issued by institutions approved by GNMA and backed by pools of
FHA-insured or VA-guaranteed mortgages. GNMA does not guarantee the market
value or yield of mortgage-backed securities or the value of portfolio shares.
To buy GNMA securities, a portfolio may have to pay a premium over the
maturity value of the underlying mortgages, which the portfolio may lose if
prepayment occurs.
Federal National Mortgage Association (FNMA)
FNMA is a government-sponsored corporation owned entirely by private
stockholders. FNMA, which is regulated by the Secretary of Housing and Urban
development, purchases conventional mortgages from a list of approved
seller/servicers, including 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, but are not backed by the
full faith and credit of the U.S. government.
Federal Home Loan Mortgage Corporation (FHLMC)
FHLMC is a corporate instrumentality of the U.S. government whose stock is
owned by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970
to increase the availability of mortgage credit for residential housing. FHLMC
issues Participation Certificates (PCs) which represent interests in
conventional mortgages from its national portfolio. Like FNMA, FHLMC
guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the U.S.
government.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. In addition to
guaranteeing the mortgage-related security, such issuers may service and/or
have originated the underlying mortgage loans. Pools created by these issuers
generally offer a higher rate of interest than pools created by GNMA, FNMA &
FHLMC because they are not guaranteed by a government agency.
Risk of Investing in Mortgage-Backed Securities
Yield characteristics of mortgage-backed securities differ from those of
traditional fixed income securities. The major differences include interest
and principal payments that are more frequent (usually monthly), adjustable
interest rates, and the possibility
4
<PAGE>
that prepayments of principal may be made substantially earlier than their
final distribution dates so that the price of the security will generally
decline when interest rates rise.
The portfolio may fail to recover fully its investment in mortgage-backed
securities notwithstanding any direct or indirect governmental, agency or
other guarantee because the counter-party failed to meet its commitments.
Changes in interest rates and a variety of economic, geographic, social and
other factors, such as the sale of the underlying property, refinancing or
foreclosure, can cause the loans underlying a mortgage-backed security to be
repaid sooner than expected. If the prepayment rates increase, a portfolio may
have to reinvest its principal at a rate of interest that is lower than the
rate on existing mortgage-backed securities. Conversely, when interest rates
are rising many mortgage-backed securities will see a decline in the
prepayment rate, extending their average life. Extending the average life of a
mortgage-backed security increases the risk of depreciation due to future
increases in market interest rates. For these reasons, mortgage-backed
securities may be less effective than other types of U.S. government
securities as a means of "locking in" interest rates.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)
CMOs are hybrids between mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, CMOs usually pay interest and prepaid principal
semiannually. While whole mortgage loans may collateralize CMOs, portfolios of
mortgage-backed securities guaranteed by GNMA, FHLMC, or FNMA, and their
income streams more typically collateralize them.
A REMIC is a CMO that qualifies for special tax treatment under the Internal
Revenue Code of 1986, as amended, and invests in certain mortgages primarily
secured by interests in real property and other permitted investments.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC certificate, often referred to as a
"tranche," is issued at a specific interest rate and must be fully retired by
its final distribution date. Generally, all classes of CMOs or REMIC
certificates pay or accrue interest monthly. Investing in the lowest tranche
of CMOs and REMIC certificates involves risks similar to those associated with
investing in equity securities.
OTHER ASSET-BACKED SECURITIES
A broad range of assets, including automobile loans, computer leases and
credit card receivables, are being securitized in pass-through structures
similar to the mortgage pass-through or CMO structures described above. In
general, the collateral supporting these securities is of shorter maturity
than mortgage loans and is less likely to experience substantial prepayments
with interest rate fluctuations.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the
benefit of any security interest in the related assets, which raises the
possibility that recoveries on repossessed collateral may not be available to
support payments on these securities. For example, credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which allow debtors
to reduce their balances by offsetting certain amounts owed on the credit
cards. Most issuers of asset-backed securities backed by automobile
receivables permit the servicers of such receivables to retain possession of
the underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the rated asset-backed securities. Because
of the large number of vehicles involved and technical requirements under
state laws, the trustee for the holders of asset-backed securities backed by
automobile receivables may not have a proper security interest in all of the
obligations backing such receivables.
To lessen the effect of failures by obligors on underlying assets to make
payments, the entity administering the pool of assets may agree to ensure the
receipt of payments on the underlying pool occurs in a timely fashion
("liquidity protection"). In addition, asset-backed securities may obtain
insurance, such as guarantees, policies or letters of credit obtained by the
issuer or sponsor from third parties, for some or all of the assets in the
pool ("credit support"). Delinquency or loss more than that anticipated or
failure of the credit support could adversely affect the return on an
investment in such a security.
The portfolios may also invest in residual interests in asset-backed
securities, which is the excess cash flow remaining after making required
payments on the securities and paying related administrative expenses. The
amount of residual cash flow resulting from a particular issue of asset-backed
securities depends in part on the characteristics of the underlying assets,
the coupon rates on the securities, prevailing interest rates, the amount of
administrative expenses and the actual prepayment experience on the underlying
assets.
STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities are derivative multiple-class mortgage-
backed securities. Stripped mortgage-backed securities usually have two
classes that receive different proportions of interest and principal
distributions on a pool of mortgage assets. Typically, one class will receive
some of the interest and most of the principal, while the other class will
receive most of
5
<PAGE>
the interest and the remaining principal. In extreme cases, one class will
receive all of the interest ("interest only" or "IO" class) while the other
class will receive the entire principal (the "principal only" or "PO" class).
The cash flows and yields on IOs and POs are extremely sensitive to the rate
of principal payments (including prepayments) on the underlying mortgage loans
or mortgage-backed securities. A rapid rate of principal payments may
adversely affect the yield to maturity of IOs. Slower than anticipated
prepayments of principal may adversely affect the yield to maturity of a PO.
The yields and market risk of interest only and principal only stripped
mortgage-backed securities, respectively, may be more volatile than those of
other fixed income securities, including traditional mortgage-backed
securities.
YANKEE BONDS
Yankee bonds are dollar-denominated bonds issued inside the United States by
foreign entities. Investment in these securities involve certain risks which
are not typically associated with investing in domestic securities. See
"FOREIGN SECURITIES".
ZERO COUPON BONDS
These securities make no periodic payments of interest, but instead are sold
at a discount from their face value. When held to maturity, their entire
income, which consists of accretion of discount, comes from the difference
between the issue price and their value at maturity. The amount of the
discount rate varies depending on factors including the time remaining until
maturity, prevailing interest rates, the security's liquidity and the issuer's
credit quality. The market value of zero coupon securities may exhibit greater
price volatility than ordinary debt securities because a stripped security
will have a longer duration than an ordinary debt security with the same
maturity. A portfolio's investments in pay-in-kind, delayed and zero coupon
bonds may require it to sell certain of its portfolio securities to generate
sufficient cash to satisfy certain income distribution requirements.
These securities may include U.S. Treasury securities that have had their
interest payments ("coupons") separated from the underlying principal
("corpus") by their holder, typically a custodian bank or investment brokerage
firm. Once the holder of the security has stripped or separated corpus and
coupons, it may sell each component separately. The principal or corpus is
then sold at a deep discount because the buyer receives only the right to
receive a future fixed payment on the security and does not receive any rights
to periodic interest (cash) payments. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold
bundled in such form. The underlying U.S. Treasury security is held in book-
entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. Under a Federal Reserve program
known as "STRIPS" or "Separate Trading of Registered Interest and Principal of
Securities," a portfolio can record its beneficial ownership of the coupon or
corpus directly in the book-entry record-keeping system.
DERIVATIVES (ALL EXCEPT DSI MONEY MARKET PORTFOLIO)
Derivatives are financial instruments whose value is based on an underlying
asset, such as a stock or a bond, or an underlying economic factor, such as an
interest rate or an index. A portfolio tries to minimize its loss by investing
in derivatives to protect them from broad fluctuations in market prices,
interest rates or foreign currency exchange rates. Investing in derivatives
for these purposes is known as "hedging." When hedging is successful, the
portfolio will have offset any depreciation in the value of its portfolio
securities by the appreciation in the value of the derivative position.
Although techniques other than the sale and purchase of derivatives could be
used to control the exposure of the portfolio to market fluctuations, the use
of derivatives may be a more effective means of hedging this exposure. The
following derivatives may be purchased by the portfolio:
FUTURES
A futures contract is an agreement between two parties whereby one party is
obligated to buy and the other is obligated to sell a financial instrument at
an agreed upon price and time. The parties to a futures contract do not have
to pay for or deliver the underlying financial instrument until the delivery
date. The parties to a futures contract can hold the contract until its
delivery date, although in many cases they close the contract early by taking
an opposite position in an identical contract. The financial instrument
underlying the contract may be a stock, stock index, bond, bond index,
interest rate, foreign exchange rate or other similar instrument. A portfolio
will incur commission expenses in both opening and closing futures positions.
Futures contracts are traded in the United States on commodity exchanges or
boards of trade -- known as "contract markets" -- approved for such trading
and regulated by the Commodity Futures Trading Commission, a federal agency.
These contract markets standardize the terms, including the maturity date and
underlying financial instrument, of all futures contracts.
6
<PAGE>
Contract markets require both the purchaser and seller to deposit "initial
margin" with a futures broker, known as a futures commission merchant, when
they enter into the contract. Initial margin deposits are typically equal to a
percentage of the contract's value. After they open a futures contract, the
parties to the transaction must compare the purchase price of the contract to
its daily market value. If the value of the futures contract changes in such a
way that a party's position declines, that party must make additional
"variation margin" payments so that the margin payment is adequate. On the
other hand, the value of the contract may change in such a way that there is
excess margin on deposit, possibly entitling the party that has a gain to
receive all or a portion of this amount.
A portfolio may take a "short position" by selling futures contracts on
securities it owns or on securities with characteristics similar to those of
securities it owns. For example, when a portfolio expects interest rates to
rise or securities prices to fall, it can seek to offset a decline in the
value of its holdings by selling futures contracts so that a portfolio is
obligated to sell the securities at a future lower price. When a portfolio's
short hedging position is successful, the appreciation in the value of the
futures position will offset substantially any depreciation in the value of
the holdings of the portfolio. On the other hand, a decline in the value of
the futures position would offset any unanticipated appreciation in the value
of the holdings of the portfolio.
On other occasions, a portfolio may take a "long" position by purchasing
futures contracts. For example, when a portfolio expects interest rates to
fall or securities' prices to rise, it can seek to secure a better rate or
price than might later be available by purchasing a futures contract. A
portfolio may also buy futures contracts as a substitute for transactions in
securities, to alter the investment characteristics of portfolio securities or
to gain or increase its exposure to a particular securities market.
OPTIONS
An option is a contract between two parties for the purchase and sale of a
financial instrument for a specified price (known as the "strike price" or
"exercise price") at any time during the option period. Unlike a futures
contract, an option grants a right (not an obligation) to buy or sell a
financial instrument. Generally, a seller of an option can grant a buyer two
kinds of rights: a "call" (the right to buy the security) or a "put" (the
right to sell the security). Options have various types of underlying
instruments, including specific securities, indices of securities prices,
foreign currencies, interest rates and futures contracts. Options may be
traded on an exchange (exchange-traded-options) or may be customized
agreements between the parties (over-the-counter or "OTC options"). Like
futures, a financial intermediary, known as a clearing corporation,
financially backs exchange-traded options. However, OTC options have no such
intermediary and are subject to the risk that the counter-party will not
fulfill its obligations under the contract.
Purchasing Put and Call Options
When a portfolio purchases a put option, it buys the right to sell the
instrument underlying the option at a fixed strike price. In return for this
right, the portfolio pays the current market price for the option (known as
the "option premium"). A portfolio may purchase put options to offset or hedge
against a decline in the market value of its securities ("protective puts") or
to benefit from a decline in the price of securities that it does not own.
The portfolio would ordinarily realize a gain if, during the option period,
the value of the underlying securities decreased below the exercise price
sufficiently to cover the premium and transaction costs. However, if the price
of the underlying instrument does not fall enough to offset the cost of
purchasing the option, a put buyer would lose the premium and related
transaction costs.
Call options are similar to put options, except that the portfolio obtains the
right to purchase, rather than sell, the underlying instrument at the option's
strike price. A portfolio would normally purchase call options in anticipation
of an increase in the market value of securities it owns or wants to buy. A
portfolio would ordinarily realize a gain if, during the option period, the
value of the underlying instrument exceeded the exercise price plus the
premium paid and related transaction costs. Otherwise, the portfolio would
realize either no gain or a loss on the purchase of the call option.
The purchaser of an option may terminate its position by:
. Allowing it to expire and losing its entire premium;
. Exercising the option and either selling (in the case of a put option) or
buying (in the case of a call option) the underlying instrument at the
strike price; or
. Closing it out in the secondary market at its current price.
Selling (Writing) Put and Call Options
When a portfolio writes a call option it assumes an obligation to sell
specified securities to the holder of the option at a specified price if the
option is exercised at any time
7
<PAGE>
before the expiration date. Similarly, when a portfolio writes a put option it
assumes an obligation to purchase specified securities from the option holder
at a specified price if the option is exercised at any time before the
expiration date. A portfolio may terminate its position in an exchange-traded
put option before exercise by buying an option identical to the one it has
written. Similarly, it may cancel an over-the-counter option by entering into
an offsetting transaction with the counter-party to the option.
A portfolio could try to hedge against an increase in the value of securities
it would like to acquire by writing a put option on those securities. If
security prices rise, the portfolio would expect the put option to expire and
the premium it received to offset the increase in the security's value. If
security prices remain the same over time, the portfolio would hope to profit
by closing out the put option at a lower price. If security prices fall, the
portfolio may lose an amount of money equal to the difference between the
value of the security and the premium it received. Writing covered put options
may deprive a portfolio of the opportunity to profit from a decrease in the
market price of the securities it would like to acquire.
The characteristics of writing call options are similar to those of writing
put options, except that call writers expect to profit if prices remain the
same or fall. A portfolio could try to hedge against a decline in the value
of securities it already owns by writing a call option. If the price of that
security falls as expected, the portfolio would expect the option to expire
and the premium it received to offset the decline of the security's value.
However, the portfolio must be prepared to deliver the underlying instrument
in return for the strike price, which may deprive it of the opportunity to
profit from an increase in the market price of the securities it holds.
A portfolio is permitted only to write covered options. A portfolio can cover
a call option by owning, at the time of selling the option:
. The underlying security (or securities convertible into the underlying
security without additional consideration), index, interest rate, foreign
currency or futures contract.
. A call option on the same security or index with the same or lesser
exercise price.
. A call option on the same security or index with a greater exercise price,
with the difference between the exercise prices maintained as a segregated
account containing cash, or liquid securities.
. Cash, or liquid securities equal to at least the market value of the
optioned securities, interest rate, foreign currency or futures contract.
. In the case of an index, a portfolio of securities that corresponds to the
index.
A portfolio can cover a put option by, at the time of selling the option:
. Entering into a short position in the underlying security.
. Purchasing a put option on the same security, index, interest rate, foreign
currency or futures contract with the same or greater exercise price.
. Purchasing a put option on the same security, index, interest rate, foreign
currency or futures contract with a lesser exercise price, with the
difference between the exercise prices maintained as a segregated account
containing cash, U.S. government securities or liquid securities.
. Maintaining the entire exercise price in liquid securities.
Options on Securities Indices
Options on securities indices are similar to options on securities, except
that the exercise of securities index options requires cash settlement
payments and does not involve the actual purchase or sale of securities. In
addition, securities index options are designed to reflect price fluctuations
in a group of securities or segment of the securities market rather than price
fluctuations in a single security.
Options on Futures
An option on a futures contract provides the holder with the right to buy a
futures contract (in the case of a call option) or sell a futures contract (in
the case of a put option) at a fixed time and price. Upon exercise of the
option by the holder, the contract market clearing house establishes a
corresponding short position for the writer of the option (in the case of a
call option) or a corresponding long position (in the case of a put option).
If the option is exercised, the parties will be subject to the futures
contracts. In addition, the writer of an option on a futures contract is
subject to initial and variation margin requirements on the option position.
Options on futures contracts are traded on the same contract market as the
underlying futures contract.
8
<PAGE>
The buyer or seller of an option on a futures contract may terminate the
option early by purchasing or selling an option of the same series (i.e., the
same exercise price and expiration date) as the option previously purchased or
sold. The difference between the premiums paid and received represents the
trader's profit or loss on the transaction.
A portfolio may purchase put and call options on futures contracts instead of
selling or buying futures contracts. A portfolio may buy a put option on a
futures contract for the same reasons it would sell a futures contract. It
also may purchase such put options in order to hedge a long position in the
underlying futures contract. A portfolio may buy call options on futures
contracts for the same purpose as the actual purchase of the futures
contracts, such as in anticipation of favorable market conditions.
A portfolio may write a call option on a futures contract to hedge against a
decline in the prices of the instrument underlying the futures contracts. If
the price of the futures contract at expiration were below the exercise price,
the portfolio would retain the option premium, which would offset, in part,
any decline in the value of its portfolio securities.
The writing of a put option on a futures contract is similar to the purchase
of the futures contracts, except that, if market price declines, the portfolio
would pay more than the market price for the underlying instrument. The
premium received on the sale of the put option, less any transaction costs,
would reduce the net cost to the portfolio.
Combined Positions
A portfolio may purchase and write options in combination with each other, or
in combination with futures or forward contracts, to adjust the risk and
return characteristics of the overall position. For example, a portfolio could
construct a combined position whose risk and return characteristics are
similar to selling a futures contract by purchasing a put option and writing a
call option on the same underlying instrument. Alternatively, a portfolio
could write a call option at one strike price and buy a call option at a lower
price to reduce the risk of the written call option in the event of a
substantial price increase. Because combined options positions involve
multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.
ADDITIONAL RISKS OF DERIVATIVES
While transactions in derivatives may reduce certain risks, these transactions
themselves entail certain other risks. For example, unanticipated changes in
interest rates, securities prices or currency exchange rates may result in a
poorer overall performance of the portfolio than if it had not entered into
any derivatives transactions. Derivatives may magnify a portfolio's gains or
losses, causing it to make or lose substantially more than it invested.
When used for hedging purposes, increases in the value of the securities a
portfolio holds or intends to acquire should offset any losses incurred with a
derivative. Purchasing derivatives for purposes other than hedging could
expose the portfolio to greater risks.
Correlation of Prices
The portfolio's ability to hedge its securities through derivatives depends on
the degree to which price movements in the underlying index or instrument
correlate with price movements in the relevant securities. In the case of poor
correlation, the price of the securities a portfolio is hedging may not move
in the same amount, or even in the same direction as the hedging instrument.
The adviser will try to minimize this risk by investing only in those
contracts whose behavior it expects to resemble the portfolio securities it is
trying to hedge. However, if the portfolio's prediction of interest and
currency rates, market value, volatility or other economic factors is
incorrect, the portfolio may lose money, or may not make as much money as it
could have.
Derivative prices can diverge from the prices of their underlying instruments,
even if the characteristics of the underlying instruments are very similar to
the derivative. Listed below are some of the factors that may cause such a
divergence.
. Current and anticipated short-term interest rates, changes in volatility of
the underlying instrument, and the time remaining until expiration of the
contract.
. A difference between the derivatives and securities markets, including
different levels of demand, how the instruments are traded, the imposition
of daily price fluctuation limits or trading of an instrument stops.
. Differences between the derivatives, such as different margin requirements,
different liquidity of such markets and the participation of speculators in
such markets.
Derivatives based upon a narrower index of securities, such as those of a
particular industry group, may present greater risk than derivatives based on
a broad market index. Since narrower indices are made up of a smaller number
of securities, they are more susceptible to rapid and extreme price
fluctuations because of changes in the value of those securities.
9
<PAGE>
While currency futures and options values are expected to correlate with
exchange rates, they may not reflect other factors that affect the value of
the investments of a portfolio. A currency hedge, for example, should protect
a yen-denominated security from a decline in the yen, but will not protect a
portfolio against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of a portfolio's foreign-denominated
investments changes in response to many factors other than exchange rates, it
may not be possible to match the amount of currency options and futures to the
value of the portfolio's investments precisely over time.
Lack of Liquidity
Before a futures contract or option is exercised or expires, a portfolio can
terminate it only by entering into a closing purchase or sale transaction.
This requires a secondary market for such instruments on the exchange where
the portfolio originally entered into the transaction. If there is no
secondary market for the contract, or the market is illiquid, a portfolio may
have to purchase or sell the instrument underlying the contract, make or
receive a cash settlement or meet ongoing variation margin requirements. The
inability to close out derivative positions could have an adverse impact on
the ability of the portfolio to hedge its investments and may prevent a
portfolio from realizing profits or limiting its losses.
Derivatives may become illiquid (i.e., difficult to sell at a desired time and
price) under a variety of market conditions. For example:
. During periods of market volatility, a commodity exchange may suspend or
limit trading in a particular derivative instrument, an entire category of
derivatives or all derivatives.
. A portfolio may have difficulty liquidating its existing positions or
recovering excess variation margin payments because of exchange or clearing
house equipment failures, government intervention, insolvency of a
brokerage firm or clearing house or other disruptions of normal trading
activity.
. Investors may lose interest in a particular derivative or category of
derivatives.
Management Risk
If the adviser incorrectly predicts stock market and interest rate trends, a
portfolio may lose money by investing in derivatives. For example, if a
portfolio were to write a call option based on its adviser's expectation that
the price of the underlying security would fall, but the price were to rise
instead, the portfolio could be required to sell the security upon exercise at
a price below the current market price. Similarly, if a portfolio were to
write a put option based on the adviser's expectation that the price of the
underlying security would rise, but the price were to fall instead, the
portfolio could be required to purchase the security upon exercise at a price
higher than the current market price.
Margin
Because of the low margin deposits required upon the opening of a derivative
position, such transactions involve an extremely high degree of leverage.
Consequently, a relatively small price movement in a derivative may result in
an immediate and substantial loss (as well as gain) to the portfolio and it
may lose more than it originally invested in the derivative.
If the price of a futures contract changes adversely, a portfolio may have to
sell securities at a time when it is disadvantageous to do so to meet its
minimum daily margin requirement. A portfolio may lose its margin deposits if
a broker with whom it has an open futures contract or related option becomes
insolvent or declares bankruptcy.
FOREIGN SECURITIES
- --------------------------------------------------------------------------------
Risks of Foreign Securities
Foreign securities, foreign currencies, and securities issued by U.S. entities
with substantial foreign operations may involve significant risks in addition
to the risks inherent in U.S. investments.
Local political, economic, regulatory, or social instability, military action
or unrest, or adverse diplomatic developments may affect the value of foreign
investments. A foreign government may take actions adverse to the interests
of U.S. investors, including expropriation or nationalization of assets,
confiscatory taxation and other restrictions on U.S. investment.
Foreign Currency Risk
The securities of foreign companies are frequently denominated in foreign
currencies. The portfolio's net asset value is denominated in U.S. dollars.
Thus, changes in foreign currency rates and in exchange control regulations
may positively or
10
<PAGE>
negatively affect the value of the securities of a portfolio. A portfolio also
may incur costs to convert foreign currencies into U.S. dollars and vice versa.
In addition:
. Foreign currency exchange rates reflect relative values of two currencies,
usually the U.S. dollar and the foreign currency in question.
. Complex political and economic factors applicable to the issuing country may
affect the value of U.S. dollars and foreign currencies.
. The actions of U.S. and foreign governments may affect significantly the
currency exchange rates.
. Government intervention may increase risks involved in purchasing or selling
foreign currency options, forward contracts and futures contracts, since
exchange rates may not be free to fluctuate in response to other market
forces.
There is no systematic reporting of last sale information for foreign currencies
and there is no regulatory requirement that quotations available through dealers
or other market sources be firm or revised on a timely basis. Available
quotation information is generally representative of very large round-lot
transactions in the inter-bank market and thus may not reflect exchange rates
for smaller odd-lot transactions (less than $1 million) where rates may be less
favorable. The inter-bank market in foreign currencies is a global, around-the-
clock market. To the extent that a market is closed while the markets for the
underlying currencies remain open, certain markets may not always reflect
significant price and rate movements.
The portfolio does not intend to invest in any security in a country where the
currency is not freely convertible to U.S. dollars, unless the portfolio has
obtained the necessary governmental licensing to convert such currency or other
appropriately licensed or sanctioned contractual guarantee to protect such
investment against loss of that currency's external value, or the portfolio has
a reasonable expectation at the time the investment is made that such
governmental licensing or other appropriately licensed or sanctioned guarantee
would be obtained or that the currency in which the security is quoted would be
freely convertible at the time of any proposed sale of the security by the
portfolio.
THE EURO
The single currency for the European Economic and Monetary Union ("EMU"), the
Euro, is scheduled to replace the national currencies for participating member
countries over a period that begins on January 1, 1999 and ends in July 2002. At
the end of that period, use of the Euro will be compulsory and countries in the
EMU will no longer maintain separate currencies in any form. Until then,
however, each country and issuers within each country are free to choose whether
to use the Euro.
On January 1, 1999, existing national currencies will become denominations of
the Euro at fixed rates according to practices prescribed by the European
Monetary Institute and the Euro will become available as a book-entry currency.
Beginning on or about that date, the portfolio expects member states to begin
conducting financial market transactions in Euro and redenominating many
investments, currency balances and transfer mechanisms into Euro. The portfolio
also anticipates pricing, trading, settling and valuing investments whose
nominal values remain in their existing domestic currencies in Euro.
Accordingly, the portfolio expects the conversion to the Euro to impact
investments in countries that will adopt the Euro in all aspects of the
investment process, including trading, foreign exchange, payments, settlements,
cash accounts, custody and accounting. Some of the uncertainties surrounding the
conversion to the Euro include:
. Will the payment and operational systems of banks and other financial
institutions be ready by the scheduled launch date?
. Will the conversion to the Euro have legal consequences on outstanding
financial contracts that refer to existing currencies rather than Euro?
. How will existing currencies be exchanged into Euro?
. Will suitable clearing and settlement payment systems for the new currency be
created?
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS (DSI BALANCE, SMALL CAP VALUE AND
LIMITED MATURITY BOND PORTFOLIOS)
A forward foreign currency contract involves an obligation to purchase or sell a
specific amount of currency at a future date or date range at a specific price.
In the case of a cancelable forward contract, the holder has the unilateral
right to cancel the contract at maturity by paying a specified fee. Forward
foreign currency exchange contracts differ from foreign currency futures
contracts in certain respects. Unlike futures contracts, forward contracts
. do not have standard maturity dates or amounts (i.e., the parties to the
contract may fix the maturity date and the amount).
11
<PAGE>
. are traded in the inter-bank markets conducted directly between currency
traders (usually large commercial banks) and their customers, as opposed to
futures contracts which are traded in only on exchanges regulated by the
CFTC.
. do not require an initial margin deposit.
. may be closed by entering into a closing transaction with the currency trader
who is a party to the original forward contract, as opposed to a commodities
exchange.
FOREIGN CURRENCY HEDGING STRATEGIES CONTRACTS (DSI BALANCE, SMALL CAP VALUE
AND LIMITED MATURITY BOND PORTFOLIOS)
A "settlement hedge" or "transaction hedge" is designed to protect a portfolio
against an adverse change in foreign currency values between the date a security
is purchased or sold and the date on which payment is made or received. Entering
into a forward contract for the purchase or sale of the amount of foreign
currency involved in an underlying security transaction for a fixed amount of
U.S. dollars "locks in" the U.S. dollar price of the security. A portfolio may
also use forward contracts to purchase or sell a foreign currency when it
anticipates purchasing or selling securities denominated in foreign currency,
even if it has not yet selected the specific investments.
A portfolio may also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. Such a hedge,
sometimes referred to as a "position hedge," would tend to offset both positive
and negative currency fluctuations, but would not offset changes in security
values caused by other factors. A portfolio could also hedge the position by
selling another currency expected to perform similarly to the currency in which
the portfolio's investment is denominated. This type of hedge, sometimes
referred to as a "proxy hedge," could offer advantages in terms of cost, yield,
or efficiency, but generally would not hedge currency exposure as effectively as
a direct hedge into U.S. dollars. Proxy hedges may result in losses if the
currency used to hedge does not perform similarly to the currency in which the
hedged securities are denominated.
Transaction and position hedging do not eliminate fluctuations in the underlying
prices of the securities that a portfolio owns or intends to purchase or sell.
They simply establish a rate of exchange that one can achieve at some future
point in time. Additionally, these techniques tend to minimize the risk of loss
due to a decline in the value of the hedged currency and to limit any potential
gain that might result from the increase in value of such currency.
A portfolio may enter into forward contracts to shift its investment exposure
from one currency into another. Such transactions may call for the delivery of
one foreign currency in exchange for another foreign currency, including
currencies in which its securities are not then denominated. This may include
shifting exposure from U.S. dollars to a foreign currency, or from one foreign
currency to another foreign currency. This type of strategy, sometimes known as
a "cross-hedge," will tend to reduce or eliminate exposure to the currency that
is sold, and increase exposure to the currency that is purchased. Cross-hedges
protect against losses resulting from a decline in the hedged currency, but will
cause a portfolio to assume the risk of fluctuations in the value of the
currency it purchases. Cross hedging transactions also involve the risk of
imperfect correlation between changes in the values of the currencies involved.
It is difficult to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward or futures contract.
Accordingly, a portfolio may have to purchase additional foreign currency on the
spot market if the market value of a security it is hedging is less than the
amount of foreign currency it is obligated to deliver. Conversely, a portfolio
may have to sell on the spot market some of the foreign currency it received
upon the sale of a security if the market value of such security exceeds the
amount of foreign currency it is obligated to deliver.
STOCK EXCHANGE AND MARKET RISK
The adviser anticipates that in most cases an exchange or over-the-counter (OTC)
market located outside of the United States will be the best available market
for foreign securities. Foreign stock markets, while growing in volume and
sophistication, are generally not as developed as those in the United States,
and securities of some foreign issuers may be less liquid and more volatile than
securities of comparable U.S. issuers. Foreign security trading, settlement and
custodial practices are often less developed than those in U.S. markets. This
may lead to increased risk or substantial delays in case of a failed trade or
the insolvency of, or breach of duty by, a foreign broker-dealer, securities
depository or foreign sub-custodian. In addition, the costs associated with
foreign investments, including withholding taxes, brokerage commissions and
custodial costs, are generally higher than with U.S. investments.
LEGAL SYSTEM AND REGULATION RISKS
Foreign countries have different legal systems and different regulations
concerning financial disclosure, accounting, and auditing standards. Corporate
financial information that would be disclosed under U.S. law may not be
available. Foreign accounting
12
<PAGE>
and auditing standards may render a foreign corporate balance sheet more
difficult to understand and interpret than one subject to U.S. law and
standards. Foreign markets may offer less protection to investors than U.S.
markets such as:
. Foreign accounting, auditing, and financial reporting requirements may render
a foreign corporate balance sheet more difficult to understand and interpret
than one subject to U.S. law and standards.
. Adequate public information on foreign issuers may not be available, and it
may be difficult to secure dividends and information regarding corporate
actions on a timely basis.
. In general, there is less overall governmental supervision and regulation of
securities exchanges, brokers, and listed companies than in the United
States.
. OTC markets tend to be less regulated than stock exchange markets and, in
certain countries, may be totally unregulated.
. Economic or political concerns may influence regulatory enforcement and may
make it difficult for investors to enforce their legal rights.
. Restrictions on transferring securities within the United States or to U.S.
persons may make a particular security less liquid than foreign securities of
the same class that are not subject to such restrictions.
EMERGING MARKETS
Investing in emerging markets may magnify the risks of foreign investing.
Security prices in emerging markets can be significantly more volatile than
those in more developed markets, reflecting the greater uncertainties of
investing in less established markets and economies. In particular, countries
with emerging markets may have (1) relatively unstable governments, (2) may
present the risks of nationalization of businesses, restrictions on foreign
ownership and prohibitions on the repatriation of assets, and (3) may have
less protection of property rights than more developed countries. The
economies of countries with emerging markets may be based on only a few
industries, may be highly vulnerable to changes in local or global trade
conditions, and may suffer from extreme and volatile debt burdens or inflation
rates. Local securities markets may trade a small number of securities and may
be unable to respond effectively to increases in trading volume, potentially
making prompt liquidation of holdings difficult or impossible at times.
Certain foreign governments levy withholding taxes on dividend and interest
income. Although in some countries a portfolio may recover a portion of these
taxes, the portion they cannot recover will reduce the income the portfolio
receives from its investments. The portfolio does not expect such foreign
withholding taxes to have a significant impact on performance.
There are over 130 countries which, in the opinion of the adviser, are
generally considered to be emerging or developing countries by the
international financial community, approximately 40 of which have stock
markets. These countries generally include every national in the world except
the United States, Canada, Japan, Australia, New Zealand, and most nations
located in Western Europe. Investing in many emerging countries is not
feasible or may involve unacceptable political risks.
INVESTMENT FUNDS
Some emerging countries have laws and regulations that currently preclude
direct foreign investment in the securities of their companies. However,
indirect foreign investment in the securities of companies listed and traded
on the stock exchanges in these countries is permitted by certain emerging
countries through investment funds which have been specifically authorized.
The portfolio may invest in these investment funds subject to the provisions
of the Investment Act of 1940, as amended ("1940 Act"), and other applicable
law. If the portfolio invests in such investment funds, the portfolio's
shareholders will bear not only their proportionate share of the expenses of
the portfolio (including operating expenses and the fees of the adviser), but
also will bear indirectly bear similar expenses of the underlying investment
funds.
AMERICAN DEPOSITARY RECEIPTS (ADRS)
American Depositary Receipts (ADRs) are certificates evidencing ownership of
shares of a foreign issuer. These certificates are issued by depository banks
and generally trade on an established market in the United States or
elsewhere. A custodian bank or similar financial institution in the issuer's
home country holds the underlying shares in trust. The depository bank may not
have physical custody of the underlying securities at all times and may charge
fees for various services, including forwarding dividends and interest and
corporate actions. ADRs are alternatives to directly purchasing the underlying
foreign securities in their national markets and currencies. However, ADRs
continue to be subject to many of the risks associated with investing directly
in foreign securities.
13
<PAGE>
INVESTMENT COMPANIES
- --------------------------------------------------------------------------------
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-ended 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 received permission from the SEC to allow each of its portfolios
to invest, for cash management purposes, the greater of 5% of its total assets
or $2.5 million in the UAM DSI Money Market Portfolio, provided that the
investment is consistent with the portfolio's investment policies and
restrictions. Based upon the portfolio's assets invested in the UAM 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 UAM DSI Money Market Portfolio. The investing portfolio will bear
expenses of the UAM DSI Money Market Portfolio on the same basis as all of its
other shareholders.
REPURCHASE AGREEMENTS
- --------------------------------------------------------------------------------
In a repurchase agreement, a portfolio buys a security for a relatively short
period (usually not more than 7 days) and simultaneously agrees to sell it
back at a specified date and price. A portfolio normally uses repurchase
agreements to earn income on assets that are not invested. A portfolio will
require the counter-party to the agreement to deliver securities serving as
collateral for each repurchase agreement to its custodian either physically or
in book-entry form. The counter party must add to the collateral whenever the
price of the repurchase agreement rises (i.e., the borrower "marks to the
market" on a daily basis).
If the seller of the security declares bankruptcy or otherwise becomes
financially unable to buy back the security, the portfolio's right to sell
the security may be restricted. In addition, the value of the security might
decline before the portfolio can sell it and the portfolio might incur
expenses in enforcing its rights.
SECURITIES LENDING
- --------------------------------------------------------------------------------
To earn additional income, the portfolio may lend up to one-third of its total
assets (including the value of the collateral for the loans) at fair market
value to broker- dealers or other financial institutions. A portfolio may
reinvest any cash collateral in short-term securities and money market funds.
A portfolio will only lend its securities if:
. The borrower provides collateral at least equal to the market value of the
securities loaned.
. The collateral pledged and maintained by the borrower must consist of cash,
an irrevocable letter of credit issued by a domestic U.S. bank or
securities issued or guaranteed by the U.S. government.
. The borrower adds to the collateral whenever the price of the securities
loaned rises (i.e., the borrower "marks to the market" on a daily basis).
. The portfolio can terminate the loan at any time; and
. The portfolio receives reasonable interest on the loan (which may include
the portfolio investing any cash collateral in interest bearing short-term
investments).
These risks are similar to the ones involved with repurchase agreements. When
a portfolio lends securities, there is a risk that it will lose money because
the borrower fails to return the securities involved in the transaction. In
addition, the borrower may become financially unable to honor its contractual
obligations, which may delay or prevent a portfolio from liquidating the
collateral.
SHORT-TERM INVESTMENTS
- --------------------------------------------------------------------------------
To earn a return on uninvested assets, meet anticipated redemptions, or for
temporary defensive purposes, a portfolio may invest a portion of its assets
in the short-term investments described below.
BANK OBLIGATIONS
A portfolio will only invest in a security issued by a commercial bank if the
bank:
. Has total assets of at least $1 billion, or the equivalent in other
currencies;
14
<PAGE>
. Is a U.S. bank and a member of the Federal Deposit Insurance Corporation;
and
. Is a foreign branch of a U.S. bank and the Adviser believes the security is
of an investment quality comparable with other debt securities that a
portfolio may purchase.
TIME DEPOSITS
Time deposits are non-negotiable deposits, such as savings accounts or
certificates of deposit, held by a financial institution for a fixed term with
the understanding that the depositor can withdraw its money only by giving
notice to the institution. However, there may be early withdrawal penalties
depending upon market conditions and the remaining maturity of the obligation.
A portfolio may only purchase time deposits maturing from two business days
through seven calendar days.
CERTIFICATES OF DEPOSIT
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or savings and loan association for a definite
period of time and earning a specified return.
BANKER'S ACCEPTANCE
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).
COMMERCIAL PAPER
Commercial paper constitutes short-term obligations with maturities ranging
from 2 to 270 days issued by banks, corporations and other borrowers. Such
investments are unsecured and usually discounted. A portfolio may invest in
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. See APPENDIX A for a description
of commercial paper ratings.
U.S. GOVERNMENT SECURITIES
The portfolio may buy debt securities that are issued or guaranteed by the
U.S. Treasury or by an agency or instrumentality of the U.S. government. Some
U.S. government securities, such as Treasury bills, notes and bonds are
supported by the full faith and credit of the U.S. government. Others,
however, are supported only by the right of the instrumentality to borrow from
the U.S. government.
While U.S. government securities are guaranteed as to principal and interest,
their market value is not guaranteed. U.S. government securities are subject
to the same interest rate and credit risks as other fixed income securities.
However, since U.S. government securities are of the highest quality, the
credit risk is minimal. The U.S. government does not guarantee the net asset
value of the assets of a portfolio.
CORPORATE BONDS
A portfolio may buy corporate bonds and notes that are considered investment
grade securities. Investment grade securities have received one of the four
highest grades assigned by a rating agency, or determined to be of comparable
quality by the adviser. Corporations issue bonds and notes to raise money for
working capital or for capital expenditures such as plant construction,
equipment purchases and expansion. In return for the money loaned to the
corporation by investors, the corporation promises to pay investors interest,
and repay the principal amount of the bond or note.
Like other debt securities, corporate debt securities involve a risk that the
corporate issuer will not make timely payment of either interest or principal,
or may default entirely. In addition, the market price of corporate debt
securities may go down because of changes in interest rates.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED DELIVERY TRANSACTIONS
- --------------------------------------------------------------------------------
A when-issued security is one whose terms are available and for which a market
exists, but which have not been issued. In a forward delivery transaction, a
portfolio contracts to purchase securities for a fixed price at a future date
beyond customary settlement time. "Delayed delivery" refers to securities
transactions on the secondary market where settlement occurs in the future. In
each of these transactions, the parties fix the payment obligation and the
interest rate that they will receive on the securities at the time the parties
enter the commitment; however, they do not pay money or delivery securities
until a later date. Typically, no income accrues on securities a portfolio
has committed to purchase before the securities are delivered, although the
15
<PAGE>
portfolio may earn income on securities it has in a segregated account. A
portfolio will only enter into these types of transactions with the intention
of actually acquiring the securities, but may sell them before the settlement
date.
A portfolio uses when-issued, delayed-delivery and forward delivery
transactions to secure what it considers an advantageous price and yield at
the time of purchase. When a portfolio engages in when-issued, delayed-
delivery and forward delivery transactions, it relies on the other party to
consummate the sale. If the other party fails to complete the sale, the
portfolio may miss the opportunity to obtain the security at a favorable price
or yield.
When purchasing a security on a when-issued, delayed delivery, or forward
delivery basis, the portfolio assumes the rights and risks of ownership of the
security, including the risk of price and yield changes. At the time of
settlement, the market value of the security may be more or less than the
purchase price. The yield available in the market when the delivery takes
place also may be higher than those obtained in the transaction itself.
Because a portfolio does not pay for the security until the delivery date,
these risks are in addition to the risks associated with its other
investments.
RESTRICTED SECURITIES
- --------------------------------------------------------------------------------
A portfolio may purchase restricted securities that are not registered for
sale to the general public but which are eligible for resale to qualified
institutional investors under Rule 144A of the Securities Act of 1933. Under
the supervision of the Fund's board, the adviser determines the liquidity of
such investments by considering all relevant factors. Provided that a dealer
or institutional trading market in such securities exists, these restricted
securities are not treated as illiquid securities for purposes of a
portfolio'' investment limitations. The priced realized from the sales of
these securities could be more or less than those originally paid by the
portfolio or less than what may be considered the fair value of such
securities.
INVESTMENT POLICIES
Whenever an investment limitation sets forth a percentage limitation on
investment or utilization of assets, such limitation shall (with the exception
of a limitation relating to borrowing) be determined immediately after and as
a result of a portfolio's acquisition of such security or other asset.
Accordingly, any later increase or decrease resulting from a change in values,
net assets or other circumstances will not be considered when determining
whether the investment complies with the investment limitations of the
portfolio.
FUNDAMENTAL INVESTMENT POLICIES (DSI DISCIPLINED VALUE, DSI LIMITED MATURITY
BOND, DSI MONEY MARKET PORTFOLIOS)
- --------------------------------------------------------------------------------
The following investment limitations are fundamental, which means a portfolio
cannot change them without the shareholder approval. Each of the above
portfolios will not:
. with respect to 75% of its assets, invest more than 5% of its total assets
at the time of purchase in 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);
. with respect to 75% of its assets, purchase more than 10% of any class of
the outstanding voting securities of any issuer;
. 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;
. invest for the purpose of exercising control over management of any
company.;
. invest in commodities except that each portfolio may invest in futures
contracts and options to the extent that not more than 5% of a portfolio's
assets are required as deposit to secure obligations under futures
contracts;
. invest more than 25% of the value of its total assets in companies within a
single industry; however, there are no limitation on investments made in
instruments issued or guaranteed by the U.S. government and its agencies or
instrumentalities or instruments issued by U.S. banks when a portfolio
adopts a temporary defensive position;
. 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;
16
<PAGE>
. issue senior securities, as defined in the Investment Company Act of 1940,
except that this restriction shall not be deemed to prohibit a portfolio
from (1) making any permitted borrowings, mortgages or pledges, or (2)
entering into options and futures (except DSI Money Market Portfolio), or
(3) entering repurchase transactions;
. make loans except (1) by purchasing bonds, debentures or similar
obligations which are publicly distributed, (including repurchase
agreements provided, 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 net assets), and (2) by lending its portfolio
securities to banks, brokers, dealers and other financial institutions so
long as these loans are not inconsistent with the Investment Company Act of
1940 or the rules and regulations or interpretations of the SEC;
. pledge, mortgage, or hypothecate any of its assets to an extent greater
than 10% of its total assets at fair market value;
. purchase additional securities when borrowings exceed 5% of total gross
assets;
. purchase on margin or sell short, except as permitted herein;
. purchase or sell real estate, although it may purchase or sell securities
of companies which deal in real estate and may purchase and sell securities
which are secured by interests in real estate;
. 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.
FUNDAMENTAL POLICIES ( DSI BALANCED PORTFOLIO)
- --------------------------------------------------------------------------------
The following investment limitations are fundamental, which means a portfolio
cannot change them without the shareholder approval. The portfolio will
not:
. with respect to 75% of its assets, invest more than 5% of its total assets
at the time of purchase in 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);
. with respect to 75% of its assets, purchase more than 10% of any class of
the outstanding voting securities of any issuer;
. borrow, except from banks and as a temporary measure for extraordinary or
emergency purposes and then, in no event, in excess of 33 1/3% of the
portfolio's gross assets valued at the lower of market or cost;
. 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;
. invest more than 25% of the value of its total assets in companies within a
single industry; however, there are no limitation on investments made in
instruments issued or guaranteed by the U.S. government and its agencies or
instrumentalities or instruments issued by U.S. banks when a portfolio
adopts a temporary defensive position;
. issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the portfolio from (1) making
any permitted borrowings, mortgages or pledges, or (2) entering into
options and futures, or (3) entering repurchase transactions;
. make loans except (1) by purchasing bonds, debentures or similar
obligations which are publicly distributed, (including repurchase
agreements provided, that repurchase agreements maturing in more than seven
days, together with securities which are not readily marketable, will not
exceed 15% of the portfolio's net assets), and (2) by lending its portfolio
securities to banks, brokers, dealers and other financial institutions so
long as these loans are not inconsistent with the 1940 Act or the rules and
regulations or interpretations of the SEC;
. purchase additional securities when borrowings exceed 5% of total gross
assets;
. purchase or sell real estate, although it may purchase or sell securities
of companies which deal in real estate and may purchase and sell securities
which are secured by interests in real estate;
. underwrite the securities of other issuers or invest more than an aggregate
of 15% 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.
17
<PAGE>
NON-FUNDAMENTAL POLICIES (DSI BALANCED PORTFOLIO)
- --------------------------------------------------------------------------------
The following investment limitations are non-fundamental, (i.e., the portfolio
may change them without the shareholder approval) policies of the portfolio.
The portfolio will not:
. invest for the purpose of exercising control over management of any
company;
. 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;
. pledge, mortgage, or hypothecate any of its assets to an extent greater
than 33 1/3% of its total assets at fair market value;
. purchase on margin or sell short, except as permitted herein;
FUNDAMENTAL POLICIES (DSI SMALL CAP VALUE PORTFOLIO)
- --------------------------------------------------------------------------------
The following investment limitations are fundamental, which means a portfolio
cannot change them without the shareholder approval. The portfolio will not:
. with respect to 75% of its assets, invest more than 5% of its total assets
at the time of purchase in securities of any single issuer (other than
obligations issued or guaranteed as to principal and interest by the U.S.
government or any of its agencies or instrumentalities;
. with respect to 75% of its assets, purchase more than 10% of any class of
the outstanding voting securities of any issuer;
. borrow, except from banks and as a temporary measure for extraordinary or
emergency purposes and then, in no event, in excess of 33 1/3% of the
portfolio's gross assets valued at the lower of market or cost;
. invest in physical commodities or contracts on physical commodities;
. invest more than 25% of its assets in companies within a single industry;
however, there are no limitations on investments made in instruments issued
or guaranteed by the U.S. government and its agencies when the Portfolio
adopts a temporary defensive position;
. issue senior securities, as defined in the Investment Company Act of 1940,
as amended, except that this restriction shall not be deemed to prohibit
the portfolio from (1) making any permitted borrowings, mortgages or
pledges, or (2) entering repurchase transactions;
. make loans except (1) by purchasing bonds, debentures or similar
obligations which are publicly distributed, (including repurchase
agreements provided, that repurchase agreements maturing in more than seven
days, together with securities which are not readily marketable, will not
exceed 15% of the portfolio's net assets), and (2) by lending its portfolio
securities to banks, brokers, dealers and other financial institutions so
long as these loans are not inconsistent with the Investment Company Act of
1940, as amended, or the rules and regulations or interpretations of the
SEC;
. purchase or sell real estate or real estate limited partnerships, 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;
. underwrite the securities of other issuers.
NON-FUNDAMENTAL POLICIES ( DSI SMALL CAP VALUE PORTFOLIO)
- --------------------------------------------------------------------------------
The following investment limitations are non-fundamental, (i.e., the portfolio
may change them without the shareholder approval) policies of the portfolio.
The portfolio will not:
. 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;
. pledge, mortgage, or hypothecate any of its assets to an extent greater
than 33 1/3% of its total assets at fair market value;
. purchase on margin or sell short, except as permitted herein;
. purchase additional securities when borrowings exceed 5% of total gross
assets;
18
<PAGE>
. invest more than an aggregate of 15% of the net 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;
. invest for the purpose of exercising control over management of any
company.
MANAGEMENT OF THE PORTFOLIO
The business of the Fund is managed by its governing board, which, in turn,
elects officers who are responsible for the day-to-day operations of the Fund
and who execute policies formulated by the board. The Fund pays each board
member who is not also an officer or affiliated person (independent board
member) a $150 quarterly retainer fee per active portfolio per quarter and a
$2,000 meeting fee. In addition, each independent board member is reimbursed
for travel and other expenses incurred while attending board meetings. The
$2,000 meeting fee and expense reimbursements are aggregated for all of the
board members and allocated proportionately among the portfolios of the UAM
Funds complex. The Fund does not pay the remaining board members, each of whom
are affiliated with the Fund, for their services as board members. UAM or its
affiliates or CGFSC pay the Fund's officers.
The following table lists the board members and officers of the Fund and
provides information regarding their present positions, date of birth, address,
principal occupations during the past five years, aggregate compensation
received from the Fund and total compensation received from the UAM Funds
complex.
<TABLE>
<CAPTION>
Total
Aggregate Compensation
Position Compensation from From UAM
UAM Registrant as of Funds Complex as
Name, Address, DOB Funds, INC. Principal Occupations During the Past 5 Years October 31, 1998 of October 31, 1998
<S> <C> <C> <C> <C>
John T. Bennett, Jr. Director President of Squam Investment Management Company, Inc. and
College Road -- RFD 3 Great Island Investment Company, Inc.; President of Bennett
Meredith, NH 03253 Management Company from 1988 to 1993.
1/26/29
- ------------------------------------------------------------------------------------------------------------------------------------
Nancy J. Dunn Director Vice President for Finance and Administration and Treasurer
10 Garden Street of Radcliffe College since 1991.
Cambridge, MA 02138
8/14/51
- ------------------------------------------------------------------------------------------------------------------------------------
William A. Humenuk Director Executive Vice President and Chief Administrative Officer of
100 King Street West Philip Services Corp.; Director, Hofler Corp.; Formerly, a
P.O. Box 2440, LCD-1, Partner in the Philadelphia office of the law firm Dechert
Hamilton Ontario, Price & Rhoads.
Canada L8N-4J6
4/21/42
- ------------------------------------------------------------------------------------------------------------------------------------
Philip D. English Director President and Chief Executive Officer of Broventure Company,
16 West Madison Street Inc.; Chairman of the Board of Chektec Corporation and Cyber
Baltimore, MD 21201 Scientific, Inc
8/5/48
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Position
UAM
Name, Address, DOB Funds, INC. Principal Occupations During the Past 5 years
- -----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Norton H. Reamer* Director, Chairman, Chief Executive Officer and a Director of United
One International Place President and Asset Management Corporation; Director, Partner or Trustee
Boston, MA 02110 Chairman of each of the Investment Companies of the Eaton Vance Group
3/21/35 of Mutual Funds.
- -----------------------------------------------------------------------------------------------------------------------
Peter M. Whitman, Jr.* Director President and Chief Investment Officer of Dewey Square
One Financial Center Investors Corporation since 1988; Director and Chief
Boston, MA 02111 Executive Officer of H.T. Investors, Inc., formerly a
7/1/43 subsidiary of Dewey Square.
- -----------------------------------------------------------------------------------------------------------------------
William H. Park Vice President Executive Vice President and Chief Financial Officer of
One International Place United Asset Management Corporation.
Boston, MA 02110
9/19/47
- -----------------------------------------------------------------------------------------------------------------------
Gary L. French Treasurer President of UAMFSI and UAMFDI, formerly Vice President of
211 Congress Street Operations, Development and Control of Fidelity Investments
Boston, MA 02110 in 1995; Treasurer of the Fidelity Group of Mutual Funds
7/4/51 from 1991 to 1995.
- -----------------------------------------------------------------------------------------------------------------------
Michael E. DeFao Secretary Vice President and General Counsel of UAMFSI and UAMFDI;
211 Congress Street Associate Attorney of Ropes & Gray (a law firm) from 1993 to
Boston, MA 02110 1995.
2/28/68
- -----------------------------------------------------------------------------------------------------------------------
Robert R. Flaherty Assistant Vice President of UAMFSI; formerly Manager of Fund
211 Congress Street Treasurer Administration and Compliance of CGFSC from 1995 to 1996;
Boston, MA 02110 Deloitte & Touche LLP from 1985 to 1995, Senior Manager.
9/18/63
- -----------------------------------------------------------------------------------------------------------------------
Michael J. Leary Assistant Vice President of Chase Global Funds Services Company since
73 Tremont Street Treasurer 1993. Manager of Audit at Ernst & Young from 1988 to 1993.
Boston, MA 02108
11/23/65
- -----------------------------------------------------------------------------------------------------------------------
Michelle Azrialy Assistant Assistant Treasurer of Chase Global Funds Services Company
73 Tremont Street Secretary since 1996. Senior Public Accountant with Price Waterhouse
Boston, MA 02108 LLP from 1991 to 1994.
4/12/69
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Total
Aggregate Compensation
Compensation from From UAM
Registrant as of Funds Complex as
Name, Address, DOB October 31, 1998 of October 31, 1998
<S> <C> <C>
- -----------------------------------------------------------------------
Norton H. Reamer* 0 0
One International Place
Boston, MA 02110
3/21/35
- -----------------------------------------------------------------------
Peter M. Whitman, Jr.* 0 0
One Financial Center
Boston, MA 02111
7/1/43
- -----------------------------------------------------------------------
William H. Park 0 0
One International Place
Boston, MA 02110
9/19/47
- -----------------------------------------------------------------------
Gary L. French 0 0
211 Congress Street
Boston, MA 02110
7/4/51
- -----------------------------------------------------------------------
Michael E. DeFao 0 0
211 Congress Street
Boston, MA 02110
2/28/68
- -----------------------------------------------------------------------
Robert R. Flaherty 0 0
211 Congress Street
Boston, MA 02110
9/18/63
- -----------------------------------------------------------------------
Michael J. Leary 0 0
73 Tremont Street
Boston, MA 02108
11/23/65
- -----------------------------------------------------------------------
Michelle Azrialy 0 0
73 Tremont Street
Boston, MA 02108
4/12/69
</TABLE>
____
*These board members are "interested persons" of the Fund as that term is
defined in the 1940 Act.
CODE OF ETHICS
The Fund has adopted a Code of Ethics that restricts to a certain extent
personal transactions by access persons of the Fund and imposes certain
disclosure and reporting obligations.
PRINCIPAL HOLDERS OF SECURITIES
As of ____________, 1998, the members of the governing board and officers of
the Fund as a group owned less than 1% of the Fund's outstanding shares.
As of ____________, 1998, the following persons or organizations held of
record or beneficially 5% or more of the shares of a portfolio:
<TABLE>
<CAPTION>
Percentage of
Name and Address of Shareholder Shares Owned Portfolio Class
<S> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
Any persons or organizations listed above as owning 25% or more of the
outstanding shares of a portfolio may be presumed to "control" (as that term
is defined in the 1940 Act) the 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 the
portfolio.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
CONTROL OF ADVISER
The adviser is located at One Financial Center, Boston, MA 02111. The
adviser is a wholly-owned subsidiary of UAM and has provided investment
management services to corporations, pension and profit-sharing plans, 401(k)
and thrift plans, trusts, estates and other institutions and individuals since
1970.
UAM is 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 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. Several UAM
Affiliated Firms also act as investment advisers to separate series or
portfolios of the UAM Funds complex.
INVESTMENT ADVISORY AGREEMENT
SERVICE PERFORMED BY ADVISER
Pursuant to each Investment Advisory Agreement (Advisory Agreement) between
the Fund, on behalf of each portfolio, and the adviser, the adviser has agreed
to:
. Manage the investment and reinvestment of the assets of the portfolios.
. Continuously review, supervise and administer the investment program of the
portfolios.
. Determine in its discretion the securities a portfolio will buy or sell and
the portion of its assets such portfolio will hold uninvested.
LIMITATION OF LIABILITY
In the absence of (1) willful misfeasance, bad faith, or gross negligence of
the part of the adviser in the performance of its obligations and duties under
the Advisory Agreement, (2) reckless disregard by the adviser of its
obligations and duties under the Advisory Agreement, or (3) a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation
for services, the adviser shall not be subject to any liability whatsoever to
the Fund, for any error of judgment, mistake of law or any other act or
omission in the course of, or connected with, rendering services under the
Advisory Agreement.
CONTINUING AN ADVISORY AGREEMENT
Unless sooner terminated, an Advisory Agreement shall continue for periods of
one year so long as such continuance is specifically approved at least
annually (a) by a majority of those members of the governing board of the Fund
who are not parties to the Advisory Agreement or interested persons of any
such party and (b) by a majority of the governing board of the Fund or a
majority of the shareholders of the portfolio. An Advisory Agreement may be
terminated at any time by the Fund, without the payment of any penalty, by
vote of a majority of the portfolios' shareholders on 60 days' written notice
to the adviser. The adviser may terminate the Advisory Agreements at any time,
without the payment of any penalty, upon 90 days' written notice to the Fund.
An Advisory Agreement will automatically and immediately terminate if it is
assigned.
21
<PAGE>
INVESTMENT ADVISORY FEE
For its services, the adviser receives an advisory fee calculated by applying
the annual percentage rates listed below to the average daily net assets of
the portfolio for the month. The adviser's fee is paid in monthly
installments.
<TABLE>
<CAPTION>
ANNUAL PERCENTAGE RATE
-----------------------------------------------------------------------------------------------------------
<S> <C>
DSI Small Cap Value Portfolio 0.085% of assets
-----------------------------------------------------------------------------------------------------------
DSI Balanced Portfolio* 0.45% for the first 12 months of operation
0.55% for the next 12 months of operations and
0.65% thereafter
-----------------------------------------------------------------------------------------------------------
DSI Disciplined Value Portfolio 0.750% of the first $500 million of assets
0.65% in excess of $500 million of assets
-----------------------------------------------------------------------------------------------------------
DSI Limited Maturity Bond Portfolio 0.450% of the first $500 million of assets
0.400% of the next $500 million of assets
0.035% in excess of $1 billion of assets
-----------------------------------------------------------------------------------------------------------
DSI Money Market Portfolio 0.4005 of the first $500 million of assets
0.350% in excess of $500 million of assets
-----------------------------------------------------------------------------------------------------------
</TABLE>
*As of December 22, 1997, commencement of operations.
EXPENSE LIMITATION
The adviser may voluntarily agree to limit the expenses of portfolios. The
adviser may further reduce its compensation to the extent that the expenses of
a portfolio exceeds such lower expense limitation as the adviser may, by
notice to the portfolio, declare to be appropriate. The expenses subject to
this limitation are exclusive of brokerage commissions, interest, taxes,
deferred organizational and extraordinary expenses and, if the Fund has a
distribution plan, payments required under such plan. The prospectus describes
the terms of any expense limitation that are in effect from time to time.
PHILOSOPHY AND STYLE
The adviser's equity portfolio management approach is "value-oriented" and
makes use of a proprietary screen to rank a universe of 1,000 stocks according
to relative attractiveness. The adviser's philosophy is derived from a belief
that low P/E, high yield portfolios will generate superior results over time.
Portfolios are built from the "bottom-up," stock-by-stock, subject to a
disciplined diversification process which is intended to avoid becoming overly
concentrated in any one segment of the market. The objective is to provide
more consistent and less volatile performance than other typical value
managers.
The adviser's fixed-income philosophy is based on the premise that investing
for yield will produce superior results over the long term. Therefore, the
fixed income portfolio is constructed primarily of corporate bonds, mortgage
pass-throughs and other high yielding sectors of the investment grade bond
market. Modest amounts of less than investment grade issues are used for
yield and diversification. The portfolio is built with an emphasis on higher
yield relative to the benchmark in order to provide superior investment
return, investment grade securities to provide safety of principal and
stability, limited interest rate anticipation to control market risk, and
broad diversification by sector and subsector to control portfolio risk.
REPRESENTATIVE INSTITUTIONAL CLIENTS
As of the date of this SAI, the adviser's representative institutional clients
included American Airlines, Raytheon Corp., Bank of Boston, and Guy Gannett
Publishing.
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.
DISTRIBUTOR
- --------------------------------------------------------------------------------
UAMFDI serves as the Fund's distributor. The Fund offers its shares
continuously. While UAMFDI will use its best efforts to sell shares of the
Fund, it is not obligated to sell any particular amount of shares. UAMFDI
receives no compensation for its services. UAMFDI, an affiliate of UAM, is
located at 211 Congress Street, Boston, Massachusetts 02110.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
ADMINISTRATOR
Pursuant to a Fund Administration Agreement with the Fund, UAMFSI manages,
administers and conducts the general business activities of the Fund. As a
part of its responsibilities, UAMFSI provides and oversees the provision by
various third
22
<PAGE>
parties of administrative, fund accounting, dividend disbursing and transfer
agent services for the Fund. UAMFSI, an affiliate of UAM, has its principal
office at 211 Congress Street, Boston, Massachusetts 02110.
UAMFSI will bear all expenses in connection with the performance of its
services under the Fund Administration Agreement. Other expenses to be
incurred in the operation of the Fund will be borne by the Fund or other
parties, including
. Taxes, interest, brokerage fees and commissions.
. Salaries and fees of officers and members of the Board who are not
officers, directors, shareholders or employees of an affiliate of UAM,
including UAMFSI, UAMFDI or the adviser.
. SEC fees and state Blue-Sky fees.
. EDGAR filing fees.
. Processing services and related fees.
. Advisory and administration fees.
. Charges and expenses of pricing and data services, independent public
accountants and custodians.
. Insurance premiums including fidelity bond premiums.
. Outside legal expenses.
. Costs of maintenance of corporate existence.
. Typesetting and printing of prospectuses for regulatory purposes and for
distribution to current shareholders of the Fund.
. Printing and production costs of shareholders' reports and corporate
meetings.
. Cost and expenses of Fund stationery and forms.
. Costs of special telephone and data lines and devices.
. Trade association dues and expenses.
. Any extraordinary expenses and other customary Fund expenses.
Unless sooner terminated, the Fund Administration Agreement shall continue in
effect from year to year provided the board specifically approves such
continuance at least annually. The Board or UAMFSI may terminate the Fund
Administration Agreement, without penalty, on not less than ninety (90) days'
written notice. The Fund Administration Agreement shall automatically
terminate upon its assignment by UAMFSI without the prior written consent of
the Fund.
UAMFSI will from time to time employ or associate with such person or persons
as may be fit to assist them in the performance of the Fund Administration
Agreement. Such person or persons may be officers and employees who are
employed by both UAMFSI and the Fund. UAMFSI will pay such person or persons
for such employment. The Fund will not incur any obligations with respect to
such persons.
SUB-ADMINISTRATOR
UAMFSI has subcontracted some of the its administrative and fund accounting
services to CGFSC, an affiliate of The Chase Manhattan Bank, by a Mutual Funds
Service Agreement dated April 15, 1996. CGFSC is located at 73 Tremont Street,
Boston, Massachusetts 02108.
SUB-TRANSFER AGENT AND SUB-SHAREHOLDER SERVICING AGENT
UAMFSI has subcontracted its transfer agent and dividend-disbursing agent
services to DST Systems, Inc. under an Agency Agreement between UAMFSI and DST
Systems Inc. DST Systems, Inc., is located at P.O. Box 419534, Kansas City,
Missouri 64141-6534.
UAMSSC serves as sub-shareholder servicing agent for the Fund under an
agreement between UAMSSC and UAMFSI. The principal place of business of UAMSSC
is 825 Duportail Road, Wayne, Pennsylvania 19087.
ADMINISTRATIVE FEES
In exchange for administrative services, each portfolio pays a four-part fee
to UAMFSI as follows:
23
<PAGE>
A. A portfolio specific fee to UAMFSI calculated from the aggregate net
assets of each portfolio at the following rates:
<TABLE>
<CAPTION>
ANNUAL RATE
<S> <C>
DSI Disciplined Value Portfolio 0.06%
------------------------------------------------------------------------------------------------------
DSI Limited Maturity Bond Portfolio 0.04%
------------------------------------------------------------------------------------------------------
DSI Small Cap Value Portfolio 0.04%
------------------------------------------------------------------------------------------------------
DSI Money Market Portfolio 0.02%
------------------------------------------------------------------------------------------------------
DSI Balanced Portfolio 0.06%
</TABLE>
B. An annual base fee that UAMFSI pays to CGFSC for its sub-administration and
other services calculated at the annual rate of $52,500 for the first
operational class; $7,500 for each additional operational class; and 0.04%
of their pro rata share of the combined assets of the UAM Funds.
C. An annual base fee that UAMFSI pays to DST Systems, Inc. for its services
as transfer agent and dividend-disbursing agent equal to $10,500 for the
first operational class and $10,500 for each additional class.
D. An annual base fee that UAMFSI pays to UAMSSC for its services as sub-
shareholder-servicing agent equal to $7,500 for the first operational class
and $2,500 for each additional class.
Each portfolio also pays certain account and transaction fees and out-of-
pocket expenses that may be based on the number of open and closed accounts,
the type of account or the services provided to the account.
ADDITIONAL NON-12B-1 SHAREHOLDER SERVICING ARRANGEMENTS
In addition to payments by the Fund under the Plans, UAM and any of its
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. The adviser may also compensate its affiliated companies
for referring investors to the portfolios.
CUSTODIAN
- --------------------------------------------------------------------------------
The Chase Manhattan Bank, 3 Chase MetroTech Center, Brooklyn, New York 11245,
provides for the custody of the Fund's assets pursuant to the terms of a
custodian agreement with the Fund.
INDEPENDENT PUBLIC ACCOUNTANT
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as independent accountants for the Fund.
SERVICE AND DISTRIBUTION PLAN (DSI DISCIPLINED VALUE PORTFOLIO)
- --------------------------------------------------------------------------------
The Fund has adopted a Distribution Plan and a Shareholder Servicing Plan (the
"Plans") for their Institutional Service Class Shares pursuant to Rule 12b-1
under the Investment Company Act of 1940.
SHAREHOLDER SERVICING PLAN
The Shareholder Servicing Plan (Service Plan) permits the Fund to compensate
broker-dealers or other financial institutions (Service Agents) that have
agreed with UAMFDI to provide administrative support services to Institutional
Service Class shareholders that are their customers. Under the Service Plan,
Institutional Service Class Shares may pay service fees at the maximum annual
rate of 0.25% of the average daily net asset value of such shares held by the
Service Agent for the benefit of its customers. The Fund pays these fees out
of the assets allocable to Institutional Service Class Shares to UAMFDI, to
the Service Agent directly or through UAMFDI. Each item for which a payment
may be made under the Service Plan constitutes personal service and/or
shareholder account maintenance and may constitute an expense of distributing
Fund Service Class Shares as the SEC construes such term under Rule 12b-1.
Services for which Institutional Service Class Shares may compensate Service
Agents include:
. Acting as the sole shareholder of record and nominee for beneficial owners.
. Maintaining account records for such beneficial owners of the Fund's shares.
. Opening and closing accounts.
24
<PAGE>
. Answering questions and handling correspondence from shareholders about their
accounts.
. Processing shareholder orders to purchase, redeem and exchange shares.
. Handling the transmission of funds representing the purchase price or
redemption proceeds.
. Issuing confirmations for transactions in the Fund's shares by shareholders.
. Distributing current copies of prospectuses, statements of additional
information and shareholder reports.
. Assisting customers in completing application forms, selecting dividend and
other account options and opening any necessary custody accounts.
. Providing account maintenance and accounting support for all transactions.
. Performing such additional shareholder services as may be agreed upon by the
Fund and the Service Agent, provided that any such additional shareholder
services must constitute a permissible non-banking activity in accordance with
the then current regulations of, and interpretations thereof by, the Board of
Governors of the Federal Reserve System, if applicable.
RULE 12B-1 DISTRIBUTION PLAN
The Distribution Plan permits a portfolio to pay UAMFDI or others for certain
distribution, promotional and related expenses involved in marketing its
Institutional Service Class Shares. Under the Distribution Plan, Institutional
Service Class Shares may pay distribution fees at the maximum annual rate of
0.75% of the average daily net asset value of such shares held by the Service
Agent for the benefit of its customers. These expenses include, among other
things:
. Advertising the availability of services and products.
. Designing materials to send to customers and developing methods of making such
materials accessible to customers.
. Providing information about the product needs of customers.
. Providing facilities to solicit Fund sales and to answer questions from
prospective and existing investors about the Fund.
. Receiving and answering correspondence from prospective investors, including
requests for sales literature, prospectuses and statements of additional
information.
. Displaying and making available sales literature and prospectuses.
. Acting as liaison between shareholders and the Fund, including obtaining
information from the Fund and providing performance and other information
about the Fund.
In addition, the Service Class Shares may make payments directly to other
unaffiliated parties, who either aid in the distribution of their shares or
provide services to the Class.
FEES PAID UNDER THE SERVICE AND DISTRIBUTION PLANS
The Plans permit Institutional Service Class shares to pay distribution and
service fees at the maximum annual rate of 1.00% of the class' average daily
net assets for the year. The Fund's governing board has limited the amount
the Institutional Service Class may pay under the Plans to 0.25% of the class'
average daily net assets for the year, and may increase such amount to the
plan maximum at any time.
The Fund will not reimburse the Distributor or others for distribution
expenses incurred in excess of the amount permitted by the Plans.
Subject to seeking best price and execution, the Fund may buy or sell
portfolio securities through firms that receive payments under the Plans.
UAMFDI, at its own expense, may pay dealers for aid in distribution or for aid
in providing administrative services to shareholders.
APPROVING, AMENDING AND TERMINATING THE FUND'S DISTRIBUTION ARRANGEMENTS
Shareholders of the portfolio have approved the Plans. The Plans also were
approved by the governing board of the Fund, including a majority of the
members of the board who are not interested persons of the Fund and who have
no direct or indirect financial interest in the operation of the Plans (Plan
Members), by votes cast in person at meetings called for the purpose of voting
on these Plans.
25
<PAGE>
CONTINUING THE PLANS
The Plans continue in effect from year to year so long as they are approved
annually by a majority of the Fund's board members and its Plan Members. To
continue the Plans, the board must determine whether such continuation is in
the best interest of the Institutional Service Class shareholders and that
there is a reasonable likelihood of the Plans providing a benefit to the
Class. The Fund's board has determined that the Fund's distribution
arrangements are likely to benefit the Fund and its shareholders by enhancing
the Fund's ability to efficiently service the accounts of its Institutional
Service Class shareholders.
AMENDING THE PLANS
A majority of the Fund's governing board and a majority of its the Plan
Members must approve any material amendment to the Plans. Likewise, any
amendment materially increasing the maximum percentage payable under the Plans
must be approved by a majority of the outstanding voting securities of the
Class, as well as by a majority of the Plan Members.
TERMINATING THE PLANS
A majority of the Plan Members or a majority of the outstanding voting
securities of the Class may terminate the Plans at any time without penalty.
In addition, the Plans will terminate automatically upon their assignment.
MISCELLANEOUS
So long as the Plans are in effect, the non-interested board members will
select and nominate the Plan Members of the Fund.
The Fund and UAMFDI intend to comply with the Conduct Rules of the National
Association of Securities Dealers relating to investment company sales
charges. with these rules.
Pursuant to the Plans, the board reviews, at least quarterly, a written report
of the amounts expended under each agreement with Service Agents and the
purposes for which the expenditures were made.
BROKERAGE ALLOCATION AND OTHER PRACTICES
SELECTION OF BROKERS
- --------------------------------------------------------------------------------
The Advisory Agreement authorizes the adviser to select the brokers or dealers
that will execute the purchases and sales of investment securities for a
portfolio. The Advisory Agreement also directs the adviser to use its best
efforts to obtain the best execution with respect to all transactions for a
portfolio. The adviser may select brokers based on research, statistical and
pricing services they provide to the adviser. Information and research
provided by a broker will be in addition to, and not instead of, the services
the adviser is required to perform under the Advisory Agreement. In so doing,
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. The adviser may place portfolio orders with
qualified broker-dealers who refer clients to the adviser.
SIMULTANEOUS TRANSACTIONS
- --------------------------------------------------------------------------------
The adviser makes investment decisions for a portfolio independently of
decisions made for its other clients. When a security is suitable for the
investment objective of more than one client, it may be prudent for the
adviser to engage in a simultaneous transaction, that is, buy or sell the same
security for more than one client. The adviser strives to allocate such
transactions among its clients, including the portfolio, in a fair and
reasonable manner. Although there is no specified formula for allocating such
transactions, the Fund's governing board periodically reviews the various
allocation methods used by the adviser, and the results of such allocations.
26
<PAGE>
BROKERAGE COMMISSIONS
- --------------------------------------------------------------------------------
EQUITY SECURITIES
Generally, equity securities are bought and sold through brokerage
transactions for which commissions are payable. Purchases from underwriters
will include the underwriting commission or concession, and purchases from
dealers serving as market makers will include a dealer's mark-up or reflect a
dealer's mark-down.
DEBT SECURITIES
Debt securities are usually bought and sold directly from the issuer or an
underwriter or market maker for the securities. Generally, each Fund will not
pay brokerage commissions for such purchases. When a debt security is bought
from an underwriter, the purchase price will usually include an underwriting
commission or concession. The purchase price for securities bought from
dealers serving as market makers will similarly include the dealer's mark up
or reflect a dealer's mark down. When a portfolio executes transactions in
the over-the-counter market, it will deal with primary market makers unless
prices that are more favorable are otherwise obtainable.
CAPITAL STOCK AND OTHER SECURITIES
DESCRIPTION OF SHARES AND VOTING RIGHTS
- --------------------------------------------------------------------------------
The Fund's Articles of Incorporation, as amended, permit its governing board
to issue three billion shares of common stock, with a $.001 par value. The
governing board has the power to create and designate one or more series
(portfolios) or classes of shares of common stock and to classify or
reclassify any unissued shares at any time and without shareholder approval.
When issued and paid for, the shares of each series and class of the Fund are
fully paid and nonassessable, and have no pre-emptive rights or preference as
to conversion, exchange, dividends, retirement or other features.
The shares of each series and class have non-cumulative voting rights, which
means that the holders of more than 50% of the shares voting for the election
of members of the governing board can elect all of the members if they choose
to do so. On each matter submitted to a vote of the shareholders, 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. Shares of all classes will vote together as a single class except
when otherwise required by law or as determined by the members of the Fund's
governing board.
If the Fund is liquidated, the shareholders of the portfolio or any class
thereof are entitled to receive the net assets belonging to that portfolio, or
in the case of a class, belonging to that portfolio and allocable to that
class. The Fund will distribute is net assets to its shareholders in
proportion to the number of shares of that portfolio or class thereof held by
them and recorded on the books of the Fund. The liquidation of any portfolio
or class thereof may be authorized at any time by vote of a majority of the
members of the governing board.
The governing board has authorized three classes of shares, Institutional,
Institutional Service and Adviser. The three classes represent interests in
the same assets of a portfolio and, except as discussed below, are identical
in all respects. Unlike Institutional and Adviser Class Shares, Institutional
Service Class Shares bear certain expenses related to shareholder servicing
and the distribution of such shares and have exclusive voting rights with
respect to matters relating to such distribution expenditures. The Adviser
Class Shares impose a sales load on purchases. The classes also have
different exchange privileges. The net income attributable to Institutional
Service Class Shares and the dividends payable on Institutional Service Class
Shares will be reduced by the amount of the shareholder servicing and
distribution fees; accordingly, the net asset value of the Institutional
Service Class Shares will be reduced by such amount to the extent a portfolio
has undistributed net income.
The Fund will not hold annual meetings except when required to by the
Investment Company Act of 1940, as amended, or other applicable law.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund tries to distribute substantially all of the net investment income of
a portfolio and net realized capital gains so as to avoid income taxes on its
dividends and distributions and the imposition of the federal excise tax on
undistributed income and capital gains. However, the Fund cannot predict the
time or amount of any such dividends or distributions.
Distributions by a portfolio reduce its net asset value (NAV"). A
distribution that reduces the NAV of a portfolio below its cost basis is
taxable as described in the prospectus of the portfolio, although from an
investment standpoint, it is a return of capital.
27
<PAGE>
If you buy shares of a portfolio on or before the "record date" -- the date
that establishes which shareholders will receive an upcoming distribution --
for a distribution, you will receive some of the money you invested as a
taxable distribution.
Unless the shareholder elects otherwise in writing, all dividend and capital
gains distributions are automatically received in additional shares of a
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.
The portfolio will be treated as a separate entity (and hence as a separate
"regulated investment company") for federal tax purposes. The portfolio will
distribute its net capital gains to its investors, but will not offset (for
federal income tax purposes) such gains against any net capital losses of
another portfolio.
PURCHASE REDEMPTION AND PRICING OF SHARES
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
Service Agents may enter confirmed purchase orders on behalf of their
customers. If shares of a portfolio are purchased in this manner, the Service
Agent must receive your investment order before the close of trading on the
New York Stock Exchange ("NYSE"), or as of noon with respect to the DSI Money
Market Portfolio, and transmit it to UAMSSC before the close of its business
day to receive that day's share price. UAMSSC must receive proper payment for
the order by the time the portfolio is priced on the following business day.
Service Agents are responsible to their customers and the Fund for timely
transmission of all subscription and redemption requests, investment
information, documentation and money.
Purchases of shares of a Portfolio will be made in full and fractional shares
of the Portfolio calculated to three decimal places. Certificates for
fractional shares will not be issued. Certificates for whole shares will not
be issued except at the written request of the shareholder.
The Fund reserves the right in its sole discretion 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.
IN-KIND PURCHASES
If accepted by the Fund, shareholders may purchase shares of a portfolio in
exchange for securities that are eligible for acquisition by the portfolio.
Securities to be exchanged that are accepted by the Fund will be valued as
described under "VALUATION OF SHARES" at the next determination of net asset
value after 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 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:
. At the time of exchange, such securities are eligible to be included in the
portfolio (current market quotations must be readily available for such
securities).
. The investor represents and agrees that all securities offered to be
exchanged are liquid securities and not subject to any restrictions upon
their sale by the Portfolio under the Securities Act of 1933, or otherwise.
. The value of any such securities (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.
Investors who are subject to Federal taxation upon exchange may realize a gain
or loss for Federal income tax purposes depending upon the cost of securities
or local currency exchanged. Investors interested in such exchanges should
contact the adviser.
28
<PAGE>
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
When you redeem, your shares may be worth more or less than the price you paid
for them depending on the market value of the investments held by the
portfolio.
BY MAIL
Requests to redeem shares must include:
. Share certificates, if issued.
. A letter of instruction or an 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.
. Any required signature guarantees (see "SIGNATURE GUARANTEES").
. Any other necessary legal documents, if required, in the case of estates,
trusts, guardianships, custodianships, corporations, pension and profit
sharing plans and other organizations.
BY TELEPHONE
The following tasks cannot be accomplished by telephone:
. Changing the name of the commercial bank or the account designated to
receive redemption proceeds (this can be accomplished only by a written
request signed by each shareholder, with each signature guaranteed).
. Redemption of certificated shares by telephone.
The Fund and its Sub-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, as well as 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. The Fund or Sub-Transfer Agent may
be liable for any losses due to unauthorized or fraudulent telephone
instructions if the Fund or the Sub-Transfer Agent does not employ the
procedures described above. Neither the Fund nor the Sub-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.
REDEMPTIONS-IN-KIND
If the governing board determines that it would be detrimental to the best
interests of remaining shareholders of the Fund to make payment wholly or
partly in cash, the Fund may pay redemption proceeds in whole or in part by a
distribution in-kind of liquid securities held by a Portfolio in lieu of cash
in conformity with applicable rules of the SEC. Investors may incur brokerage
charges on the sale of portfolio securities received in payment of
redemptions.
However, the Fund has made an election with the SEC 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 SEC. 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 governing board believes 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 under "Valuation of Shares." A redeeming shareholder
would normally incur brokerage expenses if these securities were converted to
cash.
SIGNATURE GUARANTEES
To protect your account, the Fund and its sub-transfer agent 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
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
29
<PAGE>
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 that 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.
OTHER REDEMPTION INFORMATION
Normally, the Fund will pay for all shares redeemed under proper procedures
within one business day of and no more than seven days after the receipt of
the request, or earlier if required under applicable law. 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 determined by
the SEC.
The Fund may suspend redemption privileges or postpone the date of payment
. During any period that both the NYSE and custodian bank are closed, or
trading on the NYSE is restricted as determined by the Commission.
. 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.
. For such other periods as the Commission may permit.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
The exchange privilege is only available with respect to portfolios qualified
for sale in the shareholder's state of residence. Exchanges are based on the
respective net asset values of the shares involved. The Institutional Class
and Institutional Service Class Shares of UAM Funds do not charge a sales
commission or charge of any kind.
Neither the Fund nor any of its service providers will be responsible for the
authenticity of the exchange instructions received by telephone. The
governing board of the Fund may restrict the exchange privilege at any time.
Such instructions may include limiting the amount or frequency of exchanges
and may be for the purpose of assuring such exchanges do not disadvantage the
Fund and its shareholders.
TRANSFER OF SHARES
- --------------------------------------------------------------------------------
Shareholders may transfer shares of each portfolio to another person by making
a written request to the Fund. Your request should clearly identify the
account and number of shares you wish to transfer. All registered owners
should sign the request 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
"Signature Guarantees." As in the case of redemptions, the written request
must be received in good order before any transfer can be made.
VALUATION OF SHARES
- --------------------------------------------------------------------------------
The Fund does not price its shares on those days when the New York Stock
Exchange is closed, which are currently: New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day; Good Friday; Memorial Day; Independence Day; Labor
Day; Thanksgiving Day; and Christmas Day.
EQUITY SECURITIES
Equity securities listed on a securities exchange for which market quotations
are readily available are valued at the last quoted sale price of the day.
Price information on listed securities is taken from the exchange where the
security is primarily traded. Unlisted equity securities and listed
securities not traded on the valuation date for which market quotations are
readily available are valued neither exceeding the asked prices nor less than
the bid prices. Quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents. The converted value is based upon the
bid price of the foreign currency against U.S. dollars quoted by any major
bank or by a broker.
DEBT SECURITIES
Debt securities are valued according to the broadest and most representative
market, which will ordinarily be the over-the-counter market. Debt securities
may be valued based on prices provided by a pricing service when such prices
are believed to
30
<PAGE>
reflect the fair market value of such securities. Securities purchased with
remaining maturities of 60 days or less are valued at amortized cost when the
Board of Directors determines that amortized cost reflects fair value.
DSI MONEY MARKET PORTFOLIO
DSI Money Market Portfolio values its assets at amortized cost while also
monitoring the available market bid prices, or yield equivalents. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price the
portfolio would receive if it sold the instrument. The net asset value per
share of the portfolio will ordinarily remain at $1.00 and the portfolio's
daily dividends will vary in amount. There can be no assurance, however, that
the Portfolio will maintain a constant net asset value per share of $1.00.
The use of amortized cost and the maintenance of the portfolio's per share net
asset value at $1.00 is based on its election to operate under the provisions
of Rule 2a-7 under the Investment Company Act of 1940. As a condition of
operating under that rule, the Portfolio must maintain an average weighted
maturity of 90 days or less, purchase only instruments deemed to have
remaining maturities of one year or less, and invest only in securities which
are determined by the Adviser to present minimal credit risks and which are of
high quality as determined by any major rating service, or in the case of any
instrument not so rated, considered by the Adviser to be of comparable
quality.
OTHER ASSETS
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 governing board.
PERFORMANCE CALCULATIONS
The portfolio measures performance by calculating yield and total return. Both
yield and total return figures are based on historical earnings and are not
intended to indicate future performance. Performance quotations by investment
companies are subject to rules adopted by the SEC, 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 SEC.
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 SEC. An explanation of the method used to compute or express
performance follows.
Performance is calculated separately for Institutional Class and Service Class
Shares. Dividends paid by a Portfolio with respect to Institutional Class and
Service Class Shares, to the extent any dividends are paid, will be calculated
in the same manner at the same time on the same day and will be in the same
amount, except that service fees, distribution charges and any incremental
transfer agency costs relating to Service Class Shares will be borne
exclusively by that class.
TOTAL RETURN
- --------------------------------------------------------------------------------
Total return is the change in value of an investment in a portfolio over a
given period, assuming reinvestment of any dividends and capital gains. A
cumulative or aggregate total return reflects actual performance over a stated
period of time. An average annual total return is a hypothetical rate of
return that, if achieved annually, would have produced the same cumulative
total return if performance had been constant over the entire period.
The average annual total return of a 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 one, five and ten-year period and the deduction of
all applicable Fund expenses on an annual basis. Since Institutional Service
Class Shares bear additional service and distribution expenses, their average
annual total return will generally be lower than that of the Institutional
Class Shares.
These figures are calculated according to the following formula:
P (1 + T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
31
<PAGE>
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).
The average annual total rates of return of the Institutional and Service
Classes of the Portfolios are as follows:
<TABLE>
<CAPTION>
SINCE INCEPTION
ONE YEAR ENDED FIVE YEARS ENDED THROUGH YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1998 OCTOBER 31, 1998 INCEPTION DATE
<S> <C> <C> <C> <C>
DSI Disciplined Value Portfolio
Institutional Class Shares 12/12/89
- ----------------------------------------------------------------------------------------------------------------
Institutional Service Class Shares 5/23/97
- ----------------------------------------------------------------------------------------------------------------
DSI Limited Maturity Bond Portfolio
Institutional Class Shares 12/18/89
- ----------------------------------------------------------------------------------------------------------------
DSI Money Market Portfolio
Institutional Class Shares 12/28/89
- ----------------------------------------------------------------------------------------------------------------
DSI Balanced Portfolio
Institutional Class Shares 12/22/97
- ----------------------------------------------------------------------------------------------------------------
DSI Small Cap Value Portfolio
Institutional Class Shares 8/24/98
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
YIELD
- --------------------------------------------------------------------------------
Yield refers to the income generated by an investment in a portfolio over a
given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all funds. As this
differs from other accounting methods, the quoted yield may not equal the
income actually paid to shareholders.
The 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. Since Institutional Service Class Shares bear additional service
and distribution expenses, their yield will generally be lower than that of
the Institutional Class Shares.
Yield is obtained using the following formula:
Yield = 2((a-b)/(cd)+1)6-1
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.
YIELD (DSI MONEY MARKET PORTFOLIO)
- --------------------------------------------------------------------------------
The current yield of the DSI Money Market Portfolio is determined by dividing
the net investment income per share earned during a 7-day base period by the
maximum offering price per share on the last day of the period and annualizing
the result by multiplying it by 365/7. Expenses accrued for the period
include any fees charged to all shareholders during the base period. Since
Institutional Service Class Shares bear additional service and distribution
expenses, their yield will generally be lower than that of the Institutional
Class Shares.
The effective yield is the net annualized yield for a specified 7-day base
period assuming a reinvestment in portfolio shares of all dividends during the
period (compounding). Effective yield is calculated by using the same base-
period return used in the calculation of current yield, except that the base-
period return is compounded by adding 1, raising the sum to a power equal to
365/7, and subtracting 1 from the result.
Effective yield = [(Base Period Return + 1) 365/7] -1
32
<PAGE>
COMPARISONS
- --------------------------------------------------------------------------------
The portfolio's performance may be compared to data prepared by independent
services which monitor the performance of investment companies, data reported
in financial and industry publications, and various indices as further
described in the portfolio' SAI. This information may also be included in
sales literature and advertising.
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. Please see APPENDIX B for publications, indices and averages that
may be used.
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 portfolio, 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
portfolio to calculate its performance. In addition, there can be no assurance
that the portfolio will continue this performance as compared to such other
averages.
TAXES
In order for the portfolio to continue to qualify for federal income tax
treatment as a regulated investment company under the Internal Revenue Code of
1986, as amended, 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, as applicable.
The portfolio will distribute to shareholders annually any net capital gains
that have been recognized for federal income tax purposes. Shareholders will
be advised on the nature of the payments.
If for any taxable year the portfolio does not qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code, all of
the portfolio's taxable income would be subject to tax at regular corporate
rates without any deduction for distributions to shareholders. In this event,
the portfolio's distributions to shareholders would be taxable as ordinary
income to the extent of the current and accumulated earnings and profits of
the particular portfolio, and would be eligible for the dividends received
deduction in the case of corporate shareholders. The portfolio intends to
qualify as a "regulated investment company" each year.
Dividends and interest received by portfolio may give rise to withholding and
other taxes imposed by foreign countries. These taxes would reduce the
portfolio's dividends but are included in the taxable income reported on your
tax statement if the portfolio qualifies for this tax treatment and elects to
pass it through to you. Consult a tax adviser for more information regarding
deductions and credits for foreign taxes.
33
<PAGE>
EXPENSES
<TABLE>
<CAPTION>
INVESTMENT INVESTMENT SUB-
ADVISORY FEES ADVISORY FEES ADMINISTRATOR ADMINISTRATOR BROKERAGE
PAID WAIVED FEE (UAMFSI) FEE (CGFSC) COMMISSIONS
<S> <C> <C> <C> <C> <C>
DSI Disciplined Value Portfolio
1998
- -----------------------------------------------------------------------------------------------------------------------------------
1997 $578,915 $133,991 $ 87,680 $256,031
- -----------------------------------------------------------------------------------------------------------------------------------
1996 $429,033 $ 99,321 $ 79,439 $204,544
- -----------------------------------------------------------------------------------------------------------------------------------
DSI Limited Maturity Bond Portfolio
1998
- -----------------------------------------------------------------------------------------------------------------------------------
1997 $141,248 $ 94,725 $ 82,171 -0-
- -----------------------------------------------------------------------------------------------------------------------------------
1996 $134,334 $ 92,990 $ 86,458 -0-
- -----------------------------------------------------------------------------------------------------------------------------------
DSI Money Market Portfolio
1998
- -----------------------------------------------------------------------------------------------------------------------------------
1997 $333,241 $426,538 $224,190 $186,237 -0-
- -----------------------------------------------------------------------------------------------------------------------------------
1996 $230,533 $283,121 $149,671 $135,324 -0-
- -----------------------------------------------------------------------------------------------------------------------------------
DSI Balanced Portfolio*
1998
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*During the period from December 22, 1997(initial offering) to October 31,
1998.
DISTRIBUTION AND SERVICE PLAN EXPENSES
PAID DURING FISCAL YEAR ENDED OCTOBER
31, 1998
DSI Disciplined Value Portfolio
FINANCIAL STATEMENTS
The Financial Statements for the portfolio for the fiscal year ended October
31, 1998, the Financial Highlights for the respective periods presented, and
the report thereon by PricewaterhouseCoopers LLP, the Fund's independent
accountant, which appear in portfolio's 1998 Annual Report, are incorporated
by reference into this Statement of Additional Information. No other parts
are incorporated by reference herein. Copies of the 1998 Annual Report may be
obtained free of charge by telephoning the UAM Funds at the telephone number
appearing on the front page of this Statement of Additional Information.
34
<PAGE>
UAM FUNDS
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
THE FMA SMALL COMPANY PORTFOLIO
Institutional Class Shares
Institutional Service Class Shares
Statement of Additional Information
__________, 1999
This statement of additional information (SAI) is not a prospectus. However, you
should read it in conjunction with the Prospectus of The FMA Small Company
Portfolio Institutional Class Shares date _______, 1999, and the Prospectus of
The FMA Small Company Portfolio's Institutional Service Class Shares dated
_______, 1999. You may obtain a Prospectus for The portfolio by contacting the
UAM Funds at the address listed above.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
DEFINITIONS........................................................................ 1
THE FUND........................................................................... 1
DESCRIPTION OF THE PORTFOLIO AND ITS INVESTMENTS AND RISKS......................... 1
Equity Securities................................................................. 1
Foreign Securities................................................................ 2
Investment Companies.............................................................. 4
Repurchase Agreements............................................................. 4
Securities Lending................................................................ 4
Short-Term Investments............................................................ 5
When-Issued, Forward Commitment and Delayed Delivery Transactions................. 7
Restricted Securities............................................................. 7
INVESTMENT POLICIES................................................................ 8
Fundamental Investment Policies................................................... 8
MANAGEMENT OF THE PORTFOLIO........................................................ 9
CODE OF ETHICS..................................................................... 10
PRINCIPAL HOLDERS OF SECURITIES.................................................... 10
INVESTMENT ADVISORY AND OTHER SERVICES............................................. 10
Investment Adviser................................................................ 10
Control of Adviser................................................................ 10
Distributor....................................................................... 12
Administrative Services........................................................... 12
Custodian......................................................................... 13
Independent Public Accountant..................................................... 13
Service And Distribution Plans.................................................... 13
BROKERAGE ALLOCATION AND OTHER PRACTICES........................................... 15
Selection of Brokers.............................................................. 15
Simultaneous Transactions......................................................... 15
Brokerage Commissions............................................................. 16
CAPITAL STOCK AND OTHER SECURITIES................................................. 16
Description Of Shares And Voting Rights........................................... 16
Dividends and Capital Gains Distributions......................................... 17
PURCHASE REDEMPTION AND PRICING OF SHARES.......................................... 17
Purchase of Shares................................................................ 17
Redemption of Shares.............................................................. 18
Exchange Privilege................................................................ 19
Transfer Of Shares................................................................ 19
Valuation of Shares............................................................... 19
PERFORMANCE CALCULATIONS........................................................... 20
Total Return...................................................................... 20
Yield............................................................................. 21
Comparisons....................................................................... 21
TAXES.............................................................................. 21
EXPENSES........................................................................... 22
FINANCIAL STATEMENTS............................................................... 22
</TABLE>
1
<PAGE>
DEFINITIONS
The "Fund" is UAM Funds, Inc.
The term "adviser" means Fiduciary Management Associates, Inc., the Fund's
investment adviser.
UAM is United Asset Management Corporation.
UAMFSI is UAM Fund Services, Inc., the Fund's administrator.
UAMFDI is UAM Fund Distributors, Inc., the Fund's distributor.
UAMSSC is UAM Fund Shareholder Servicing Center, the Fund's sub-shareholder-
servicing agent.
CGFSC is Chase Global Funds Service Company, the Fund's sub-administrator.
UAM Funds Complex includes UAM Funds, Inc., UAM Funds Trust, UAM Funds Trust
II and all of their portfolios.
The terms "the portfolio" is used to refer to FMA Small Company Portfolio,
while "portfolio" or "portfolios" refers to some or all portfolios of the
UAM Funds Complex.
The terms "board" and "governing board" refer to the Fund's Board of Directors
as a group, while "board member" refers to a single member of the board.
All other defined terms, which are not otherwise defined in this SAI, have the
same meaning in the SAI as they do in the prospectuses of FMA Small Company
Portfolio.
THE FUND
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 Fund changed its
name to "UAM Funds, Inc." The Fund's principal executive office is located at
One International Place, Boston, MA 02110; shareholders should direct all
correspondence to the address listed on the cover of this SAI.
The Fund is an open-end, management investment company under the Investment
Company Act of 1940. FMA Small Company Portfolio is a diversified series of
the Fund. This means that with respect to 75% of its total assets, the
portfolio may not invest more than 5% of its total assets in the securities of
any one issuer (except U.S. government securities). The remaining 25% of its
total assets are not subject to this restriction. To the extent the portfolio
invests a significant portion of its assets in the securities of a particular
issuer, it will be subject to an increased risk of loss if the market value of
such issuer's securities declines.
DESCRIPTION OF THE PORTFOLIO AND ITS INVESTMENTS AND RISKS
EQUITY SECURITIES
- -------------------------------------------------------------------------------
The portfolio may invest in equity securities such as common and preferred
stocks. While investing in stocks allows the portfolio to participate in the
benefits of owning a company, the portfolio must accept the risks of
ownership. Unlike bondholders, who have preference to a company's earnings
and cash flow, preferred stockholders followed by common stockholders in
order of priority, are entitled only to the residual amount after a company
meets its other obligations. For this reason, the value of a company's stock
will usually react more strongly to actual or perceived changes in the
company's financial condition or prospects than its debt obligations.
Stockholders of a company that fares poorly can lose money.
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 values 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
1
<PAGE>
value of a preferred stock than in a more senior debt security with similar
stated yield characteristics. Types of preferred stocks include adjustable-
rate preferred stock, fixed dividend preferred stock, perpetual preferred
stock, and sinking fund preferred stock.
STOCK MARKET RISK
Stock markets tend to move in cycles with short or extended periods of rising
and falling stock prices. The value of a company's stock may fall because of:
. Factors that directly relate to that company, such as decisions made by its
management or lower demand for the company's products or services.
. Factors affecting an entire industry, such as increases in production
costs.
. Changes in financial market conditions that are relatively unrelated to the
company or its industry, such as changes in interest rates, currency
exchange rates or inflation rates.
RIGHTS AND WARRANTS
A portfolio may purchase warrants and rights, which are securities permitting,
but not obligating, their holder to purchase the underlying securities at a
predetermined price. Generally, warrants and stock purchase rights do not
carry with them the right to receive dividends or exercise voting rights with
respect to the underlying securities, and they do not represent any rights in
the assets of the issuer. Therefore, an investment in warrants and rights may
entail greater risk than certain other types of investments. In addition, the
value of warrants and rights does not necessarily change with the value of the
underlying securities, and they cease to have value if they are not exercised
on or prior to their expiration date. Investment in warrants and rights
increases the potential profit or loss to be realized from the investment of a
given amount of a portfolio's assets as compared with investing the same
amount in the underlying stock.
FOREIGN SECURITIES
- -------------------------------------------------------------------------------
RISKS OF FOREIGN SECURITIES
Foreign securities, foreign currencies, and securities issued by U.S. entities
with substantial foreign operations may involve significant risks in addition
to the risks inherent in U.S. investments.
Local political, economic, regulatory, or social instability, military action
or unrest, or adverse diplomatic developments may affect the value of foreign
investments. A foreign government may take actions adverse to the interests
of U.S. investors, including expropriation or nationalization of assets,
confiscatory taxation and other restrictions on U.S. investment.
Foreign Currency Risk
The securities of foreign companies are frequently denominated in foreign
currencies. The portfolio's net asset value is denominated in U.S. dollars.
Thus, changes in foreign currency rates and in exchange control regulations
may positively or negatively affect the value of the securities of a
portfolio. A portfolio also may incur costs to convert foreign currencies
into U.S. dollars and vice versa. In addition:
. Foreign currency exchange rates reflect relative values of two currencies,
usually the U.S. dollar and the foreign currency in question.
. Complex political and economic factors applicable to the issuing country
may affect the value of U.S. dollars and foreign currencies.
. The actions of U.S. and foreign governments may affect significantly the
currency exchange rates.
. Government intervention may increase risks involved in purchasing or
selling foreign currency options, forward contracts and futures contracts,
since exchange rates may not be free to fluctuate in response to other
market forces.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely
basis. Available quotation information is generally representative of very
large round-lot transactions in the inter-bank market and thus may not
reflect exchange rates for smaller odd-lot transactions (less than $1
million) where rates may be less favorable. The inter-bank market in
foreign currencies is a global, around-the-clock market. To the extent that
a market is closed while the markets for the underlying currencies remain
open, certain markets may not always reflect significant price and rate
movements.
2
<PAGE>
The Euro
The single currency for the European Economic and Monetary Union ("EMU"), the
Euro, is scheduled to replace the national currencies for participating member
countries over a period that begins on January 1, 1999 and ends in July 2002.
At the end of that period, use of the Euro will be compulsory and countries in
the EMU will no longer maintain separate currencies in any form. Until then,
however, each country and issuers within each country are free to choose
whether to use the Euro.
On January 1, 1999, existing national currencies will become denominations of
the Euro at fixed rates according to practices prescribed by the European
Monetary Institute and the Euro will become available as a book-entry
currency. Beginning on or about that date, the portfolio expects member
states to begin conducting financial market transactions in Euro and
redenominating many investments, currency balances and transfer mechanisms
into Euro. The portfolio also anticipates pricing, trading, settling and
valuing investments whose nominal values remain in their existing domestic
currencies in Euro. Accordingly, the portfolio expects the conversion to the
Euro to impact investments in countries that will adopt the Euro in all
aspects of the investment process, including trading, foreign exchange,
payments, settlements, cash accounts, custody and accounting. Some of the
uncertainties surrounding the conversion to the Euro include:
. Will the payment and operational systems of banks and other financial
institutions be ready by the scheduled launch date?
. Will the conversion to the Euro have legal consequences on outstanding
financial contracts that refer to existing currencies rather than Euro?
. How will existing currencies be exchanged into Euro?
. Will suitable clearing and settlement payment systems for the new currency
be created?
Stock Exchange and Market Risk
The adviser anticipates that in most cases an exchange or over-the-counter
(OTC) market located outside of the United States will be the best available
market for foreign securities. Foreign stock markets, while growing in volume
and sophistication, are generally not as developed as those in the United
States, and securities of some foreign issuers may be less liquid and more
volatile than securities of comparable U.S. issuers. Foreign security trading,
settlement and custodial practices are often less developed than those in U.S.
markets. This may lead to increased risk or substantial delays in case of a
failed trade or the insolvency of, or breach of duty by, a foreign broker-
dealer, securities depository or foreign sub-custodian. In addition, the costs
associated with foreign investments, including withholding taxes, brokerage
commissions and custodial costs, are generally higher than with U.S.
investments.
Legal System and Regulation Risks
Foreign countries have different legal systems and different regulations
concerning financial disclosure, accounting, and auditing standards.
Corporate financial information that would be disclosed under U.S. law may not
be available. Foreign accounting and auditing standards may render a foreign
corporate balance sheet more difficult to understand and interpret than one
subject to U.S. law and standards. Foreign markets may offer less protection
to investors than U.S. markets such as:
. Foreign accounting, auditing, and financial reporting requirements may
render a foreign corporate balance sheet more difficult to understand and
interpret than one subject to U.S. law and standards.
. Adequate public information on foreign issuers may not be available, and it
may be difficult to secure dividends and information regarding corporate
actions on a timely basis.
. In general, there is less overall governmental supervision and regulation
of securities exchanges, brokers, and listed companies than in the United
States.
. OTC markets tend to be less regulated than stock exchange markets and, in
certain countries, may be totally unregulated.
. Economic or political concerns may influence regulatory enforcement and may
make it difficult for investors to enforce their legal rights.
. Restrictions on transferring securities within the United States or to U.S.
persons may make a particular security less liquid than foreign securities
of the same class that are not subject to such restrictions.
EMERGING MARKETS
Investing in emerging markets may magnify the risks of foreign investing.
Security prices in emerging markets can be significantly more volatile than
those in more developed markets, reflecting the greater uncertainties of
investing in less
3
<PAGE>
established markets and economies. In particular, countries with emerging
markets may have (1) relatively unstable governments, (2) may present the
risks of nationalization of businesses, restrictions on foreign ownership and
prohibitions on the repatriation of assets, and (3) may have less protection
of property rights than more developed countries. The economies of countries
with emerging markets may be based on only a few industries, may be highly
vulnerable to changes in local or global trade conditions, and may suffer from
extreme and volatile debt burdens or inflation rates. Local securities markets
may trade a small number of securities and may be unable to respond
effectively to increases in trading volume, potentially making prompt
liquidation of holdings difficult or impossible at times.
Certain foreign governments levy withholding taxes on dividend and interest
income. Although in some countries a portfolio may recover a portion of these
taxes, the portion they cannot recover will reduce the income the portfolio
receives from its investments. The portfolio does not expect such foreign
withholding taxes to have a significant impact on performance.
AMERICAN DEPOSITARY RECEIPTS (ADRS)
American Depositary Receipts (ADRs) are certificates evidencing ownership of
shares of a foreign issuer. These certificates are issued by depository banks
and generally trade on an established market in the United States or
elsewhere. A custodian bank or similar financial institution in the issuer's
home country holds the underlying shares in trust. The depository bank may not
have physical custody of the underlying securities at all times and may charge
fees for various services, including forwarding dividends and interest and
corporate actions. ADRs are alternatives to directly purchasing the underlying
foreign securities in their national markets and currencies. However, ADRs
continue to be subject to many of the risks associated with investing directly
in foreign securities.
INVESTMENT COMPANIES
- -------------------------------------------------------------------------------
The portfolio reserve the right to invest up to 10% of its total assets,
calculated at the time of investment, in the securities of other open-ended 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 received permission from the SEC to allow each of its portfolios
to invest, for cash management purposes, the greater of 5% of its total assets
or $2.5 million in the UAM DSI Money Market Portfolio, provided that the
investment is consistent with the portfolio's investment policies and
restrictions. Based upon the portfolio's assets invested in the UAM 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 UAM DSI Money Market Portfolio. The investing portfolio will bear
expenses of the UAM DSI Money Market Portfolio on the same basis as all of its
other shareholders.
REPURCHASE AGREEMENTS
- -------------------------------------------------------------------------------
In a repurchase agreement, a portfolio buys a security for a relatively short
period (usually not more than 7 days) and simultaneously agrees to sell it
back at a specified date and price. A portfolio normally uses repurchase
agreements to earn income on assets that are not invested. A portfolio will
require the counter-party to the agreement to deliver securities serving as
collateral for each repurchase agreement to its custodian either physically or
in book-entry form. The counter party must add to the collateral whenever the
price of the repurchase agreement rises (i.e., the borrower "marks to the
market" on a daily basis).
If the seller of the security declares bankruptcy or otherwise becomes
financially unable to buy back the security, the portfolio's right to sell the
security may be restricted. In addition, the value of the security might
decline before the portfolio can sell it and the portfolio might incur
expenses in enforcing its rights.
SECURITIES LENDING
- -------------------------------------------------------------------------------
To earn additional income, the portfolio may lend up to one-third of its total
assets (including the value of the collateral for the loans) at fair market
value to broker- dealers or other financial institutions. A portfolio may
reinvest any cash collateral in short-term securities and money market funds.
A portfolio will only lend its securities if:
. The borrower provides collateral at least equal to the market value of the
securities loaned.
. The collateral pledged and maintained by the borrower must consist of cash,
an irrevocable letter of credit issued by a domestic U.S. bank or
securities issued or guaranteed by the U. S. government.
4
<PAGE>
. The borrower adds to the collateral whenever the price of the securities
loaned rises (i.e., the borrower "marks to the market" on a daily basis).
. The portfolio can terminate the loan at any time; and
. The portfolio receives reasonable interest on the loan (which may include
the portfolio investing any cash collateral in interest bearing short-term
investments).
These risks are similar to the ones involved with repurchase agreements. When
a portfolio lends securities, there is a risk that it will lose money because
the borrower fails to return the securities involved in the transaction. In
addition, the borrower may become financially unable to honor its contractual
obligations, which may delay or prevent a portfolio from liquidating the
collateral.
SHORT-TERM INVESTMENTS
- -------------------------------------------------------------------------------
To earn a return on uninvested assets, meet anticipated redemptions, or for
temporary defensive purposes, a portfolio may invest a portion of its
assets in the short-term investments described below.
DEBT SECURITIES
Debt securities are used by corporations and governments to borrow money from
investors. Most debt securities promise a variable or fixed rate of return
and repayment of the amount borrowed at maturity. Some debt securities, such
as zero-coupon bonds, do not pay current interest and are purchased at a
discount from their face value. Debt securities may include, among other
things, all types of bills, notes, bonds, mortgage-backed securities or asset-
backed securities.
The total return of a debt instrument is composed of two elements: the
percentage change in the security's price and interest income earned. The
YIELD TO MATURITY of a debt security estimates its total return only if the
price of the debt security remains unchanged during the holding period and
coupon interest is reinvested at the same yield to maturity. The total return
of a debt instrument, therefore, will be determined not only by how much
interest is earned, but also by how much the price of the security and
interest rates change.
Interest Rates
The price of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up, the value of the bond will go
down, and vice versa). One can estimate the anticipated change in the price of
a fixed rate security for each 1% shift in interest rates by using a risk
measure known as EFFECTIVE DURATION. An effective duration of 4 years, for
example, would suggest that for each 1% reduction in interest rates at all
maturity levels, the price of a security is estimated to increase by 4%. An
increase in rates by the same magnitude is estimated to reduce the price of
the security by 4%. By knowing the yield and the effective duration of a debt
security, one can estimate total return based on an expectation of how much
interest rates, in general, will change.
While serving as a good estimator of prospective returns, effective duration
is an imperfect measure. While lower interest rates generally improve the
value of a fixed income portfolio, lower interest rates may also introduce
certain risks which may independently cause the share price of the portfolio
to fall. Lower rates motivate people to pay off mortgage-backed and asset-
backed securities earlier than expected, which introduces REINVESTMENT RISK.
Reinvesting portfolio assets at lower rates may reduce the yield of the
portfolio. The unexpected timing of mortgage and asset-backed prepayments
caused by the variations in interest rates may also shorten or lengthen the
AVERAGE MATURITY of the portfolio. Neglecting this drift in average maturity
may have the unintended effect of increasing or reducing the effective
duration of the portfolio which may in turn adversely affect the expected
performance of the portfolio.
Credit Rating
Coupon interest is offered to investors of fixed income securities as
compensation for assuming risk, although short-term U.S. treasury securities,
such as 3 month treasury bills, are considered "risk free." Corporate
securities offer higher yields than U.S. treasuries because their payment of
interest and complete repayment of principal is less certain. The credit
rating or financial condition of an issuer may affect the value of a debt
security. Generally, the lower the quality rating of a security, the greater
the risks that the issuer will fail to pay interest and return principal. To
compensate investors for taking on increased risk, issuers with lower credit
ratings usually offer their investors a higher "risk premium" in the form of
higher interest rates above comparable U.S. treasuries.
Changes in investor confidence regarding the certainty of interest and
principal payments of a fixed income corporate security will result in an
adjustment to this "risk premium." Since an issuer's outstanding debt carries
a fixed coupon, adjustments to
5
<PAGE>
the risk premium must occur in the price, which effects the yield to maturity
of the bond. If an issuer defaults or becomes unable to honor its financial
obligations, the bond may lose some or all of its value
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade. The adviser may retain securities that are downgraded, if
it believes that keeping those securities is warranted.
Rating agencies are organizations that assign ratings to securities based
primarily on the rating agency's assessment of the issuer's financial
strength. The portfolios currently use ratings compiled by Standard and
Poor's Ratings Services, Duff & Phelps Rating Co., Fitch IBCA, Inc. and,
Moody's Investor Services. Credit ratings are only an agency's opinion, not an
absolute standard of quality, and they do not reflect an evaluation of market
risk. APPENDIX A contains further information concerning the ratings of
certain rating agencies and their significance.
The adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time a portfolio buys it. A rating
agency may change its credit ratings at any time. The adviser monitors the
rating of the security and will take appropriate actions if a rating agency
reduces the security's rating. A portfolio is not obligated to dispose of
securities whose issuers subsequently are in default or which are downgraded
below the above-stated ratings
Investment-Grade Fixed-Income Securities
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade.
BANK OBLIGATIONS
A portfolio will only invest in a security issued by a commercial bank if the
bank:
. Has total assets of at least $1 billion, or the equivalent in other
currencies;
. Is a U.S. bank and a member of the Federal Deposit Insurance Corporation;
and
. Is a foreign branch of a U.S. bank and the Adviser believes the security is
of an investment quality comparable with other debt securities that a
portfolio may purchase.
Time Deposits
Time deposits are non-negotiable deposits, such as savings accounts or
certificates of deposit, held by a financial institution for a fixed term with
the understanding that the depositor can withdraw its money only by giving
notice to the institution. However, there may be early withdrawal penalties
depending upon market conditions and the remaining maturity of the obligation.
A portfolio may only purchase time deposits maturing from two business days
through seven calendar days.
Certificates of Deposit
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or savings and loan association for a definite
period of time and earning a specified return.
Banker's Acceptance
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).
COMMERCIAL PAPER
Commercial paper constitutes short-term obligations with maturities ranging
from 2 to 270 days issued by banks, corporations and other borrowers. Such
investments are unsecured and usually discounted. A portfolio may invest in
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. See APPENDIX A for a description
of commercial paper ratings.
6
<PAGE>
U.S. GOVERNMENT SECURITIES
The portfolio may buy debt securities that are issued or guaranteed by the
U.S. Treasury or by an agency or instrumentality of the U.S. government. Some
U.S. government securities, such as Treasury bills, notes and bonds are
supported by the full faith and credit of the U.S. government. Others,
however, are supported only by the right of the instrumentality to borrow from
the U.S. government.
While U.S. government securities are guaranteed as to principal and interest,
their market value is not guaranteed. U.S. government securities are subject
to the same interest rate and credit risks as other fixed income securities.
However, since U.S. government securities are of the highest quality, the
credit risk is minimal. The U.S. government does not guarantee the net asset
value of the assets of a portfolio.
CORPORATE BONDS
A portfolio may buy corporate bonds and notes that are considered investment
grade securities. Investment grade securities have received one of the four
highest grades assigned by a rating agency, or determined to be of comparable
quality by the adviser. Corporations issue bonds and notes to raise money for
working capital or for capital expenditures such as plant construction,
equipment purchases and expansion. In return for the money loaned to the
corporation by investors, the corporation promises to pay investors interest,
and repay the principal amount of the bond or note.
Like other debt securities, corporate debt securities involve a risk that the
corporate issuer will not make timely payment of either interest or principal,
or may default entirely. In addition, the market price of corporate debt
securities may go down because of changes in interest rates.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED DELIVERY TRANSACTIONS
- -------------------------------------------------------------------------------
A when-issued security is one whose terms are available and for which a market
exists, but which have not been issued. In a forward delivery transaction, a
portfolio contracts to purchase securities for a fixed price at a future date
beyond customary settlement time. "Delayed delivery" refers to securities
transactions on the secondary market where settlement occurs in the future. In
each of these transactions, the parties fix the payment obligation and the
interest rate that they will receive on the securities at the time the parties
enter the commitment; however, they do not pay money or delivery securities
until a later date. Typically, no income accrues on securities a portfolio has
committed to purchase before the securities are delivered, although the
portfolio may earn income on securities it has in a segregated account. A
portfolio will only enter into these types of transactions with the intention
of actually acquiring the securities, but may sell them before the settlement
date.
A portfolio uses when-issued, delayed-delivery and forward delivery
transactions to secure what it considers being an advantageous price and yield
at the time of purchase. When a portfolio engages in when-issued, delayed-
delivery and forward delivery transactions, it relies on the other party to
consummate the sale. If the other party fails to complete the sale, the
portfolio may miss the opportunity to obtain the security at a favorable price
or yield.
When purchasing a security on a when-issued, delayed delivery, or forward
delivery basis, the portfolio assumes the rights and risks of ownership of the
security, including the risk of price and yield changes. At the time of
settlement, the market value of the security may be more or less than the
purchase price. The yield available in the market when the delivery takes
place also may be higher than those obtained in the transaction itself.
Because a portfolio does not pay for the security until the delivery date,
these risks are in addition to the risks associated with its other
investments.
RESTRICTED SECURITIES
- -------------------------------------------------------------------------------
The portfolio may purchase restricted securities that are not registered for
sale to the general public but which are eligible for resale to qualified
institutional investors under Rule 144A of the Securities Act of 1933. Under
the supervision of the Fund's board, the adviser determines the liquidity of
such investments by considering all relevant factors. Provided that a dealer
or institutional trading market in such securities exists, these restricted
securities are not treated as illiquid securities for purposes of a
portfolio's investment limitations. The priced realized from the sales of
these securities could be more or less than those originally paid by the
portfolio or less than what may be considered the fair value of such
securities.
7
<PAGE>
INVESTMENT POLICIES
Whenever an investment limitation sets forth a percentage limitation on
investment or utilization of assets, such limitation shall (with the exception
of a limitation relating to borrowing) be determined immediately after and as
a result of a portfolio's acquisition of such security or other asset.
Accordingly, any later increase or decrease resulting from a change in values,
net assets or other circumstances will not be considered when determining
whether the investment complies with the investment limitations of the
portfolio.
FUNDAMENTAL INVESTMENT POLICIES
- -------------------------------------------------------------------------------
The following investment limitations are fundamental, which means a portfolio
cannot change them without the shareholder approval. The portfolio will not:
. with respect to 75% of its assets, invest more than 5% of its total assets
at the time of purchase in securities of any single issuer (other than
obligations issued or guaranteed as to principal and interest by the U.S.
government or any of its agencies or instrumentalities;
. with respect to 75% of its assets, purchase more than 10% of any class of
the outstanding voting securities of any issuer;
. 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.
. invest for the purpose of exercising control over management of any
company, and
. invest in commodities;
. invest more than 25% of its total assets in companies within a single
industry; however, there are no limitations on investments issued or
guaranteed by the U.S. government and its agencies when the portfolio
adopts a temporary defensive position;
. 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;
. issue senior securities, as defined in the Investment Company Act of 1940,
as amended, except that this restriction shall not be deemed to prohibit
the portfolio from (1) making any permitted borrowings, mortgages or
pledges, or (2) entering repurchase transactions.
. make loans except by purchasing debt securities in accordance with its
investment objectives and policies, or entering into repurchase agreements
, or by lending its portfolio securities to banks, brokers, dealers and
other financial institutions so long as the loans are not inconsistent with
the Investment Company Act of 1940, as amended, or the rules and
regulations or interpretations of the SEC;
. pledge, mortgage, or hypothecate any of its assets to an extent greater
than 10% of its total assets at fair market value;
. purchase additional securities when borrowings exceed 5% of total assets;
. purchase on margin or sell short;
. purchase or retain securities of an issuer if those officers and board
members or its investment adviser owning more than 1/2 1/2 of 1% of such
securities together own more than 5% of such securities;
. 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;
. 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;
. write or acquire options or interests in oil, gas or other mineral
exploration or development programs.
8
<PAGE>
MANAGEMENT OF THE PORTFOLIO
The business of the Fund is managed by its governing board, which, in turn,
elects officers who are responsible for the day-to-day operations of the Fund
and who execute policies formulated by the board. The Fund pays each board
member who is not also an officer or affiliated person (independent board
member) a $150 quarterly retainer fee per active portfolio per quarter and a
$2,000 meeting fee. In addition, each independent board member is reimbursed
for travel and other expenses incurred while attending board meetings. The
$2,000 meeting fee and expense reimbursements are aggregated for all of the
board members and allocated proportionately among the portfolios of the UAM
Funds complex. The Fund does not pay the remaining board members, each of whom
are affiliated with the Fund, for their services as board members. UAM or its
affiliates or CGFSC pay the Fund's officers.
The following table lists the board members and officers of the Fund and
provides information regarding their present positions, date of birth,
address, principal occupations during the past five years, aggregate
compensation received from the Fund and total compensation received from the
UAM Funds complex.
<TABLE>
<CAPTION>
TOTAL
AGGREGATE COMPENSATION
POSITION COMPENSATION FROM FROM UAM
UAM PRINCIPAL OCCUPATIONS REGISTRANT AS OF FUNDS COMPLEX AS
NAME, ADDRESS, DOB FUNDS, INC. DURING THE PAST 5 YEARS OCTOBER 31, 1998 OCTOBER 31, 1998
<S> <C> <C> <C> <C>
John T. Bennett, Jr. Director President of Squam Investment Management
College Road -- RFD 3 Company, Inc. and Great Island Investment
Meredith, NH 03253 Company, Inc.; President of Bennett
1/26/29 Management Company from 1988 to 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Nancy J. Dunn Director Vice President for Finance and Administration
10 Garden Street and Treasurer of Radcliffe College since 1991.
Cambridge, MA 02138
8/14/51
- ------------------------------------------------------------------------------------------------------------------------------------
William A. Humenuk Director Executive Vice President and Chief Administrative
100 King Street West Officer of Philip Services Corp.; Director,
P.O. Box 2440, LCD-1, Hofler Corp.; Formerly, a Partner in the
Hamilton Ontario, Philadelphia office of the law firm Dechert
Canada L8N-4J6 Price & Rhoads.
4/21/42
- ------------------------------------------------------------------------------------------------------------------------------------
Philip D. English Director President and Chief Executive Officer of Broventure
16 West Madison Street Company, Inc.; Chairman of the Board of Chektec
Baltimore, MD 21201 Corporation and Cyber Scientific, Inc
8/5/48
- ------------------------------------------------------------------------------------------------------------------------------------
Norton H. Reamer* Director, Chairman, Chief Executive Officer and a Director of 0 0
One International Place President United Asset Management Corporation; Director,
Boston, MA 02110 and Partner or Trustee of each of the Investment
3/21/35 Chairman Companies of the Eaton Vance Group of Mutual Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
Peter M. Whitman, Jr.* Director President and Chief Investment Officer of Dewey Square 0 0
One Financial Center Investors Corporation since 1988; Director and Chief
Boston, MA 02111 Executive Officer of H.T. Investors, Inc., formerly a
7/1/43 subsidiary of Dewey Square.
- ------------------------------------------------------------------------------------------------------------------------------------
William H. Park Vice Executive Vice President and Chief Financial Officer 0 0
One International Place President of United Asset Management Corporation.
Boston, MA 02110
9/19/47
- ------------------------------------------------------------------------------------------------------------------------------------
Gary L. French Treasurer President of UAMFSI and UAMFDI, formerly Vice 0 0
211 Congress Street President of Operations, Development and Control of
Boston, MA 02110 Fidelity Investments in 1995; Treasurer of the
7/4/51 Fidelity Group of Mutual Funds from 1991 to 1995.
- ------------------------------------------------------------------------------------------------------------------------------------
Michael E. DeFao Secretary Vice President and General Counsel of UAMFSI and 0 0
211 Congress Street UAMFDI; Associate Attorney of Ropes & Gray
Boston, MA 02110 (a law firm) from 1993 to 1995.
2/28/68
- ------------------------------------------------------------------------------------------------------------------------------------
Robert R. Flaherty Assistant Vice President of UAMFSI; formerly Manager of Fund 0 0
211 Congress Street Treasurer Administration and Compliance of CGFSC from
Boston, MA 02110 1995 to 1996; Deloitte & Touche LLP from
9/18/63 1985 to 1995, Senior Manager.
- ------------------------------------------------------------------------------------------------------------------------------------
Michael J. Leary Assistant Vice President of Chase Global Funds Services 0 0
73 Tremont Street Treasurer Company since 1993. Manager of Audit at
Boston, MA 02108 Ernst & Young from 1988 to 1993.
11/23/65
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
TOTAL
AGGREGATE COMPENSATION
POSITION COMPENSATION FROM FROM UAM
UAM PRINCIPAL OCCUPATIONS REGISTRANT AS OF FUNDS COMPLEX AS
NAME, ADDRESS, DOB FUNDS, INC. DURING THE PAST 5 YEARS OCTOBER 31, 1998 OCTOBER 31, 1998
<S> <C> <C> <C> <C>
Michelle Azrialy Assistant Assistant Treasurer of Chase Global Funds Services 0 0
73 Tremont Street Secretary Company since 1996. Senior Public Accountant
Boston, MA 02108 with Price Waterhouse LLP from 1991 to 1994.
4/12/69
</TABLE>
____
*These board members are "interested persons" of the Fund as that term is
defined in the 1940 Act.
CODE OF ETHICS
The Fund has adopted a Code of Ethics that restricts to a certain extent
personal transactions by access persons of the Fund and imposes certain
disclosure and reporting obligations.
PRINCIPAL HOLDERS OF SECURITIES
As of ____________, 1998, the members of the governing board and officers of
the Fund as a group owned less than 1% of the Fund's outstanding shares.
As of ____________, 1998, the following persons or organizations held of
record or beneficially 5% or more of the shares of a portfolio:
<TABLE>
<CAPTION>
Percentage of
Name and Address of Shareholder Shares Owned Portfolio Class
<S> <C> <C> <C>
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
</TABLE>
Any persons or organizations listed above as owning 25% or more of the
outstanding shares of a portfolio may be presumed to "control" (as that term
is defined in the 1940 Act) the 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 the
portfolio.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
CONTROL OF ADVISER
The adviser is located at 55 West Monroe Street, Suite 2550, Chicago, IL
60603-5093. The adviser is a wholly-owned subsidiary of UAM and has provided
investment management services to corporations, pension and profit-sharing
plans, 401(k) and thrift plans, trusts, estates and other institutions and
individuals since 1970.
UAM is 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 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. Several UAM
Affiliated Firms also act as investment advisers to separate series or
portfolios of the UAM Funds complex.
10
<PAGE>
INVESTMENT ADVISORY AGREEMENT
Service Performed by Adviser
Pursuant to the Investment Advisory Agreement (Advisory Agreement) between the
Fund, on behalf of the portfolio, and the adviser, the adviser has agreed to:
. Manage the investment and reinvestment of the assets of the portfolio.
. Continuously review, supervise and administer the investment program of the
portfolio.
. Determine in its discretion the securities a portfolio will buy or sell and
the portion of its assets such portfolio will hold uninvested.
Limitation of Liability
In the absence of (1) willful misfeasance, bad faith, or gross negligence of
the part of the adviser in the performance of its obligations and duties under
the Advisory Agreement, (2) reckless disregard by the adviser of its
obligations and duties under the Advisory Agreement, or (3) a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation
for services, the adviser shall not be subject to any liability whatsoever to
the Fund, for any error of judgment, mistake of law or any other act or
omission in the course of, or connected with, rendering services under the
Advisory Agreement.
Continuing an Advisory Agreement
Unless sooner terminated, an Advisory Agreement shall continue for periods of
one year so long as such continuance is specifically approved at least
annually (a) by a majority of those members of the governing board of the Fund
who are not parties to the Advisory Agreement or interested persons of any
such party and (b) by a majority of the governing board of the Fund or a
majority of the shareholders of the portfolio. An Advisory Agreement may be
terminated at any time by the Fund, without the payment of any penalty, by
vote of a majority of the portfolio's shareholders on 60 days' written notice
to the adviser. The adviser may terminate the Advisory Agreements at any time,
without the payment of any penalty, upon 90 days' written notice to the Fund.
An Advisory Agreement will automatically and immediately terminate if it is
assigned.
Investment Advisory Fee
For its services, the adviser receives an advisory fee calculated by applying
the annual percentage rates listed below to the average daily net assets of
the portfolio for the month. The adviser's fee is paid in monthly
installments.
<TABLE>
<CAPTION>
ANNUAL PERCENTAGE RATE
<S> <C>
FMA Small Company Portfolio 0.75%
- --------------------------------------------------------------------------------
</TABLE>
Expense Limitation
The adviser may voluntarily agree to limit the expenses of the portfolio. The
adviser may further reduce its compensation to the extent that the expenses of
the portfolio exceed such lower expense limitation as the adviser may, by
notice to the portfolio, declare to be appropriate. The expenses subject to
this limitation are exclusive of brokerage commissions, interest, taxes,
deferred organizational and extraordinary expenses and, if the Fund has a
distribution plan, payments required under such plan. The prospectus describes
the terms of any expense limitation that are in effect from time to time.
PHILOSOPHY AND STYLE
As a "value style" investment manager, the adviser buys stocks in a mix of
industries which it feels are undervalued. When the adviser believes the
industry has become unattractive, it will move to another industry which it
feels has more investment potential. By consistently monitoring the
portfolio, the adviser seeks to preserve assets in uncertain economic
environments and allow for capital appreciation in rising markets.
REPRESENTATIVE INSTITUTIONAL CLIENTS
As of the date of this SAI, the adviser's representative institutional clients
included Loras College, Peer Bearing Company and Illinois Forge, Inc.
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.
11
<PAGE>
DISTRIBUTOR
- --------------------------------------------------------------------------------
UAMFDI serves as the Fund's distributor. The Fund offers its shares
continuously. While UAMFDI will use its best efforts to sell shares of the
Fund, it is not obligated to sell any particular amount of shares. UAMFDI
receives no compensation for its services, and any amounts it may receive
under a Service and Distribution Plan are passed through in their entirety
to third parties. UAMFDI, an affiliate of UAM, is located at 211 Congress
Street, Boston, Massachusetts 02110.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
ADMINISTRATOR
Pursuant to a Fund Administration Agreement with the Fund, UAMFSI manages,
administers and conducts the general business activities of the Fund. As a
part of its responsibilities, UAMFSI provides and oversees the provision by
various third parties of administrative, fund accounting, dividend disbursing
and transfer agent services for the Fund. UAMFSI, an affiliate of UAM, has its
principal office at 211 Congress Street, Boston, Massachusetts 02110.
UAMFSI will bear all expenses in connection with the performance of its
services under the Fund Administration Agreement. Other expenses to be
incurred in the operation of the Fund will be borne by the Fund or other
parties, including
. Taxes, interest, brokerage fees and commissions.
. Salaries and fees of officers and members of the Board who are not
officers, directors, shareholders or employees of an affiliate of UAM,
including UAMFSI, UAMFDI or the adviser.
. SEC fees and state Blue-Sky fees.
. EDGAR filing fees.
. Processing services and related fees.
. Advisory and administration fees.
. Charges and expenses of pricing and data services, independent public
accountants and custodians.
. Insurance premiums including fidelity bond premiums.
. Outside legal expenses.
. Costs of maintenance of corporate existence.
. Typesetting and printing of prospectuses for regulatory purposes and for
distribution to current shareholders of the Fund.
. Printing and production costs of shareholders' reports and corporate
meetings.
. Cost and expenses of Fund stationery and forms.
. Costs of special telephone and data lines and devices.
. Trade association dues and expenses.
. Any extraordinary expenses and other customary Fund expenses.
Unless sooner terminated, the Fund Administration Agreement shall continue in
effect from year to year provided the board specifically approves such
continuance at least annually. The Board or UAMFSI may terminate the Fund
Administration Agreement, without penalty, on not less than ninety (90) days'
written notice. The Fund Administration Agreement shall automatically
terminate upon its assignment by UAMFSI without the prior written consent of
the Fund.
UAMFSI will from time to time employ or associate with such person or persons
as may be fit to assist them in the performance of the Fund Administration
Agreement. Such person or persons may be officers and employees who are
employed by both UAMFSI and the Fund. UAMFSI will pay such person or persons
for such employment. The Fund will not incur any obligations with respect to
such persons.
SUB-ADMINISTRATOR
UAMFSI has subcontracted some of the its administrative and fund accounting
services to CGFSC, an affiliate of The Chase Manhattan Bank, by a Mutual Funds
Service Agreement dated April 15, 1996. CGFSC is located at 73 Tremont Street,
Boston, Massachusetts 02108.
12
<PAGE>
SUB-TRANSFER AGENT AND SUB-SHAREHOLDER SERVICING AGENT
UAMFSI has subcontracted its transfer agent and dividend-disbursing agent
services to DST Systems, Inc. under an Agency Agreement between UAMFSI and DST
Systems Inc. DST Systems, Inc., is located at P.O. Box 419534, Kansas City,
Missouri 64141-6534.
UAMSSC serves as sub-shareholder servicing agent for the Fund under an
agreement between UAMSSC and UAMFSI. The principal place of business of UAMSSC
is 825 Duportail Road, Wayne, Pennsylvania 19087.
ADMINISTRATIVE FEES
In exchange for administrative services, the portfolio pays a four-part fee to
UAMFSI as follows:
A. A portfolio specific fee to UAMFSI calculated from the aggregate net
assets of the portfolio at the following rates:
<TABLE>
<CAPTION>
ANNUAL RATE
<S> <C>
FMA Small Company Portfolio 0.04%
</TABLE>
B. An annual base fee that UAMFSI pays to CGFSC for its sub-administration and
other services calculated at the annual rate of $52,500 for the first
operational class; $7,500 for each additional operational class; and 0.04%
of their pro rata share of the combined assets of the UAM Funds.
C. An annual base fee that UAMFSI pays to DST Systems, Inc. for its services
as transfer agent and dividend-disbursing agent equal to $10,500 for the
first operational class and $10,500 for each additional class.
D. An annual base fee that UAMFSI pays to UAMSSC for its services as sub-
shareholder-servicing agent equal to $7,500 for the first operational class
and $2,500 for each additional class.
The portfolio also pays certain account and transaction fees and out-of-pocket
expenses that may be based on the number of open and closed accounts, the type
of account or the services provided to the account.
CUSTODIAN
- --------------------------------------------------------------------------------
The Chase Manhattan Bank, 3 Chase MetroTech Center, Brooklyn, New York 11245,
provides for the custody of the Fund's assets pursuant to the terms of a
custodian agreement with the Fund.
INDEPENDENT PUBLIC ACCOUNTANT
- -------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as independent accountants for the Fund.
SERVICE AND DISTRIBUTION PLANS
- ------------------------------------------------------------------------------
The Fund has adopted a Distribution Plan and a Shareholder Servicing Plan (the
"Plans") for their Institutional Service Class Shares pursuant to Rule 12b-
1 under the Investment Company Act of 1940.
SHAREHOLDER SERVICING PLAN
The Shareholder Servicing Plan (Service Plan) permits the Fund to compensate
broker-dealers or other financial institutions (Service Agents) that have
agreed with UAMFDI to provide administrative support services to Institutional
Service Class shareholders that are their customers. Under the Service Plan,
Institutional Service Class Shares may pay service fees at the maximum annual
rate of 0.25% of the average daily net asset value of such shares held by the
Service Agent for the benefit of its customers. The Fund pays these fees out
of the assets allocable to Institutional Service Class Shares to UAMFDI, to
the Service Agent directly or through UAMFDI. Each item for which a payment
may be made under the Service Plan constitutes personal service and/or
shareholder account maintenance and may constitute an expense of distributing
Fund Service Class Shares as the SEC construes such term under Rule 12b-1.
Services for which Institutional Service Class Shares may compensate Service
Agents include:
. Acting as the sole shareholder of record and nominee for beneficial owners.
. Maintaining account records for such beneficial owners of the Fund's
shares.
. Opening and closing accounts.
13
<PAGE>
. Answering questions and handling correspondence from shareholders about
their accounts.
. Processing shareholder orders to purchase, redeem and exchange shares.
. Handling the transmission of funds representing the purchase price or
redemption proceeds.
. Issuing confirmations for transactions in the Fund's shares by
shareholders.
. Distributing current copies of prospectuses, statements of additional
information and shareholder reports.
. Assisting customers in completing application forms, selecting dividend and
other account options and opening any necessary custody accounts.
. Providing account maintenance and accounting support for all transactions.
. Performing such additional shareholder services as may be agreed upon by
the Fund and the Service Agent, provided that any such additional
shareholder services must constitute a permissible non-banking activity in
accordance with the then current regulations of, and interpretations
thereof by, the Board of Governors of the Federal Reserve System, if
applicable.
RULE 12B-1 DISTRIBUTION PLAN
The Distribution Plan permits a portfolio to pay UAMFDI or others for certain
distribution, promotional and related expenses involved in marketing its
Institutional Service Class Shares. Under the Distribution Plan, Institutional
Service Class Shares may pay distribution fees at the maximum annual rate of
0.75% of the average daily net asset value of such shares held by the Service
Agent for the benefit of its customers. These expenses include, among other
things:
. Advertising the availability of services and products.
. Designing materials to send to customers and developing methods of making
such materials accessible to customers.
. Providing information about the product needs of customers.
. Providing facilities to solicit Fund sales and to answer questions from
prospective and existing investors about the Fund.
. Receiving and answering correspondence from prospective investors,
including requests for sales literature, prospectuses and statements of
additional information.
. Displaying and making available sales literature and prospectuses.
. Acting as liaison between shareholders and the Fund, including obtaining
information from the Fund and providing performance and other information
about the Fund.
In addition, the Service Class Shares may make payments directly to other
unaffiliated parties, who either aid in the distribution of their shares or
provide services to the Class.
FEES PAID UNDER THE SERVICE AND DISTRIBUTION PLANS
The Plans permit Institutional Service Class shares to pay distribution and
service fees at the maximum annual rate of 1.00% of the class' average daily
net assets for the year. The Fund's governing board has limited the amount
the Institutional Service Class may pay under the Plans to 0.40% of the class'
average daily net assets for the year, and may increase such amount to the
plan maximum at any time.
The Fund will not reimburse the Distributor or others for distribution
expenses incurred in excess of the amount permitted by the Plans.
Subject to seeking best price and execution, the Fund may buy or sell
portfolio securities through firms that receive payments under the Plans.
UAMFDI, at its own expense, may pay dealers for aid in distribution or for aid
in providing administrative services to shareholders.
APPROVING, AMENDING AND TERMINATING THE FUND'S DISTRIBUTION ARRANGEMENTS
Shareholders of the portfolio have approved the Plans. The Plans also were
approved by the governing board of the Fund, including a majority of the
members of the board who are not interested persons of the Fund and who have
no direct or indirect financial interest in the operation of the Plans (Plan
Members), by votes cast in person at meetings called for the purpose of voting
on these Plans.
14
<PAGE>
Continuing the Plans
The Plans continue in effect from year to year so long as they are approved
annually by a majority of the Fund's board members and its Plan Members. To
continue the Plans, the board must determine whether such continuation is in
the best interest of the Institutional Service Class shareholders and that
there is a reasonable likelihood of the Plans providing a benefit to the
Class. The Fund's board has determined that the Fund's distribution
arrangements are likely to benefit the Fund and its shareholders by enhancing
the Fund's ability to efficiently service the accounts of its Institutional
Service Class shareholders.
Amending the Plans
A majority of the Fund's governing board and a majority of its the Plan
Members must approve any material amendment to the Plans. Likewise, any
amendment materially increasing the maximum percentage payable under the Plans
must be approved by a majority of the outstanding voting securities of the
Class, as well as by a majority of the Plan Members.
Terminating the Plans
A majority of the Plan Members or a majority of the outstanding voting
securities of the Class may terminate the Plans at any time without penalty.
In addition, the Plans will terminate automatically upon their assignment.
Miscellaneous
So long as the Plans are in effect, the non-interested board members will
select and nominate the Plan Members of the Fund.
The Fund and UAMFDI intend to comply with the Conduct Rules of the National
Association of Securities Dealers relating to investment company sales
charges. with these rules.
Pursuant to the Plans, the board reviews, at least quarterly, a written report
of the amounts expended under each agreement with Service Agents and the
purposes for which the expenditures were made.
ADDITIONAL NON-12B-1 SHAREHOLDER SERVICING ARRANGEMENTS
In addition to payments by the Fund under the Plans, UAM and any of its
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. The adviser may also compensate its affiliated companies
for referring investors to the portfolio.
BROKERAGE ALLOCATION AND OTHER PRACTICES
SELECTION OF BROKERS
- --------------------------------------------------------------------------------
The Advisory Agreement authorizes the adviser to select the brokers or dealers
that will execute the purchases and sales of investment securities for a
portfolio. The Advisory Agreement also directs the adviser to use its best
efforts to obtain the best execution with respect to all transactions for a
portfolio. The adviser may select brokers based on research, statistical and
pricing services they provide to the adviser. Information and research
provided by a broker will be in addition to, and not instead of, the services
the adviser is required to perform under the Advisory Agreement. In so doing,
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. The adviser may place portfolio orders with
qualified broker-dealers who refer clients to the adviser.
SIMULTANEOUS TRANSACTIONS
- --------------------------------------------------------------------------------
The adviser makes investment decisions for a portfolio independently of
decisions made for its other clients. When a security is suitable for the
investment objective of more than one client, it may be prudent for the
adviser to engage in a simultaneous transaction, that is, buy or sell the same
security for more than one client. The adviser strives to allocate such
transactions among its clients, including the portfolio, in a fair and
reasonable manner. Although there is no specified formula for allocating such
transactions, the Fund's governing board periodically reviews the various
allocation methods used by the adviser, and the results of such allocations.
15
<PAGE>
BROKERAGE COMMISSIONS
- --------------------------------------------------------------------------------
EQUITY SECURITIES
Generally, equity securities are bought and sold through brokerage
transactions for which commissions are payable. Purchases from underwriters
will include the underwriting commission or concession, and purchases from
dealers serving as market makers will include a dealer's mark-up or reflect a
dealer's mark-down.
DEBT SECURITIES
Debt securities are usually bought and sold directly from the issuer or an
underwriter or market maker for the securities. Generally, each Fund will not
pay brokerage commissions for such purchases. When a debt security is bought
from an underwriter, the purchase price will usually include an underwriting
commission or concession. The purchase price for securities bought from
dealers serving as market makers will similarly include the dealer's mark up
or reflect a dealer's mark down. When a portfolio executes transactions in
the over-the-counter market, it will deal with primary market makers unless
prices that are more favorable are otherwise obtainable.
CAPITAL STOCK AND OTHER SECURITIES
DESCRIPTION OF SHARES AND VOTING RIGHTS
- --------------------------------------------------------------------------------
The Fund's Articles of Incorporation, as amended, permit its governing board
to issue three billion shares of common stock, with a $.001 par value. The
governing board has the power to create and designate one or more series
(portfolios) or classes of shares of common stock and to classify or
reclassify any unissued shares at any time and without shareholder approval.
When issued and paid for, the shares of each series and class of the Fund are
fully paid and nonassessable, and have no pre-emptive rights or preference as
to conversion, exchange, dividends, retirement or other features.
The shares of each series and class have non-cumulative voting rights, which
means that the holders of more than 50% of the shares voting for the election
of members of the governing board can elect all of the members if they choose
to do so. On each matter submitted to a vote of the shareholders, 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. Shares of all classes will vote together as a single class except
when otherwise required by law or as determined by the members of the Fund's
governing board.
If the Fund is liquidated, the shareholders of each portfolio or any class
thereof are entitled to receive the net assets belonging to that portfolio, or
in the case of a class, belonging to that portfolio and allocable to that
class. The Fund will distribute is net assets to its shareholders in
proportion to the number of shares of that portfolio or class thereof held by
them and recorded on the books of the Fund. The liquidation of any portfolio
or class thereof may be authorized at any time by vote of a majority of the
members of the governing board.
The governing board has authorized three classes of shares, Institutional,
Institutional Service and Adviser. The three classes represent interests in
the same assets of a portfolio and, except as discussed below, are identical
in all respects. Unlike Institutional and Adviser Class Shares, Institutional
Service Class Shares bear certain expenses related to shareholder servicing
and the distribution of such shares and have exclusive voting rights with
respect to matters relating to such distribution expenditures. The Adviser
Class Shares impose a sales load on purchases. The classes also have
different exchange privileges. The net income attributable to Institutional
Service Class Shares and the dividends payable on Institutional Service Class
Shares will be reduced by the amount of the shareholder servicing and
distribution fees; accordingly, the net asset value of the Institutional
Service Class Shares will be reduced by such amount to the extent a portfolio
has undistributed net income.
The Fund will not hold annual meetings except when required to by the
Investment Company Act of 1940, as amended, or other applicable law.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund tries to distribute substantially all of the net investment income of
a portfolio and net realized capital gains so as to avoid income taxes on its
dividends and distributions and the imposition of the federal excise tax on
undistributed income and capital gains. However, the Fund cannot predict the
time or amount of any such dividends or distributions.
Distributions by a portfolio reduce its net asset value ("NAV"). A
distribution that reduces the NAV of a portfolio below its cost basis is
taxable as described in the prospectus of the portfolio, although from an
investment standpoint, it is a return of capital.
16
<PAGE>
If you buy shares of a portfolio on or before the "record date" -- the date
that establishes which shareholders will receive an upcoming distribution --
for a distribution, you will receive some of the money you invested as a
taxable distribution.
Unless the shareholder elects otherwise in writing, all dividend and capital
gains distributions are automatically received in additional shares of a
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.
The portfolio will be treated as a separate entity (and hence as a separate
"regulated investment company") for federal tax purposes. The portfolio will
distribute its net capital gains to its investors, but will not offset (for
federal income tax purposes) such gains against any net capital losses of
another portfolio.
PURCHASE REDEMPTION AND PRICING OF SHARES
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
Service Agents may enter confirmed purchase orders on behalf of their
customers. If shares of a Portfolio are purchased in this manner, the Service
Agent must receive your investment order before the close of trading on the
New York Stock Exchange ('NYSE') and transmit it to UAMSSC before the close of
its business day to receive that day's share price. UAMSSC must receive proper
payment for the order by the time the portfolio is priced on the following
business day. Service Agents are responsible to their customers and the Fund
for timely transmission of all subscription and redemption requests,
investment information, documentation and money.
Purchases of shares of a Portfolio will be made in full and fractional shares
of the Portfolio calculated to three decimal places. Certificates for
fractional shares will not be issued. Certificates for whole shares will not
be issued except at the written request of the shareholder.
The Fund reserves the right in its sole discretion 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.
IN-KIND PURCHASES
If accepted by the Fund, shareholders may purchase shares of a portfolio in
exchange for securities that are eligible for acquisition by the portfolio.
Securities to be exchanged that are accepted by the Fund will be valued as
described under "VALUATION OF SHARES" at the next determination of net asset
value after 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 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:
. At the time of exchange, such securities are eligible to be included in the
portfolio (current market quotations must be readily available for such
securities).
. The investor represents and agrees that all securities offered to be
exchanged are liquid securities and not subject to any restrictions upon
their sale by the Portfolio under the Securities Act of 1933, or otherwise.
. The value of any such securities (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.
Investors who are subject to Federal taxation upon exchange may realize a gain
or loss for Federal income tax purposes depending upon the cost of securities
or local currency exchanged. Investors interested in such exchanges should
contact the adviser.
17
<PAGE>
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
When you redeem, your shares may be worth more or less than the price you paid
for them depending on the market value of the investments held by the
portfolio.
BY MAIL
Requests to redeem shares must include:
. Share certificates, if issued.
. A letter of instruction or an 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.
. Any required signature guarantees (see "SIGNATURE GUARANTEES").
. Any other necessary legal documents, if required, in the case of estates,
trusts, guardianships, custodianships, corporations, pension and profit
sharing plans and other organizations.
BY TELEPHONE
The following tasks cannot be accomplished by telephone:
. Changing the name of the commercial bank or the account designated to
receive redemption proceeds (this can be accomplished only by a written
request signed by each shareholder, with each signature guaranteed).
. Redemption of certificated shares by telephone.
The Fund and its Sub-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, as well as 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. The Fund or Sub-Transfer Agent may
be liable for any losses due to unauthorized or fraudulent telephone
instructions if the Fund or the Sub-Transfer Agent does not employ the
procedures described above. Neither the Fund nor the Sub-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.
REDEMPTIONS-IN-KIND
If the governing board determines that it would be detrimental to the best
interests of remaining shareholders of the Fund to make payment wholly or
partly in cash, the Fund may pay redemption proceeds in whole or in part by a
distribution in-kind of liquid securities held by a Portfolio in lieu of cash
in conformity with applicable rules of the SEC. Investors may incur brokerage
charges on the sale of portfolio securities received in payment of
redemptions.
However, the Fund has made an election with the SEC 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 SEC. 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 governing board believes 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 under "Valuation of Shares." A redeeming shareholder
would normally incur brokerage expenses if these securities were converted to
cash.
SIGNATURE GUARANTEES
To protect your account, the Fund and its sub-transfer agent 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
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
18
<PAGE>
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 that 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.
OTHER REDEMPTION INFORMATION
Normally, the Fund will pay for all shares redeemed under proper procedures
within one business day of and no more than seven days after the receipt of
the request, or earlier if required under applicable law. 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 determined by
the SEC.
The Fund may suspend redemption privileges or postpone the date of payment
. During any period that both the NYSE and custodian bank are closed, or
trading on the NYSE is restricted as determined by the Commission.
. 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.
. For such other periods as the Commission may permit.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
The exchange privilege is only available with respect to portfolios that are
qualified for sale in the shareholder's state of residence. Exchanges are
based on the respective net asset values of the shares involved. The
Institutional Class and Institutional Service Class Shares of UAM Funds do not
charge a sales commission or charge of any kind.
Neither the Fund nor any of its service providers will be responsible for the
authenticity of the exchange instructions received by telephone. The governing
board of the Fund may restrict the exchange privilege at any time. Such
instructions may include limiting the amount or frequency of exchanges and may
be for the purpose of assuring such exchanges do not disadvantage the Fund and
its shareholders.
TRANSFER OF SHARES
- --------------------------------------------------------------------------------
Shareholders may transfer shares of the portfolio to another person by making
a written request to the Fund. Your request should clearly identify the
account and number of shares you wish to transfer. All registered owners
should sign the request 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
"Signature Guarantees." As in the case of redemptions, the written request
must be received in good order before any transfer can be made.
VALUATION OF SHARES
- --------------------------------------------------------------------------------
The Fund does not price its shares on those days when the New York Stock
Exchange is closed, which are currently: New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day; Good Friday; Memorial Day; Independence Day; Labor
Day; Thanksgiving Day; and Christmas Day.
EQUITY SECURITIES
Equity securities listed on a securities exchange for which market quotations
are readily available are valued at the last quoted sale price of the day.
Price information on listed securities is taken from the exchange where the
security is primarily traded. Unlisted equity securities and listed
securities not traded on the valuation date for which market quotations are
readily available are valued neither exceeding the asked prices nor less than
the bid prices. Quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents. The converted value is based upon the
bid price of the foreign currency against U.S. dollars quoted by any major
bank or by a broker.
DEBT SECURITIES
Debt securities are valued according to the broadest and most representative
market, which will ordinarily be the over-the-counter market. Debt securities
may be valued based on prices provided by a pricing service when such prices
are believed to
19
<PAGE>
reflect the fair market value of such securities. Securities purchased with
remaining maturities of 60 days or less are valued at amortized cost when the
Board of Directors determines that amortized cost reflects fair value.
OTHER ASSETS
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 governing board.
PERFORMANCE CALCULATIONS
The portfolio measures performance by calculating yield and total return. Both
yield and total return figures are based on historical earnings and are not
intended to indicate future performance. Performance quotations by investment
companies are subject to rules adopted by the SEC, 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 SEC.
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 SEC. An explanation of the method used to compute or express
performance follows.
Performance is calculated separately for Institutional Class and Service Class
Shares. Dividends paid by a Portfolio with respect to Institutional Class and
Service Class Shares, to the extent any dividends are paid, will be calculated
in the same manner at the same time on the same day and will be in the same
amount, except that service fees, distribution charges and any incremental
transfer agency costs relating to Service Class Shares will be borne
exclusively by that class.
TOTAL RETURN
- --------------------------------------------------------------------------------
Total return is the change in value of an investment in a portfolio over a
given period, assuming reinvestment of any dividends and capital gains. A
cumulative or aggregate total return reflects actual performance over a stated
period of time. An average annual total return is a hypothetical rate of
return that, if achieved annually, would have produced the same cumulative
total return if performance had been constant over the entire period.
The average annual total return of a 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 one, five and ten-year period and the deduction of
all applicable Fund expenses on an annual basis. Since Institutional Service
Class Shares bear additional service and distribution expenses, their average
annual total return will generally be lower than that of the Institutional
Class Shares.
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).
The average annual total rates of return of the Institutional and Service
Classes of the portfolio are as follows:
<TABLE>
<CAPTION>
Since Inception
One Year Ended Five Years Ended Through Year Ended Inception Date
October 31, 1998 October 31, 1998 October 31, 1998
<S> <C> <C> <C> <C>
FMA Small Company Portfolio 7/31/91
Institutional Class Share
------------------------------------------------------------------------------------------------------------------------
Institutional Service Class Shares 8/1/97
------------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
YIELD
- --------------------------------------------------------------------------------
Yield refers to the income generated by an investment in a portfolio over a
given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all funds. As this
differs from other accounting methods, the quoted yield may not equal the
income actually paid to shareholders.
The 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. Since Institutional Service Class Shares bear additional service
and distribution expenses, their yield will generally be lower than that of
the Institutional Class Shares.
Yield is obtained using the following formula:
Yield = 2((a-b)/(cd)+1)/6/-1
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
- --------------------------------------------------------------------------------
The Portfolio's performance may be compared to data prepared by independent
services which monitor the performance of investment companies, data reported
in financial and industry publications, and various indices as further
described in the Portfolio's SAI. This information may also be included in
sales literature and advertising.
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. Please see APPENDIX B for publications, indices and averages that
may be used.
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]portfolio, 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
portfolio to calculate its performance. In addition, there can be no assurance
that the portfolio will continue this performance as compared to such other
averages.
TAXES
In order for a portfolio to continue to qualify for federal income tax
treatment as a regulated investment company under the Internal Revenue Code of
1986, as amended, 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, as applicable.
The portfolio will distribute to shareholders annually any net capital gains
that have been recognized for federal income tax purposes. Shareholders will
be advised on the nature of the payments.
If for any taxable year a portfolio does not qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code, all of
the portfolio's taxable income would be subject to tax at regular corporate
rates without any deduction for distributions to shareholders. In this event,
a portfolio's distributions to shareholders would be taxable as ordinary
income to the extent of the current and accumulated earnings and profits of
the particular portfolio, and would be eligible for the dividends received
deduction in the case of corporate shareholders. The portfolio intends to
qualify as a "regulated investment company" each year.
Dividends and interest received by the portfolio may give rise to withholding
and other taxes imposed by foreign countries. These taxes would reduce the
portfolio's dividends but are included in the taxable income reported on your
tax statement if the
21
<PAGE>
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
THE ICM PORTFOLIOS
ICM EQUITY PORTFOLIO
ICM FIXED INCOME PORTFOLIO
ICM SMALL COMPANY PORTFOLIO
INSTITUTIONAL CLASS SHARES
STATEMENT OF ADDITIONAL INFORMATION
__________, 1999
This statement of additional information (SAI) is not a prospectus. However,
you should read it in conjunction with the Prospectus of The ICM Fixed Income
Portfolio Institutional Class Shares dated _______, 1999 and the Prospectus of
the ICM Small Company Portfolio & ICM Equity Portfolio Institutional Class
Shares dated ________,1999. You may obtain a Prospectus for the appropriate
ICM Portfolio by contacting the UAM Funds at the address listed above.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
DEFINITIONS........................................................................... 1
THE FUND.............................................................................. 1
DESCRIPTION OF THE PORTFOLIOS AND THEIR INVESTMENTS AND RISKS......................... 1
Equity Securities (ICM Equity and Small Company Portfolios).......................... 1
Debt Securities (ICM Fixed Income Portoflio)........................................ 2
Derivatives.......................................................................... 6
Foreign Securities................................................................... 10
Investment Companies................................................................. 13
Repurchase Agreements................................................................ 14
Securities Lending................................................................... 14
Short-Term Investments............................................................... 14
When-Issued, Forward Commitment and Delayed Delivery Transactions.................... 15
Restricted Securities................................................................ 16
INVESTMENT POLICIES................................................................... 16
Fundamental Investment Policies (ICM Fixed Income Portfolio)........................ 16
Non-Fundamental Policies (ICM Fixed Income Portfolio)................ 16
Fundamental Investment Policies (ICM Equity Portfolio)............................... 17
Non-Fundamental Policies (The ICM Equity Portfolio)................................. 17
Fundamental Investment Policies (ICM Small Company Portfolio)........................ 18
MANAGEMENT OF THE PORTFOLIOS.......................................................... 19
CODE OF ETHICS........................................................................ 20
PRINCIPAL HOLDERS OF SECURITIES....................................................... 20
INVESTMENT ADVISORY AND OTHER SERVICES................................................ 20
Investment Adviser................................................................... 20
Distributor.......................................................................... 22
Administrative Services.............................................................. 22
Custodian............................................................................ 23
Independent Public Accountant........................................................ 24
BROKERAGE ALLOCATION AND OTHER PRACTICES.............................................. 24
Selection of Brokers................................................................. 24
Simultaneous Transactions............................................................ 24
Brokerage Commissions................................................................ 24
CAPITAL STOCK AND OTHER SECURITIES.................................................... 24
Description Of Shares And Voting Rights.............................................. 24
Dividends and Capital Gains Distributions............................................ 25
PURCHASE REDEMPTION AND PRICING OF SHARES............................................. 25
Purchase of Shares................................................................... 25
Redemption of Shares................................................................. 26
Exchange Privilege................................................................... 28
Transfer Of Shares................................................................... 28
Valuation of Shares.................................................................. 28
PERFORMANCE CALCULATIONS.............................................................. 28
Total Return......................................................................... 29
Yield................................................................................ 29
Comparisons.......................................................................... 30
TAXES................................................................................. 30
EXPENSES.............................................................................. 30
FINANCIAL STATEMENTS.................................................................. 31
</TABLE>
<PAGE>
DEFINITIONS
The "Fund" is UAM Funds, Inc.
The term "adviser" means Investment Counselors of Maryland, Inc., the Fund's
investment adviser.
UAM is United Asset Management Corporation.
UAMFSI is UAM Fund Services, Inc., the Fund's administrator.
UAMFDI is UAM Fund Distributors, Inc., the Fund's distributor.
UAMSSC is UAM Fund Shareholder Servicing Center, the Fund's sub-shareholder-
servicing agent.
CGFSC is Chase Global Funds Service Company, the Fund's sub-administrator.
UAM Funds Complex includes UAM Funds, Inc., UAM Funds Trust, UAM Funds Trust
II and all of their portfolios.
The term "portfolios" is used to refer to the ICM Portfolios as a group,
while "portfolio" refers to a single ICM portfolio.
The terms "board" and "governing board" refer to the Fund's Board of Directors
as a group, while "board member" refers to a single member of the board.
All other defined terms, which are not otherwise defined in this SAI, have the
same meaning in the SAI as they do in the respective prospectuses of The ICM
Portfolios.
THE FUND
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 Fund changed its
name to "UAM Funds, Inc." The Fund's principal executive office is located at
One International Place, Boston, MA 02110; shareholders should direct all
correspondence to the address listed on the cover of this SAI.
The Fund is an open-end, management investment company under the Investment
Company Act of 1940. The ICM Portfolios are a diversified series of the Fund.
This means that with respect to 75% of its total assets, the portfolios may
not invest more than 5% of its total assets in the securities of any one
issuer (except U.S. government securities). The remaining 25% of its total
assets are not subject to this restriction. To the extent the portfolios
invest a significant portion of their respective assets in the securities of a
particular issuer, it will be subject to an increased risk of loss if the
market value of such issuer's securities declines.
ICM FIXED INCOME PORTFOLIO IS CURRENTLY CLOSED TO NEW INVESTORS.
DESCRIPTION OF THE PORTFOLIOS AND THEIR INVESTMENTS AND RISKS
EQUITY SECURITIES (ICM EQUITY AND SMALL COMPANY PORTFOLIOS)
- --------------------------------------------------------------------------------
Some of the portfolios may invest in equity securities such as common and
preferred stocks. While investing in stocks allows a portfolio to participate
in the benefits of owning a company, a portfolio must accept the risks of
ownership. Unlike bondholders, who have preference to a company's earnings
and cash flow, preferred stockholders followed by common stockholders in order
of priority, are entitled only to the residual amount after a company meets
its other obligations. For this reason, the value of a company's stock will
usually react more strongly to actual or perceived changes in the company's
financial condition or prospects than its debt obligations. Stockholders of a
company that fares poorly can lose money.
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 values 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
1
<PAGE>
value of a preferred stock than in a more senior debt security with similar
stated yield characteristics. Types of preferred stocks include adjustable-
rate preferred stock, fixed dividend preferred stock, perpetual preferred
stock, and sinking fund preferred stock.
STOCK MARKET RISK
Stock markets tend to move in cycles with short or extended periods of rising
and falling stock prices. The value of a company's stock may fall because of:
. Factors that directly relate to that company, such as decisions made by its
management or lower demand for the company's products or services.
. Factors affecting an entire industry, such as increases in production
costs.
. Changes in financial market conditions that are relatively unrelated to the
company or its industry, such as changes in interest rates, currency
exchange rates or inflation rates.
RIGHTS AND WARRANTS
A portfolio may purchase warrants and rights, which are securities
permitting, but not obligating, their holder to purchase the underlying
securities at a predetermined price. Generally, warrants and stock purchase
rights do not carry with them the right to receive dividends or exercise
voting rights with respect to the underlying securities, and they do not
represent any rights in the assets of the issuer. Therefore, an investment in
warrants and rights may entail greater risk than certain other types of
investments. In addition, the value of warrants and rights does not
necessarily change with the value of the underlying securities, and they cease
to have value if they are not exercised on or prior to their expiration date.
Investment in warrants and rights increases the potential profit or loss to be
realized from the investment of a given amount of a portfolio's assets as
compared with investing the same amount in the underlying stock.
CONVERTIBLE SECURITIES
A portfolio may purchase corporate bonds, debentures and preferred stock that
are convertible into common stock. In exchange for the conversion feature,
many corporations will pay a lower rate of interest on convertible securities
than debt securities of the same corporation.
Convertible corporate bonds, debentures and preferred stock are subject to the
same risks as similar securities without the convertible feature. In
addition, their market price tends to go up if the stock price moves up. For
this reason, convertible securities are more volatile in price during times of
steady interest rates than other types of fixed income securities.
DEBT SECURITIES (ICM FIXED INCOME PORTOFLIO)
- --------------------------------------------------------------------------------
Debt securities are used by corporations and governments to borrow money from
investors. Most debt securities promise a variable or fixed rate of return
and repayment of the amount borrowed at maturity. Some debt securities, such
as zero-coupon bonds, do not pay current interest and are purchased at a
discount from their face value. Debt securities may include, among other
things, all types of bills, notes, bonds, mortgage-backed securities or asset-
backed securities.
The total return of a debt instrument is composed of two elements: the
percentage change in the security's price and interest income earned. The
YIELD TO MATURITY of a debt security estimates its total return only if the
price of the debt security remains unchanged during the holding period and
coupon interest is reinvested at the same yield to maturity. The total return
of a debt instrument, therefore, will be determined not only by how much
interest is earned, but also by how much the price of the security and
interest rates change.
INTEREST RATES
The price of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up, the value of the bond will go
down, and vice versa). One can estimate the anticipated change in the price of
a fixed rate security for each 1% shift in interest rates by using a risk
measure known as EFFECTIVE DURATION. An effective duration of 4 years, for
example, would suggest that for each 1% reduction in interest rates at all
maturity levels, the price of a security is estimated to increase by 4%. An
increase in rates by the same magnitude is estimated to reduce the price of
the security by 4%. By knowing the yield and the effective duration of a debt
security, one can estimate total return based on an expectation of how much
interest rates, in general, will change.
2
<PAGE>
While serving as a good estimator of prospective returns, effective duration
is an imperfect measure. While lower interest rates generally improve the
value of a fixed income portfolio, lower interest rates may also introduce
certain risks which may independently cause the share price of the portfolio
to fall. Lower rates motivate people to pay off mortgage-backed and asset-
backed securities earlier than expected, which introduces REINVESTMENT RISK.
Reinvesting portfolio assets at lower rates may reduce the yield of the
portfolio. The unexpected timing of mortgage and asset-backed prepayments
caused by the variations in interest rates may also shorten or lengthen the
AVERAGE MATURITY of the portfolio. Neglecting this drift in average maturity
may have the unintended effect of increasing or reducing the effective
duration of the portfolio which may in turn adversely affect the expected
performance of the portfolio.
CREDIT RATING
Coupon interest is offered to investors of fixed income securities as
compensation for assuming risk, although short-term U.S. treasury securities,
such as 3 month treasury bills, are considered "risk free." Corporate
securities offer higher yields than U.S. treasuries because their payment of
interest and complete repayment of principal is less certain. The credit
rating or financial condition of an issuer may affect the value of a debt
security. Generally, the lower the quality rating of a security, the greater
the risks that the issuer will fail to pay interest and return principal. To
compensate investors for taking on increased risk, issuers with lower credit
ratings usually offer their investors a higher "risk premium" in the form of
higher interest rates above comparable U.S. treasuries.
Changes in investor confidence regarding the certainty of interest and
principal payments of a fixed income corporate security will result in an
adjustment to this "risk premium." Since an issuer's outstanding debt carries
a fixed coupon, adjustments to the risk premium must occur in the price, which
effects the yield to maturity of the bond. If an issuer defaults or becomes
unable to honor its financial obligations, the bond may lose some or all of
its value
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade. The adviser may retain securities that are downgraded, if
it believes that keeping those securities is warranted.
Rating agencies are organizations that assign ratings to securities based
primarily on the rating agency's assessment of the issuer's financial
strength. The portfolios currently use ratings compiled by Standard and
Poor's Ratings Services, Duff & Phelps Rating Co., Fitch IBCA, Inc. and,
Moody's Investor Services. Credit ratings are only an agency's opinion, not an
absolute standard of quality, and they do not reflect an evaluation of market
risk. APPENDIX A contains further information concerning the ratings of
certain rating agencies and their significance.
The adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time a portfolio buys it. A rating
agency may change its credit ratings at any time. The adviser monitors the
rating of the security and will take appropriate actions if a rating agency
reduces the security's rating. A portfolio is not obligated to dispose of
securities whose issuers subsequently are in default or which are downgraded
below the above-stated ratings
INVESTMENT-GRADE FIXED-INCOME SECURITIES
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade.
U.S. GOVERNMENT SECURITIES
For a discussion of these securities see "SHORT-TERM INVESTMENTS - GOVERNMENT
SECURITIES", below.
CORPORATE BONDS
For a discussion of these securities see "SHORT-TERM INVESTMENTS - CORPORATE
BONDS," below.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities are interests in pools of mortgage loans that
various governmental, government-related and private organizations assemble as
securities for sale to investors. Mortgage-backed securities differ from other
forms of debt securities because they make monthly payments that consist of
both interest and principal payments. (Other debt securities normally provide
for periodic payment of interest in fixed amounts with principal payments at
maturity or specified call dates.) In effect,
3
<PAGE>
these payments are a "pass-through" of the monthly payments made by the
individual borrowers on their mortgage loans, net of any fees paid to the
issuer or guarantor of such securities.
Governmental entities, private insurers and the mortgage poolers may insure or
guaranty the timely payment of interest and principal of these pools through
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance and letters of credit issue the insurance and
guarantees. The adviser will consider such insurance and guarantees and the
creditworthiness of the issuers thereof in determining whether a mortgage-
related security meets its investment quality standards. It is possible that
the private insurers or guarantors will not meet their obligations under the
insurance policies or guarantee arrangements.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA)
GNMA, a wholly owned U.S. government corporation within the Department of
Housing and Urban Development, is the principal governmental guarantor of
mortgage-related securities. GNMA, which is backed by the faith and credit of
the U.S. government, guarantees the timely payment of principal and interest
on securities issued by institutions approved by GNMA and backed by pools of
FHA-insured or VA-guaranteed mortgages. GNMA does not guarantee the market
value or yield of mortgage-backed securities or the value of portfolio shares.
To buy GNMA securities, a portfolio may have to pay a premium over the
maturity value of the underlying mortgages, which a portfolio may lose if
prepayment occurs.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)
FNMA is a government-sponsored corporation owned entirely by private
stockholders. FNMA, which is regulated by the Secretary of Housing and Urban
development, purchases conventional mortgages from a list of approved
seller/servicers, including 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, but are not backed by the
full faith and credit of the U.S. government.
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC)
FHLMC is a corporate instrumentality of the U.S. government whose stock is
owned by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970
to increase the availability of mortgage credit for residential housing. FHLMC
issues Participation Certificates (PCs) which represent interests in
conventional mortgages from its national portfolio. Like FNMA, FHLMC
guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the U.S.
government.
COMMERCIAL BANKS, SAVINGS AND LOAN INSTITUTIONS, PRIVATE MORTGAGE INSURANCE
COMPANIES, MORTGAGE BANKERS AND OTHER SECONDARY MARKET ISSUERS
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. In addition to
guaranteeing the mortgage-related security, such issuers may service and/or
have originated the underlying mortgage loans. Pools created by these issuers
generally offer a higher rate of interest than pools created by GNMA, FNMA and
FHLMC because they are not guaranteed by a government agency.
MORTGAGE DOLLAR ROLLS
The Portfolio may sell a mortgage-backed security and simultaneously agree to
buy back from the counter-party the same or a substantially identical security
at a specified time and price. This type of transaction is called a mortgage
dollar roll. For giving up the right to receive interest and principal
payments while the other party holds the security., the counter-party
generally pays the Portfolio, or alternatively, the portfolio generally agrees
to buy the security back for a lower price. Dollar rolls may be renewed over
a period of several months with a different repurchase price and a cash
settlement made at each renewal without physical delivery of the securities.
RISK OF INVESTING IN MORTGAGE-BACKED SECURITIES
Yield characteristics of mortgage-backed securities differ from those of
traditional fixed income securities. The major differences include interest
and principal payments that are more frequent (usually monthly), adjustable
interest rates, and the possibility
4
<PAGE>
that prepayments of principal may be made substantially earlier than their
final distribution dates (so that the price of the security will generally
decline when interest rates rise).
A portfolio may fail to recover fully its investment in mortgage-backed
securities notwithstanding any direct or indirect governmental, agency or
other guarantee because the counter-party failed to meet its commitments.
Changes in interest rates and a variety of economic, geographic, social and
other factors, such as the sale of the underlying property, refinancing or
foreclosure, can cause the loans underlying a mortgage-backed security to be
repaid sooner than expected. If the prepayment rates increase, a portfolio may
have to reinvest its principal at a rate of interest that is lower than the
rate on existing mortgage-backed securities. Conversely, when interest rates
are rising many mortgage-backed securities will see a decline in the
prepayment rate, extending their average life. Extending the average life of a
mortgage-backed security increases the risk of depreciation due to future
increases in market interest rates. For these reasons, mortgage-backed
securities may be less effective than other types of U.S. government
securities as a means of "locking in" interest rates.
Dollar rolls involve potential risks of loss that are different from those
related to the securities underlying the transaction. For example, if the
counter-party becomes insolvent, the Portfolio may not be able to buy the
security back from the counter-party. The Portfolio could lose money if the
value of the securities it sold increases above their repurchase price. Since
the counter-party may deliver similar, but not identical, securities to the
Portfolio, the securities that the Portfolio are required to repurchase may be
worth less than the securities it sold.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)
CMOs are hybrids between mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, CMOs usually pay interest and prepaid principal
semiannually. While whole mortgage loans may collateralize CMOs, portfolio of
mortgage-backed securities guaranteed by GNMA, FHLMC, or FNMA, and their
income streams more typically collateralize them.
A REMIC is a CMO that qualifies for special tax treatment under the Internal
Revenue Code of 1986, as amended, and invests in certain mortgages primarily
secured by interests in real property and other permitted investments.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC certificate, often referred to as a
"tranche," is issued at a specific interest rate and must be fully retired by
its final distribution date. Generally, all classes of CMOs or REMIC
certificates pay or accrue interest monthly. Investing in the lowest tranche
of CMOs and REMIC certificates involves risks similar to those associated with
investing in equity securities.
OTHER ASSET-BACKED SECURITIES
A broad range of assets, including automobile loans, computer leases and
credit card receivables, are being securitized in pass-through structures
similar to the mortgage pass-through or CMO structures described above. In
general, the collateral supporting these securities is of shorter maturity
than mortgage loans and is less likely to experience substantial prepayments
with interest rate fluctuations.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the
benefit of any security interest in the related assets, which raises the
possibility that recoveries on repossessed collateral may not be available to
support payments on these securities. For example, credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which allow debtors
to reduce their balances by offsetting certain amounts owed on the credit
cards. Most issuers of asset-backed securities backed by automobile
receivables permit the servicers of such receivables to retain possession of
the underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the rated asset-backed securities. Because
of the large number of vehicles involved and technical requirements under
state laws, the trustee for the holders of asset-backed securities backed by
automobile receivables may not have a proper security interest in all of the
obligations backing such receivables.
To lessen the effect of failures by obligors on underlying assets to make
payments, the entity administering the pool of assets may agree to ensure the
receipt of payments on the underlying pool occurs in a timely fashion
("liquidity protection"). In addition, asset-backed securities may obtain
insurance, such as guarantees, policies or letters of credit obtained by the
issuer or sponsor from third parties, for some or all of the assets in the
pool ("credit support"). Delinquency or loss more than that anticipated or
failure of the credit support could adversely affect the return on an
investment in such a security.
A portfolio may also invest in residual interests in asset-backed securities,
which is the excess cash flow remaining after making required payments on the
securities and paying related administrative expenses. The amount of residual
cash flow resulting from a particular issue of asset-backed securities depends
in part on the characteristics of the underlying assets, the coupon rates
5
<PAGE>
on the securities, prevailing interest rates, the amount of administrative
expenses and the actual prepayment experience on the underlying assets.
STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities are derivative multiple-class mortgage-
backed securities. Stripped mortgage-backed securities usually have two
classes that receive different proportions of interest and principal
distributions on a pool of mortgage assets. Typically, one class will receive
some of the interest and most of the principal, while the other class will
receive most of the interest and the remaining principal. In extreme cases,
one class will receive all of the interest ("interest only" or "IO" class)
while the other class will receive the entire principal (the "principal only"
or "PO" class). The cash flows and yields on IOs and POs are extremely
sensitive to the rate of principal payments (including prepayments) on the
underlying mortgage loans or mortgage-backed securities. A rapid rate of
principal payments may adversely affect the yield to maturity of IOs. Slower
than anticipated prepayments of principal may adversely affect the yield to
maturity of a PO. The yields and market risk of interest only and principal
only stripped mortgage-backed securities, respectively, may be more volatile
than those of other fixed income securities, including traditional mortgage-
backed securities.
YANKEE BONDS
Yankee bonds are dollar-denominated bonds issued inside the United States by
foreign entities. Investment in these securities involve certain risks which
are not typically associated with investing in domestic securities. See
"FOREIGN SECURITIES".
ZERO COUPON BONDS
These securities make no periodic payments of interest, but instead are sold
at a discount from their face value. When held to maturity, their entire
income, which consists of accretion of discount, comes from the difference
between the issue price and their value at maturity. The amount of the
discount rate varies depending on factors including the time remaining until
maturity, prevailing interest rates, the security's liquidity and the issuer's
credit quality. The market value of zero coupon securities may exhibit greater
price volatility than ordinary debt securities because a stripped security
will have a longer duration than an ordinary debt security with the same
maturity. A portfolio's investments in pay-in-kind, delayed and zero coupon
bonds may require it to sell certain of its portfolio securities to generate
sufficient cash to satisfy certain income distribution requirements.
These securities may include U.S. Treasury securities that have had their
interest payments ("coupons") separated from the underlying principal
("corpus") by their holder, typically a custodian bank or investment brokerage
firm. Once the holder of the security has stripped or separated corpus and
coupons, it may sell each component separately. The principal or corpus is
then sold at a deep discount because the buyer receives only the right to
receive a future fixed payment on the security and does not receive any rights
to periodic interest (cash) payments. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold
bundled in such form. The underlying U.S. Treasury security is held in book-
entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. Under a Federal Reserve program
known as "STRIPS" or "Separate Trading of Registered Interest and Principal of
Securities," a portfolio can record its beneficial ownership of the coupon or
corpus directly in the book-entry record-keeping system.
DERIVATIVES
- --------------------------------------------------------------------------------
Derivatives are financial instruments whose value is based on an underlying
asset, such as a stock or a bond, or an underlying economic factor, such as an
interest rate or an index. A portfolio tries to minimize its loss by investing
in derivatives to protect them from broad fluctuations in market prices,
interest rates or foreign currency exchange rates. Investing in derivatives
for these purposes is known as "hedging." When hedging is successful, a
portfolio will have offset any depreciation in the value of its portfolio
securities by the appreciation in the value of the derivative position.
Although techniques other than the sale and purchase of derivatives could be
used to control the exposure of a portfolio to market fluctuations, the use of
derivatives may be a more effective means of hedging this exposure. The
following derivatives may be purchased by the portfolios:
FUTURES
A futures contract is an agreement between two parties whereby one party is
obligated to buy and the other is obligated to sell a financial instrument at
an agreed upon price and time. The parties to a futures contract do not have
to pay for or deliver the
6
<PAGE>
underlying financial instrument until the delivery date. The parties to a
futures contract can hold the contract until its delivery date, although in
many cases they close the contract early by taking an opposite position in an
identical contract. The financial instrument underlying the contract may be a
stock, stock index, bond, bond index, interest rate, foreign exchange rate or
other similar instrument. A portfolio will incur commission expenses in both
opening and closing futures positions.
Futures contracts are traded in the United States on commodity exchanges or
boards of trade -- known as "contract markets" -- approved for such trading
and regulated by the Commodity Futures Trading Commission, a federal agency.
These contract markets standardize the terms, including the maturity date and
underlying financial instrument, of all futures contracts. Contract markets
require both the purchaser and seller to deposit "initial margin" with a
futures broker, known as a futures commission merchant, when they enter into
the contract. Initial margin deposits are typically equal to a percentage of
the contract's value. After they open a futures contract, the parties to the
transaction must compare the purchase price of the contract to its daily
market value. If the value of the futures contract changes in such a way that
a party's position declines, that party must make additional "variation
margin" payments so that the margin payment is adequate. On the other hand,
the value of the contract may change in such a way that there is excess margin
on deposit, possibly entitling the party that has a gain to receive all or a
portion of this amount.
A portfolio may take a "short position" by selling futures contracts on
securities it owns or on securities with characteristics similar to those of
securities it owns. For example, when a portfolio expects interest rates to
rise or securities prices to fall, it can seek to offset a decline in the
value of its holdings by selling futures contracts so that a portfolio is
obligated to sell the securities at a future lower price. When a portfolio's
short hedging position is successful, the appreciation in the value of the
futures position will offset substantially any depreciation in the value of
the holdings of a portfolio. On the other hand, a decline in the value of the
futures position would offset any unanticipated appreciation in the value of
the holdings of a portfolio.
On other occasions, a portfolio may take a "long" position by purchasing
futures contracts. For example, when a portfolio expects interest rates to
fall or securities' prices to rise, it can seek to secure a better rate or
price than might later be available by purchasing a futures contract. A
portfolio may also buy futures contracts as a substitute for transactions in
securities, to alter the investment characteristics of portfolio securities or
to gain or increase its exposure to a particular securities market.
OPTIONS
An option is a contract between two parties for the purchase and sale of a
financial instrument for a specified price (known as the "strike price" or
"exercise price") at any time during the option period. Unlike a futures
contract, an option grants a right (not an obligation) to buy or sell a
financial instrument. Generally, a seller of an option can grant a buyer two
kinds of rights: a "call" (the right to buy the security) or a "put" (the
right to sell the security). Options have various types of underlying
instruments, including specific securities, indices of securities prices,
foreign currencies, interest rates and futures contracts. Options may be
traded on an exchange (exchange-traded-options) or may be customized
agreements between the parties (over-the-counter or "OTC options"). Like
futures, a financial intermediary, known as a clearing corporation,
financially backs exchange-traded options. However, OTC options have no such
intermediary and are subject to the risk that the counter-party will not
fulfill its obligations under the contract.
PURCHASING PUT AND CALL OPTIONS
When a portfolio purchases a put option, it buys the right to sell the
instrument underlying the option at a fixed strike price. In return for this
right, a portfolio pays the current market price for the option (known as the
"option premium"). A portfolio may purchase put options to offset or hedge
against a decline in the market value of its securities ("protective puts") or
to benefit from a decline in the price of securities that it does not own. A
portfolio would ordinarily realize a gain if, during the option period, the
value of the underlying securities decreased below the exercise price
sufficiently to cover the premium and transaction costs. However, if the price
of the underlying instrument does not fall enough to offset the cost of
purchasing the option, a put buyer would lose the premium and related
transaction costs.
Call options are similar to put options, except that a portfolio obtains the
right to purchase, rather than sell, the underlying instrument at the option's
strike price. A portfolio would normally purchase call options in anticipation
of an increase in the market value of securities it owns or wants to buy. A
portfolio would ordinarily realize a gain if, during the option period, the
value of the underlying instrument exceeded the exercise price plus the
premium paid and related transaction costs. Otherwise, a portfolio would
realize either no gain or a loss on the purchase of the call option.
The purchaser of an option may terminate its position by:
. Allowing it to expire and losing its entire premium;
7
<PAGE>
. Exercising the option and either selling (in the case of a put option) or
buying (in the case of a call option) the underlying instrument at the strike
price; or
. Closing it out in the secondary market at its current price.
SELLING (WRITING) PUT AND CALL OPTIONS
When a portfolio writes a call option it assumes an obligation to sell
specified securities to the holder of the option at a specified price if the
option is exercised at any time before the expiration date. Similarly, when a
portfolio writes a put option it assumes an obligation to purchase specified
securities from the option holder at a specified price if the option is
exercised at any time before the expiration date. A portfolio may terminate
its position in an exchange-traded put option before exercise by buying an
option identical to the one it has written. Similarly, it may cancel an over-
the-counter option by entering into an offsetting transaction with the
counter-party to the option.
A portfolio could try to hedge against an increase in the value of securities
it would like to acquire by writing a put option on those securities. If
security prices rise, a portfolio would expect the put option to expire and
the premium it received to offset the increase in the security's value. If
security prices remain the same over time, a portfolio would hope to profit by
closing out the put option at a lower price. If security prices fall, a
portfolio may lose an amount of money equal to the difference between the
value of the security and the premium it received. Writing covered put options
may deprive a portfolio of the opportunity to profit from a decrease in the
market price of the securities it would like to acquire.
The characteristics of writing call options are similar to those of writing
put options, except that call writers expect to profit if prices remain the
same or fall. A portfolio could try to hedge against a decline in the value
of securities it already owns by writing a call option. If the price of that
security falls as expected, a portfolio would expect the option to expire and
the premium it received to offset the decline of the security's value.
However, a portfolio must be prepared to deliver the underlying instrument in
return for the strike price, which may deprive it of the opportunity to profit
from an increase in the market price of the securities it holds.
A portfolio is permitted only to write covered options. A portfolio can cover
a call option by owning, at the time of selling the option:
. The underlying security (or securities convertible into the underlying
security without additional consideration), index, interest rate, foreign
currency or futures contract.
. A call option on the same security or index with the same or lesser
exercise price.
. A call option on the same security or index with a greater exercise price,
with the difference between the exercise prices maintained as a segregated
account containing cash, or liquid securities.
. Cash, or liquid securities equal to at least the market value of the
optioned securities, interest rate, foreign currency or futures contract.
. In the case of an index, a portfolio of securities that corresponds to the
index.
A portfolio can cover a put option by, at the time of selling the option:
. Entering into a short position in the underlying security.
. Purchasing a put option on the same security, index, interest rate, foreign
currency or futures contract with the same or greater exercise price.
. Purchasing a put option on the same security, index, interest rate, foreign
currency or futures contract with a lesser exercise price, with the
difference between the exercise prices maintained as a segregated account
containing cash, or liquid securities.
. Maintaining the entire exercise price in liquid securities.
OPTIONS ON SECURITIES INDICES
Options on securities indices are similar to options on securities, except
that the exercise of securities index options requires cash settlement
payments and does not involve the actual purchase or sale of securities. In
addition, securities index options are designed to reflect price fluctuations
in a group of securities or segment of the securities market rather than price
fluctuations in a single security.
8
<PAGE>
OPTIONS ON FUTURES
An option on a futures contract provides the holder with the right to buy a
futures contract (in the case of a call option) or sell a futures contract (in
the case of a put option) at a fixed time and price. Upon exercise of the
option by the holder, the contract market clearing house establishes a
corresponding short position for the writer of the option (in the case of a
call option) or a corresponding long position (in the case of a put option).
If the option is exercised, the parties will be subject to the futures
contracts. In addition, the writer of an option on a futures contract is
subject to initial and variation margin requirements on the option position.
Options on futures contracts are traded on the same contract market as the
underlying futures contract.
The buyer or seller of an option on a futures contract may terminate the
option early by purchasing or selling an option of the same series (i.e., the
same exercise price and expiration date) as the option previously purchased or
sold. The difference between the premiums paid and received represents the
trader's profit or loss on the transaction.
A portfolio may purchase put and call options on futures contracts instead of
selling or buying futures contracts. A portfolio may buy a put option on a
futures contract for the same reasons it would sell a futures contract. It
also may purchase such put options in order to hedge a long position in the
underlying futures contract. A portfolio may buy call options on futures
contracts for the same purpose as the actual purchase of the futures
contracts, such as in anticipation of favorable market conditions.
A portfolio may write a call option on a futures contract to hedge against a
decline in the prices of the instrument underlying the futures contracts. If
the price of the futures contract at expiration were below the exercise price,
a portfolio would retain the option premium, which would offset, in part, any
decline in the value of its portfolio securities.
The writing of a put option on a futures contract is similar to the purchase
of the futures contracts, except that, if market price declines, a portfolio
would pay more than the market price for the underlying instrument. The
premium received on the sale of the put option, less any transaction costs,
would reduce the net cost to a portfolio.
COMBINED POSITIONS
A portfolio may purchase and write options in combination with each other, or
in combination with futures or forward contracts, to adjust the risk and
return characteristics of the overall position. For example, a portfolio could
construct a combined position whose risk and return characteristics are
similar to selling a futures contract by purchasing a put option and writing a
call option on the same underlying instrument. Alternatively, a portfolio
could write a call option at one strike price and buy a call option at a lower
price to reduce the risk of the written call option in the event of a
substantial price increase. Because combined options positions involve
multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.
ADDITIONAL RISKS OF DERIVATIVES
While transactions in derivatives may reduce certain risks, these transactions
themselves entail certain other risks. For example, unanticipated changes in
interest rates, securities prices or currency exchange rates may result in a
poorer overall performance of a portfolio than if it had not entered into any
derivatives transactions. Derivatives may magnify a portfolio's gains or
losses, causing it to make or lose substantially more than it invested.
When used for hedging purposes, increases in the value of the securities a
portfolio holds or intends to acquire should offset any losses incurred with a
derivative. Purchasing derivatives for purposes other than hedging could
expose a portfolio to greater risks.
CORRELATION OF PRICES
A portfolio's ability to hedge its securities through derivatives depends on
the degree to which price movements in the underlying index or instrument
correlate with price movements in the relevant securities. In the case of poor
correlation, the price of the securities a portfolio is hedging may not move
in the same amount, or even in the same direction as the hedging instrument.
The adviser will try to minimize this risk by investing only in those
contracts whose behavior it expects to resemble the portfolio securities it is
trying to hedge. However, if a portfolio's prediction of interest and
currency rates, market value, volatility or other economic factors is
incorrect, a portfolio may lose money, or may not make as much money as it
could have.
Derivative prices can diverge from the prices of their underlying instruments,
even if the characteristics of the underlying instruments are very similar to
the derivative. Listed below are some of the factors that may cause such a
divergence.
. Current and anticipated short-term interest rates, changes in volatility of
the underlying instrument, and the time remaining until expiration of the
contract.
. A difference between the derivatives and securities markets, including
different levels of demand, how the instruments are traded, the imposition
of daily price fluctuation limits or trading of an instrument stops.
9
<PAGE>
. Differences between the derivatives, such as different margin requirements,
different liquidity of such markets and the participation of speculators in
such markets.
Derivatives based upon a narrower index of securities, such as those of a
particular industry group, may present greater risk than derivatives based on
a broad market index. Since narrower indices are made up of a smaller number
of securities, they are more susceptible to rapid and extreme price
fluctuations because of changes in the value of those securities.
While currency futures and options values are expected to correlate with
exchange rates, they may not reflect other factors that affect the value of
the investments of a portfolio. A currency hedge, for example, should protect
yen-denominated security from a decline in the yen, but will not protect a
portfolio against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of a portfolio's foreign-denominated
investments changes in response to many factors other than exchange rates, it
may not be possible to match the amount of currency options and futures to the
value of a portfolio's investments precisely over time.
LACK OF LIQUIDITY
Before a futures contract or option is exercised or expires, a portfolio can
terminate it only by entering into a closing purchase or sale transaction.
This requires a secondary market for such instruments on the exchange where a
portfolio originally entered into the transaction. If there is no secondary
market for the contract, or the market is illiquid, a portfolio may have to
purchase or sell the instrument underlying the contract, make or receive a
cash settlement or meet ongoing variation margin requirements. The inability
to close out derivative positions could have an adverse impact on the ability
of a portfolio to hedge its investments and may prevent a portfolio from
realizing profits or limiting its losses.
Derivatives may become illiquid (i.e., difficult to sell at a desired time and
price) under a variety of market conditions. For example:
. During periods of market volatility, a commodity exchange may suspend or
limit trading in a particular derivative instrument, an entire category of
derivatives or all derivatives.
. A portfolio may have difficulty liquidating its existing positions or
recovering excess variation margin payments because of exchange or clearing
house equipment failures, government intervention, insolvency of a
brokerage firm or clearing house or other disruptions of normal trading
activity.
. Investors may lose interest in a particular derivative or category of
derivatives.
MANAGEMENT RISK
If the adviser incorrectly predicts stock market and interest rate trends, a
portfolio may lose money by investing in derivatives. For example, if a
portfolio were to write a call option based on its adviser's expectation that
the price of the underlying security would fall, but the price were to rise
instead, a portfolio could be required to sell the security upon exercise at a
price below the current market price. Similarly, if a portfolio were to write
a put option based on the adviser's expectation that the price of the
underlying security would rise, but the price were to fall instead, a
portfolio could be required to purchase the security upon exercise at a price
higher than the current market price.
MARGIN
Because of the low margin deposits required upon the opening of a derivative
position, such transactions involve an extremely high degree of leverage.
Consequently, a relatively small price movement in a derivative may result in
an immediate and substantial loss (as well as gain) to a portfolio and it may
lose more than it originally invested in the derivative.
If the price of a futures contract changes adversely, a portfolio may have to
sell securities at a time when it is disadvantageous to do so to meet its
minimum daily margin requirement. A portfolio may lose its margin deposits if
a broker with whom it has an open futures contract or related option becomes
insolvent or declares bankruptcy.
FOREIGN SECURITIES
- --------------------------------------------------------------------------------
RISKS OF FOREIGN SECURITIES
Foreign securities, foreign currencies, and securities issued by U.S. entities
with substantial foreign operations may involve significant risks in addition
to the risks inherent in U.S. investments.
10
<PAGE>
Local political, economic, regulatory, or social instability, military action
or unrest, or adverse diplomatic developments may affect the value of foreign
investments. A foreign government may take actions adverse to the interests of
U.S. investors, including expropriation or nationalization of assets,
confiscatory taxation and other restrictions on U.S. investment.
FOREIGN CURRENCY RISK
The securities of foreign companies are frequently denominated in foreign
currencies. A portfolio's net asset value is denominated in U.S. dollars.
Thus, changes in foreign currency rates and in exchange control regulations
may positively or negatively affect the value of the securities of a
portfolio. A portfolio also may incur costs to convert foreign currencies
into U.S. dollars and vice versa. In addition:
. Foreign currency exchange rates reflect relative values of two currencies,
usually the U.S. dollar and the foreign currency in question.
. Complex political and economic factors applicable to the issuing country
may affect the value of U.S. dollars and foreign currencies.
. The actions of U.S. and foreign governments may affect signicantly the
currency exchange rates.
. Government intervention may increase risks involved in purchasing or
selling foreign currency options, forward contracts and futures contracts,
since exchange rates may not be free to fluctuate in response to other
market forces.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely
basis. Available quotation information is generally representative of very
large round-lot transactions in the inter-bank market and thus may not
reflect exchange rates for smaller odd-lot transactions (less than $1
million) where rates may be less favorable. The inter-bank market in
foreign currencies is a global, around-the-clock market. To the extent that
a market is closed while the markets for the underlying currencies remain
open, certain markets may not always reflect significant price and rate
movements.
THE EURO
The single currency for the European Economic and Monetary Union ("EMU"), the
Euro, is scheduled to replace the national currencies for participating member
countries over a period that begins on January 1, 1999 and ends in July 2002.
At the end of that period, use of the Euro will be compulsory and countries in
the EMU will no longer maintain separate currencies in any form. Until then,
however, each country and issuers within each country are free to choose
whether to use the Euro.
On January 1, 1999, existing national currencies will become denominations of
the Euro at fixed rates according to practices prescribed by the European
Monetary Institute and the Euro will become available as a book-entry
currency. Beginning on or about that date, the portfolios expect member
states to begin conducting financial market transactions in Euro and
redenominating many investments, currency balances and transfer mechanisms
into Euro. The portfolios also anticipate pricing, trading, settling and
valuing investments whose nominal values remain in their existing domestic
currencies in Euro. Accordingly, the portfolios expect the conversion to the
Euro to impact investments in countries that will adopt the Euro in all
aspects of the investment process, including trading, foreign exchange,
payments, settlements, cash accounts, custody and accounting will be impacted.
Some of the uncertainties surrounding the conversion to the Euro include:
. Will the payment and operational systems of banks and other financial
institutions be ready by the scheduled launch date?
. Will the conversion to the Euro have legal consequences on outstanding
financial contracts that refer to existing currencies rather than Euro?
. How will existing currencies be exchanged into Euro?
. Will suitable clearing and settlement payment systems for the new currency
be created?
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS (ICM FIXED INCOME PORTFOLIO)
A forward foreign currency contract involves an obligation to purchase or sell
a specific amount of currency at a future date or date range at a specific
price. In the case of a cancelable forward contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
Forward foreign currency exchange contracts differ from foreign currency
futures contracts in certain respects. Unlike futures contracts, forward
contracts
. do not have standard maturity dates or amounts (i.e., the parties to the
contract may fix the maturity date and the amount).
11
<PAGE>
. are traded in the inter-bank markets conducted directly between currency
traders (usually large commercial banks) and their customers, as opposed to
futures contracts which are traded in only on exchanges regulated by the
CFTC.
. do not require an initial margin deposit.
. may be closed by entering into a closing transaction with the currency
trader who is a party to the original forward contract, as opposed to a
commodities exchange.
FOREIGN CURRENCY HEDGING STRATEGIES (ICM FIXED INCOME PORTFOLIO)
A "settlement hedge" or "transaction hedge" is designed to protect a portfolio
against an adverse change in foreign currency values between the date a
security is purchased or sold and the date on which payment is made or
received. Entering into a forward contract for the purchase or sale of the
amount of foreign currency involved in an underlying security transaction for
a fixed amount of U.S. dollars "locks in" the U.S. dollar price of the
security. A portfolio may also use forward contracts to purchase or sell a
foreign currency when it anticipates purchasing or selling securities
denominated in foreign currency, even if it has not yet selected the specific
investments.
A portfolio may also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. Such a hedge,
sometimes referred to as a "position hedge," would tend to offset both
positive and negative currency fluctuations, but would not offset changes in
security values caused by other factors. A portfolio could also hedge the
position by selling another currency expected to perform similarly to the
currency in which a portfolio's investment is denominated. This type of hedge,
sometimes referred to as a "proxy hedge," could offer advantages in terms of
cost, yield, or efficiency, but generally would not hedge currency exposure as
effectively as a direct hedge into U.S. dollars. Proxy hedges may result in
losses if the currency used to hedge does not perform similarly to the
currency in which the hedged securities are denominated.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities that a portfolio owns or intends to
purchase or sell. They simply establish a rate of exchange that one can
achieve at some future point in time. Additionally, these techniques tend to
minimize the risk of loss due to a decline in the value of the hedged currency
and to limit any potential gain that might result from the increase in value
of such currency.
A portfolio may enter into forward contracts to shift its investment exposure
from one currency into another. Such transactions may call for the delivery of
one foreign currency in exchange for another foreign currency, including
currencies in which its securities are not then denominated. This may include
shifting exposure from U.S. dollars to a foreign currency, or from one foreign
currency to another foreign currency. This type of strategy, sometimes known
as a "cross-hedge," will tend to reduce or eliminate exposure to the currency
that is sold, and increase exposure to the currency that is purchased. Cross-
hedges protect against losses resulting from a decline in the hedged currency,
but will cause a portfolio to assume the risk of fluctuations in the value of
the currency it purchases. Cross hedging transactions also involve the risk of
imperfect correlation between changes in the values of the currencies
involved.
It is difficult to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward or futures contract.
Accordingly, a portfolio may have to purchase additional foreign currency on
the spot market if the market value of a security it is hedging is less than
the amount of foreign currency it is obligated to deliver. Conversely, a
portfolio may have to sell on the spot market some of the foreign currency it
received upon the sale of a security if the market value of such security
exceeds the amount of foreign currency it is obligated to deliver.
STOCK EXCHANGE AND MARKET RISK
The adviser anticipates that in most cases an exchange or over-the-counter
(OTC) market located outside of the United States will be the best available
market for foreign securities. Foreign stock markets, while growing in volume
and sophistication, are generally not as developed as those in the United
States, and securities of some foreign issuers may be less liquid and more
volatile than securities of comparable U.S. issuers. Foreign security trading,
settlement and custodial practices are often less developed than those in U.S.
markets. This may lead to increased risk or substantial delays in case of a
failed trade or the insolvency of, or breach of duty by, a foreign broker-
dealer, securities depository or foreign sub-custodian. In addition, the costs
associated with foreign investments, including withholding taxes, brokerage
commissions and custodial costs, are generally higher than with U.S.
investments.
LEGAL SYSTEM AND REGULATION RISKS
Foreign countries have different legal systems and different regulations
concerning financial disclosure, accounting, and auditing standards.
Corporate financial information that would be disclosed under U.S. law may not
be available. Foreign accounting
12
<PAGE>
and auditing standards may render a foreign corporate balance sheet more
difficult to understand and interpret than one subject to U.S. law and
standards. Foreign markets may offer less protection to investors than U.S.
markets such as:
. Foreign accounting, auditing, and financial reporting requirements may
render a foreign corporate balance sheet more difficult to understand and
interpret than one subject to U.S. law and standards.
. Adequate public information on foreign issuers may not be available, and it
may be difficult to secure dividends and information regarding corporate
actions on a timely basis.
. In general, there is less overall governmental supervision and regulation of
securities exchanges, brokers, and listed companies than in the United
States.
. OTC markets tend to be less regulated than stock exchange markets and, in
certain countries, may be totally unregulated.
. Economic or political concerns may influence regulatory enforcement and may
make it difficult for investors to enforce their legal rights.
. Restrictions on transferring securities within the United States or to U.S.
persons may make a particular security less liquid than foreign securities
of the same class that are not subject to such restrictions.
EMERGING MARKETS
Investing in emerging markets may magnify the risks of foreign investing.
Security prices in emerging markets can be significantly more volatile than
those in more developed markets, reflecting the greater uncertainties of
investing in less established markets and economies. In particular, countries
with emerging markets may have (1) relatively unstable governments, (2) may
present the risks of nationalization of businesses, restrictions on foreign
ownership and prohibitions on the repatriation of assets, and (3) may have
less protection of property rights than more developed countries. The
economies of countries with emerging markets may be based on only a few
industries, may be highly vulnerable to changes in local or global trade
conditions, and may suffer from extreme and volatile debt burdens or inflation
rates. Local securities markets may trade a small number of securities and may
be unable to respond effectively to increases in trading volume, potentially
making prompt liquidation of holdings difficult or impossible at times.
Certain foreign governments levy withholding taxes on dividend and interest
income. Although in some countries a portfolio may recover a portion of these
taxes, the portion they cannot recover will reduce the income a portfolio
receives from its investments. The portfolios do not expect such foreign
withholding taxes to have a significant impact on performance.
AMERICAN DEPOSITARY RECEIPTS (ADRS)
American Depositary Receipts (ADRs) are certificates evidencing ownership of
shares of a foreign issuer. These certificates are issued by depository banks
and generally trade on an established market in the United States or
elsewhere. A custodian bank or similar financial institution in the issuer's
home country holds the underlying shares in trust. The depository bank may not
have physical custody of the underlying securities at all times and may charge
fees for various services, including forwarding dividends and interest and
corporate actions. ADRs are alternatives to directly purchasing the underlying
foreign securities in their national markets and currencies. However, ADRs
continue to be subject to many of the risks associated with investing directly
in foreign securities.
INVESTMENT COMPANIES
- --------------------------------------------------------------------------------
The portfolios reserve the right to invest up to 10% of their total assets,
calculated at the time of investment, in the securities of other open-ended 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. A 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 received permission from the SEC to allow each of its portfolios
to invest, for cash management purposes, the greater of 5% of its total assets
or $2.5 million in the UAM DSI Money Market Portfolio, provided that the
investment is consistent with the portfolio's investment policies and
restrictions. Based upon the portfolio's assets invested in the UAM 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 UAM DSI Money Market Portfolio. The investing portfolio will bear
expenses of the UAM DSI Money Market Portfolio on the same basis as all of its
other shareholders.
13
<PAGE>
REPURCHASE AGREEMENTS
- --------------------------------------------------------------------------------
In a repurchase agreement, a portfolio buys a security for a relatively short
period (usually not more than 7 days) and simultaneously agrees to sell it
back at a specified date and price. A portfolio normally uses repurchase
agreements to earn income on assets that are not invested. A portfolio will
require the counter-party to the agreement to deliver securities serving as
collateral for each repurchase agreement to its custodian either physically or
in book-entry form. The counter party must add to the collateral whenever the
price of the repurchase agreement rises (i.e., the borrower "marks to the
market" on a daily basis).
If the seller of the security declares bankruptcy or otherwise becomes
financially unable to buy back the security, a portfolio's right to sell the
security may be restricted. In addition, the value of the security might
decline before a portfolio can sell it and a portfolio might incur expenses in
enforcing its rights.
SECURITIES LENDING
- --------------------------------------------------------------------------------
To earn additional income, the portfolios may lend up to one-third of their
total assets (including the value of the collateral for the loans) at fair
market value to broker- dealers or other financial institutions. A portfolio
may reinvest any cash collateral in short-term securities and money market
funds. A portfolio will only lend its securities if:
. The borrower provides collateral at least equal to the market value of the
securities loaned.
. The collateral pledged and maintained by the borrower must consist of cash,
an irrevocable letter of credit issued by a domestic U.S. bank or securities
issued or guaranteed by the U.S. government.
. The borrower adds to the collateral whenever the price of the securities
loaned rises (i.e., the borrower "marks to the market" on a daily basis).
. A portfolio can terminate the loan at any time; and
. A portfolio receives reasonable interest on the loan (which may include a
portfolio investing any cash collateral in interest bearing short-term
investments).
These risks are similar to the ones involved with repurchase agreements. When
a portfolio lends securities, there is a risk that it will lose money because
the borrower fails to return the securities involved in the transaction. In
addition, the borrower may become financially unable to honor its contractual
obligations, which may delay or prevent a portfolio from liquidating the
collateral.
SHORT-TERM INVESTMENTS
- --------------------------------------------------------------------------------
To earn a return on uninvested assets, meet anticipated redemptions, or for
temporary defensive purposes, a portfolio may invest a portion of its assets
in the short-term investments described below:
BANK OBLIGATIONS
A portfolio will only invest in a security issued by a commercial bank if the
bank:
. Has total assets of at least $1 billion, or the equivalent in other
currencies;
. Is a U.S. bank and a member of the Federal Deposit Insurance Corporation;
and
. Is a foreign branch of a U.S. bank and the adviser believes the security is
of an investment quality comparable with other debt securities that a
portfolio may purchase.
TIME DEPOSITS
Time deposits are non-negotiable deposits, such as savings accounts or
certificates of deposit, held by a financial institution for a fixed term with
the understanding that the depositor can withdraw its money only by giving
notice to the institution. However, there may be early withdrawal penalties
depending upon market conditions and the remaining maturity of the obligation.
A portfolio may only purchase time deposits maturing from two business days
through seven calendar days.
14
<PAGE>
CERTIFICATES OF DEPOSIT
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or savings and loan association for a definite
period of time and earning a specified return.
BANKER'S ACCEPTANCE
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).
COMMERCIAL PAPER
Commercial paper constitutes short-term obligations with maturities ranging
from 2 to 270 days issued by banks, corporations and other borrowers. Such
investments are unsecured and usually discounted. A portfolio may invest in
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. See APPENDIX A for a description
of commercial paper ratings.
U.S. GOVERNMENT SECURITIES
A portfolio may buy debt securities that are issued or guaranteed by the U.S.
Treasury or by an agency or instrumentality of the U.S. government. Some U.S.
government securities, such as Treasury bills, notes and bonds are supported
by the full faith and credit of the U.S. government. Others, however, are
supported only by the right of the instrumentality to borrow from the U.S.
government.
While U.S. government securities are guaranteed as to principal and interest,
their market value is not guaranteed. U.S. government securities are subject
to the same interest rate and credit risks as other fixed income securities.
However, since U.S. government securities are of the highest quality, the
credit risk is minimal. The U.S. government does not guarantee the net asset
value of the assets of a portfolio.
CORPORATE BONDS
A portfolio may buy corporate bonds and notes that are considered investment
grade securities. Investment grade securities have received one of the four
highest grades assigned by a rating agency, or determined to be of comparable
quality by the adviser. Corporations issue bonds and notes to raise money for
working capital or for capital expenditures such as plant construction,
equipment purchases and expansion. In return for the money loaned to the
corporation by investors, the corporation promises to pay investors interest,
and repay the principal amount of the bond or note.
Like other debt securities, corporate debt securities involve a risk that the
corporate issuer will not make timely payment of either interest or principal,
or may default entirely. In addition, the market price of corporate debt
securities may go down because of changes in interest rates.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED DELIVERY TRANSACTIONS
- --------------------------------------------------------------------------------
A when-issued security is one whose terms are available and for which a market
exists, but which have not been issued. In a forward delivery transaction, a
portfolio contracts to purchase securities for a fixed price at a future date
beyond customary settlement time. "Delayed delivery" refers to securities
transactions on the secondary market where settlement occurs in the future. In
each of these transactions, the parties fix the payment obligation and the
interest rate that they will receive on the securities at the time the parties
enter the commitment; however, they do not pay money or delivery securities
until a later date. Typically, no income accrues on securities a portfolio
has committed to purchase before the securities are delivered, although a
portfolio may earn income on securities it has in a segregated account. A
portfolio will only enter into these types of transactions with the intention
of actually acquiring the securities, but may sell them before the settlement
date.
A portfolio uses when-issued, delayed-delivery and forward delivery
transactions to secure what it considers an advantageous price and yield at
the time of purchase. When a portfolio engages in when-issued, delayed-
delivery and forward delivery transactions, it relies on the other party to
consummate the sale. If the other party fails to complete the sale, the
portfolio may miss the opportunity to obtain the security at a favorable price
or yield.
When purchasing a security on a when-issued, delayed delivery, or forward
delivery basis, a portfolio assumes the rights and risks of ownership of the
security, including the risk of price and yield changes. At the time of
settlement, the market value of the security may be more or less than the
purchase price. The yield available in the market when the delivery takes
place also may
15
<PAGE>
be higher than those obtained in the transaction itself. Because a portfolio
does not pay for the security until the delivery date, these risks are in
addition to the risks associated with its other investments.
RESTRICTED SECURITIES
- --------------------------------------------------------------------------------
Each portfolio may purchase restricted securities that are not registered for
sale to the general public but which are eligible for resale to qualified
institutional investors under Rule 144A of the Securities Act of 1933. Under
the supervision of the Fund's board, the adviser determines the liquidity of
such investments by considering all relevant factors. Provided that a dealer
or institutional trading market in such securities exists, these restricted
securities are not treated as illiquid securities for purposes of a
portfolio'' investment limitations. The priced realized from the sales of
these securities could be more or less than those originally paid by the
portfolio or less than what may be considered the fair value of such
securities.
INVESTMENT POLICIES
Whenever an investment limitation sets forth a percentage limitation on
investment or utilization of assets, such limitation shall (with the exception
of a limitation relating to borrowing) be determined immediately after and as
a result of a portfolio's acquisition of such security or other asset.
Accordingly, any later increase or decrease resulting from a change in values,
net assets or other circumstances will not be considered when determining
whether the investment complies with the investment limitations of a
portfolio.
FUNDAMENTAL INVESTMENT POLICIES (ICM FIXED INCOME PORTFOLIO)
- --------------------------------------------------------------------------------
The following investment limitations are fundamental, which means the
portfolio cannot change them without shareholder approval. The portfolio will
not:
. with respect to 75% of its assets, invest more than 5% of its total assets
at the time of purchase in securities of any single issuer (other than
obligations issued or guaranteed as to principal and interest by the U.S.
government or any of its agencies or instrumentalities);
. with respect to 75% of its assets, purchase more than 10% of any class of
the outstanding voting securities;
. issue senior securities, as defined in the Investment Company Act of 1940,
as amended, except that this restriction shall not be deemed to prohibit the
portfolio from (1) making any permitted borrowings, mortgages or pledges, or
(2) entering into options, futures, or repurchase transactions.
NON-FUNDAMENTAL POLICIES (ICM FIXED INCOME PORTFOLIO)
- --------------------------------------------------------------------------------
In addition to the policies described above, the following limitations are
non-fundamental (i.e., the portfolio may change them without shareholder
approval) policies of the portfolio. The portfolio will not:
. borrow, except (i) from banks and as a temporary measure for extraordinary
or emergency purposes and then, in no event, in excess 10% of the
Portfolio's gross assets valued at the lower of market or cost, or (ii) by
engaging in investments or transactions described in the Portfolio's
prospectus or statement of additional information which may be deemed to be
borrowings;
. invest for the purpose of exercising control over management of any company;
. invest in commodities except that the portfolio may invest in futures
contracts and options to the extent that not more than 5% of a portfolio's
assets are required as deposit to secure obligations under futures
contracts;
. invest more than 25% of its assets in companies within a single industry;
however, there are no limitations on investments made in instruments issued
or guaranteed by the U.S. government, its agencies or instrumentalities
when the portfolio adopts a temporary defensive position;
. 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;
16
<PAGE>
. invest more than an aggregate of 10% of the net assets of a 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;
. make loans except by purchasing debt securities in accordance with its
investment objectives and policies or entering into repurchase agreements,
or by lending its portfolio securities to banks, brokers, dealers and other
financial institutions so long as the loans are made in compliance with the
Investment Company Act of 1940, as amended, or the rules and regulations or
interpretations of the SEC;
. pledge, mortgage, or hypothecate any of its assets to an extent greater
than 10% of its total assets at fair market value;
. purchase additional securities when borrowings exceed 5% of total assets;
. purchase on margin or sell short, except as permitted herein;
. 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;
. underwrite the securities of other issuers.
FUNDAMENTAL INVESTMENT POLICIES (ICM EQUITY PORTFOLIO)
- --------------------------------------------------------------------------------
The following investment limitations are fundamental, which means the
portfolios cannot change them without shareholder approval. The portfolios
will not:
. with respect to 75% of its assets, invest more than 5% of its total assets
at the time of purchase in securities of any single issuer (other than
obligations issued or guaranteed as to principal and interest by the U.S.
government or any of its agencies or instrumentalities);
. with respect to 75% of its assets, purchase more than 10% of any class of
the outstanding voting securities of any issuer;
. borrow, except from banks and as a temporary measure for extraordinary or
emergency purposes and then, in no event, in excess of 33 1/3% of the
portfolio's gross assets valued at the lower of market or cost;
. 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;
. invest more than 25% of its assets in companies within a single industry;
however, there are no limitations on investments made in instruments issued
or guaranteed by the U.S. government and its agencies when the portfolio
has adopted a temporary defensive position;
. invest more than an aggregate of 10% of the net assets, 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;
. issue senior securities, as defined in the Investment Company Act of 1940,
as amended, except that this restriction shall not be deemed to prohibit
the portfolio from (1) making any permitted borrowings, mortgages or
pledges, or (2) entering into options, futures or repurchase transactions;
. make loans except by purchasing debt securities in accordance with its
investment objectives and policies or entering into repurchase agreements,
or by lending its portfolio securities to banks, brokers, dealers and other
financial institutions so long as the loans are made in compliance with the
Investment Company Act of 1940, as amended, or the rules and regulations or
interpretations of the SEC;
. 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; and
. underwrite the securities of other issuers.
NON-FUNDAMENTAL POLICIES (THE ICM EQUITY PORTFOLIO)
- --------------------------------------------------------------------------------
In addition to the policies described above, the following limitations are
non-fundamental (i.e., a portfolio may change them without shareholder
approval) policies of a portfolio. The portfolio will not:
17
<PAGE>
. invest for the purpose of exercising control over management of any company;
and
. 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;
. pledge, mortgage, or hypothecate any of its assets to an extent greater than
10% of its total assets at fair market value;
. purchase additional securities when borrowings exceed 5% of total assets;
. purchase on margin or sell short, except as permitted herein.
FUNDAMENTAL INVESTMENT POLICIES (ICM SMALL COMPANY PORTFOLIO)
- --------------------------------------------------------------------------------
The following investment limitations are fundamental, which means the
portfolio cannot change them without shareholder approval. The portfolio will
not:
. with respect to 75% of its assets, invest more than 5% of its total assets
at the time of purchase in securities of any single issuer (other than
obligations issued or guaranteed as to principal and interest by the U.S.
government or any of its agencies or instrumentalities);
. with respect to 75% of its assets, purchase more than 10% of any class of
the outstanding voting securities of any issuer;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;
. invest for the purpose of exercising control over management of any company;
. 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;
. invest more than 25% of its assets in companies within a single industry;
however, there are no limitations on investments made in instruments issued
or guaranteed by the U.S. government and its agencies when the portfolio has
adopted a temporary defensive position;
. 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;
. invest more than an aggregate of 10% of the net 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;
. issue senior securities, as defined in the Investment Company Act of 1940,
as amended, except that this restriction shall not be deemed to prohibit the
portfolio from (1) making any permitted borrowings, mortgages or pledges, or
(2) entering into options, futures or repurchase transactions;
. make loans except by purchasing debt securities in accordance with its
investment objective and policies or entering into repurchase agreements, or
by lending its portfolio securities to banks, brokers, dealers and other
financial institutions so long as the loans are made in compliance with the
Investment Company Act of 1940, as amended, or the rules and regulations or
interpretations of the SEC;
. pledge, mortgage, or hypothecate any of its assets to an extent greater than
10% of its total assets at fair market value; and
. purchase additional securities when borrowings exceed 5% of total assets;
. purchase on margin or sell short, except as provided herein;
. purchase or retain securities of an issuer if those officers and Directors
of the Fund or its investment adviser owning more than 1/2 1/2 of 1% of such
securities together own more than 5% of such securities;
. 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;
. underwrite the securities of other issuers;
. write or acquire options or interests in oil, gas or other mineral
exploration or development programs.
18
<PAGE>
MANAGEMENT OF THE PORTFOLIOS
The business of the Fund is managed by its governing board, which, in turn,
elects officers who are responsible for the day-to-day operations of the Fund
and who execute policies formulated by the board. The Fund pays each board
member who is not also an officer or affiliated person (independent board
member) a $150 quarterly retainer fee per active portfolio per quarter and a
$2,000 meeting fee. In addition, each independent board member is reimbursed
for travel and other expenses incurred while attending board meetings. The
$2,000 meeting fee and expense reimbursements are aggregated for all of the
board members and allocated proportionately among the portfolios of the UAM
Funds complex. The Fund does not pay the remaining board members, each of whom
are affiliated with the Fund, for their services as board members. UAM or its
affiliates or pay the Fund's officers.
The following table lists the board members and officers of the Fund and
provides information regarding their present positions, date of birth,
address, principal occupations during the past five years, aggregate
compensation received from the Fund and total compensation received from the
UAM Funds complex.
<TABLE>
<CAPTION>
Total
Aggregate Compensation
Position Compensation from From UAM
UAM Principal Occupations During Registrant as of Funds Complex as
Name, Address, DOB Funds, INC. the Past 5 years October 31, 1998 of October 31, 1998
<S> <C> <C> <C> <C>
John T. Bennett, Jr. Director President of Squam Investment Management
College Road -- RFD 3 Company, Inc. and Great Island Investment
Meredith, NH 03253 Company, Inc.; President of Bennett
1/26/29 Management Company from 1988 to 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Nancy J. Dunn Director Vice President for Finance and Administration
10 Garden Street and Treasurer of Radcliffe College since 1991.
Cambridge, MA 02138
8/14/51
- ------------------------------------------------------------------------------------------------------------------------------------
William A. Humenuk Director Executive Vice President and Chief Administrative
100 King Street West Officer of Philip Services Corp.; Director, Hofler
P.O. Box 2440, LCD-1, Corp.; Formerly, a Partner in the Philadelphia
Hamilton Ontario, office of the law firm Dechert Price & Rhoads.
Canada L8N-4J6
4/21/42
- ------------------------------------------------------------------------------------------------------------------------------------
Philip D. English Director President and Chief Executive Officer of Broventure
16 West Madison Street Company, Inc.; Chairman of the Board of Chektec
Baltimore, MD 21201 Corporation and Cyber Scientific, Inc
8/5/48
- ------------------------------------------------------------------------------------------------------------------------------------
Norton H. Reamer* Director, Chairman, Chief Executive Officer and a Director 0 0
One International Place President of United Asset Management Corporation; Director,
Boston, MA 02110 and Partner or Trustee of each of the Investment
3/21/35 Chairman Companies of the Eaton Vance Group of Mutual Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
Peter M. Whitman, Jr.* Director President and Chief Investment Officer of Dewey 0 0
One Financial Center Square Investors Corporation since 1988; Director
Boston, MA 02111 and Chief Executive Officer of H.T. Investors,
7/1/43 Inc., formerly a subsidiary of Dewey Square.
- ------------------------------------------------------------------------------------------------------------------------------------
William H. Park Vice Executive Vice President and Chief Financial 0 0
One International Place President Officer of United Asset Management Corporation.
Boston, MA 02110
9/19/47
- ------------------------------------------------------------------------------------------------------------------------------------
Gary L. French Treasurer President of UAMFSI and UAMFDI, formerly Vice 0 0
211 Congress Street President of Operations, Development and Control
Boston, MA 02110 of Fidelity Investments in 1995; Treasurer of the
7/4/51 Fidelity Group of Mutual Funds from 1991 to 1995.
- ------------------------------------------------------------------------------------------------------------------------------------
Michael E. DeFao Secretary Vice President and General Counsel of UAMFSI 0 0
211 Congress Street and UAMFDI; Associate Attorney of Ropes & Gray
Boston, MA 02110 (a law firm) from 1993 to 1995.
2/28/68
- ------------------------------------------------------------------------------------------------------------------------------------
Robert R. Flaherty Assistant Vice President of UAMFSI; formerly Manager of 0 0
211 Congress Street Treasurer Fund Administration and Compliance of CGFSC
Boston, MA 02110 from 1995 to 1996; Deloitte & Touche LLP from
9/18/63 1985 to 1995, Senior Manager.
- ------------------------------------------------------------------------------------------------------------------------------------
Michael J. Leary Assistant Vice President of Chase Global Funds Services 0 0
73 Tremont Street Treasurer Company since 1993. Manager of Audit at
Boston, MA 02108 Ernst & Young from 1988 to 1993.
11/23/65
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Total
Aggregate Compensation
Position Compensation from from UAM
UAM Principal Occupations During Registrant as of Funds Complex as
Name, Address, DOB Funds, INC. the Past 5 Years October 31, 1998 of October 31, 1998
<S> <C> <C> <C> <C>
Michelle Azrialy Assistant Assistant Treasurer of Chase Global Funds 0 0
73 Tremont Street Secretary Services Company since 1996. Senior Public Accountant
Boston, MA 02108 with Price Waterhouse LLP from 1991 to 1994.
4/12/69
</TABLE>
____
*These board members are "interested persons" of the Fund as that term is
defined in the 1940 Act.
CODE OF ETHICS
The Fund has adopted a Code of Ethics that restricts to a certain extent
personal transactions by access persons of the Fund and imposes certain
disclosure and reporting obligations.
PRINCIPAL HOLDERS OF SECURITIES
As of ____________, 1998, the members of the governing board and officers of
the Fund as a group owned less than 1% of the Fund's outstanding shares.
As of ____________, 1998, the following persons or organizations held of
record or beneficially 5% or more of the shares of a portfolio:
<TABLE>
<CAPTION> Percentage of
Name and Address of Shareholder Shares Owned Portfolio Class
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Any persons or organizations listed above as owning 25% or more of the
outstanding shares of a portfolio may be presumed to "control" (as that term
is defined in the 1940 Act) a portfolio. As a result, those persons or
organizations could have the ability to vote a majority of the shares of a
portfolio on any matter requiring the approval of shareholders of a portfolio.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
CONTROL OF ADVISER
The adviser is located at 803 Cathedral Street, Baltimore, MD 21201. The
adviser is a wholly-owned subsidiary of UAM and has provided investment
management services to corporations, pension and profit-sharing plans, 401(k)
and thrift plans, trusts, estates and other institutions and individuals since
1970.
UAM is 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 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. Several UAM
Affiliated Firms also act as investment advisers to separate series or
portfolio of the UAM Funds complex.
20
<PAGE>
INVESTMENT ADVISORY AGREEMENT
Service Performed by Adviser
Pursuant to each Investment Advisory Agreement (Advisory Agreement) between
the Fund, on behalf of each portfolio, and the adviser, the adviser has agreed
to:
. Manage the investment and reinvestment of the assets of a portfolio.
. Continuously review, supervise and administer the investment program of a
portfolio.
. Determine in its discretion the securities a portfolio will buy or sell and
the portion of its assets a portfolio will hold uninvested.
Limitation of Liability
In the absence of (1) willful misfeasance, bad faith, or gross negligence of
the part of the adviser in the performance of its obligations and duties under
the Advisory Agreement, (2) reckless disregard by the adviser of its
obligations and duties under the Advisory Agreement, or (3) a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation
for services, the adviser shall not be subject to any liability whatsoever to
the Fund, for any error of judgment, mistake of law or any other act or
omission in the course of, or connected with, rendering services under the
Advisory Agreement.
Continuing an Advisory Agreement
Unless sooner terminated, an Advisory Agreement shall continue for periods of
one year so long as such continuance is specifically approved at least
annually (a) by a majority of those members of the governing board of the Fund
who are not parties to the Advisory Agreement or interested persons of any
such party and (b) by a majority of the governing board of the Fund or a
majority of the shareholders of a portfolio. An Advisory Agreement may be
terminated at any time by the Fund, without the payment of any penalty, by
vote of a majority of a portfolio' shareholders on 60 days' written notice to
the adviser. The adviser may terminate the Advisory Agreements at any time,
without the payment of any penalty, upon 90 days' written notice to the Fund.
An Advisory Agreement will automatically and immediately terminate if it is
assigned.
Investment Advisory Fee
For its services, the adviser receives an advisory fee calculated by applying
the annual percentage rate listed below to the average daily net assets of the
portfolio for the month. The adviser's fee is paid in monthly installments.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ANNUAL PERCENTAGE RATE
- --------------------------------------------------------------------------------
<S> <C>
ICM Equity Portfolio 0.625%
- --------------------------------------------------------------------------------
ICM Small Company Portfolio 0.700%
- --------------------------------------------------------------------------------
ICM Fixed Income Portfolio 0.500%
- --------------------------------------------------------------------------------
</TABLE>
Expense Limitation
The adviser may voluntarily agree to limit the expenses of a portfolio. The
adviser may further reduce its compensation to the extent that the expenses of
a portfolio exceeds such lower expense limitation as the adviser may, by
notice to a portfolio, declare to be appropriate. The expenses subject to
this limitation are exclusive of brokerage commissions, interest, taxes,
deferred organizational and extraordinary expenses and, if the Fund has a
distribution plan, payments required under such plan. The prospectus describes
the terms of any expense limitation that are in effect from time to time.
PHILOSOPHY AND STYLE
With respect to ICM FIXED INCOME PORTFOLIO, 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.
With respect to ICM SMALL COMPANY PORTFOLIO AND ICM EQUITY PORTFOLIO, the
adviser employs an investment strategy and approach which can best be
characterized as bottom up and value oriented. In selecting stocks for
purchase, the adviser looks
21
<PAGE>
for companies which have strong financial and operating characteristics and
whose shares are selling at valuations below that of the market in general,
and below the average of the companies' own historic valuation ranges. The
primary indicator of value to the adviser is a low price to earnings ratio
both on trailing twelve month earnings and one year forward earnings
estimates. Other indicators of value include low price to book value, low
price to cash flow, and low price to revenue per share. In addition to
analyzing company financial statements and talking to management, the
adviser's research includes analysis of suppliers and competitors as well as
consulting with outside research sources.
REPRESENTATIVE INSTITUTIONAL CLIENTS
As of the date of this SAI, the adviser's representative institutional clients
included Georgia Gulf Corp., State of Maryland, Johns Hopkins Hospital, State
of Kentucky, Bell Atlantic, NYNEX, TRW Corp., The Rouse Company 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.
DISTRIBUTOR
- --------------------------------------------------------------------------------
UAMFDI serves as the Fund's distributor. The Fund offers its shares
continuously. While UAMFDI will use its best efforts to sell shares of the
Fund, it is not obligated to sell any particular amount of shares. UAMFDI
receives no compensation for its services, and any amounts it may receive
under a Service and Distribution Plan are passed through in their entirety to
third parties. UAMFDI, an affiliate of UAM, is located at 211 Congress
Street, Boston, Massachusetts 02110.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
ADMINISTRATOR
Pursuant to a Fund Administration Agreement with the Fund, UAMFSI manages,
administers and conducts the general business activities of the Fund. As a
part of its responsibilities, UAMFSI provides and oversees the provision by
various third parties of administrative, fund accounting, dividend disbursing
and transfer agent services for the Fund. UAMFSI, an affiliate of UAM, has its
principal office at 211 Congress Street, Boston, Massachusetts 02110.
UAMFSI will bear all expenses in connection with the performance of its
services under the Fund Administration Agreement. Other expenses to be
incurred in the operation of the Fund will be borne by the Fund or other
parties, including
. Taxes, interest, brokerage fees and commissions.
. Salaries and fees of officers and members of the Board who are not
officers, directors, shareholders or employees of an affiliate of UAM,
including UAMFSI, UAMFDI or the adviser.
. SEC fees and state Blue-Sky fees.
. EDGAR filing fees.
. Processing services and related fees.
. Advisory and administration fees.
. Charges and expenses of pricing and data services, independent public
accountants and custodians.
. Insurance premiums including fidelity bond premiums.
. Outside legal expenses.
. Costs of maintenance of corporate existence.
. Typesetting and printing of prospectuses for regulatory purposes and for
distribution to current shareholders of the Fund.
. Printing and production costs of shareholders' reports and corporate
meetings.
. Cost and expenses of Fund stationery and forms.
. Costs of special telephone and data lines and devices.
. Trade association dues and expenses.
22
<PAGE>
. Any extraordinary expenses and other customary Fund expenses.
Unless sooner terminated, the Fund Administration Agreement shall continue in
effect from year to year provided the board specifically approves such
continuance at least annually. The Board or UAMFSI may terminate the Fund
Administration Agreement, without penalty, on not less than ninety (90) days'
written notice. The Fund Administration Agreement shall automatically
terminate upon its assignment by UAMFSI without the prior written consent of
the Fund.
UAMFSI will from time to time employ or associate with such person or persons
as may be fit to assist them in the performance of the Fund Administration
Agreement. Such person or persons may be officers and employees who are
employed by both UAMFSI and the Fund. UAMFSI will pay such person or persons
for such employment. The Fund will not incur any obligations with respect to
such persons.
SUB-ADMINISTRATOR
UAMFSI has subcontracted some of the its administrative and fund accounting
services to CGFSC, an affiliate of The Chase Manhattan Bank, by a Mutual Funds
Service Agreement dated April 15, 1996. CGFSC is located at 73 Tremont Street,
Boston, Massachusetts 02108.
SUB-TRANSFER AGENT AND SUB-SHAREHOLDER SERVICING AGENT
UAMFSI has subcontracted its transfer agent and dividend-disbursing agent
services to DST Systems, Inc. under an Agency Agreement between UAMFSI and DST
Systems Inc. DST Systems, Inc., is located at P.O. Box 419534, Kansas City,
Missouri 64141-6534.
UAM Shareholder Service Center, Inc. ("UAMSSC"), an affiliate of the UAM,
serves as sub-shareholder servicing agent for the Fund under an agreement
between UAMSSC and UAMFSI. The principal place of business of UAMSSC is 825
Duportail Road, Wayne, Pennsylvania 19087.
ADMINISTRATIVE FEES
In exchange for administrative services, each portfolio pays a four-part fee
to UAMFSI as follows:
A. A portfolio specific fee to UAMFSI calculated from the aggregate net assets
of each portfolio at the following rates:
<TABLE>
<CAPTION>
ANNUAL RATE
<S> <C>
ICM Equity Portfolio 0.06%
ICM Small Company Portfolio 0.04%
ICM Fixed Income Portfolio 0.04%
</TABLE>
B. An annual base fee that UAMFSI pays to CGFSC for its sub-administration and
other services calculated at the annual rate of $52,500 for the first
operational class; $7,500 for each additional operational class; and 0.04%
of their pro rata share of the combined assets of the UAM Funds.
C. An annual base fee that UAMFSI pays to DST Systems, Inc. for its services
as transfer agent and dividend-disbursing agent equal to $10,500 for the
first operational class and $10,500 for each additional class.
D. An annual base fee that UAMFSI pays to UAMSSC for its services as sub-
shareholder-servicing agent equal to $7,500 for the first operational class
and $2,500 for each additional class.
Each portfolio also pays certain account and transaction fees and out-of-
pocket expenses that may be based on the number of open and closed accounts,
the type of account or the services provided to the account.
SHAREHOLDER SERVICING ARRANGEMENTS
UAM and any of its 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. The adviser may also compensate its affiliated
companies for referring investors to the portfolios.
CUSTODIAN
- --------------------------------------------------------------------------------
The Chase Manhattan Bank, 3 Chase MetroTech Center, Brooklyn, New York 11245,
provides for the custody of the Fund's assets pursuant to the terms of a
custodian agreement with the Fund.
23
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANT
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as independent accountants for the Fund.
BROKERAGE ALLOCATION AND OTHER PRACTICES
SELECTION OF BROKERS
- --------------------------------------------------------------------------------
The Advisory Agreement authorizes the adviser to select the brokers or dealers
that will execute the purchases and sales of investment securities for a
portfolio. The Advisory Agreement also directs the adviser to use its best
efforts to obtain the best execution with respect to all transactions for a
portfolio. The adviser may select brokers based on research, statistical and
pricing services they provide to the adviser. Information and research
provided by a broker will be in addition to, and not instead of, the services
the adviser is required to perform under the Advisory Agreement. In so doing,
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. The adviser may place portfolio orders with
qualified broker-dealers who refer clients to the adviser.
SIMULTANEOUS TRANSACTIONS
- --------------------------------------------------------------------------------
The adviser makes investment decisions for a portfolio independently of
decisions made for its other clients. When a security is suitable for the
investment objective of more than one client, it may be prudent for the
adviser to engage in a simultaneous transaction, that is, buy or sell the same
security for more than one client. The adviser strives to allocate such
transactions among its clients, including a portfolio, in a fair and
reasonable manner. Although there is no specified formula for allocating such
transactions, the Fund's governing board periodically reviews the various
allocation methods used by the adviser, and the results of such allocations.
BROKERAGE COMMISSIONS
- --------------------------------------------------------------------------------
EQUITY SECURITIES
Generally, equity securities are bought and sold through brokerage
transactions for which commissions are payable. Purchases from underwriters
will include the underwriting commission or concession, and purchases from
dealers serving as market makers will include a dealer's mark-up or reflect a
dealer's mark-down.
DEBT SECURITIES
Debt securities are usually bought and sold directly from the issuer or an
underwriter or market maker for the securities. Generally, each Fund will not
pay brokerage commissions for such purchases. When a debt security is bought
from an underwriter, the purchase price will usually include an underwriting
commission or concession. The purchase price for securities bought from
dealers serving as market makers will similarly include the dealer's mark up
or reflect a dealer's mark down. When a portfolio executes transactions in
the over-the-counter market, it will deal with primary market makers unless
prices that are more favorable are otherwise obtainable.
CAPITAL STOCK AND OTHER SECURITIES
DESCRIPTION OF SHARES AND VOTING RIGHTS
- --------------------------------------------------------------------------------
The Fund's Articles of Incorporation, as amended, permit its governing board
to issue three billion shares of common stock, with a $.001 par value. The
governing board has the power to create and designate one or more series
(portfolio) or classes of shares of common stock and to classify or reclassify
any unissued shares at any time and without shareholder approval. When
issued and paid for, the shares of each series and class of the Fund are fully
paid and nonassessable, and have no pre-emptive rights or preference as to
conversion, exchange, dividends, retirement or other features.
24
<PAGE>
The shares of each series and class have non-cumulative voting rights, which
means that the holders of more than 50% of the shares voting for the election
of members of the governing board can elect all of the members if they choose
to do so. On each matter submitted to a vote of the shareholders, 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. Shares of all classes will vote together as a single class except
when otherwise required by law or as determined by the members of the Fund's
governing board.
If the Fund is liquidated, the shareholders of a portfolio or any class
thereof are entitled to receive the net assets belonging to a portfolio, or in
the case of a class, belonging to a portfolio and allocable to that class. The
Fund will distribute is net assets to its shareholders in proportion to the
number of shares of a portfolio or class thereof held by them and recorded on
the books of the Fund. The liquidation of a portfolio or any class thereof may
be authorized at any time by vote of a majority of the members of the
governing board.
The governing board has authorized three classes of shares, Institutional,
Institutional Service and Adviser. The three classes represent interests in
the same assets of a portfolio and, except as discussed below, are identical
in all respects. Unlike Institutional and Adviser Class Shares, Institutional
Service Class Shares bear certain expenses related to shareholder servicing
and the distribution of such shares and have exclusive voting rights with
respect to matters relating to such distribution expenditures. The Adviser
Class Shares impose a sales load on purchases. The classes also have
different exchange privileges. The net income attributable to Institutional
Service Class Shares and the dividends payable on Institutional Service Class
Shares will be reduced by the amount of the shareholder servicing and
distribution fees; accordingly, the net asset value of the Institutional
Service Class Shares will be reduced by such amount to the extent a portfolio
has undistributed net income.
The Fund will not hold annual meetings except when required to by the
Investment Company Act of 1940, as amended, or other applicable law.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund tries to distribute substantially all of the net investment income of
a portfolio and net realized capital gains so as to avoid income taxes on its
dividends and distributions and the imposition of the federal excise tax on
undistributed income and capital gains. However, the Fund cannot predict the
time or amount of any such dividends or distributions.
Distributions by a portfolio reduce its net asset value ("NAV"). A
distribution that reduces the NAV of a portfolio below its cost basis is
taxable as described in the prospectus of a portfolio, although from an
investment standpoint, it is a return of capital. If you buy shares of a
portfolio on or before the "record date" -- the date that establishes which
shareholders will receive an upcoming distribution -- for a distribution, you
will receive some of the money you invested as a taxable distribution.
Unless the shareholder elects otherwise in writing, all dividend and capital
gains distributions are automatically received in additional shares of a
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.
A portfolio will be treated as a separate entity (and hence as a separate
"regulated investment company") for federal tax purposes. A portfolio will
distribute its net capital gains to its investors, but will not offset (for
federal income tax purposes) such gains against any net capital losses of
another portfolio.
PURCHASE REDEMPTION AND PRICING OF SHARES
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
Service Agents may enter confirmed purchase orders on behalf of their
customers. If shares of a portfolio are purchased in this manner, the Service
Agent must receive your investment order before the close of trading on the
New York Stock Exchange ("NYSE") and transmit it to UAMSSC before the close of
its business day to receive that day's share price. UAMSSC must receive proper
payment for the order by the time a portfolio is priced on the following
business day. Service Agents are responsible to their customers and the Fund
for timely transmission of all subscription and redemption requests,
investment information, documentation and money.
25
<PAGE>
Purchases of shares of a portfolio will be made in full and fractional shares
of a portfolio calculated to three decimal places. Certificates for fractional
shares will not be issued. Certificates for whole shares will not be issued
except at the written request of the shareholder.
The Fund reserves the right in its sole discretion 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.
IN-KIND PURCHASES
If accepted by the Fund, shareholders may purchase shares of a portfolio in
exchange for securities that are eligible for acquisition by a portfolio.
Securities to be exchanged that are accepted by the Fund will be valued as
described under "VALUATION OF SHARES" at the next determination of net asset
value after 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 a portfolio 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:
. At the time of exchange, such securities are eligible to be included in a
portfolio (current market quotations must be readily available for such
securities).
. The investor represents and agrees that all securities offered to be
exchanged are liquid securities and not subject to any restrictions upon
their sale by a portfolio under the Securities Act of 1933, or otherwise.
. The value of any such securities (except U.S. government securities) being
exchanged together with other securities of the same issuer owned by a
portfolio will not exceed 5% of the net assets of a portfolio immediately
after the transaction.
Investors who are subject to Federal taxation upon exchange may realize a gain
or loss for Federal income tax purposes depending upon the cost of securities
or local currency exchanged. Investors interested in such exchanges should
contact the adviser.
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
When you redeem, your shares may be worth more or less than the price you paid
for them depending on the market value of the investments held by a portfolio.
BY MAIL
Requests to redeem shares must include:
. Share certificates, if issued.
. A letter of instruction or an 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.
. Any required signature guarantees (see "SIGNATURE GUARANTEES").
. Any other necessary legal documents, if required, in the case of estates,
trusts, guardianships, custodianships, corporations, pension and profit
sharing plans and other organizations.
BY TELEPHONE
The following tasks cannot be accomplished by telephone:
. Changing the name of the commercial bank or the account designated to
receive redemption proceeds (this can be accomplished only by a written
request signed by each shareholder, with each signature guaranteed).
. Redemption of certificated shares by telephone.
The Fund and its Sub-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, as well as prior to effecting each transaction requested
by telephone. In addition, all telephone transaction requests will be recorded
and investors may be required to
26
<PAGE>
provide additional telecopied written instructions of such transaction
requests. The Fund or Sub-Transfer Agent may be liable for any losses due to
unauthorized or fraudulent telephone instructions if the Fund or the Sub-
Transfer Agent does not employ the procedures described above. Neither the
Fund nor the Sub-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.
REDEMPTIONS-IN-KIND
If the governing board determines that it would be detrimental to the best
interests of remaining shareholders of the Fund to make payment wholly or
partly in cash, the Fund may pay redemption proceeds in whole or in part by a
distribution in-kind of liquid securities held by a portfolio in lieu of cash
in conformity with applicable rules of the SEC. Investors may incur brokerage
charges on the sale of portfolio securities received in payment of
redemptions.
However, the Fund has made an election with the SEC 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 SEC. 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 governing board believes 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 under "Valuation of Shares." A redeeming shareholder
would normally incur brokerage expenses if these securities were converted to
cash.
SIGNATURE GUARANTEES
To protect your account, the Fund and its sub-transfer agent 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
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 that 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.
OTHER REDEMPTION INFORMATION
Normally, the Fund will pay for all shares redeemed under proper procedures
within one business day of and no more than seven days after the receipt of
the request, or earlier if required under applicable law. 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 determined by
the SEC.
The Fund may suspend redemption privileges or postpone the date of payment
. During any period that both the NYSE and custodian bank are closed, or
trading on the NYSE is restricted as determined by the Commission.
. 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.
. For such other periods as the Commission may permit.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
The exchange privilege is only available with respect to a portfolio if a
portfolio is qualified for sale in the shareholder's state of residence.
Exchanges are based on the respective net asset values of the shares involved.
The Institutional Class and Institutional Service Class Shares of UAM Funds do
not charge a sales commission or charge of any kind.
Neither the Fund nor any of its service providers will be responsible for the
authenticity of the exchange instructions received by telephone. The
governing board of the Fund may restrict the exchange privilege at any time.
Such instructions may include
27
<PAGE>
limiting the amount or frequency of exchanges and may be for the purpose of
assuring such exchanges do not disadvantage the Fund and its shareholders.
TRANSFER OF SHARES
- --------------------------------------------------------------------------------
Shareholders may transfer shares of a portfolio to another person by making a
written request to the Fund. Your request should clearly identify the account
and number of shares you wish to transfer. All registered owners should sign
the request 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
"Signature Guarantees."As in the case of redemptions, the written request must
be received in good order before any transfer can be made.
VALUATION OF SHARES
- --------------------------------------------------------------------------------
The Fund does not price its shares on those days when the New York Stock
Exchange is closed, which are currently: New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day; Good Friday; Memorial Day; Independence Day; Labor
Day; Thanksgiving Day; and Christmas Day.
EQUITY SECURITIES
Equity securities listed on a securities exchange for which market quotations
are readily available are valued at the last quoted sale price of the day.
Price information on listed securities is taken from the exchange where the
security is primarily traded. Unlisted equity securities and listed
securities not traded on the valuation date for which market quotations are
readily available are valued neither exceeding the asked prices nor less than
the bid prices. Quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents. The converted value is based upon the
bid price of the foreign currency against U.S. dollars quoted by any major
bank or by a broker.
DEBT SECURITIES
Debt securities are valued according to the broadest and most representative
market, which will ordinarily be the over-the-counter market. Debt securities
may be valued based on prices provided by a pricing service when such prices
are believed to reflect the fair market value of such securities. Securities
purchased with remaining maturities of 60 days or less are valued at amortized
cost when the Board of Directors determines that amortized cost reflects fair
value.
OTHER ASSETS
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 governing board.
PERFORMANCE CALCULATIONS
A portfolio measures performance by calculating yield and total return. Both
yield and total return figures are based on historical earnings and are not
intended to indicate future performance. Performance quotations by investment
companies are subject to rules adopted by the SEC, 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 SEC.
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 SEC. An explanation of the method used to compute or express
performance follows.
Performance is calculated separately for Institutional Class and Service Class
Shares. Dividends paid by a portfolio with respect to Institutional Class and
Service Class Shares, to the extent any dividends are paid, will be calculated
in the same manner at the same time on the same day and will be in the same
amount, except that service fees, distribution charges and any incremental
transfer agency costs relating to Service Class Shares will be borne
exclusively by that class.
TOTAL RETURN
- --------------------------------------------------------------------------------
Total return is the change in value of an investment in a portfolio over a
given period, assuming reinvestment of any dividends and capital gains. A
cumulative or aggregate total return reflects actual performance over a stated
period of time. An average
28
<PAGE>
annual total return is a hypothetical rate of return that, if achieved
annually, would have produced the same cumulative total return if performance
had been constant over the entire period.
The average annual total return of a 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 one, five and ten-year period and the deduction of
all applicable Fund expenses on an annual basis. Since Institutional Service
Class Shares bear additional service and distribution expenses, their average
annual total return will generally be lower than that of the Institutional
Class Shares.
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).
The average annual total rates of return of the Institutional Class Shares of
the portfolios are as follows:
<TABLE>
<CAPTION>
SINCE INCEPTION
ONE YEAR ENDED FIVE YEARS ENDED THROUGH YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1998 OCTOBER 31, 1998 INCEPTION DATE
<S> <C> <C> <C> <C>
ICM Equity Portfolio 10/1/93
Institutional Class Shares
ICM Small Company Portfolio 4/19/89
Institutional Class Shares
ICM Fixed Income Portfolio 11/3/92
Institutional Class Shares
</TABLE>
YIELD
- --------------------------------------------------------------------------------
Yield refers to the income generated by an investment in a portfolio over a
given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all funds. As this
differs from other accounting methods, the quoted yield may not equal the
income actually paid to shareholders.
The 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. Since Institutional Service Class Shares bear additional service
and distribution expenses, their yield will generally be lower than that of
the Institutional Class Shares.
Yield = 2((a-b)/(cd)+1)6-1
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
- --------------------------------------------------------------------------------
The portfolios' performance may be compared to data prepared by independent
services which monitor the performance of investment companies, data reported
in financial and industry publications, and various indices as further
described in a portfolio' s SAI. This information may also be included in
sales literature and advertising.
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
29
<PAGE>
publications. Advertisements may also compare performance (as calculated
above) to performance as reported by other investments, indices and averages.
Please see APPENDIX B for publications, indices and averages that may be used.
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 each portfolio, 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 each
portfolio to calculate its performance. In addition, there can be no assurance
that each portfolio will continue this performance as compared to such other
averages.
TAXES
In order for a portfolio to continue to qualify for federal income tax
treatment as a regulated investment company under the Internal Revenue Code of
1986, as amended, 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.
Each portfolio will distribute to shareholders annually any net capital gains
that have been recognized for federal income tax purposes. Shareholders will
be advised on the nature of the payments.
If for any taxable year a portfolio does not qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code, all of
the portfolio's taxable income would be subject to tax at regular corporate
rates without any deduction for distributions to shareholders. In this event,
a portfolio's distributions to shareholders would be taxable as ordinary
income to the extent of the current and accumulated earnings and profits of
the particular portfolio, and would be eligible for the dividends received
deduction in the case of corporate shareholders. The portfolios intend to
qualify as a "regulated investment company" each year.
Dividends and interest received by each portfolio may give rise to withholding
and other taxes imposed by foreign countries. These taxes would reduce each
portfolio's dividends but are included in the taxable income reported on your
tax statement if each portfolio qualifies for this tax treatment and elects to
pass it through to you. Consult a tax adviser for more information regarding
deductions and credits for foreign taxes.
EXPENSES
<TABLE>
<CAPTION>
INVESTMENT INVESTMENT SUB-
ADVISORY ADVISORY ADMINISTRATOR ADMINISTRATOR BROKERAGE
FEES PAID FEES WAIVED FEE (UAMFSI) FEE (CGFSC) COMMISSIONS
<S> <C> <C> <C> <C> <C>
ICM Equity Portfolio
1998
1997 $ 60,807 $ 88,365 $ 89,499 $ 74,736 $ 61,390
1996 $ 44,350 $ 44,350 $ 76,615 $ 74,696 $ 12,102
ICM Small Company Portfolio
1998
1997 $2,852,097 $555,980 $393,014 $264,115
1996 $2,068,648 $384,267 $316,060 $318,247
ICM Fixed Income Portfolio
1998
- ------------------------------------------------------------------------------------------------------------------------------------
1997 -0- $144,659 $ 96,007 $ 84,435 -0-
- ------------------------------------------------------------------------------------------------------------------------------------
1996 -0- $101,707 $ 89,268 $ 84,340 -0-
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
FINANCIAL STATEMENTS
The Financial Statements for each portfolio for the fiscal year ended October
31, 1998, the Financial Highlights for the respective periods presented, and
the report thereon by PricewaterhouseCoopers LLP, the Fund's independent
accountant, which appear in portfolio's 1998 Annual Report, are incorporated
by reference into this Statement of Additional Information.
30
<PAGE>
No other parts are incorporated by reference herein. Copies of the 1998 Annual
Report may be obtained free of charge by telephoning the UAM Funds at the
telephone number appearing on the front page.
31
<PAGE>
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
THE MCKEE PORTFOLIOS
MCKEE U.S. GOVERNMENT PORTFOLIO
MCKEE DOMESTIC EQUITY PORTFOLIO
MCKEE INTERNATIONAL EQUITY PORTFOLIO
MCKEE SMALL CAP EQUITY PORTFOLIO
INSTITUTIONAL CLASS SHARES
STATEMENT OF ADDITIONAL INFORMATION
__________, 1999
This statement of additional information (SAI) is not a prospectus. However,
you should read it in conjunction with the Prospectus of The McKee Portfolios
Institutional Class Shares dated _________, 1999. You may obtain a Prospectus
for The McKee Portfolios by contacting the UAM Funds at the address listed
above.
1
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
DEFINITIONS...................................................................... 1
THE FUND......................................................................... 1
DESCRIPTION OF PORTFOLIOS AND THEIR INVESTMENTS AND RISKS........................ 1
Equity Securities (All Portfolios Except the McKee U.S. Government Portfolio).. 1
Debt Securities (All portfolios except McKee International Equity Portfolio)... 2
Derivatives..................................................................... 6
Foreign Securities (All Portfolios Except McKee U.S. Government Portfolio)...... 10
Investment Companies............................................................ 13
Repurchase Agreements........................................................... 13
Securities Lending.............................................................. 13
Short-Term Investments.......................................................... 14
When-Issued, Forward Commitment and Delayed Delivery Transactions............... 15
Restricted Securities........................................................... 15
INVESTMENT POLICIES.............................................................. 15
Fundamental Investment Policies................................................. 16
Non-Fundamental Policies........................................................ 16
MANAGEMENT OF THE PORTFOLIOS..................................................... 17
CODE OF ETHICS................................................................... 18
PRINCIPAL HOLDERS OF SECURITIES.................................................. 18
INVESTMENT ADVISORY AND OTHER SERVICES........................................... 18
Investment adviser.............................................................. 18
Distributor..................................................................... 20
Administrative Services......................................................... 20
Custodian....................................................................... 21
Independent Public Accountant................................................... 21
BROKERAGE ALLOCATION AND OTHER PRACTICES......................................... 22
Selection of Brokers............................................................ 22
Simultaneous Transactions....................................................... 22
Brokerage Commissions........................................................... 22
CAPITAL STOCK AND OTHER SECURITIES............................................... 22
Description Of Shares And Voting Rights......................................... 22
Dividends and Capital Gains Distributions....................................... 23
PURCHASE REDEMPTION AND PRICING OF SHARES........................................ 23
Purchase of Shares.............................................................. 23
Redemption of Shares............................................................ 24
Exchange Privilege.............................................................. 25
Transfer Of Shares.............................................................. 26
Valuation of Shares............................................................. 26
PERFORMANCE CALCULATIONS......................................................... 26
Total Return.................................................................... 26
Yield........................................................................... 27
Comparisons..................................................................... 27
TAXES............................................................................ 28
EXPENSES......................................................................... 28
FINANCIAL STATEMENTS............................................................. 28
</TABLE>
1
<PAGE>
DEFINITIONS
The "Fund" is UAM Funds, Inc.
The term "adviser" means C. S. McKee & Co., Inc., the Fund's investment
adviser.
UAM is United Asset Management Corporation.
UAMFSI is UAM Fund Services, Inc., the Fund's administrator.
UAMFDI is UAM Fund Distributors, Inc., the Fund's distributor.
UAMSSC is UAM Fund Shareholder Servicing Center, the Fund's sub-shareholder-
servicing agent.
CGFSC is Chase Global Funds Service Company, the Fund's sub-administrator.
UAM Funds Complex includes UAM Funds, Inc., UAM Funds Trust, UAM Funds Trust
II and all of their portfolios.
The term "portfolios" is used to refer to The McKee Portfolios as a group,
while "portfolio" refers to a single McKee Portfolio.
The terms "board" and "governing board" refers to the Fund's Board of
Directors as a group, while "board member refers to a single member of the
board.
All other defined terms, which are not otherwise defined in this SAI, have the
same meaning in the SAI as they do in the prospectus of The McKee Portfolios.
THE FUND
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 Fund changed its
name to "UAM Funds, Inc." The Fund's principal executive office is located at
One International Place, Boston, MA 02110; shareholders should direct all
correspondence to the address listed on the cover of this SAI.
The Fund is an open-end, management investment company under the Investment
Company Act of 1940. The McKee Small Cap Equity Portfolio is a diversified
series of the Fund. This means that with respect to 75% of its total assets,
the portfolio may not invest more than 5% of its total assets in the
securities of any one issuer (except U.S. government securities). The
remaining 25% of its total assets are not subject to this restriction. To the
extent the portfolio invests a significant portion of its assets in the
securities of a particular issuer, it will be subject to an increased risk of
loss if the market value of such issuer's securities declines.
DESCRIPTION OF PORTFOLIOS AND THEIR INVESTMENTS AND RISKS
EQUITY SECURITIES (ALL PORTFOLIOS EXCEPT THE MCKEE U.S. GOVERNMENT PORTFOLIO)
- --------------------------------------------------------------------------------
Some of the portfolios may invest in equity securities such as common and
preferred stocks. While investing in stocks allows a portfolio to participate
in the benefits of owning a company, a portfolio must accept the risks of
ownership. Unlike bondholders, who have preference to a company's earnings
and cash flow, preferred stockholders followed by common stockholders in order
of priority, are entitled only to the residual amount after a company meets
its other obligations. For this reason, the value of a company's stock will
usually react more strongly to actual or perceived changes in the company's
financial condition or prospects than its debt obligations. Stockholders of a
company that fares poorly can lose money.
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 values 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. Types of preferred stocks
1
<PAGE>
include adjustable-rate preferred stock, fixed dividend preferred stock,
perpetual preferred stock, and sinking fund preferred stock.
STOCK MARKET RISK
Stock markets tend to move in cycles with short or extended periods of rising
and falling stock prices. The value of a company's stock may fall because of:
. Factors that directly relate to that company, such as decisions made by its
management or lower demand for the company's products or services.
. Factors affecting an entire industry, such as increases in production
costs.
. Changes in financial market conditions that are relatively unrelated to the
company or its industry, such as changes in interest rates, currency
exchange rates or inflation rates.
RIGHTS AND WARRANTS (MCKEE SMALL CAP EQUITY PORTFOLIO)
The portfolio may purchase warrants and rights, which are securities
permitting, but not obligating, their holder to purchase the underlying
securities at a predetermined price. Generally, warrants and stock purchase
rights do not carry with them the right to receive dividends or exercise
voting rights with respect to the underlying securities, and they do not
represent any rights in the assets of the issuer. Therefore, an investment in
warrants and rights may entail greater risk than certain other types of
investments. In addition, the value of warrants and rights does not
necessarily change with the value of the underlying securities, and they cease
to have value if they are not exercised on or prior to their expiration date.
Investment in warrants and rights increases the potential profit or loss to be
realized from the investment of a given amount of a portfolio's assets as
compared with investing the same amount in the underlying stock.
CONVERTIBLE SECURITIES (MCKEE SMALL CAP EQUITY PORTFOLIO)
A portfolio may purchase corporate bonds, debentures and preferred stock that
are convertible into common stock. In exchange for the conversion feature,
many corporations will pay a lower rate of interest on convertible securities
than debt securities of the same corporation.
Convertible corporate bonds, debentures and preferred stock are subject to the
same risks as similar securities without the convertible feature. In
addition, their market price tends to go up if the stock price moves up. For
this reason, convertible securities are more volatile in price during times of
steady interest rates than other types of fixed income securities.
DEBT SECURITIES (ALL PORTFOLIOS EXCEPT MCKEE INTERNATIONAL EQUITY PORTFOLIO)
- --------------------------------------------------------------------------------
Debt securities are used by corporations and governments to borrow money from
investors. Most debt securities promise a variable or fixed rate of return and
repayment of the amount borrowed at maturity. Some debt securities, such as
zero-coupon bonds, do not pay current interest and are purchased at a discount
from their face value. Debt securities may include, among other things, all
types of bills, notes, bonds, mortgage-backed securities or asset-backed
securities.
The total return of a debt instrument is composed of two elements: the
percentage change in the security's price and interest income earned. The
YIELD TO MATURITY of a debt security estimates its total return only if the
price of the debt security remains unchanged during the holding period and
coupon interest is reinvested at the same yield to maturity. The total return
of a debt instrument, therefore, will be determined not only by how much
interest is earned, but also by how much the price of the security and
interest rates change.
INTEREST RATES
The price of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up, the value of the bond will go
down, and vice versa). One can estimate the anticipated change in the price of
a fixed rate security for each 1% shift in interest rates by using a risk
measure known as EFFECTIVE DURATION. An effective duration of 4 years, for
example, would suggest that for each 1% reduction in interest rates at all
maturity levels, the price of a security is estimated to increase by 4%. An
increase in rates by the same magnitude is estimated to reduce the price of
the security by 4%. By knowing the yield and the effective duration of a debt
security, one can estimate total return based on an expectation of how much
interest rates, in general, will change.
While serving as a good estimator of prospective returns, effective duration
is an imperfect measure. While lower interest rates generally improve the
value of a fixed income portfolio, lower interest rates may also introduce
certain risks which may independently cause the share price of the portfolio
to fall. Lower rates motivate people to pay off mortgage-backed and asset-
2
<PAGE>
backed securities earlier than expected, which introduces REINVESTMENT RISK.
Reinvesting portfolio assets at lower rates may reduce the yield of the
portfolio. The unexpected timing of mortgage and asset-backed prepayments
caused by the variations in interest rates may also shorten or lengthen the
AVERAGE MATURITY of the portfolio. Neglecting this drift in average maturity
may have the unintended effect of increasing or reducing the effective
duration of the portfolio which may in turn adversely affect the expected
performance of the portfolio.
CREDIT RATING
Coupon interest is offered to investors of fixed income securities as
compensation for assuming risk, although short-term U.S. treasury securities,
such as 3 month treasury bills, are considered "risk free." Corporate
securities offer higher yields than U.S. treasuries because their payment of
interest and complete repayment of principal is less certain. The credit
rating or financial condition of an issuer may affect the value of a debt
security. Generally, the lower the quality rating of a security, the greater
the risks that the issuer will fail to pay interest and return principal. To
compensate investors for taking on increased risk, issuers with lower credit
ratings usually offer their investors a higher "risk premium" in the form of
higher interest rates above comparable U.S. treasuries.
Changes in investor confidence regarding the certainty of interest and
principal payments of a fixed income corporate security will result in an
adjustment to this "risk premium." Since an issuer's outstanding debt carries
a fixed coupon, adjustments to the risk premium must occur in the price, which
effects the yield to maturity of the bond. If an issuer defaults or becomes
unable to honor its financial obligations, the bond may lose some or all of
its value
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade. The adviser may retain securities that are downgraded, if
it believes that keeping those securities is warranted.
Rating agencies are organizations that assign ratings to securities based
primarily on the rating agency's assessment of the issuer's financial
strength. The portfolios currently use ratings compiled by Standard and
Poor's Ratings Services, Duff & Phelps Rating Co., Fitch IBCA, Inc. and,
Moody's Investor Services. Credit ratings are only an agency's opinion, not an
absolute standard of quality, and they do not reflect an evaluation of market
risk. APPENDIX A contains further information concerning the ratings of
certain rating agencies and their significance.
The adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time a portfolio buys it. A rating
agency may change its credit ratings at any time. The adviser monitors the
rating of the security and will take appropriate actions if a rating agency
reduces the security's rating. A portfolio is not obligated to dispose of
securities whose issuers subsequently are in default or which are downgraded
below the above-stated ratings
INVESTMENT-GRADE FIXED-INCOME SECURITIES
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade.
U.S. GOVERNMENT SECURITIES
For a discussion of these securities see "SHORT-TERM INVESTMENTS - GOVERNMENT
SECURITIES," below.
CORPORATE BONDS
For a discussion of these securities see "SHORT-TERM INVESTMENTS - CORPORATE
BONDS", below.
MORTGAGE-BACKED SECURITIES AND MORTGAGE PASS-THROUGH SECURITIES (MCKEE U. S.
GOVERNMENT PORTFOLIO)
Mortgage-backed securities are interests in pools of mortgage loans that
various governmental, government-related and private organizations assemble as
securities for sale to investors. Mortgage-backed securities differ from other
forms of debt securities because they make monthly payments that consist of
both interest and principal payments. (Other debt securities normally provide
for periodic payment of interest in fixed amounts with principal payments at
maturity or specified call dates.) In effect, these payments are a "pass-
through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of such
securities.
3
<PAGE>
Governmental entities, private insurers and the mortgage poolers may insure or
guaranty the timely payment of interest and principal of these pools through
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance and letters of credit issue the insurance and
guarantees. The adviser will consider such insurance and guarantees and the
creditworthiness of the issuers thereof in determining whether a mortgage-
related security meets its investment quality standards. It is possible that
the private insurers or guarantors will not meet their obligations under the
insurance policies or guarantee arrangements.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA)
GNMA, a wholly owned U.S. government corporation within the Department of
Housing and Urban Development, is the principal governmental guarantor of
mortgage-related securities. GNMA, which is backed by the faith and credit of
the U.S. government, guarantees the timely payment of principal and interest
on securities issued by institutions approved by GNMA and backed by pools of
FHA-insured or VA-guaranteed mortgages. GNMA does not guarantee the market
value or yield of mortgage-backed securities or the value of portfolio shares.
To buy GNMA securities, a portfolio may have to pay a premium over the
maturity value of the underlying mortgages, which the portfolio may lose if
prepayment occurs.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)
FNMA is a government-sponsored corporation owned entirely by private
stockholders. FNMA, which is regulated by the Secretary of Housing and Urban
development, purchases conventional mortgages from a list of approved
seller/servicers, including 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, but are not backed by the
full faith and credit of the U.S. government.
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC)
FHLMC is a corporate instrumentality of the U.S. government whose stock is
owned by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970
to increase the availability of mortgage credit for residential housing. FHLMC
issues Participation Certificates (PCs) which represent interests in
conventional mortgages from its national portfolio. Like FNMA, FHLMC
guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the U.S.
government.
COMMERCIAL BANKS, SAVINGS AND LOAN INSTITUTIONS, PRIVATE MORTGAGE INSURANCE
COMPANIES, MORTGAGE BANKERS AND OTHER SECONDARY MARKET ISSUERS
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. In addition to
guaranteeing the mortgage-related security, such issuers may service and/or
have originated the underlying mortgage loans. Pools created by these issuers
generally offer a higher rate of interest than pools created by GNMA, FNMA &
FHLMC because they are not guaranteed by a government agency.
RISK OF INVESTING IN MORTGAGE-BACKED SECURITIES
Yield characteristics of mortgage-backed securities differ from those of
traditional fixed income securities. The major differences include interest
and principal payments that are more frequent (usually monthly), adjustable
interest rates, and the possibility that prepayments of principal may be made
substantially earlier than their final distribution dates so that the price of
the security will generally decline when interest rates rise.
The portfolio may fail to recover fully its investment in mortgage-backed
securities notwithstanding any direct or indirect governmental, agency or
other guarantee because the counter-party failed to meet its commitments.
Changes in interest rates and a variety of economic, geographic, social and
other factors, such as the sale of the underlying property, refinancing or
foreclosure, can cause the loans underlying a mortgage-backed security to be
repaid sooner than expected. If the prepayment rates increase, a portfolio may
have to reinvest its principal at a rate of interest that is lower than the
rate on existing mortgage-backed securities. Conversely, when interest rates
are rising many mortgage-backed securities will see a decline in the
prepayment rate, extending their average life. Extending the average life of a
mortgage-backed security increases
4
<PAGE>
the risk of depreciation due to future increases in market interest rates. For
these reasons, mortgage-backed securities may be less effective than other
types of U.S. government securities as a means of "locking in" interest rates.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS) (MCKEE U. S. GOVERNMENT PORTFOLIO)
CMOs are hybrids between mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, CMOs usually pay interest and prepaid principal
semiannually. While whole mortgage loans may collateralize CMOs, portfolios of
mortgage-backed securities guaranteed by GNMA, FHLMC, or FNMA, and their
income streams more typically collateralize them.
A REMIC is a CMO that qualifies for special tax treatment under the Internal
Revenue Code of 1986, as amended, and invests in certain mortgages primarily
secured by interests in real property and other permitted investments.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC certificate, often referred to as a
"tranche," is issued at a specific interest rate and must be fully retired by
its final distribution date. Generally, all classes of CMOs or REMIC
certificates pay or accrue interest monthly. Investing in the lowest tranche
of CMOs and REMIC certificates involves risks similar to those associated with
investing in equity securities.
OTHER ASSET-BACKED SECURITIES (MCKEE U. S. GOVERNMENT PORTFOLIO)
A broad range of assets, including automobile loans, computer leases and
credit card receivables, are being securitized in pass-through structures
similar to the mortgage pass-through or CMO structures described above. In
general, the collateral supporting these securities is of shorter maturity
than mortgage loans and is less likely to experience substantial prepayments
with interest rate fluctuations.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the
benefit of any security interest in the related assets, which raises the
possibility that recoveries on repossessed collateral may not be available to
support payments on these securities. For example, credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which allow debtors
to reduce their balances by offsetting certain amounts owed on the credit
cards. Most issuers of asset-backed securities backed by automobile
receivables permit the servicers of such receivables to retain possession of
the underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the rated asset-backed securities. Because
of the large number of vehicles involved and technical requirements under
state laws, the trustee for the holders of asset-backed securities backed by
automobile receivables may not have a proper security interest in all of the
obligations backing such receivables.
To lessen the effect of failures by obligors on underlying assets to make
payments, the entity administering the pool of assets may agree to ensure the
receipt of payments on the underlying pool occurs in a timely fashion
("liquidity protection"). In addition, asset-backed securities may obtain
insurance, such as guarantees, policies or letters of credit obtained by the
issuer or sponsor from third parties, for some or all of the assets in the
pool ("credit support"). Delinquency or loss more than that anticipated or
failure of the credit support could adversely affect the return on an
investment in such a security.
A portfolio may also invest in residual interests in asset-backed securities,
which is the excess cash flow remaining after making required payments on the
securities and paying related administrative expenses. The amount of residual
cash flow resulting from a particular issue of asset-backed securities depends
in part on the characteristics of the underlying assets, the coupon rates on
the securities, prevailing interest rates, the amount of administrative
expenses and the actual prepayment experience on the underlying assets.
STRIPPED MORTGAGE-BACKED SECURITIES (MCKEE U. S. GOVERNMENT PORTFOLIO)
Stripped mortgage-backed securities are derivative multiple-class mortgage-
backed securities. Stripped mortgage-backed securities usually have two
classes that receive different proportions of interest and principal
distributions on a pool of mortgage assets. Typically, one class will receive
some of the interest and most of the principal, while the other class will
receive most of the interest and the remaining principal. In extreme cases,
one class will receive all of the interest ("interest only" or "IO" class)
while the other class will receive the entire principal (the "principal only"
or "PO" class). The cash flows and yields on IOs and POs are extremely
sensitive to the rate of principal payments (including prepayments) on the
underlying mortgage loans or mortgage-backed securities. A rapid rate of
principal payments may adversely affect the yield to maturity of IOs. Slower
than anticipated prepayments of principal may adversely affect the yield to
maturity of a PO. The yields and market risk of interest only and principal
only stripped mortgage-backed securities, respectively, may be more volatile
than those of other fixed income securities, including traditional mortgage-
backed securities.
5
<PAGE>
ZERO COUPON BONDS (MCKEE U. S. GOVERNMENT PORTFOLIO)
These securities make no periodic payments of interest, but instead are sold
at a discount from their face value. When held to maturity, their entire
income, which consists of accretion of discount, comes from the difference
between the issue price and their value at maturity. The amount of the
discount rate varies depending on factors including the time remaining until
maturity, prevailing interest rates, the security's liquidity and the issuer's
credit quality. The market value of zero coupon securities may exhibit greater
price volatility than ordinary debt securities because a stripped security
will have a longer duration than an ordinary debt security with the same
maturity. A portfolio's investments in pay-in-kind, delayed and zero coupon
bonds may require it to sell certain of its portfolio securities to generate
sufficient cash to satisfy certain income distribution requirements.
These securities may include U.S. Treasury securities that have had their
interest payments ("coupons") separated from the underlying principal
("corpus") by their holder, typically a custodian bank or investment brokerage
firm. Once the holder of the security has stripped or separated corpus and
coupons, it may sell each component separately. The principal or corpus is
then sold at a deep discount because the buyer receives only the right to
receive a future fixed payment on the security and does not receive any rights
to periodic interest (cash) payments. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold
bundled in such form. The underlying U.S. Treasury security is held in book-
entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. Under a Federal Reserve program
known as "STRIPS" or "Separate Trading of Registered Interest and Principal of
Securities," a portfolio can record its beneficial ownership of the coupon or
corpus directly in the book-entry record-keeping system.
DERIVATIVES
- --------------------------------------------------------------------------------
Derivatives are financial instruments whose value is based on an underlying
asset, such as a stock or a bond, or an underlying economic factor, such as an
interest rate or an index. A portfolio tries to minimize its loss by investing
in derivatives to protect them from broad fluctuations in market prices,
interest rates or foreign currency exchange rates. Investing in derivatives
for these purposes is known as "hedging." When hedging is successful, the
portfolio will have offset any depreciation in the value of its portfolio
securities by the appreciation in the value of the derivative position.
Although techniques other than the sale and purchase of derivatives could be
used to control the exposure of the portfolio to market fluctuations, the use
of derivatives may be a more effective means of hedging this exposure.
FUTURES
A futures contract is an agreement between two parties whereby one party is
obligated to buy and the other is obligated to sell a financial instrument at
an agreed upon price and time. The parties to a futures contract do not have
to pay for or deliver the underlying financial instrument until the delivery
date. The parties to a futures contract can hold the contract until its
delivery date, although in many cases they close the contract early by taking
an opposite position in an identical contract. The financial instrument
underlying the contract may be a stock, stock index, bond, bond index,
interest rate, foreign exchange rate or other similar instrument. A portfolio
will incur commission expenses in both opening and closing futures positions.
Futures contracts are traded in the United States on commodity exchanges or
boards of trade -- known as "contract markets" -- approved for such trading
and regulated by the Commodity Futures Trading Commission, a federal agency.
These contract markets standardize the terms, including the maturity date and
underlying financial instrument, of all futures contracts. Contract markets
require both the purchaser and seller to deposit "initial margin" with a
futures broker, known as a futures commission merchant, when they enter into
the contract. Initial margin deposits are typically equal to a percentage of
the contract's value. After they open a futures contract, the parties to the
transaction must compare the purchase price of the contract to its daily
market value. If the value of the futures contract changes in such a way that
a party's position declines, that party must make additional "variation
margin" payments so that the margin payment is adequate. On the other hand,
the value of the contract may change in such a way that there is excess margin
on deposit, possibly entitling the party that has a gain to receive all or a
portion of this amount.
A portfolio may take a "short position" by selling futures contracts on
securities it owns or on securities with characteristics similar to those of
securities it owns. For example, when a portfolio expects interest rates to
rise or securities prices to fall, it can seek to offset a decline in the
value of its holdings by selling futures contracts so that a portfolio is
obligated to sell the securities at a future lower price. When a portfolio's
short hedging position is successful, the appreciation in the value of the
futures
6
<PAGE>
position will offset substantially any depreciation in the value of the
holdings of the portfolio. On the other hand, a decline in the value of the
futures position would offset any unanticipated appreciation in the value of
the holdings of the portfolio.
On other occasions, a portfolio may take a "long" position by purchasing
futures contracts. For example, when a portfolio expects interest rates to
fall or securities' prices to rise, it can seek to secure a better rate or
price than might later be available by purchasing a futures contract. A
portfolio may also buy futures contracts as a substitute for transactions in
securities, to alter the investment characteristics of portfolio securities or
to gain or increase its exposure to a particular securities market.
OPTIONS
An option is a contract between two parties for the purchase and sale of a
financial instrument for a specified price (known as the "strike price" or
"exercise price") at any time during the option period. Unlike a futures
contract, an option grants a right (not an obligation) to buy or sell a
financial instrument. Generally, a seller of an option can grant a buyer two
kinds of rights: a "call" (the right to buy the security) or a "put" (the
right to sell the security). Options have various types of underlying
instruments, including specific securities, indices of securities prices,
foreign currencies, interest rates and futures contracts. Options may be
traded on an exchange (exchange-traded-options) or may be customized
agreements between the parties (over-the-counter or OTC options). Like
futures, a financial intermediary, known as a clearing corporation,
financially backs exchange-traded options. However, OTC options have no such
intermediary and are subject to the risk that the counter-party will not
fulfill its obligations under the contract.
PURCHASING PUT AND CALL OPTIONS
When a portfolio purchases a put option, it buys the right to sell the
instrument underlying the option at a fixed strike price. In return for this
right, the portfolio pays the current market price for the option (known as
the "option premium"). A portfolio may purchase put options to offset or hedge
against a decline in the market value of its securities ("protective puts") or
to benefit from a decline in the price of securities that it does not own.
The portfolio would ordinarily realize a gain if, during the option period,
the value of the underlying securities decreased below the exercise price
sufficiently to cover the premium and transaction costs. However, if the price
of the underlying instrument does not fall enough to offset the cost of
purchasing the option, a put buyer would lose the premium and related
transaction costs.
Call options are similar to put options, except that the portfolio obtains the
right to purchase, rather than sell, the underlying instrument at the option's
strike price. A portfolio would normally purchase call options in anticipation
of an increase in the market value of securities it owns or wants to buy. A
portfolio would ordinarily realize a gain if, during the option period, the
value of the underlying instrument exceeded the exercise price plus the
premium paid and related transaction costs. Otherwise, the portfolio would
realize either no gain or a loss on the purchase of the call option.
The purchaser of an option may terminate its position by:
. Allowing it to expire and losing its entire premium;
. Exercising the option and either selling (in the case of a put option) or
buying (in the case of a call option) the underlying instrument at the
strike price; or
. Closing it out in the secondary market at its current price.
SELLING (WRITING) PUT AND CALL OPTIONS
When a portfolio writes a call option it assumes an obligation to sell
specified securities to the holder of the option at a specified price if the
option is exercised at any time before the expiration date. Similarly, when a
portfolio writes a put option it assumes an obligation to purchase specified
securities from the option holder at a specified price if the option is
exercised at any time before the expiration date. A portfolio may terminate
its position in an exchange-traded put option before exercise by buying an
option identical to the one it has written. Similarly, it may cancel an over-
the-counter option by entering into an offsetting transaction with the
counter-party to the option.
A portfolio could try to hedge against an increase in the value of securities
it would like to acquire by writing a put option on those securities. If
security prices rise, the portfolio would expect the put option to expire and
the premium it received to offset the increase in the security's value. If
security prices remain the same over time, the portfolio would hope to profit
by closing out the put option at a lower price. If security prices fall, the
portfolio may lose an amount of money equal to the difference between the
value of the security and the premium it received. Writing covered put options
may deprive a portfolio of the opportunity to profit from a decrease in the
market price of the securities it would like to acquire.
7
<PAGE>
The characteristics of writing call options are similar to those of writing
put options, except that call writers expect to profit if prices remain the
same or fall. A portfolio could try to hedge against a decline in the value
of securities it already owns by writing a call option. If the price of that
security falls as expected, the portfolio would expect the option to expire
and the premium it received to offset the decline of the security's value.
However, the portfolio must be prepared to deliver the underlying instrument
in return for the strike price, which may deprive it of the opportunity to
profit from an increase in the market price of the securities it holds.
A portfolio is permitted only to write covered options. A portfolio can cover
a call option by owning, at the time of selling the option:
. The underlying security (or securities convertible into the underlying
security without additional consideration), index, interest rate, foreign
currency or futures contract.
. A call option on the same security or index with the same or lesser
exercise price.
. A call option on the same security or index with a greater exercise price,
with the difference between the exercise prices maintained as a segregated
account containing cash, U.S. government securities or other liquid high-
grade debt securities.
. Cash, U.S. government securities or other liquid high-grade debt or equity
securities equal to at least the market value of the optioned securities,
interest rate, foreign currency or futures contract.
. In the case of an index, a portfolio of securities that corresponds to the
index.
A portfolio can cover a put option by, at the time of selling the option:
. Entering into a short position in the underlying security.
. Purchasing a put option on the same security, index, interest rate, foreign
currency or futures contract with the same or greater exercise price.
. Purchasing a put option on the same security, index, interest rate, foreign
currency or futures contract with a lesser exercise price, with the
difference between the exercise prices maintained as a segregated account
containing cash, U.S. government securities or other liquid high-grade debt
securities.
. Maintaining the entire exercise price in liquid high-grade debt securities.
OPTIONS ON SECURITIES INDICES
Options on securities indices are similar to options on securities, except
that the exercise of securities index options requires cash settlement
payments and does not involve the actual purchase or sale of securities. In
addition, securities index options are designed to reflect price fluctuations
in a group of securities or segment of the securities market rather than price
fluctuations in a single security.
OPTIONS ON FUTURES
An option on a futures contract provides the holder with the right to buy a
futures contract (in the case of a call option) or sell a futures contract (in
the case of a put option) at a fixed time and price. Upon exercise of the
option by the holder, the contract market clearing house establishes a
corresponding short position for the writer of the option (in the case of a
call option) or a corresponding long position (in the case of a put option).
If the option is exercised, the parties will be subject to the futures
contracts. In addition, the writer of an option on a futures contract is
subject to initial and variation margin requirements on the option position.
Options on futures contracts are traded on the same contract market as the
underlying futures contract.
The buyer or seller of an option on a futures contract may terminate the
option early by purchasing or selling an option of the same series (i.e., the
same exercise price and expiration date) as the option previously purchased or
sold. The difference between the premiums paid and received represents the
trader's profit or loss on the transaction.
A portfolio may purchase put and call options on futures contracts instead of
selling or buying futures contracts. A portfolio may buy a put option on a
futures contract for the same reasons it would sell a futures contract. It
also may purchase such put options in order to hedge a long position in the
underlying futures contract. A portfolio may buy call options on futures
contracts for the same purpose as the actual purchase of the futures
contracts, such as in anticipation of favorable market conditions.
A portfolio may write a call option on a futures contract to hedge against a
decline in the prices of the instrument underlying the futures contracts. If
the price of the futures contract at expiration were below the exercise price,
the portfolio would retain the option premium, which would offset, in part,
any decline in the value of its portfolio securities.
8
<PAGE>
The writing of a put option on a futures contract is similar to the purchase
of the futures contracts, except that, if market price declines, the portfolio
would pay more than the market price for the underlying instrument. The
premium received on the sale of the put option, less any transaction costs,
would reduce the net cost to the portfolio.
COMBINED POSITIONS
A portfolio may purchase and write options in combination with each other, or
in combination with futures or forward contracts, to adjust the risk and
return characteristics of the overall position. For example, a portfolio could
construct a combined position whose risk and return characteristics are
similar to selling a futures contract by purchasing a put option and writing a
call option on the same underlying instrument. Alternatively, a portfolio
could write a call option at one strike price and buy a call option at a lower
price to reduce the risk of the written call option in the event of a
substantial price increase. Because combined options positions involve
multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.
ADDITIONAL RISKS OF DERIVATIVES
While transactions in derivatives may reduce certain risks, these transactions
themselves entail certain other risks. For example, unanticipated changes in
interest rates, securities prices or currency exchange rates may result in a
poorer overall performance of the portfolio than if it had not entered into
any derivatives transactions. Derivatives may magnify a portfolio's gains or
losses, causing it to make or lose substantially more than it invested.
When used for hedging purposes, increases in the value of the securities a
portfolio holds or intends to acquire should offset any losses incurred with a
derivative. Purchasing derivatives for purposes other than hedging could
expose the portfolio to greater risks.
CORRELATION OF PRICES
The portfolio's ability to hedge its securities through derivatives depends on
the degree to which price movements in the underlying index or instrument
correlate with price movements in the relevant securities. In the case of poor
correlation, the price of the securities a portfolio is hedging may not move
in the same amount, or even in the same direction as the hedging instrument.
The adviser will try to minimize this risk by investing only in those
contracts whose behavior it expects to resemble the portfolio securities it is
trying to hedge. However, if the portfolio's prediction of interest and
currency rates, market value, volatility or other economic factors is
incorrect, the portfolio may lose money, or may not make as much money as it
could have.
Derivative prices can diverge from the prices of their underlying instruments,
even if the characteristics of the underlying instruments are very similar to
the derivative. Listed below are some of the factors that may cause such a
divergence.
. Current and anticipated short-term interest rates, changes in volatility of
the underlying instrument, and the time remaining until expiration of the
contract.
. A difference between the derivatives and securities markets, including
different levels of demand, how the instruments are traded, the imposition
of daily price fluctuation limits or trading of an instrument stops.
. Differences between the derivatives, such as different margin requirements,
different liquidity of such markets and the participation of speculators in
such markets.
Derivatives based upon a narrower index of securities, such as those of a
particular industry group, may present greater risk than derivatives based on
a broad market index. Since narrower indices are made up of a smaller number
of securities, they are more susceptible to rapid and extreme price
fluctuations because of changes in the value of those securities.
While currency futures and options values are expected to correlate with
exchange rates, they may not reflect other factors that affect the value of
the investments of a portfolio. A currency hedge, for example, should protect
a Yen-denominated security from a decline in the Yen, but will not protect a
portfolio against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of a portfolio's foreign-denominated
investments changes in response to many factors other than exchange rates, it
may not be possible to match the amount of currency options and futures to the
value of the portfolio's investments precisely over time.
LACK OF LIQUIDITY
Before a futures contract or option is exercised or expires, a portfolio can
terminate it only by entering into a closing purchase or sale transaction.
This requires a secondary market for such instruments on the exchange where
the portfolio originally entered into the transaction. If there is no
secondary market for the contract, or the market is illiquid, a portfolio may
have to purchase or sell the instrument underlying the contract, make or
receive a cash settlement or meet ongoing variation margin
9
<PAGE>
requirements. The inability to close out derivative positions could have an
adverse impact on the ability of the portfolio to hedge its investments and
may prevent a portfolio from realizing profits or limiting its losses.
Derivatives may become illiquid (i.e., difficult to sell at a desired time and
price) under a variety of market conditions. For example:
. During periods of market volatility, a commodity exchange may suspend or
limit trading in a particular derivative instrument, an entire category of
derivatives or all derivatives.
. A portfolio may have difficulty liquidating its existing positions or
recovering excess variation margin payments because of exchange or clearing
house equipment failures, government intervention, insolvency of a
brokerage firm or clearing house or other disruptions of normal trading
activity.
. Investors may lose interest in a particular derivative or category of
derivatives.
MANAGEMENT RISK
If the adviser incorrectly predicts stock market and interest rate trends, a
portfolio may lose money by investing in derivatives. For example, if a
portfolio were to write a call option based on its adviser's expectation that
the price of the underlying security would fall, but the price were to rise
instead, the portfolio could be required to sell the security upon exercise at
a price below the current market price. Similarly, if a portfolio were to
write a put option based on the adviser's expectation that the price of the
underlying security would rise, but the price were to fall instead, the
portfolio could be required to purchase the security upon exercise at a price
higher than the current market price.
MARGIN
Because of the low margin deposits required upon the opening of a derivative
position, such transactions involve an extremely high degree of leverage.
Consequently, a relatively small price movement in a derivative may result in
an immediate and substantial loss (as well as gain) to the portfolio and it
may lose more than it originally invested in the derivative.
If the price of a futures contract changes adversely, a portfolio may have to
sell securities at a time when it is disadvantageous to do so to meet its
minimum daily margin requirement. A portfolio may lose its margin deposits if
a broker with whom it has an open futures contract or related option becomes
insolvent or declares bankruptcy.
FOREIGN SECURITIES (ALL PORTFOLIOS EXCEPT MCKEE U.S. GOVERNMENT PORTFOLIO)
- --------------------------------------------------------------------------------
RISKS OF FOREIGN SECURITIES
Foreign securities, foreign currencies, and securities issued by U.S. entities
with substantial foreign operations may involve significant risks in addition
to the risks inherent in U.S. investments.
Local political, economic, regulatory, or social instability, military action
or unrest, or adverse diplomatic developments may affect the value of foreign
investments. A foreign government may take actions adverse to the interests
of U.S. investors, including expropriation or nationalization of assets,
confiscatory taxation and other restrictions on U.S. investment.
FOREIGN CURRENCY RISK
The securities of foreign companies are frequently denominated in foreign
currencies. A portfolios' net asset value is denominated in U.S. dollars.
Thus, changes in foreign currency rates and in exchange control regulations
may positively or negatively affect the value of the securities of a
portfolio. A portfolio also may incur costs to convert foreign currencies into
U.S. dollars and vice versa. In addition:
. Foreign currency exchange rates reflect relative values of two currencies,
usually the U.S. dollar and the foreign currency in question.
. Complex political and economic factors applicable to the issuing country
may affect the value U.S. dollars and foreign currencies.
. The actions of U.S. and foreign governments may affect significantly the
currency exchange rates.
. government intervention may increase risks involved in purchasing or
selling foreign currency options, forward contracts and futures contracts,
since exchange rates may not be free to fluctuate in response to other
market forces.
10
<PAGE>
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations
available through dealers or other market sources be firm or revised on a
timely basis. Available quotation information is generally representative
of very large round-lot transactions in the inter-bank market and thus may
not reflect exchange rates for smaller odd-lot transactions (less than $1
million) where rates may be less favorable. The inter-bank market in
foreign currencies is a global, around-the-clock market. To the extent
that a market is closed while the markets for the underlying currencies
remain open, certain markets may not always reflect significant price and
rate movements.
THE EURO
The single currency for the European Economic and Monetary Union (EMU),
the Euro, is scheduled to replace the national currencies for
participating member countries over a period that begins on January 1,
1999, and ends in July 2002. At the end of that period, use of the Euro
will be compulsory and countries in the EMU will no longer maintain
separate currencies in any form. Until then, however, each country and
issuers within each country are free to choose whether to use the Euro.
On January 1, 1999, existing national currencies will become denominations
of the Euro at fixed rates according to practices prescribed by the
European Monetary Institute and the Euro will become available as a book-
entry currency. Beginning on or about that date, the portfolio expects
member states to begin conducting financial market transactions in Euro
and redenominating many investments, currency balances and transfer
mechanisms into Euro. The portfolios also anticipate pricing, trading,
settling and valuing investments whose nominal values remain in their
existing domestic currencies in Euro. Accordingly, the portfolios expect
the conversion to the Euro to impact investments in countries that will
adopt the Euro in all aspects of the investment process including,
trading, foreign exchange, payments, settlements, cash accounts, custody
and accounting will be impacted. Some of the uncertainties surrounding the
conversion to the Euro, include
. Will the payment and operational systems of banks and other financial
institutions be ready by the scheduled launch date?
. Will the conversion to the Euro have legal consequences on outstanding
financial contracts that refer to existing currencies rather than Euro?
. How will existing currencies be exchanged into Euro?
. Will suitable clearing and settlement payment systems for the new
currency be created?
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS (MCKEE INTERNATIONAL EQUITY
PORTFOLIO)
A forward foreign currency contract involves an obligation to purchase or
sell a specific amount of currency at a future date or date range at a
specific price. In the case of a cancelable forward contract, the holder
has the unilateral right to cancel the contract at maturity by paying a
specified fee. Forward foreign currency exchange contracts differ from
foreign currency futures contracts in certain respects. Unlike futures
contracts, forward contracts
. do not have standard maturity dates or amounts (i.e., the parties to
the contract may fix the maturity date and the amount).
. are traded in the inter-bank markets conducted directly between currency
traders (usually large commercial banks) and their customers, as opposed
to futures contracts which are traded in only on exchanges regulated by
the CFTC.
. do not require an initial margin deposit.
. may be closed by entering into a closing transaction with the currency
trader who is a party to the original forward contract, as opposed to a
commodities exchange.
FOREIGN CURRENCY HEDGING STRATEGIES (MCKEE INTERNATIONAL EQUITY PORTFOLIO)
A "settlement hedge" or "transaction hedge" is designed to protect a
portfolio against an adverse change in foreign currency values between the
date a security is purchased or sold and the date on which payment is made
or received. Entering into a forward contract for the purchase or sale of
the amount of foreign currency involved in an underlying security
transaction for a fixed amount of U.S. dollars "locks in" the U.S. dollar
price of the security. A portfolio may also use forward contracts to
purchase or sell a foreign currency when it anticipates purchasing or
selling securities denominated in foreign currency, even if it has not yet
selected the specific investments.
A portfolio may also use forward contracts to hedge against a decline in
the value of existing investments denominated in foreign currency. Such a
hedge, sometimes referred to as a "position hedge," would tend to offset
both positive and negative currency fluctuations, but would not offset
changes in security values caused by other factors. A portfolio could also
hedge the position by selling another currency expected to perform
similarly to the currency in which the portfolio's investment is
denominated. This type of hedge, sometimes referred to as a "proxy hedge,"
could offer advantages in terms of cost, yield, or efficiency, but
generally
11
<PAGE>
would not hedge currency exposure as effectively as a direct hedge into
U.S. dollars. Proxy hedges may result in losses if the currency used to
hedge does not perform similarly to the currency in which the hedged
securities are denominated.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities that a portfolio owns or intends to
purchase or sell. They simply establish a rate of exchange that one can
achieve at some future point in time. Additionally, these techniques tend
to minimize the risk of loss due to a decline in the value of the hedged
currency and to limit any potential gain that might result from the
increase in value of such currency.
A portfolio may enter into forward contracts to shift its investment
exposure from one currency into another. Such transactions may call for the
delivery of one foreign currency in exchange for another foreign currency,
including currencies in which its securities are not then denominated. This
may include shifting exposure from U.S. dollars to a foreign currency, or
from one foreign currency to another foreign currency. This type of
strategy, sometimes known as a "cross-hedge," will tend to reduce or
eliminate exposure to the currency that is sold, and increase exposure to
the currency that is purchased. Cross-hedges protect against losses
resulting from a decline in the hedged currency, but will cause a portfolio
to assume the risk of fluctuations in the value of the currency it
purchases. Cross hedging transactions also involve the risk of imperfect
correlation between changes in the values of the currencies involved.
It is difficult to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward or futures contract.
Accordingly, a portfolio may have to purchase additional foreign currency
on the spot market if the market value of a security it is hedging is less
than the amount of foreign currency it is obligated to deliver. Conversely,
a portfolio may have to sell on the spot market some of the foreign
currency it received upon the sale of a security if the market value of
such security exceeds the amount of foreign currency it is obligated to
deliver.
STOCK EXCHANGE AND MARKET RISK (ALL PORTFOLIOS EXCEPT MCKEE U.S.
GOVERNMENT PORTFOLIO)
The adviser anticipates that in most cases an exchange or over-the-counter
(OTC) market located outside of the United States will be the best
available market for foreign securities. Foreign stock markets, while
growing in volume and sophistication, are generally not as developed as
those in the United States, and securities of some foreign issuers may be
less liquid and more volatile than securities of comparable U.S. issuers.
Foreign security trading, settlement and custodial practices are often less
developed than those in U.S. markets. This may lead to increased risk or
substantial delays in case of a failed trade or the insolvency of, or
breach of duty by, a foreign broker-dealer, securities depository or
foreign sub-custodian. In addition, the costs associated with foreign
investments, including withholding taxes, brokerage commissions and
custodial costs, are generally higher than with U.S. investments.
LEGAL SYSTEM AND REGULATION RISKS
Foreign countries have different legal systems and different regulations
concerning financial disclosure, accounting, and auditing standards.
Corporate financial information that would be disclosed under U.S. law may
not be available. Foreign accounting and auditing standards may render a
foreign corporate balance sheet more difficult to understand and interpret
than one subject to U.S. law and standards. Foreign markets may offer less
protection to investors than U.S. markets such as:
. Foreign accounting, auditing, and financial reporting requirements may
render a foreign corporate balance sheet more difficult to understand
and interpret than one subject to U.S. law and standards.
. Adequate public information on foreign issuers may not be available, and
it may be difficult to secure dividends and information regarding
corporate actions on a timely basis.
. In general, there is less overall governmental supervision and
regulation of securities exchanges, brokers, and listed companies than
in the United States.
. OTC markets tend to be less regulated than stock exchange markets and,
in certain countries, may be totally unregulated.
. Economic or political concerns may influence regulatory enforcement and
may make it difficult for investors to enforce their legal rights.
. Restrictions on transferring securities within the United States or to
U.S. persons may make a particular security less liquid than foreign
securities of the same class that are not subject to such restrictions.
EMERGING MARKETS
Investing in emerging markets may magnify the risks of foreign investing.
Security prices in emerging markets can be significantly more volatile than
those in more developed markets, reflecting the greater uncertainties of
investing in less established markets and economies. In particular,
countries with emerging markets may have (1) relatively unstable
12
<PAGE>
governments, (2) may present the risks of nationalization of businesses,
restrictions on foreign ownership and prohibitions on the repatriation of
assets, and (3) may have less protection of property rights than more
developed countries. The economies of countries with emerging markets may
be based on only a few industries, may be highly vulnerable to changes in
local or global trade conditions, and may suffer from extreme and volatile
debt burdens or inflation rates. Local securities markets may trade a small
number of securities and may be unable to respond effectively to increases
in trading volume, potentially making prompt liquidation of holdings
difficult or impossible at times.
Certain foreign governments levy withholding taxes on dividend and interest
income. Although in some countries a portfolio may recover a portion of
these taxes, the portion they cannot recover will reduce the income the
portfolio receives from its investments. The portfolios do not expect such
foreign withholding taxes to have a significant impact on performance.
AMERICAN DEPOSITARY RECEIPTS (ADRs)
American Depositary Receipts (ADRs) are certificates evidencing ownership
of shares of a foreign issuer. These certificates are issued by depository
banks and generally trade on an established market in the United States or
elsewhere. A custodian bank or similar financial institution in the
issuer's home country holds the underlying shares in trust. The depository
bank may not have physical custody of the underlying securities at all
times and may charge fees for various services, including forwarding
dividends and interest and corporate actions. ADRs are alternatives to
directly purchasing the underlying foreign securities in their national
markets and currencies. However, ADRs continue to be subject to many of the
risks associated with investing directly in foreign securities.
INVESTMENT COMPANIES
- --------------------------------------------------------------------------------
The portfolios reserve the right to invest up to 10% of their total assets,
calculated at the time of investment, in the securities of other open-ended
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 advisor fee paid by the portfolio.
The Fund has received permission from the SEC to allow each of its
portfolios to invest, for cash management purposes, the greater of 5% of
its total assets or $2.5 million in the UAM DSI Money Market Portfolio
provided that the investment is consistent with the portfolio's investment
policies and restrictions. Based upon the portfolio's assets invested in
the UAM 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 UAM DSI Money Market Portfolio. The investing
portfolio will bear expenses of the UAM DSI Money Market Portfolio on the
same basis as all of its other shareholders.
REPURCHASE AGREEMENTS
- --------------------------------------------------------------------------------
In a repurchase agreement, a portfolio buys a security for a relatively
short period (usually not more than 7 days) and simultaneously agrees to
sell it back at a specified date and price. A portfolio normally uses
repurchase agreements to earn income on assets that are not invested. A
portfolio will require the counter-party to the agreement to deliver
securities serving as collateral for each repurchase agreement to its
custodian either physically or in book-entry form. The counter party must
add to the collateral whenever the price of the repurchase agreement rises
(i.e., the borrower "marks to the market" on a daily basis).
If the seller of the security declares bankruptcy or otherwise becomes
financially unable to buy back the security, the portfolio's right to sell
the security may be restricted. In addition, the value of the security
might decline before the portfolio can sell it and the portfolio might
incur expenses in enforcing its rights.
SECURITIES LENDING
- --------------------------------------------------------------------------------
To earn additional income, the portfolios may lend up to one-third of their
total assets (including the value of the collateral for the loans) at fair
market value to broker- dealers or other financial institutions. A
portfolio may reinvest any cash collateral in short-term securities and
money market funds. A portfolio will only lend its securities if
. The borrower provides collateral at least equal to the market value of
the securities loaned.
. The collateral pledged and maintained by the borrower must consist of
cash, an irrevocable letter of credit issued by a domestic U.S. bank or
securities issued or guaranteed by the U.S. government.
13
<PAGE>
. The borrower adds to the collateral whenever the price of the securities
loaned rises (i.e., the borrower "marks to the market" on a daily
basis).
. The portfolio can terminate the loan at any time; and
. The portfolio receives reasonable interest on the loan (which may
include the Portfolio investing any cash collateral in interest bearing
short-term investments).
These risks are similar to the ones involved with repurchase agreements.
When a portfolio lends securities, there is a risk that it will lose money
because the borrower fails to return the securities involved in the
transaction. In addition, the borrower may become financially unable to
honor its contractual obligations, which may delay or prevent the portfolio
from liquidating the collateral.
SHORT-TERM INVESTMENTS
- --------------------------------------------------------------------------------
To earn a return on uninvested assets, meet anticipated redemptions, or for
temporary defensive purposes, each portfolio may invest a portion of its
assets in the short-term investments described below.
BANK OBLIGATIONS
A portfolio will only invest in a security issued by a commercial bank if
the bank:
. Has total assets of at least $1 billion, or the equivalent in other
currencies;
. Is a U.S. bank and a member of the Federal Deposit Insurance
Corporation; and
. Is a foreign branch of a U.S. bank and the adviser believes the
security is of an investment quality comparable with other debt
securities that a portfolio may purchase.
TIME DEPOSITS
Time deposits are non-negotiable deposits, such as savings accounts or
certificates of deposit, held by a financial institution for a fixed term
with the understanding that the depositor can withdraw its money only by
giving notice to the institution. However, there may be early withdrawal
penalties depending upon market conditions and the remaining maturity of
the obligation. A portfolio may only purchase time deposits maturing from
two business days through seven calendar days.
CERTIFICATES OF DEPOSIT
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or savings and loan association for a
definite period of time and earning a specified return.
BANKER'S ACCEPTANCE
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).
COMMERCIAL PAPER
Commercial paper constitutes short-term obligations with maturities ranging
from 2 to 270 days issued by banks, corporations and other borrowers. Such
investments are unsecured and usually discounted. A portfolio may invest in
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. See APPENDIX A for a
description of commercial paper ratings.
U.S. GOVERNMENT SECURITIES
A portfolio may buy debt securities that are issued or guaranteed by the
U.S. Treasury or by an agency or instrumentality of the U.S. government.
Some U.S. government securities, such as Treasury bills, notes and bonds
are supported by the full faith and credit of the U.S. government. Others,
however, are supported only by the right of the instrumentality to borrow
from the U.S. government.
While U.S. government securities are guaranteed as to principal and
interest, their market value is not guaranteed. U.S. government securities
are subject to the same interest rate and credit risks as other fixed
income securities. However, since U.S.
14
<PAGE>
government securities are of the highest quality, the credit risk is
minimal. The U.S. government does not guarantee the net asset value of the
assets of a portfolio.
CORPORATE BONDS
A portfolio may buy corporate bonds and notes that are considered
investment-grade securities. Investment grade securities have received one
of the four highest grades assigned by a rating agency, or determined to be
of comparable quality by the adviser. Corporations issue bonds and notes to
raise money for working capital or for capital expenditures such as plant
construction, equipment purchases and expansion. In return for the money
loaned to the corporation by investors, the corporation promises to pay
investors interest, and repay the principal amount of the bond or note.
Like other debt securities, corporate debt securities involve a risk that
the corporate issuer will not make timely payment of either interest or
principal, or may default entirely. In addition, the market price of
corporate debt securities may go down because of changes in interest rates.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED DELIVERY TRANSACTIONS
- --------------------------------------------------------------------------------
A when-issued security is one whose terms are available and for which a
market exists, but which have not been issued. In a forward delivery
transaction, a portfolio contracts to purchase securities for a fixed price
at a future date beyond customary settlement time. "Delayed delivery"
refers to securities transactions on the secondary market where settlement
occurs in the future. In each of these transactions, the parties fix the
payment obligation and the interest rate that they will receive on the
securities at the time the parties enter the commitment; however, they do
not pay money or delivery securities until a later date. Typically, no
income accrues on securities a portfolio has committed to purchase before
the securities are delivered, although the portfolio may earn income on
securities it has in a segregated account. A portfolio will only enter into
these types of transactions with the intention of actually acquiring the
securities, but may sell them before the settlement date.
A portfolio uses when-issued, delayed-delivery and forward delivery
transactions to secure what it considers being an advantageous price and
yield at the time of purchase. When a portfolio engages in when-issued,
delayed-delivery and forward delivery transactions, it relies on the other
party to consummate the sale. If the other party fails to complete the
sale, the portfolio may miss the opportunity to obtain the security at a
favorable price or yield.
When purchasing a security on a when-issued, delayed delivery, or forward
delivery basis, the portfolio assumes the rights and risks of ownership of
the security, including the risk of price and yield changes. At the time of
settlement, the market value of the security may be more or less than the
purchase price. The yield available in the market when the delivery takes
place also may be higher than those obtained in the transaction itself.
Because a portfolio does not pay for the security until the delivery date,
these risks are in addition to the risks associated with its other
investments.
RESTRICTED SECURITIES
- --------------------------------------------------------------------------------
Each portfolio may purchase restricted securities that are not registered
for sale to the general public but which are eligible for resale to
qualified institutional investors under Rule 144A of the Securities Act of
1933. Under the supervision of the Fund's board, the adviser determines the
liquidity of such investments by considering all relevant factors. Provided
that a dealer or institutional trading market in such securities exists,
these restricted securities are not treated as illiquid securities for
purposes of a portfolio's investment limitations. The priced realized from
the sales of these securities could be more or less than those originally
paid by the portfolio or less than what may be considered the fair value of
such securities.
INVESTMENT POLICIES
Whenever an investment limitation sets forth a percentage limitation on
investment or utilization of assets, such limitation shall (with the
exception of a limitation relating to borrowing) be determined immediately
after and as a result of a portfolio's acquisition of such security or
other asset. Accordingly, any later increase or decrease resulting from a
change in values, net assets or other circumstances will not be considered
when determining whether the investment complies with the investment
limitations of the portfolio.
15
<PAGE>
FUNDAMENTAL INVESTMENT POLICIES
- --------------------------------------------------------------------------------
The following investment limitations are fundamental, which means the
portfolios cannot change them without shareholder approval. Each portfolio
will not:
. with respect to 50% of its assets (75% for the McKee Small Cap Equity
Portfolio), invest more than 5% of its total assets at the time of
purchase in 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);
. with respect to 50% of its assets (75% for the McKee Small Cap Equity
Portfolio), purchase more than 10% of any class of the outstanding
voting securities of any issuer;
. borrow money, except (1) from banks and as a temporary measure for
extraordinary or emergency purposes and then, in no event, in excess of
33 1/3 % of the portfolio's gross assets valued at the lower of market
or cost;
. invest for the purpose of exercising control over management of any
company;
. invest in physical commodities or contracts on physical commodities;
. invest more than 25% of its assets in companies within a single
industry; however, there are no limitations on investments made in
instruments issued or guaranteed by the U.S. government and its agencies
when the portfolio adopts a temporary defensive position;
. invest more than an aggregate of 15% 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;
. issue senior securities, as defined in the Investment Company Act of
1940, as amended, except that this restriction shall not be deemed to
prohibit a portfolio from (1) making any permitted borrowings, mortgages
or pledges, or (2) entering repurchase transactions;
. make loans except by purchasing debt securities in accordance with its
investment objective and policies, or entering into repurchase
agreements, or by lending its portfolio securities to banks, brokers,
dealers and other financial institutions so long as such loans are made
in compliance with the Investment Company Act of 1940, as amended, and
the Rules and Regulations or interpretations of the SEC;
. purchase on margin or sell short;
. purchase or retain securities of an issuer if those officers and board
members or its investment adviser owning more than 1/2 1/2 of 1% of such
securities together own more than 5% of such securities;
. purchase or sell real estate or real estate limited partnerships,
although it may purchase or sell securities of companies which deal in
real estate and may purchase and sell securities which are secured by
interests in real estate;
. underwrite the securities of other issuers; and
. write or acquire options or interests in oil, gas or other mineral
exploration or development programs.
NON-FUNDAMENTAL POLICIES
- --------------------------------------------------------------------------------
In addition to the policies described above, the following limitations are
non-fundamental (i.e., the portfolio may change them without shareholder
approval). The portfolios will not:
. 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;
. pledge, mortgage, or hypothecate any of its assets to an extent greater
than 33 1/3% of its total assets at fair market value; and
. purchase additional securities when borrowings exceed 5% of total
assets.
16
<PAGE>
MANAGEMENT OF THE PORTFOLIOS
The business of the Fund is managed by its governing board, which, in turn,
elects officers who are responsible for the day-to-day operations of the
Fund and who execute policies formulated by the board. The Fund pays each
board member who is not also an officer or affiliated person (independent
board member) a $150 quarterly retainer fee per active portfolio per
quarter and a $2,000 meeting fee. In addition, each independent board
member is reimbursed for travel and other expenses incurred while attending
board meetings. The $2,000 meeting fee and expense reimbursements are
aggregated for all of the board members and allocated proportionately among
the portfolios of the UAM Funds complex. The Fund does not pay the
remaining CGFSC pay the Fund's officers.
The following table lists the board members and officers of the Fund and
provides information regarding their present positions, date of birth,
address, principal occupations during the past five years, aggregate
compensation received from the Fund and total compensation received from
the UAM Funds complex.
<TABLE>
<CAPTION>
Total
Aggregate Compensation
Position Compensation From UAM
UAM from registrant as of Funds Complex as
Name, Address, DOB Funds, INC. Principal Occupations During the Past 5 years October 31, 1998 of October 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John T. Bennett, Jr. Director President of Squam Investment Management
College Road -- RFD 3 Company, Inc. and Great Island Investment
Meredith, NH 03253 Company, Inc.; President of Bennett Management
1/26/29 Company from 1988 to 1993.
- -----------------------------------------------------------------------------------------------------------------------------------
Nancy J. Dunn Director Vice President for Finance and Administration
10 Garden Street and Treasurer of Radcliffe College since 1991.
Cambridge, MA 02138
8/14/51
- ------------------------------------------------------------------------------------------------------------------------------------
William A. Humenuk Director Executive Vice President and Chief Administrative
100 King Street West Officer of Philip Services Corp.; Director,
P.O. Box 2440, LCD-1, Hofler Corp.; Formerly, a Partner in the
Hamilton Ontario, Philadelphia office of the law firm Dechert
Canada L8N-4J6 Price & Rhoads.
4/21/42
- ------------------------------------------------------------------------------------------------------------------------------------
Philip D. English Director President and Chief Executive Officer of
16 West Madison Street Broventure Company, Inc.; Chairman of the Board
Baltimore, MD 21201 of Chektec Corporation and Cyber Scientific, Inc
8/5/48
- ------------------------------------------------------------------------------------------------------------------------------------
Norton H. Reamer* Director, Chairman, Chief Executive Officer and a Director 0 0
One International Place President of United Asset Management Corporation; Director,
Boston, MA 02110 and Partner or Trustee of each of the Investment Companies
3/21/35 Chairman of the Eaton Vance Group of Mutual Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
Peter M. Whitman, Jr.* Director President and Chief Investment Officer of Dewey Square 0 0
One Financial Center Investors Corporation since 1988; Director and Chief
Boston, MA 02111 Executive Officer of H.T. Investors, Inc., formerly a
7/1/43 subsidiary of Dewey Square.
- ------------------------------------------------------------------------------------------------------------------------------------
William H. Park Vice Executive Vice President and Chief Financial Officer of 0 0
One International Place President United Asset Management Corporation.
Boston, MA 02110
9/19/47
- ------------------------------------------------------------------------------------------------------------------------------------
Gary L. French Treasurer President of UAMFSI and UAMFDI, formerly Vice President of 0 0
211 Congress Street Operations, Development and Control of Fidelity Investments
Boston, MA 02110 in 1995; Treasurer of the Fidelity Group of Mutual Funds
7/4/51 from 1991 to 1995.
- ------------------------------------------------------------------------------------------------------------------------------------
Michael E. DeFao Secretary Vice President and General Counsel of UAMFSI and UAMFDI; 0 0
211 Congress Street Associate Attorney of Ropes & Gray (a law firm) from
Boston, MA 02110 1993 to 1995.
2/28/68
- ------------------------------------------------------------------------------------------------------------------------------------
Robert R. Flaherty Assistant Vice President of UAMFS); formerly Mananger of Fund 0 0
211 Congress Street Treasurer Administration and Compliance of CGFSC from 1995 to 1996;
Boston, MA 02110 Deloitte & Touche LLP from 1985 to 1995, Senior Manager.
9/18/63
- ------------------------------------------------------------------------------------------------------------------------------------
Michael J. Leary Assistant Vice President of Chase Global Funds Services Company since 0 0
73 Tremont Street Treasurer 1993. Manager of Audit at Ernst & Young from 1988 to 1993.
Boston, MA 02108
11/23/65
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
AGGREGATE
POSITION COMPENSATION FROM
UMA REGISTRANT AS OF
NAME, ADDRESS, DOB FUNDS, INC. PRINCIPAL OCCUPATIONS DURING THE PAST 5 YEARS OCTOBER 31, 1998
MICHELLE AZRIALY ASSISTANT ASSISTANT TREASURER OF CHASE GLOBAL FUNDS SERVICES COMPANY 0
73 TREMONT STREET SECRETARY SINCE 1996. SENIOR PUBLIC ACCOUNTANT WITH PRICE WATERHOUSE
BOSTON, MA 02108 LLP FROM 1991 TO 1994.
4/12/69
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Total
Compensation
From UAM
Name, Address, DOB of October 31, 1998
Michelle Azrialy 0
73 Tremont Street
Boston, MA 02108
4/12/69
</TABLE>
- -----
*These board members are "interested persons" of the Fund as that term is
defined in the 1940 Act.
CODE OF ETHICS
The Fund has adopted a Code of Ethics that restricts to a certain extent
personal transactions by access persons of the Fund and imposes certain
disclosure and reporting obligations.
PRINCIPAL HOLDERS OF SECURITIES
As of ____________, 1998, the members of the governing board and officers of
the Fund as a group owned less than 1% of the Fund's outstanding shares.
As of ____________, 1998, the following persons or organizations held of
record or beneficially 5% or more of the shares of a portfolio:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name and Address of Shareholder Percentage of Portfolio Class
Shares Owned
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Any persons or organizations listed above as owning 25% or more of the
outstanding shares of a portfolio may be presumed to "control" (as that term
is defined in the 1940 Act) the 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 the
portfolio.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
CONTROL OF ADVISER
The adviser is located at One Gateway Center, Pittsburgh, PA 15222. The
adviser is a wholly-owned subsidiary of UAM and has provided investment
management services to corporations, pension and profit-sharing plans, 401(k)
and thrift plans, trusts, estates and other institutions and individuals since
1970.
UAM is 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 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. Several UAM
Affiliated Firms also act as investment advisers to separate series or
portfolios of the UAM Funds complex.
18
<PAGE>
INVESTMENT ADVISORY AGREEMENT
Service Performed by Adviser
Pursuant to each Investment Advisory Agreement (Advisory Agreements) between
the Fund, on behalf of each portfolio, and the adviser, the adviser has agreed
to:
. Manage the investment and reinvestment of the assets of the portfolios.
. Continuously review, supervise and administer the investment program of the
portfolios.
. Determine in its discretion the securities a portfolio will buy or sell and
the portion of its assets such portfolio will hold uninvested.
Limitation of Liability
In the absence of (1) willful misfeasance, bad faith, or gross negligence of
the part of the adviser in the performance of its obligations and duties under
the Advisory Agreements, (2) reckless disregard by the adviser of its
obligations and duties under the Advisory Agreements, or (3) a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation
for services, the adviser shall not be subject to any liability whatsoever to
the Fund, for any error of judgment, mistake of law or any other act or
omission in the course of, or connected with, rendering services under the
Advisory Agreements.
Continuing an Advisory Agreement
Unless sooner terminated, an Advisory Agreement shall continue for periods of
one year so long as such continuance is specifically approved at least
annually (a) by a majority of those members of the governing board of the Fund
who are not parties to the Advisory Agreement or interested persons of any
such party and (b) by a majority of the governing board of the Fund or a
majority of the shareholders of the portfolio. An Advisory Agreement may be
terminated at any time by the Fund, without the payment of any penalty, by
vote of a majority of the portfolios' shareholders on 60 days' written notice
to the adviser. The adviser may terminate the Advisory Agreements at any time,
without the payment of any penalty, upon 90 days' written notice to the Fund.
An Advisory Agreement will automatically and immediately terminate if it is
assigned.
Investment Advisory Fee
For its services, the adviser receives an advisory fee calculated by applying
the annual percentage rates listed below to the average daily net assets of
the portfolio for the month. The adviser's fee is paid in monthly
installments.
<TABLE>
<CAPTION>
Annual Percentage Rate
<S> <C>
- ---------------------------------------------------------------------------------------------
McKee U.S. Government Portfolio 0.45%
- ---------------------------------------------------------------------------------------------
McKee Domestic Equity Portfolio 0.65%
- ---------------------------------------------------------------------------------------------
McKee International Equity Portfolio 0.70%
- ---------------------------------------------------------------------------------------------
McKee Small Cap Equity Portfolio 1.00%
- ---------------------------------------------------------------------------------------------
</TABLE>
Expense Limitation
The adviser may voluntarily agree to limit the expenses of the portfolios.
The adviser may further reduce its compensation to the extent that the
expenses of a portfolio exceed such lower expense limitation as the adviser
may, by notice to the portfolio, declare to be appropriate. The expenses
subject to this limitation are exclusive of brokerage commissions, interest,
taxes, deferred organizational and extraordinary expenses and, if the Fund has
a distribution plan, payments required under such plan. The prospectus
describes the terms of any expense limitation that are in effect from time to
time.
PHILOSOPHY AND STYLE
The adviser's philosophical approach to all asset classes is to be
opportunistic while controlling risk. This approach is to be opportunistic
while controlling risk. This approach captures opportunity, when available,
to provide capital growth, consistent with the Fund's pursuit of total return
while quantifying and controlling risk to protect capital. The purpose of
this approach is to generate favorable results through a high quality, low
risk portfolio. The adviser's approach is to look for companies which are
statistically inexpensive yet have improving fundamentals. A number of
statistical measures are used to rank the initial pool of over 2,000 stocks.
The top-ranking stocks are then subjected to fundamental analytical screens
prior to investment.
19
<PAGE>
REPRESENTATIVE INSTITUTIONAL CLIENTS
As of the date of this SAI, the adviser's representative institutional clients
included Highmark Blue Cross/Blue Shield, City of Pittsburgh, The Dickinson
School of Law of Pennsylvania State University, City of Winston-Salem, North
Carolina and the American Lung Association of Western Pennsylvania.
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.
DISTRIBUTOR
- --------------------------------------------------------------------------------
UAMFDI serves as the Fund's distributor. The Fund offers its shares
continuously. While UAMFDI will use its best efforts to sell shares of the
Fund, it is not obligated to sell any particular amount of shares. UAMFDI
receives no compensation for its services, and any amounts it may receive
under a Service and Distribution Plan are passed through in their entirety to
third parties. UAMFDI, an affiliate of UAM, is located at 211 Congress Street,
Boston, Massachusetts 02110.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
ADMINISTRATOR
Pursuant to a Fund Administration Agreement with the Fund, UAMFSI manages,
administers and conducts the general business activities of the Fund. As a
part of its responsibilities, UAMFSI provides and oversees the provision by
various third parties of administrative, fund accounting, dividend disbursing
and transfer agent services for the Fund. UAMFSI, an affiliate of UAM, has its
principal office at 211 Congress Street, Boston, Massachusetts 02110.
UAMFSI will bear all expenses in connection with the performance of its
services under the Fund Administration Agreement. Other expenses to be
incurred in the operation of the Fund will be borne by the Fund or other
parties, including
. Taxes, interest, brokerage fees and commissions.
. Salaries and fees of officers and members of the Board who are not
officers, directors, shareholders or employees of an affiliate of UAM,
including UAMFSI, UAMFDI or the adviser.
. SEC fees and states Blue-Sky fees.
. EDGAR filing fees.
. Processing services and related fees.
. Advisory and administration fees.
. Charges and expenses of pricing and data services, independent public
accountants and custodians.
. Insurance premiums including fidelity bond premiums.
. Outside legal expenses.
. Costs of maintenance of corporate existence.
. Typesetting and printing of prospectuses for regulatory purposes and for
distribution to current shareholders of the Fund.
. Printing and production costs of shareholders' reports and corporate
meetings.
. Cost and expenses of Fund stationery and forms.
. Costs of special telephone and data lines and devices.
. Trade association dues and expenses.
. Any extraordinary expenses and other customary Fund expenses.
Unless sooner terminated, the Fund Administration Agreement shall continue in
effect from year to year provided the board specifically approves such
continuance at least annually. The Board or UAMFSI may terminate the Fund
Administration Agreement, without penalty, on not less than ninety (90) days'
written notice. The Fund Administration Agreement shall automatically
terminate upon its assignment by UAMFSI without the prior written consent of
the Fund.
20
<PAGE>
UAMFSI will from time to time employ or associate with such person or persons
as may be fit to assist them in the performance of the Fund Administration
Agreement. Such person or persons may be officers and employees who are
employed by both UAMFSI and the Fund. UAMFSI will pay such person or persons
for such employment. The Fund will not incur any obligations with respect to
such persons.
SUB-ADMINISTRATOR
UAMFSI has subcontracted some of the its administrative and fund accounting
services to CGFSC, an affiliate of The Chase Manhattan Bank, by a Mutual Funds
Service Agreement dated April 15, 1996. CGFSC is located at 73 Tremont Street,
Boston, Massachusetts 02108.
SUB-TRANSFER AGENT AND SUB-SHAREHOLDER SERVICING AGENT
UAMFSI has subcontracted its transfer agent and dividend-disbursing agent
services to DST Systems, Inc. under an Agency Agreement between UAMFSI and DST
Systems Inc. DST Systems, Inc., is located at P.O. Box 419534, Kansas City,
Missouri 64141-6534.
UAMSSC serves as sub-shareholder servicing agent for the Fund under an
agreement between UAMSSC and UAMFSI. The principal place of business of UAMSSC
is 825 Duportail Road, Wayne, Pennsylvania 19087.
ADMINISTRATIVE FEES
In exchange for administrative services, each portfolio pays a four-part fee
to UAMFSI as follows:
A. A portfolio specific fee to UAMFSI calculated from the aggregate net
assets of each portfolio at the following rates:
<TABLE>
<CAPTION>
ANNUAL RATE
<S> <C>
McKee U. S. Government Portfolio 0.04%
- ----------------------------------------------------------------------
McKee Domestic Equity Portfolio 0.04%
- ----------------------------------------------------------------------
McKee International Equity Portfolio 0.06%
- ----------------------------------------------------------------------
McKee Small Cap Equity Portfolio 0.04%
</TABLE>
B. An annual base fee that UAMFSI pays to CGFSC for its sub-administration and
other services calculated at the annual rate of $52,500 for the first
operational class; $7,500 for each additional operational class; and 0.04%
of their pro rata share of the combined assets of the UAM Funds.
C. An annual base fee that UAMFSI pays to DST Systems, Inc. for its services
as transfer agent and dividend-disbursing agent equal to $10,500 for the
first operational class and $10,500 for each additional class.
D. An annual base fee that UAMFSI pays to UAMSSC for its services as sub-
shareholder-servicing agent equal to $7,500 for the first operational class
and $2,500 for each additional class.
Each portfolio also pays certain account and transaction fees and out-of-
pocket expenses that may be based on the number of open and closed accounts,
the type of account or the services provided to the account.
SHAREHOLDER SERVICING ARRANGEMENTS
UAM and any of its 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. The adviser may also compensate its affiliated
companies for referring investors to the portfolios.
CUSTODIAN
- -------------------------------------------------------------------------------
The Chase Manhattan Bank, 3 Chase MetroTech Center, Brooklyn, New York 11245,
provides for the custody of the Fund's assets pursuant to the terms of a
custodian agreement with the Fund.
INDEPENDENT PUBLIC ACCOUNTANT
- -------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as independent accountants for the Fund.
21
<PAGE>
BROKERAGE ALLOCATION AND OTHER PRACTICES
SELECTION OF BROKERS
- -------------------------------------------------------------------------------
The Advisory Agreements authorize the adviser to select the brokers or dealers
that will execute the purchases and sales of investment securities for a
portfolio. The Advisory Agreement also directs the adviser to use its best
efforts to obtain the best execution with respect to all transactions for a
portfolio. The adviser may select brokers based on research, statistical and
pricing services they provide to the adviser. Information and research
provided by a broker will be in addition to, and not instead of, the services
the adviser is required to perform under the Advisory Agreement. In so doing,
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. The adviser may place portfolio orders with
qualified broker-dealers who refer clients to the adviser.
SIMULTANEOUS TRANSACTIONS
- -------------------------------------------------------------------------------
The adviser makes investment decisions for a portfolio independently of
decisions made for its other clients. When a security is suitable for the
investment objective of more than one client, it may be prudent for the
adviser to engage in a simultaneous transaction, that is, buy or sell the
same security for more than one client. The adviser strives to allocate such
transactions among its clients, including the portfolios, in a fair and
reasonable manner. Although there is no specified formula for allocating such
transactions, the Fund's governing board periodically reviews the various
allocation methods used by the adviser, and the results of such allocations.
BROKERAGE COMMISSIONS
- -------------------------------------------------------------------------------
EQUITY SECURITIES
Generally, equity securities are bought and sold through brokerage
transactions for which commissions are payable. Purchases from underwriters
will include the underwriting commission or concession, and purchases from
dealers serving as market makers will include a dealer's mark-up or reflect a
dealer's mark-down.
DEBT SECURITIES
Debt securities are usually bought and sold directly from the issuer or an
underwriter or market maker for the securities. Generally, each Fund will not
pay brokerage commissions for such purchases. When a debt security is bought
from an underwriter, the purchase price will usually include an underwriting
commission or concession. The purchase price for securities bought from
dealers serving as market makers will similarly include the dealer's mark up
or reflect a dealer's mark down. When a portfolio executes transactions in
the over-the-counter market, it will deal with primary market makers unless
prices that are more favorable are otherwise obtainable.
CAPITAL STOCK AND OTHER SECURITIES
DESCRIPTION OF SHARES AND VOTING RIGHTS
- -------------------------------------------------------------------------------
The Fund's Articles of Incorporation, as amended, permit its governing board
to issue three billion shares of common stock, with a $.001 par value. The
governing board has the power to create and designate one or more series
(portfolios) or classes of shares of common stock and to classify or
reclassify any unissued shares at any time and without shareholder approval.
When issued and paid for, the shares of each series and class of the Fund are
fully paid and nonassessable, and have no pre-emptive rights or preference as
to conversion, exchange, dividends, retirement or other features.
The shares of each series and class have non-cumulative voting rights, which
means that the holders of more than 50% of the shares voting for the election
of members of the governing board can elect all of the members if they choose
to do so. On each matter submitted to a vote of the shareholders, 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. Shares of all classes will vote together as a single class except
when otherwise required by law or as determined by the members of the Fund's
governing board.
22
<PAGE>
If the Fund is liquidated, the shareholders of each portfolio or any class
thereof are entitled to receive the net assets belonging to that portfolio, or
in the case of a class, belonging to that portfolio and allocable to that
class. The Fund will distribute is net assets to its shareholders in
proportion to the number of shares of that portfolio or class thereof held by
them and recorded on the books of the Fund. The liquidation of any portfolio
or class thereof may be authorized at any time by vote of a majority of the
members of the governing board.
The governing board has authorized three classes of shares, Institutional,
Institutional Service and Adviser. The three classes represent interests in
the same assets of a portfolio and, except as discussed below, are identical
in all respects. Unlike Institutional and Adviser Class Shares, Institutional
Service Class Shares bear certain expenses related to shareholder servicing
and the distribution of such shares and have exclusive voting rights with
respect to matters relating to such distribution expenditures. The Adviser
Class Shares impose a sales load on purchases. The classes also have
different exchange privileges. The net income attributable to Institutional
Service Class Shares and the dividends payable on Institutional Service Class
Shares will be reduced by the amount of the shareholder servicing and
distribution fees; accordingly, the net asset value of the Institutional
Service Class Shares will be reduced by such amount to the extent a portfolio
has undistributed net income.
The Fund will not hold annual meetings except when required to by the
Investment Company Act of 1940, as amended, or other applicable law.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
- -------------------------------------------------------------------------------
The Fund tries to distribute substantially all of the net investment income of
a portfolio and net realized capital gains so as to avoid income taxes on its
dividends and distributions and the imposition of the federal excise tax on
undistributed income and capital gains. However, the Fund cannot predict the
time or amount of any such dividends or distributions.
Distributions by a portfolio reduce its net asset value ("NAV"). A
distribution that reduces the NAV of a portfolio below its cost basis is
taxable as described in the prospectus of the portfolios, although from an
investment standpoint, it is a return of capital. If you buy shares of a
portfolio on or before the "record date" -- the date that establishes which
shareholders will receive an upcoming distribution -- for a distribution, you
will receive some of the money you invested as a taxable distribution.
Unless the shareholder elects otherwise in writing, all dividend and capital
gains distributions are automatically received in additional shares of a
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 will be treated as a separate entity (and hence as a separate
"regulated investment company") for federal tax purposes. Each portfolio will
distribute its net capital gains to its investors, but will not offset (for
federal income tax purposes) such gains against any net capital losses of
another portfolio.
PURCHASE REDEMPTION AND PRICING OF SHARES
PURCHASE OF SHARES
- -------------------------------------------------------------------------------
Service Agents may enter confirmed purchase orders on behalf of their
customers. If shares of a Portfolio are purchased in this manner, the Service
Agent must receive your investment order before the close of trading on the
New York Stock Exchange ("NYSE") and transmit it to UAMSSC before the close of
its business day to receive that day's share price. UAMSSC must receive proper
payment for the order by the time the portfolio is priced on the following
business day. Service Agents are responsible to their customers and the Fund
for timely transmission of all subscription and redemption requests,
investment information, documentation and money.
Purchases of shares of a Portfolio will be made in full and fractional shares
of the Portfolio calculated to three decimal places. Certificates for
fractional shares will not be issued. Certificates for whole shares will not
be issued except at the written request of the shareholder.
The Fund reserves the right in its sole discretion 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.
23
<PAGE>
IN-KIND PURCHASES
If accepted by the Fund, shareholders may purchase shares of a portfolio in
exchange for securities that are eligible for acquisition by the portfolio.
Securities to be exchanged that are accepted by the Fund will be valued as
described under "VALUATION OF SHARES" at the next determination of net asset
value after 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 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:
. At the time of exchange, such securities are eligible to be included in the
portfolio (current market quotations must be readily available for such
securities).
. The investor represents and agrees that all securities offered to be
exchanged are liquid securities and not subject to any restrictions upon
their sale by the Portfolio under the Securities Act of 1933, or otherwise.
. The value of any such securities (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.
Investors who are subject to Federal taxation upon exchange may realize a gain
or loss for Federal income tax purposes depending upon the cost of securities
or local currency exchanged. Investors interested in such exchanges should
contact the adviser.
REDEMPTION OF SHARES
- -------------------------------------------------------------------------------
When you redeem, your shares may be worth more or less than the price you paid
for them depending on the market value of the investments held by the
portfolio.
BY MAIL
Requests to redeem shares must include:
. Share certificates, if issued.
. A letter of instruction or an 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.
. Any required signature guarantees (see "SIGNATURE GUARANTEES").
. Any other necessary legal documents, if required, in the case of estates,
trusts, guardianships, custodianships, corporations, pension and profit
sharing plans and other organizations.
BY TELEPHONE
The following tasks cannot be accomplished by telephone:
. Changing the name of the commercial bank or the account designated to
receive redemption proceeds (this can be accomplished only by a written
request signed by each shareholder, with each signature guaranteed).
. Redemption of certificated shares by telephone.
The Fund and its Sub-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, as well as 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. The Fund or Sub-Transfer Agent may
be liable for any losses due to unauthorized or fraudulent telephone
instructions if the Fund or the Sub-Transfer Agent does not employ the
procedures described above. Neither the Fund nor the Sub-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.
24
<PAGE>
REDEMPTIONS-IN-KIND
If the governing board determines that it would be detrimental to the best
interests of remaining shareholders of the Fund to make payment wholly or
partly in cash, the Fund may pay redemption proceeds in whole or in part by a
distribution in-kind of liquid securities held by a Portfolio in lieu of cash
in conformity with applicable rules of the SEC. Investors may incur brokerage
charges on the sale of portfolio securities received in payment of
redemptions.
However, the Fund has made an election with the SEC 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 SEC. 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 governing board believes 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 under "Valuation of Shares'. A redeeming shareholder
would normally incur brokerage expenses if these securities were converted to
cash.
SIGNATURE GUARANTEES
To protect your account, the Fund and its sub-transfer agent 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
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 that 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.
OTHER REDEMPTION INFORMATION
Normally, the Fund will pay for all shares redeemed under proper procedures
within one business day of and no more than seven days after the receipt of
the request, or earlier if required under applicable law. 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 determined by
the SEC.
The Fund may suspend redemption privileges or postpone the date of payment
. During any period that both the NYSE and custodian bank are closed, or
trading on the NYSE is restricted as determined by the Commission.
. 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.
. For such other periods as the Commission may permit.
EXCHANGE PRIVILEGE
- -------------------------------------------------------------------------------
The exchange privilege is only available with respect to portfolios that are
qualified for sale in the shareholder's state of residence. Exchanges are
based on the respective net asset values of the shares involved. The
Institutional Class and Institutional Service Class Shares of UAM Funds do not
charge a sales commission or charge of any kind.
Neither the Fund nor any of its service providers will be responsible for the
authenticity of the exchange instructions received by telephone. The governing
board of the Fund may restrict the exchange privilege at any time. Such
instructions may include limiting the amount or frequency of exchanges and may
be for the purpose of assuring such exchanges do not disadvantage the Fund and
its shareholders.
25
<PAGE>
TRANSFER OF SHARES
- --------------------------------------------------------------------------------
Shareholders may transfer shares of each portfolio to another person by
making a written request to the Fund. Your request should clearly identify
the account and number of shares you wish to transfer. All registered owners
should sign the request 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 "Signature Guarantees". As in the case of redemptions, the
written request must be received in good order before any transfer can be
made.
VALUATION OF SHARES
- --------------------------------------------------------------------------------
The Fund does not price its shares on those days when the New York Stock
Exchange is closed, which are currently: New Year's Day; Dr. Martin Luther
King, Jr. Day; Presidents' Day; Good Friday; Memorial Day; Independence Day;
Labor Day; Thanksgiving Day; and Christmas Day.
EQUITY SECURITIES
Equity securities listed on a securities exchange for which market quotations
are readily available are valued at the last quoted sale price of the day.
Price information on listed securities is taken from the exchange where the
security is primarily traded. Unlisted equity securities and listed
securities not traded on the valuation date for which market quotations are
readily available are valued neither exceeding the asked prices nor less than
the bid prices. Quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents. The converted value is based upon the
bid price of the foreign currency against U.S. dollars quoted by any major
bank or by a broker.
DEBT SECURITIES
Debt securities are valued according to the broadest and most representative
market, which will ordinarily be the over-the-counter market. Debt securities
may be valued based on prices provided by a pricing service when such prices
are believed to reflect the fair market value of such securities. Securities
purchased with remaining maturities of 60 days or less are valued at
amortized cost when the Board of Directors determines that amortized cost
reflects fair value.
OTHER ASSETS
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 governing board.
PERFORMANCE CALCULATIONS
The portfolios measure performance by calculating yield and total return.
Both yield and total return figures are based on historical earnings and are
not intended to indicate future performance. Performance quotations by
investment companies are subject to rules adopted by the SEC, 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
SEC. 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 SEC. An explanation of the method used to compute or express
performance follows.
Performance is calculated separately for Institutional Class and Service
Class Shares. Dividends paid by a Portfolio with respect to Institutional
Class and Service Class Shares, to the extent any dividends are paid, will be
calculated in the same manner at the same time on the same day and will be in
the same amount, except that service fees, distribution charges and any
incremental transfer agency costs relating to Service Class Shares will be
borne exclusively by that class.
TOTAL RETURN
- --------------------------------------------------------------------------------
Total return is the change in value of an investment in a portfolio over a
given period, assuming reinvestment of any dividends and capital gains. A
cumulative or aggregate total return reflects actual performance over a
stated period of time. An average annual total return is a hypothetical rate
of return that, if achieved annually, would have produced the same cumulative
total return if performance had been constant over the entire period.
The average annual total return of a 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
26
<PAGE>
assumes that all dividends and distributions are reinvested when paid. The
quotation assumes the amount was completely redeemed at the end of each one,
five and ten-year period and the deduction of all applicable Fund expenses on
an annual basis. Since Institutional Service Class Shares bear additional
service and distribution expenses, their average annual total return will
generally be lower than that of the Institutional Class Shares.
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).
The average annual total rates of return of the Institutional Class Shares of
the Portfolios are as follows:
<TABLE>
<CAPTION>
One Year Ended Since Inception
October 31, 1998 Through Year Ended
October 31, 1998 Inception Date
<S> <C> <C> <C>
McKee U. S. government
Portfolio 3/2/95
- --------------------------------------------------------------------------------------------
McKee Domestic Equity
Portfolio 3/2/95
- --------------------------------------------------------------------------------------------
McKee International Equity
Portfolio 5/26/94
- --------------------------------------------------------------------------------------------
McKee Small Cap Equity
Portfolio
- --------------------------------------------------------------------------------------------
</TABLE>
YIELD
- --------------------------------------------------------------------------------
Yield refers to the income generated by an investment in a portfolio over a
given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all funds. As this
differs from other accounting methods, the quoted yield may not equal the
income actually paid to shareholders.
The 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.
Yield is obtained using the following formula:
Yield = 2((a-b)/(cd)+1)/6/-1
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
- --------------------------------------------------------------------------------
The Portfolios' performance may be compared to data prepared by independent
services which monitor the performance of investment companies, data reported
in financial and industry publications, and various indices as further
described in the Portfolios' SAI. This information may also be included in
sales literature and advertising.
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. Please see APPENDIX B for publications, indices and averages
that may be used.
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 each portfolio, 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
each
27
<PAGE>
portfolio to calculate its performance. In addition, there can be no
assurance that each portfolio will continue this performance as compared to
such other averages.
TAXES
In order for a portfolio to continue to qualify for federal income tax
treatment as a regulated investment company under the Internal Revenue Code
of 1986, as amended, 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, as applicable.
Each portfolio will distribute to shareholders annually any net capital gains
that have been recognized for federal income tax purposes. Shareholders will
be advised on the nature of the payments.
If for any taxable year a portfolio does not qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code, all of
the portfolio's taxable income would be subject to tax at regular corporate
rates without any deduction for distributions to shareholders. In this event,
a portfolio's distributions to shareholders would be taxable as ordinary
income to the extent of the current and accumulated earnings and profits of
the particular portfolio, and would be eligible for the dividends received
deduction in the case of corporate shareholders. The portfolios intend to
qualify as a "regulated investment company" each year.
Dividends and interest received by each portfolio (except The McKee U.S.
government Portfolio) may give rise to withholding and other taxes imposed by
foreign countries. These taxes would reduce each portfolio's dividends but
are included in the taxable income reported on your tax statement if each
portfolio qualifies for this tax treatment and elects to pass it through to
you. Consult a tax adviser for more information regarding deductions and
credits for foreign taxes.
EXPENSES
<TABLE>
<CAPTION>
INVESTMENT INVESTMENT SUB-
ADVISORY FEES ADVISORY FEES ADMINISTRATOR ADMINISTRATOR BROKERAGE
PAID WAIVED FEE (UAMFSI) FEE (CGFSC) COMMISSIONS
<S> <C> <C> <C> <C> <C>
McKee International Equity Portfolio
1998
- ------------------------------------------------------------------------------------------------------------------------------------
1997 $738,184 $178,372 $115,116 $199,969
- ------------------------------------------------------------------------------------------------------------------------------------
1996 $618,081 $137,744 $ 56,555 $ 46342
- ------------------------------------------------------------------------------------------------------------------------------------
McKee U.S. government Portfolio
1998
- ------------------------------------------------------------------------------------------------------------------------------------
1997 $180,278 $ 99,215 $ 83,206
- ------------------------------------------------------------------------------------------------------------------------------------
1996 $ 48,813 $18,140 $ 67,641 $ 40,022
- ------------------------------------------------------------------------------------------------------------------------------------
McKee Domestic Equity Portfolio
1998
- ------------------------------------------------------------------------------------------------------------------------------------
1997 $589,228 $127,984 $ 91,727 $172,158
- ------------------------------------------------------------------------------------------------------------------------------------
1996 $222,792 $15,445 $ 74,694 $ 38,491 $ 73,898
- ------------------------------------------------------------------------------------------------------------------------------------
McKee Small Cap Equity Portfolio
1998
- ------------------------------------------------------------------------------------------------------------------------------------
1997
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
FINANCIAL STATEMENTS
The Financial Statements for each portfolio for the fiscal year ended October
31, 1998, the Financial Highlights for the respective periods presented, and
the report thereon by PricewaterhouseCoopers LLP, the Fund's independent
accountant, which appear in portfolio's 1998 Annual Report, are incorporated
by reference into this Statement of Additional Information. No other parts
are incorporated by reference herein. Copies of the 1998 Annual Report may be
obtained free of charge by telephoning the UAM Funds at the telephone number
appearing on the front page of this Statement of Additional Information.
28
<PAGE>
UAM FUNDS
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
THE NWQ PORTFOLIOS
NWQ BALANCED PORTFOLIO
NWQ SMALL CAP VALUE PORTFOLIO
NWQ SPECIAL EQUITY PORTFOLIO
INSTITUTIONAL CLASS SHARES
INSTITUTIONAL SERVICE CLASS SHARES
STATEMENT OF ADDITIONAL INFORMATION
__________, 1999
This statement of additional information (SAI) is not a prospectus. However, you
should read it in conjunction with the Prospectus of The NWQ Portfolios
Institutional Class Shares dated _______, 1999 and the Prospectus of The NWQ
Portfolios Institutional Service Class Shares dated _________, 1999. You may
obtain a Prospectus for The NWQ Portfolios by contacting the UAM Funds at the
address listed above.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
DEFINITIONS................................................................ 1
THE FUND................................................................... 1
DESCRIPTION OF THE PORTFOLIOS AND THEIR INVESTMENTS AND RISKS.............. 1
Equity Securities........................................................ 1
Debt Securities (NWQ Balanced and NWQ Special Equity Portfolios)........ 2
Derivatives (NWQ Special Equity Portfolio)............................... 6
Foreign Securities....................................................... 10
Investment Companies..................................................... 13
Repurchase Agreements.................................................... 13
Securities Lending....................................................... 13
Short-Term Investments................................................... 13
When-Issued, Forward Commitment and Delayed Delivery Transactions........ 15
Restricted Securities.................................................... 15
INVESTMENT POLICIES........................................................ 15
Fundamental Investment Policies.......................................... 15
Non-Fundamental Policies................................................. 16
MANAGEMENT OF THE PORTFOLIOS............................................... 16
CODE OF ETHICS............................................................. 17
PRINCIPAL HOLDERS OF SECURITIES............................................ 18
INVESTMENT ADVISORY AND OTHER SERVICES..................................... 18
Investment adviser....................................................... 18
Distributor.............................................................. 19
Administrative Services.................................................. 20
Custodian................................................................ 21
Independent Public Accountant............................................ 21
Service And Distribution Plans........................................... 21
BROKERAGE ALLOCATION AND OTHER PRACTICES................................... 23
Selection of Brokers..................................................... 23
Simultaneous Transactions................................................ 23
Brokerage Commissions.................................................... 23
CAPITAL STOCK AND OTHER SECURITIES......................................... 24
Description Of Shares And Voting Rights.................................. 24
Dividends and Capital Gains Distributions................................ 24
PURCHASE REDEMPTION AND PRICING OF SHARES.................................. 25
Purchase of Shares....................................................... 25
Redemption of Shares..................................................... 25
Exchange Privilege....................................................... 27
Transfer Of Shares....................................................... 27
Valuation of Shares...................................................... 27
PERFORMANCE CALCULATIONS................................................... 28
Total Return............................................................. 28
Yield.................................................................... 28
Comparisons.............................................................. 29
TAXES...................................................................... 29
EXPENSES................................................................... 30
FINANCIAL STATEMENTS....................................................... 30
</TABLE>
1
<PAGE>
DEFINITIONS
The "Fund" is UAM Funds, Inc.
The term "adviser" means NWQ Investment Management Company, the Fund's
investment adviser.
UAM is United Asset Management Corporation.
UAMFSI is UAM Fund Services, Inc., the Fund's administrator.
UAMFDI is UAM Fund Distributors, Inc., the Fund's distributor.
UAMSSC is UAM Fund Shareholder Servicing Center, the Fund's sub-shareholder-
servicing agent.
CGFSC is Chase Global Funds Service Company, the Fund's sub-administrator.
UAM Funds Complex includes UAM Funds, Inc., UAM Funds Trust, UAM Funds Trust
II and all of their portfolios.
The term "portfolios" is used to refer to The NWQ Portfolios as a group,
while "portfolio" refers to a single NWQ Portfolio.
The terms "board" and "governing board" refers to the Fund's Board of
Directors as a group, while "board member" refers to a single member of the
board.
All other defined terms, which are not otherwise defined in this SAI, have
the same meaning in the SAI as they do in the prospectuses of The NWQ
Portfolios.
THE FUND
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 Fund changed
its name to "UAM Funds, Inc." The Fund's principal executive office is
located at One International Place, Boston, MA 02110; shareholders should
direct all correspondence to the address listed on the cover of this SAI.
The Fund is an open-end, management investment company under the Investment
Company Act of 1940. The NWQ Portfolios are diversified series of the Fund.
This means that with respect to 75% of its total assets, the portfolio may
not invest more than 5% of its total assets in the securities of any one
issuer (except U.S. government securities). The remaining 25% of its total
assets are not subject to this restriction. To the extent the portfolio
invests a significant portion of its assets in the securities of a particular
issuer, it will be subject to an increased risk of loss if the market value
of such issuer's securities declines.
DESCRIPTION OF THE PORTFOLIOS AND THEIR INVESTMENTS AND RISKS
EQUITY SECURITIES
- --------------------------------------------------------------------------------
Some of the portfolios may invest in equity securities such as common and
preferred stocks. While investing in stocks allows a portfolio to participate
in the benefits of owning a company, a portfolio must accept the risks of
ownership. Unlike bondholders, who have preference to a company's earnings
and cash flow, preferred stockholders followed by common stockholders in
order of priority, are entitled only to the residual amount after a company
meets its other obligations. For this reason, the value of a company's stock
will usually react more strongly to actual or perceived changes in the
company's financial condition or prospects than its debt obligations.
Stockholders of a company that fares poorly can lose money.
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 values 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. Types of preferred stocks
1
<PAGE>
include adjustable-rate preferred stock, fixed dividend preferred stock,
perpetual preferred stock, and sinking fund preferred stock.
STOCK MARKET RISK
Stock markets tend to move in cycles with short or extended periods of rising
and falling stock prices. The value of a company's stock may fall because of:
. Factors that directly relate to that company, such as decisions made by
its management or lower demand for the company's products or services.
. Factors affecting an entire industry, such as increases in production
costs.
. Changes in financial market conditions that are relatively unrelated to
the company or its industry, such as changes in interest rates, currency
exchange rates or inflation rates.
RIGHTS AND WARRANTS
A portfolio may purchase warrants and rights, which are securities
permitting, but not obligating, their holder to purchase the underlying
securities at a predetermined price. Generally, warrants and stock purchase
rights do not carry with them the right to receive dividends or exercise
voting rights with respect to the underlying securities, and they do not
represent any rights in the assets of the issuer. Therefore, an investment in
warrants and rights may entail greater risk than certain other types of
investments. In addition, the value of warrants and rights does not
necessarily change with the value of the underlying securities, and they
cease to have value if they are not exercised on or prior to their expiration
date. Investment in warrants and rights increases the potential profit or
loss to be realized from the investment of a given amount of a portfolio's
assets as compared with investing the same amount in the underlying stock.
CONVERTIBLE SECURITIES
A portfolio may purchase corporate bonds, debentures and preferred stock that
are convertible into common stock. In exchange for the conversion feature,
many corporations will pay a lower rate of interest on convertible securities
than debt securities of the same corporation.
Convertible corporate bonds, debentures and preferred stock are subject to
the same risks as similar securities without the convertible feature. In
addition, their market price tends to go up if the stock price moves up. For
this reason, convertible securities are more volatile in price during times
of steady interest rates than other types of fixed income securities.
DEBT SECURITIES (NWQ BALANCED AND NWQ SPECIAL EQUITY PORTFOLIOS)
- --------------------------------------------------------------------------------
Debt securities are used by corporations and governments to borrow money from
investors. Most debt securities promise a variable or fixed rate of return
and repayment of the amount borrowed at maturity. Some debt securities, such
as zero-coupon bonds, do not pay current interest and are purchased at a
discount from their face value. Debt securities may include, among other
things, all types of bills, notes, bonds, mortgage-backed securities or
asset-backed securities.
The total return of a debt instrument is composed of two elements: the
percentage change in the security's price and interest income earned. The
YIELD TO MATURITY of a debt security estimates its total return only if the
price of the debt security remains unchanged during the holding period and
coupon interest is reinvested at the same yield to maturity. The total return
of a debt instrument, therefore, will be determined not only by how much
interest is earned, but also by how much the price of the security and
interest rates change.
INTEREST RATES
The price of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up, the value of the bond will go
down, and vice versa). One can estimate the anticipated change in the price
of a fixed rate security for each 1% shift in interest rates by using a risk
measure known as EFFECTIVE DURATION. An effective duration of 4 years, for
example, would suggest that for each 1% reduction in interest rates at all
maturity levels, the price of a security is estimated to increase by 4%. An
increase in rates by the same magnitude is estimated to reduce the price of
the security by 4%. By knowing the yield and the effective duration of a debt
security, one can estimate total return based on an expectation of how much
interest rates, in general, will change.
While serving as a good estimator of prospective returns, effective duration
is an imperfect measure. While lower interest rates generally improve the
value of a fixed income portfolio, lower interest rates may also introduce
certain risks which may independently cause the share price of the portfolio
to fall. Lower rates motivate people to pay off mortgage-backed and asset-
2
<PAGE>
backed securities earlier than expected, which introduces REINVESTMENT RISK.
Reinvesting portfolio assets at lower rates may reduce the yield of the
portfolio. The unexpected timing of mortgage and asset-backed prepayments
caused by the variations in interest rates may also shorten or lengthen the
AVERAGE MATURITY of the portfolio. Neglecting this drift in average maturity
may have the unintended effect of increasing or reducing the effective
duration of the portfolio which may in turn adversely affect the expected
performance of the portfolio.
CREDIT RATING
Coupon interest is offered to investors of fixed income securities as
compensation for assuming risk, although short-term U.S. treasury securities,
such as 3 month treasury bills, are considered "risk free." Corporate
securities offer higher yields than U.S. treasuries because their payment of
interest and complete repayment of principal is less certain. The credit
rating or financial condition of an issuer may affect the value of a debt
security. Generally, the lower the quality rating of a security, the greater
the risks that the issuer will fail to pay interest and return principal. To
compensate investors for taking on increased risk, issuers with lower credit
ratings usually offer their investors a higher "risk premium" in the form of
higher interest rates above comparable U.S. treasuries.
Changes in investor confidence regarding the certainty of interest and
principal payments of a fixed income corporate security will result in an
adjustment to this "risk premium." Since an issuer's outstanding debt carries
a fixed coupon, adjustments to the risk premium must occur in the price,
which effects the yield to maturity of the bond. If an issuer defaults or
becomes unable to honor its financial obligations, the bond may lose some or
all of its value.
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade. The adviser may retain securities that are downgraded, if
it believes that keeping those securities is warranted.
Rating agencies are organizations that assign ratings to securities based
primarily on the rating agency's assessment of the issuer's financial
strength. The portfolios currently use ratings compiled by Standard and
Poor's Ratings Services, Duff & Phelps Rating Co., Fitch IBCA, Inc. and,
Moody's Investor Services. Credit ratings are only an agency's opinion, not
an absolute standard of quality, and they do not reflect an evaluation of
market risk. APPENDIX A contains further information concerning the ratings
of certain rating agencies and their significance.
The adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time a portfolio buys it. A rating
agency may change its credit ratings at any time. The adviser monitors the
rating of the security and will take appropriate actions if a rating agency
reduces the security's rating. A portfolio is not obligated to dispose of
securities whose issuers subsequently are in default or which are downgraded
below the above-stated ratings.
INVESTMENT-GRADE FIXED-INCOME SECURITIES
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade.
JUNK BONDS
Debt securities rated below investment-grade (junk bonds) are highly
speculative securities that are usually issued by smaller, less credit worthy
and/or highly leveraged (indebted) companies. A corporation may issue a junk
bond because of a corporate restructuring or other similar event. Compared
with investment-grade bonds, junk bonds carry a greater degree of risk and
are less likely to make payments of interest and principal. Market
developments and the financial and business condition of the corporation
issuing these securities influences their price and liquidity more than
changes in interest rates, when compared to investment-grade debt securities.
Insufficient liquidity in the junk bond market may make it more difficult to
dispose of junk bonds and may cause a portfolio to experience sudden and
substantial price declines. A lack of reliable, objective data or market
quotations may make it more difficult to value junk bonds accurately.
U.S. GOVERNMENT SECURITIES
For a discussion of these securities see "SHORT-TERM INVESTMENTS - GOVERNMENT
SECURITIES," below.
3
<PAGE>
CORPORATE BONDS
For a discussion of these securities see "SHORT-TERM INVESTMENTS - CORPORATE
BONDS," below.
MORTGAGE-BACKED SECURITIES AND MORTGAGE PASS-THROUGH SECURITIES
Mortgage-backed securities are interests in pools of mortgage loans that
various governmental, government-related and private organizations assemble
as securities for sale to investors. Mortgage-backed securities differ from
other forms of debt securities because they make monthly payments that
consist of both interest and principal payments. (Other debt securities
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates.) In effect, these
payments are a "pass-through" of the monthly payments made by the individual
borrowers on their mortgage loans, net of any fees paid to the issuer or
guarantor of such securities.
Governmental entities, private insurers and the mortgage poolers may insure
or guaranty the timely payment of interest and principal of these pools
through various forms of insurance or guarantees, including individual loan,
title, pool and hazard insurance and letters of credit issue the insurance
and guarantees. The adviser will consider such insurance and guarantees and
the creditworthiness of the issuers thereof in determining whether a
mortgage-related security meets its investment quality standards. It is
possible that the private insurers or guarantors will not meet their
obligations under the insurance policies or guarantee arrangements.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA)
GNMA, a wholly owned U.S. government corporation within the Department of
Housing and Urban Development, is the principal governmental guarantor of
mortgage-related securities. GNMA, which is backed by the faith and credit of
the U.S. government, guarantees the timely payment of principal and interest
on securities issued by institutions approved by GNMA and backed by pools of
FHA-insured or VA-guaranteed mortgages. GNMA does not guarantee the market
value or yield of mortgage-backed securities or the value of portfolio
shares. To buy GNMA securities, a portfolio may have to pay a premium over
the maturity value of the underlying mortgages, which the portfolio may lose
if prepayment occurs.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)
FNMA is a government-sponsored corporation owned entirely by private
stockholders. FNMA, which is regulated by the Secretary of Housing and Urban
development, purchases conventional mortgages from a list of approved
seller/servicers, including 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, but are not backed by the
full faith and credit of the U.S. government.
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC)
FHLMC is a corporate instrumentality of the U.S. government whose stock is
owned by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970
to increase the availability of mortgage credit for residential housing.
FHLMC issues Participation Certificates (PCs) which represent interests in
conventional mortgages from its national portfolio. Like FNMA, FHLMC
guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the U.S.
government.
COMMERCIAL BANKS, SAVINGS AND LOAN INSTITUTIONS, PRIVATE MORTGAGE INSURANCE
COMPANIES, MORTGAGE BANKERS AND OTHER SECONDARY MARKET ISSUERS
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. In addition to
guaranteeing the mortgage-related security, such issuers may service and/or
have originated the underlying mortgage loans. Pools created by these issuers
generally offer a higher rate of interest than pools created by GNMA, FNMA &
FHLMC because they are not guaranteed by a government agency.
RISK OF INVESTING IN MORTGAGE-BACKED SECURITIES
Yield characteristics of mortgage-backed securities differ from those of
traditional fixed income securities. The major differences include interest
and principal payments that are more frequent (usually monthly), adjustable
interest rates, and the possibility
4
<PAGE>
that prepayments of principal may be made substantially earlier than their
final distribution dates so that the price of the security will generally
decline when interest rates rise.
The portfolio may fail to recover fully its investment in mortgage-backed
securities notwithstanding any direct or indirect governmental, agency or
other guarantee because the counter-party failed to meet its commitments.
Changes in interest rates and a variety of economic, geographic, social and
other factors, such as the sale of the underlying property, refinancing or
foreclosure, can cause the loans underlying a mortgage-backed security to be
repaid sooner than expected. If the prepayment rates increase, a portfolio
may have to reinvest its principal at a rate of interest that is lower than
the rate on existing mortgage-backed securities. Conversely, when interest
rates are rising many mortgage-backed securities will see a decline in the
prepayment rate, extending their average life. Extending the average life of
a mortgage-backed security increases the risk of depreciation due to future
increases in market interest rates. For these reasons, mortgage-backed
securities may be less effective than other types of U.S. government
securities as a means of "locking in" interest rates.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)
CMOs are hybrids between mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, CMOs usually pay interest and prepaid
principal semiannually. While whole mortgage loans may collateralize CMOs,
portfolios of mortgage-backed securities guaranteed by GNMA, FHLMC, or FNMA,
and their income streams more typically collateralize them.
A REMIC is a CMO that qualifies for special tax treatment under the Internal
Revenue Code of 1986, as amended, and invests in certain mortgages primarily
secured by interests in real property and other permitted investments.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC certificate, often referred to as a
"tranche," is issued at a specific interest rate and must be fully retired by
its final distribution date. Generally, all classes of CMOs or REMIC
certificates pay or accrue interest monthly. Investing in the lowest tranche
of CMOs and REMIC certificates involves risks similar to those associated
with investing in equity securities.
OTHER ASSET-BACKED SECURITIES
A broad range of assets, including automobile loans, computer leases and
credit card receivables, are being securitized in pass-through structures
similar to the mortgage pass-through or CMO structures described above. In
general, the collateral supporting these securities is of shorter maturity
than mortgage loans and is less likely to experience substantial prepayments
with interest rate fluctuations.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the
benefit of any security interest in the related assets, which raises the
possibility that recoveries on repossessed collateral may not be available to
support payments on these securities. For example, credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which allow debtors
to reduce their balances by offsetting certain amounts owed on the credit
cards. Most issuers of asset-backed securities backed by automobile
receivables permit the servicers of such receivables to retain possession of
the underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the rated asset-backed securities. Because
of the large number of vehicles involved and technical requirements under
state laws, the trustee for the holders of asset-backed securities backed by
automobile receivables may not have a proper security interest in all of the
obligations backing such receivables.
To lessen the effect of failures by obligors on underlying assets to make
payments, the entity administering the pool of assets may agree to ensure the
receipt of payments on the underlying pool occurs in a timely fashion
("liquidity protection"). In addition, asset-backed securities may obtain
insurance, such as guarantees, policies or letters of credit obtained by the
issuer or sponsor from third parties, for some or all of the assets in the
pool ("credit support"). Delinquency or loss more than that anticipated or
failure of the credit support could adversely affect the return on an
investment in such a security.
A portfolio may also invest in residual interests in asset-backed securities,
which is the excess cash flow remaining after making required payments on the
securities and paying related administrative expenses. The amount of residual
cash flow resulting from a particular issue of asset-backed securities
depends in part on the characteristics of the underlying assets, the coupon
rates on the securities, prevailing interest rates, the amount of
administrative expenses and the actual prepayment experience on the
underlying assets.
STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities are derivative multiple-class mortgage-
backed securities. Stripped mortgage-backed securities usually have two
classes that receive different proportions of interest and principal
distributions on a pool of mortgage assets. Typically, one class will receive
some of the interest and most of the principal, while the other class will
receive most of
5
<PAGE>
the interest and the remaining principal. In extreme cases, one class will
receive all of the interest ("interest only" or "IO" class) while the other
class will receive the entire principal (the "principal only" or "PO" class).
The cash flows and yields on IOs and POs are extremely sensitive to the rate
of principal payments (including prepayments) on the underlying mortgage
loans or mortgage-backed securities. A rapid rate of principal payments may
adversely affect the yield to maturity of IOs. Slower than anticipated
prepayments of principal may adversely affect the yield to maturity of a PO.
The yields and market risk of interest only and principal only stripped
mortgage-backed securities, respectively, may be more volatile than those of
other fixed income securities, including traditional mortgage-backed
securities.
DERIVATIVES (NWQ SPECIAL EQUITY PORTFOLIO)
- --------------------------------------------------------------------------------
Derivatives are financial instruments whose value is based on an underlying
asset, such as a stock or a bond, or an underlying economic factor, such as
an interest rate or an index. A portfolio tries to minimize its loss by
investing in derivatives to protect them from broad fluctuations in market
prices, interest rates or foreign currency exchange rates. Investing in
derivatives for these purposes is known as "hedging." When hedging is
successful, the portfolio will have offset any depreciation in the value of
its portfolio securities by the appreciation in the value of the derivative
position. Although techniques other than the sale and purchase of derivatives
could be used to control the exposure of the portfolio to market
fluctuations, the use of derivatives may be a more effective means of hedging
this exposure.
FUTURES
A futures contract is an agreement between two parties whereby one party is
obligated to buy and the other is obligated to sell a financial instrument at
an agreed upon price and time. The parties to a futures contract do not have
to pay for or deliver the underlying financial instrument until the delivery
date. The parties to a futures contract can hold the contract until its
delivery date, although in many cases they close the contract early by taking
an opposite position in an identical contract. The financial instrument
underlying the contract may be a stock, stock index, bond, bond index,
interest rate, foreign exchange rate or other similar instrument. A portfolio
will incur commission expenses in both opening and closing futures positions.
Futures contracts are traded in the United States on commodity exchanges or
boards of trade -- known as "contract markets" -- approved for such trading
and regulated by the Commodity Futures Trading Commission, a federal agency.
These contract markets standardize the terms, including the maturity date and
underlying financial instrument, of all futures contracts. Contract markets
require both the purchaser and seller to deposit "initial margin" with a
futures broker, known as a futures commission merchant, when they enter into
the contract. Initial margin deposits are typically equal to a percentage of
the contract's value. After they open a futures contract, the parties to the
transaction must compare the purchase price of the contract to its daily
market value. If the value of the futures contract changes in such a way that
a party's position declines, that party must make additional "variation
margin" payments so that the margin payment is adequate. On the other hand,
the value of the contract may change in such a way that there is excess
margin on deposit, possibly entitling the party that has a gain to receive
all or a portion of this amount.
A portfolio may take a "short position" by selling futures contracts on
securities it owns or on securities with characteristics similar to those of
securities it owns. For example, when a portfolio expects interest rates to
rise or securities prices to fall, it can seek to offset a decline in the
value of its holdings by selling futures contracts so that a portfolio is
obligated to sell the securities at a future lower price. When a portfolio's
short hedging position is successful, the appreciation in the value of the
futures position will offset substantially any depreciation in the value of
the holdings of the portfolio. On the other hand, a decline in the value of
the futures position would offset any unanticipated appreciation in the value
of the holdings of the portfolio.
On other occasions, a portfolio may take a "long" position by purchasing
futures contracts. For example, when a portfolio expects interest rates to
fall or securities' prices to rise, it can seek to secure a better rate or
price than might later be available by purchasing a futures contract. A
portfolio may also buy futures contracts as a substitute for transactions in
securities, to alter the investment characteristics of portfolio securities
or to gain or increase its exposure to a particular securities market.
OPTIONS
An option is a contract between two parties for the purchase and sale of a
financial instrument for a specified price (known as the "strike price" or
"exercise price") at any time during the option period. Unlike a futures
contract, an option grants a right (not an obligation) to buy or sell a
financial instrument. Generally, a seller of an option can grant a buyer two
kinds of rights: a "call" (the right to buy the security) or a "put" (the
right to sell the security). Options have various types of underlying
instruments, including specific securities, indices of securities prices,
foreign currencies, interest rates and futures contracts. Options may be
traded on an exchange (exchange-traded-options) or may be customized
agreements between the parties (over-the-counter or OTC options). Like
futures, a financial intermediary, known as a clearing corporation,
financially backs exchange-traded
6
<PAGE>
options. However, OTC options have no such intermediary and are subject to
the risk that the counter-party will not fulfill its obligations under the
contract.
PURCHASING PUT AND CALL OPTIONS
When a portfolio purchases a put option, it buys the right to sell the
instrument underlying the option at a fixed strike price. In return for this
right, the portfolio pays the current market price for the option (known as
the "option premium"). A portfolio may purchase put options to offset or
hedge against a decline in the market value of its securities ("protective
puts") or to benefit from a decline in the price of securities that it does
not own. The portfolio would ordinarily realize a gain if, during the option
period, the value of the underlying securities decreased below the exercise
price sufficiently to cover the premium and transaction costs. However, if
the price of the underlying instrument does not fall enough to offset the
cost of purchasing the option, a put buyer would lose the premium and related
transaction costs.
Call options are similar to put options, except that the portfolio buys the
right to purchase, rather than sell, the underlying instrument at the
option's strike price. A portfolio would normally purchase call options in
anticipation of an increase in the market value of securities it owns or
wants to buy. A portfolio would ordinarily realize a gain if, during the
option period, the value of the underlying instrument exceeded the exercise
price plus the premium paid and related transaction costs. Otherwise, the
portfolio would realize either no gain or a loss on the purchase of the call
option.
The purchaser of an option may terminate its position by:
. Allowing it to expire and losing its entire premium;
. Exercising the option and either selling (in the case of a put option) or
buying (in the case of a call option) the underlying instrument at the
strike price; or
. Closing it out in the secondary market at its current price.
SELLING (WRITING) PUT AND CALL OPTIONS
When a portfolio writes a call option it assumes an obligation to sell
specified securities to the holder of the option at a specified price if the
option is exercised at any time before the expiration date. Similarly, when a
portfolio writes a put option it assumes an obligation to purchase specified
securities from the option holder at a specified price if the option is
exercised at any time before the expiration date. A portfolio may terminate
its position in an exchange-traded put option before exercise by buying an
option identical to the one it has written. Similarly, it may cancel an over-
the-counter option by entering into an offsetting transaction with the
counter-party to the option.
A portfolio could try to hedge against an increase in the value of securities
it would like to acquire by writing a put option on those securities. If
security prices rise, the portfolio would expect the put option to expire and
the premium it received to offset the increase in the security's value. If
security prices remain the same over time, the portfolio would hope to profit
by closing out the put option at a lower price. If security prices fall, the
portfolio may lose an amount of money equal to the difference between the
value of the security and the premium it received. Writing covered put
options may deprive a portfolio of the opportunity to profit from a decrease
in the market price of the securities it would like to acquire.
The characteristics of writing call options are similar to those of writing
put options, except that call writers expect to profit if prices remain the
same or fall. A portfolio could try to hedge against a decline in the value
of securities it already owns by writing a call option. If the price of that
security falls as expected, the portfolio would expect the option to expire
and the premium it received to offset the decline of the security's value.
However, the portfolio must be prepared to deliver the underlying instrument
in return for the strike price, which may deprive it of the opportunity to
profit from an increase in the market price of the securities it holds.
A portfolio is permitted only to write covered options. A portfolio can cover
a call option by owning, at the time of selling the option:
. The underlying security (or securities convertible into the underlying
security without additional consideration), index, interest rate, foreign
currency or futures contract.
. A call option on the same security or index with the same or lesser
exercise price.
. A call option on the same security or index with a greater exercise
price, with the difference between the exercise prices maintained as a
segregated account containing cash, U.S. government securities or other
liquid high-grade debt securities.
7
<PAGE>
. Cash, U.S. government securities or other liquid high-grade debt or equity
securities equal to at least the market value of the optioned securities,
interest rate, foreign currency or futures contract.
. In the case of an index, a portfolio of securities that corresponds to the
index.
. A portfolio can cover a put option by, at the time of selling the option:
. Entering into a short position in the underlying security.
. Purchasing a put option on the same security, index, interest rate,
foreign currency or futures contract with the same or greater exercise
price.
. Purchasing a put option on the same security, index, interest rate,
foreign currency or futures contract with a lesser exercise price, with
the difference between the exercise prices maintained as a segregated
account containing cash, U.S. government securities or other liquid high-
grade debt securities.
. Maintaining the entire exercise price in liquid high-grade debt
securities.
OPTIONS ON SECURITIES INDICES
Options on securities indices are similar to options on securities, except
that the exercise of securities index options requires cash settlement
payments and does not involve the actual purchase or sale of securities. In
addition, securities index options are designed to reflect price fluctuations
in a group of securities or segment of the securities market rather than
price fluctuations in a single security.
OPTIONS ON FUTURES
An option on a futures contract provides the holder with the right to buy a
futures contract (in the case of a call option) or sell a futures contract
(in the case of a put option) at a fixed time and price. Upon exercise of the
option by the holder, the contract market clearing house establishes a
corresponding short position for the writer of the option (in the case of a
call option) or a corresponding long position (in the case of a put option).
If the option is exercised, the parties will be subject to the futures
contracts. In addition, the writer of an option on a futures contract is
subject to initial and variation margin requirements on the option position.
Options on futures contracts are traded on the same contract market as the
underlying futures contract.
The buyer or seller of an option on a futures contract may terminate the
option early by purchasing or selling an option of the same series (i.e., the
same exercise price and expiration date) as the option previously purchased
or sold. The difference between the premiums paid and received represents the
trader's profit or loss on the transaction.
A portfolio may purchase put and call options on futures contracts instead of
selling or buying futures contracts. A portfolio may buy a put option on a
futures contract for the same reasons it would sell a futures contract. It
also may purchase such put options in order to hedge a long position in the
underlying futures contract. A portfolio may buy call options on futures
contracts for the same purpose as the actual purchase of the futures
contracts, such as in anticipation of favorable market conditions.
A portfolio may write a call option on a futures contract to hedge against a
decline in the prices of the instrument underlying the futures contracts. If
the price of the futures contract at expiration were below the exercise
price, the portfolio would retain the option premium, which would offset, in
part, any decline in the value of its portfolio securities.
The writing of a put option on a futures contract is similar to the purchase
of the futures contracts, except that, if market price declines, the
portfolio would pay more than the market price for the underlying instrument.
The premium received on the sale of the put option, less any transaction
costs, would reduce the net cost to the portfolio.
COMBINED POSITIONS
A portfolio may purchase and write options in combination with each other, or
in combination with futures or forward contracts, to adjust the risk and
return characteristics of the overall position. For example, a portfolio
could construct a combined position whose risk and return characteristics are
similar to selling a futures contract by purchasing a put option and writing
a call option on the same underlying instrument. Alternatively, a portfolio
could write a call option at one strike price and buy a call option at a
lower price to reduce the risk of the written call option in the event of a
substantial price increase. Because combined options positions involve
multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.
ADDITIONAL RISKS OF DERIVATIVES
While transactions in derivatives may reduce certain risks, these
transactions themselves entail certain other risks. For example,
unanticipated changes in interest rates, securities prices or currency
exchange rates may result in a poorer overall performance
8
<PAGE>
of the portfolio than if it had not entered into any derivatives transactions.
Derivatives may magnify a portfolio's gains or losses, causing it to make or
lose substantially more than it invested.
When used for hedging purposes, increases in the value of the securities a
portfolio holds or intends to acquire should offset any losses incurred with a
derivative. Purchasing derivatives for purposes other than hedging could
expose the portfolio to greater risks.
CORRELATION OF PRICES
The portfolio's ability to hedge its securities through derivatives depends on
the degree to which price movements in the underlying index or instrument
correlate with price movements in the relevant securities. In the case of poor
correlation, the price of the securities a portfolio is hedging may not move
in the same amount, or even in the same direction as the hedging instrument.
The adviser will try to minimize this risk by investing only in those
contracts whose behavior it expects to resemble the portfolio securities it is
trying to hedge. However, if the portfolio's prediction of interest and
currency rates, market value, volatility or other economic factors is
incorrect, the portfolio may lose money, or may not make as much money as it
could have.
Derivative prices can diverge from the prices of their underlying instruments,
even if the characteristics of the underlying instruments are very similar to
the derivative. Listed below are some of the factors that may cause such a
divergence.
. Current and anticipated short-term interest rates, changes in volatility of
the underlying instrument, and the time remaining until expiration of the
contract.
. A difference between the derivatives and securities markets, including
different levels of demand, how the instruments are traded, the imposition
of daily price fluctuation limits or trading of an instrument stops.
. Differences between the derivatives, such as different margin requirements,
different liquidity of such markets and the participation of speculators in
such markets.
Derivatives based upon a narrower index of securities, such as those of a
particular industry group, may present greater risk than derivatives based on
a broad market index. Since narrower indices are made up of a smaller number
of securities, they are more susceptible to rapid and extreme price
fluctuations because of changes in the value of those securities.
While currency futures and options values are expected to correlate with
exchange rates, they may not reflect other factors that affect the value of
the investments of a portfolio. A currency hedge, for example, should protect
a Yen-denominated security from a decline in the Yen, but will not protect a
portfolio against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of a portfolio's foreign-denominated
investments changes in response to many factors other than exchange rates, it
may not be possible to match the amount of currency options and futures to the
value of the portfolio's investments precisely over time.
LACK OF LIQUIDITY
Before a futures contract or option is exercised or expires, a portfolio can
terminate it only by entering into a closing purchase or sale transaction.
This requires a secondary market for such instruments on the exchange where
the portfolio originally entered into the transaction. If there is no
secondary market for the contract, or the market is illiquid, a portfolio may
have to purchase or sell the instrument underlying the contract, make or
receive a cash settlement or meet ongoing variation margin requirements. The
inability to close out derivative positions could have an adverse impact on
the ability of the portfolio to hedge its investments and may prevent a
portfolio from realizing profits or limiting its losses.
Derivatives may become illiquid (i.e., difficult to sell at a desired time and
price) under a variety of market conditions. For example:
. During periods of market volatility, a commodity exchange may suspend or
limit trading in a particular derivative instrument, an entire category of
derivatives or all derivatives.
. A portfolio may have difficulty liquidating its existing positions or
recovering excess variation margin payments because of exchange or clearing
house equipment failures, government intervention, insolvency of a
brokerage firm or clearing house or other disruptions of normal trading
activity.
. Investors may lose interest in a particular derivative or category of
derivatives.
MANAGEMENT RISK
If the adviser incorrectly predicts stock market and interest rate trends, a
portfolio may lose money by investing in derivatives. For example, if a
portfolio were to write a call option based on its adviser's expectation that
the price of the underlying security
9
<PAGE>
would fall, but the price were to rise instead, the portfolio could be
required to sell the security upon exercise at a price below the current
market price. Similarly, if a portfolio were to write a put option based on
the adviser's expectation that the price of the underlying security would
rise, but the price were to fall instead, the portfolio could be required to
purchase the security upon exercise at a price higher than the current market
price.
MARGIN
Because of the low margin deposits required upon the opening of a derivative
position, such transactions involve an extremely high degree of leverage.
Consequently, a relatively small price movement in a derivative may result in
an immediate and substantial loss (as well as gain) to the portfolio and it
may lose more than it originally invested in the derivative.
If the price of a futures contract changes adversely, a portfolio may have to
sell securities at a time when it is disadvantageous to do so to meet its
minimum daily margin requirement. A portfolio may lose its margin deposits if
a broker with whom it has an open futures contract or related option becomes
insolvent or declares bankruptcy.
FOREIGN SECURITIES
- --------------------------------------------------------------------------------
RISKS OF FOREIGN SECURITIES
Foreign securities, foreign currencies, and securities issued by U.S. entities
with substantial foreign operations may involve significant risks in addition
to the risks inherent in U.S. investments.
Local political, economic, regulatory, or social instability, military action
or unrest, or adverse diplomatic developments may affect the value of foreign
investments. A foreign government may take actions adverse to the interests
of U.S. investors, including expropriation or nationalization of assets,
confiscatory taxation and other restrictions on U.S. investment.
FOREIGN CURRENCY RISK
The securities of foreign companies are frequently denominated in foreign
currencies. A portfolios' net asset value is denominated in U.S. dollars.
Thus, changes in foreign currency rates and in exchange control regulations
may positively or negatively affect the value of the securities of a
portfolio. A portfolio also may incur costs to convert foreign currencies into
U.S. dollars and vice versa. In addition:
. Foreign currency exchange rates reflect relative values of two currencies,
usually the U.S. dollar and the foreign currency in question.
. Complex political and economic factors applicable to the issuing country
may affect the value U.S. dollars and foreign currencies.
. The actions of U.S. and foreign governments may affect significantly the
currency exchange rates.
. government intervention may increase risks involved in purchasing or
selling foreign currency options, forward contracts and futures contracts,
since exchange rates may not be free to fluctuate in response to other
market forces.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
round-lot transactions in the inter-bank market and thus may not reflect
exchange rates for smaller odd-lot transactions (less than $1 million) where
rates may be less favorable. The inter-bank market in foreign currencies is a
global, around-the-clock market. To the extent that a market is closed while
the markets for the underlying currencies remain open, certain markets may not
always reflect significant price and rate movements.
THE EURO
The single currency for the European Economic and Monetary Union (EMU), the
Euro, is scheduled to replace the national currencies for participating member
countries over a period that begins on January 1, 1999, and ends in July 2002.
At the end of that period, use of the Euro will be compulsory and countries in
the EMU will no longer maintain separate currencies in any form. Until then,
however, each country and issuers within each country are free to choose
whether to use the Euro.
On January 1, 1999, existing national currencies will become denominations of
the Euro at fixed rates according to practices prescribed by the European
Monetary Institute and the Euro will become available as a book-entry
currency. Beginning on or about that date, the portfolio expects member
states to begin conducting financial market transactions in Euro and
redenominating many investments, currency balances and transfer mechanisms
into Euro. The portfolios also anticipate
10
<PAGE>
pricing, trading, settling and valuing investments whose nominal values remain
in their existing domestic currencies in Euro. Accordingly, the portfolios
expect the conversion to the Euro to impact investments in countries that will
adopt the Euro in all aspects of the investment process including, trading,
foreign exchange, payments, settlements, cash accounts, custody and accounting
will be impacted. Some of the uncertainties surrounding the conversion to the
Euro, include
. Will the payment and operational systems of banks and other financial
institutions be ready by the scheduled launch date?
. Will the conversion to the Euro have legal consequences on outstanding
financial contracts that refer to existing currencies rather than Euro?
. How will existing currencies be exchanged into Euro?
. Will suitable clearing and settlement payment systems for the new currency
be created?
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS (NWQ SPECIAL EQUITY PORTFOLIO)
A forward foreign currency contract involves an obligation to purchase or sell
a specific amount of currency at a future date or date range at a specific
price. In the case of a cancelable forward contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
Forward foreign currency exchange contracts differ from foreign currency
futures contracts in certain respects. Unlike futures contracts, forward
contracts
. do not have standard maturity dates or amounts (i.e., the parties to the
contract may fix the maturity date and the amount).
. are traded in the inter-bank markets conducted directly between currency
traders (usually large commercial banks) and their customers, as opposed to
futures contracts which are traded in only on exchanges regulated by the
CFTC.
. do not require an initial margin deposit.
. may be closed by entering into a closing transaction with the currency
trader who is a party to the original forward contract, as opposed to a
commodities exchange.
FOREIGN CURRENCY HEDGING STRATEGIES (NWQ SPECIAL EQUITY PORTFOLIO)
A "settlement hedge" or "transaction hedge" is designed to protect a portfolio
against an adverse change in foreign currency values between the date a
security is purchased or sold and the date on which payment is made or
received. Entering into a forward contract for the purchase or sale of the
amount of foreign currency involved in an underlying security transaction for
a fixed amount of U.S. dollars "locks in" the U.S. dollar price of the
security. A portfolio may also use forward contracts to purchase or sell a
foreign currency when it anticipates purchasing or selling securities
denominated in foreign currency, even if it has not yet selected the specific
investments.
A portfolio may also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. Such a hedge,
sometimes referred to as a "position hedge," would tend to offset both
positive and negative currency fluctuations, but would not offset changes in
security values caused by other factors. A portfolio could also hedge the
position by selling another currency expected to perform similarly to the
currency in which the portfolio's investment is denominated. This type of
hedge, sometimes referred to as a "proxy hedge," could offer advantages in
terms of cost, yield, or efficiency, but generally would not hedge currency
exposure as effectively as a direct hedge into U.S. dollars. Proxy hedges may
result in losses if the currency used to hedge does not perform similarly to
the currency in which the hedged securities are denominated.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities that a portfolio owns or intends to
purchase or sell. They simply establish a rate of exchange that one can
achieve at some future point in time. Additionally, these techniques tend to
minimize the risk of loss due to a decline in the value of the hedged currency
and to limit any potential gain that might result from the increase in value
of such currency.
A portfolio may enter into forward contracts to shift its investment exposure
from one currency into another. Such transactions may call for the delivery of
one foreign currency in exchange for another foreign currency, including
currencies in which its securities are not then denominated. This may include
shifting exposure from U.S. dollars to a foreign currency, or from one foreign
currency to another foreign currency. This type of strategy, sometimes known
as a "cross-hedge," will tend to reduce or eliminate exposure to the currency
that is sold, and increase exposure to the currency that is purchased. Cross-
hedges protect against losses resulting from a decline in the hedged currency,
but will cause a portfolio to assume the risk of fluctuations in the value of
the currency it purchases. Cross hedging transactions also involve the risk of
imperfect correlation between changes in the values of the currencies
involved.
It is difficult to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward or futures contract.
Accordingly, a portfolio may have to purchase additional foreign currency on
the spot market if the market value of a
11
<PAGE>
security it is hedging is less than the amount of foreign currency it is
obligated to deliver. Conversely, a portfolio may have to sell on the spot
market some of the foreign currency it received upon the sale of a security if
the market value of such security exceeds the amount of foreign currency it is
obligated to deliver.
STOCK EXCHANGE AND MARKET RISK
The adviser anticipates that in most cases an exchange or over-the-counter
(OTC) market located outside of the United States will be the best available
market for foreign securities. Foreign stock markets, while growing in volume
and sophistication, are generally not as developed as those in the United
States, and securities of some foreign issuers may be less liquid and more
volatile than securities of comparable U.S. issuers. Foreign security trading,
settlement and custodial practices are often less developed than those in U.S.
markets. This may lead to increased risk or substantial delays in case of a
failed trade or the insolvency of, or breach of duty by, a foreign broker-
dealer, securities depository or foreign sub-custodian. In addition, the costs
associated with foreign investments, including withholding taxes, brokerage
commissions and custodial costs, are generally higher than with U.S.
investments.
LEGAL SYSTEM AND REGULATION RISKS
Foreign countries have different legal systems and different regulations
concerning financial disclosure, accounting, and auditing standards.
Corporate financial information that would be disclosed under U.S. law may not
be available. Foreign accounting and auditing standards may render a foreign
corporate balance sheet more difficult to understand and interpret than one
subject to U.S. law and standards. Foreign markets may offer less protection
to investors than U.S. markets:
. Foreign accounting, auditing, and financial reporting requirements may
render a foreign corporate balance sheet more difficult to understand and
interpret than one subject to U.S. law and standards.
. Adequate public information on foreign issuers may not be available, and it
may be difficult to secure dividends and information regarding corporate
actions on a timely basis.
. In general, there is less overall governmental supervision and regulation
of securities exchanges, brokers, and listed companies than in the United
States.
. OTC markets tend to be less regulated than stock exchange markets and, in
certain countries, may be totally unregulated.
. Economic or political concerns may influence regulatory enforcement and may
make it difficult for investors to enforce their legal rights.
. Restrictions on transferring securities within the United States or to U.S.
persons may make a particular security less liquid than foreign securities
of the same class that are not subject to such restrictions.
EMERGING MARKETS
Investing in emerging markets may magnify the risks of foreign investing.
Security prices in emerging markets can be significantly more volatile than
those in more developed markets, reflecting the greater uncertainties of
investing in less established markets and economies. In particular, countries
with emerging markets may have (1) relatively unstable governments, (2) may
present the risks of nationalization of businesses, restrictions on foreign
ownership and prohibitions on the repatriation of assets, and (3) may have
less protection of property rights than more developed countries. The
economies of countries with emerging markets may be based on only a few
industries, may be highly vulnerable to changes in local or global trade
conditions, and may suffer from extreme and volatile debt burdens or inflation
rates. Local securities markets may trade a small number of securities and may
be unable to respond effectively to increases in trading volume, potentially
making prompt liquidation of holdings difficult or impossible at times.
Certain foreign governments levy withholding taxes on dividend and interest
income. Although in some countries a portfolio may recover a portion of these
taxes, the portion they cannot recover will reduce the income the portfolio
receives from its investments. The portfolios do not expect such foreign
withholding taxes to have a significant impact on performance.
AMERICAN DEPOSITARY RECEIPTS (ADRS)
American Depositary Receipts (ADRs) are certificates evidencing ownership of
shares of a foreign issuer. These certificates are issued by depository banks
and generally trade on an established market in the United States or
elsewhere. A custodian bank or similar financial institution in the issuer's
home country holds the underlying shares in trust. The depository bank may not
have physical custody of the underlying securities at all times and may charge
fees for various services, including forwarding dividends and interest and
corporate actions. ADRs are alternatives to directly purchasing the underlying
foreign securities in their
12
<PAGE>
national markets and currencies. However, ADRs continue to be subject to many
of the risks associated with investing directly in foreign securities.
INVESTMENT COMPANIES
- --------------------------------------------------------------------------------
The portfolios reserve the right to invest up to 10% of their total assets,
calculated at the time of investment, in the securities of other open-ended 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 advisor fee paid by the portfolio.
The Fund has received permission from the SEC to allow each of its portfolios
to invest, for cash management purposes, the greater of 5% of its total assets
or $2.5 million in the UAM DSI Money Market Portfolio, provided that the
investment is consistent with the portfolio's investment policies and
restrictions. Based upon the portfolio's assets invested in the UAM 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 UAM DSI Money Market Portfolio. The investing portfolio will bear
expenses of the UAM DSI Money Market Portfolio on the same basis as all of its
other shareholders.
REPURCHASE AGREEMENTS
- --------------------------------------------------------------------------------
In a repurchase agreement, a portfolio buys a security for a relatively short
period (usually not more than 7 days) and simultaneously agrees to sell it
back at a specified date and price. A portfolio normally uses repurchase
agreements to earn income on assets that are not invested. A portfolio will
require the counter-party to the agreement to deliver securities serving as
collateral for each repurchase agreement to its custodian either physically
or in book-entry form. The counter party must add to the collateral whenever
the price of the repurchase agreement rises (i.e., the borrower "marks to the
market" on a daily basis).
If the seller of the security declares bankruptcy or otherwise becomes
financially unable to buy back the security, the portfolio's right to sell
the security may be restricted. In addition, the value of the security might
decline before the portfolio can sell it and the portfolio might incur
expenses in enforcing its rights.
SECURITIES LENDING
- --------------------------------------------------------------------------------
To earn additional income, the portfolios may lend up to one-third of their
total assets (including the value of the collateral for the loans) at fair
market value to broker- dealers or other financial institutions. A portfolio
may reinvest any cash collateral in short-term securities and money market
funds. A portfolio will only lend its securities if
. The borrower provides collateral at least equal to the market value of the
securities loaned.
. The collateral pledged and maintained by the borrower must consist of cash,
an irrevocable letter of credit issued by a domestic U.S. bank or
securities issued or guaranteed by the U.S. government.
. The borrower adds to the collateral whenever the price of the securities
loaned rises (i.e., the borrower "marks to the market" on a daily basis).
. The portfolio can terminate the loan at any time; and
. The portfolio receives reasonable interest on the loan (which may include
the Portfolio investing any cash collateral in interest bearing short-term
investments).
These risks are similar to the ones involved with repurchase agreements. When
a portfolio lends securities, there is a risk that it will lose money because
the borrower fails to return the securities involved in the transaction. In
addition, the borrower may become financially unable to honor its contractual
obligations, which may delay or prevent the portfolio from liquidating the
collateral.
SHORT-TERM INVESTMENTS
- --------------------------------------------------------------------------------
To earn a return on uninvested assets, meet anticipated redemptions, or for
temporary defensive purposes, each portfolio may invest a portion of its
assets in the short-term investments, described below.
13
<PAGE>
BANK OBLIGATIONS
A portfolio will only invest in a security issued by a commercial bank if the
bank:
. Has total assets of at least $1 billion, or the equivalent in other
currencies;
. Is a U.S. bank and a member of the Federal Deposit Insurance Corporation;
and
. Is a foreign branch of a U.S. bank and the adviser believes the security is
of an investment quality comparable with other debt securities that a
portfolio may purchase.
TIME DEPOSITS
Time deposits are non-negotiable deposits, such as savings accounts or
certificates of deposit, held by a financial institution for a fixed term with
the understanding that the depositor can withdraw its money only by giving
notice to the institution. However, there may be early withdrawal penalties
depending upon market conditions and the remaining maturity of the obligation.
A portfolio may only purchase time deposits maturing from two business days
through seven calendar days.
CERTIFICATES OF DEPOSIT
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or savings and loan association for a definite
period of time and earning a specified return.
BANKER'S ACCEPTANCE
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).
COMMERCIAL PAPER
Commercial paper constitutes short-term obligations with maturities ranging
from 2 to 270 days issued by banks, corporations and other borrowers. Such
investments are unsecured and usually discounted. A portfolio may invest in
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. See APPENDIX A for a description
of commercial paper ratings.
U.S. GOVERNMENT SECURITIES
A portfolio may buy debt securities that are issued or guaranteed by the U.S.
Treasury or by an agency or instrumentality of the U.S. government. Some U.S.
government securities, such as Treasury bills, notes and bonds are supported
by the full faith and credit of the U.S. government. Others, however, are
supported only by the right of the instrumentality to borrow from the U.S.
government.
While U.S. government securities are guaranteed as to principal and interest,
their market value is not guaranteed. U.S. government securities are subject
to the same interest rate and credit risks as other fixed income securities.
However, since U.S. government securities are of the highest quality, the
credit risk is minimal. The U.S. government does not guarantee the net asset
value of the assets of a portfolio.
CORPORATE BONDS
A portfolio may buy corporate bonds and notes that are considered investment
grade securities. Investment grade securities have received one of the four
highest grades assigned by a rating agency, or determined to be of comparable
quality by the adviser. Corporations issue bonds and notes to raise money for
working capital or for capital expenditures such as plant construction,
equipment purchases and expansion. In return for the money loaned to the
corporation by investors, the corporation promises to pay investors interest,
and repay the principal amount of the bond or note.
Like other debt securities, corporate debt securities involve a risk that the
corporate issuer will not make timely payment of either interest or principal,
or may default entirely. In addition, the market price of corporate debt
securities may go down because of changes in interest rates.
14
<PAGE>
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED DELIVERY TRANSACTIONS
- --------------------------------------------------------------------------------
A when-issued security is one whose terms are available and for which a market
exists, but which have not been issued. In a forward delivery transaction, a
portfolio contracts to purchase securities for a fixed price at a future date
beyond customary settlement time. "Delayed delivery" refers to securities
transactions on the secondary market where settlement occurs in the future. In
each of these transactions, the parties fix the payment obligation and the
interest rate that they will receive on the securities at the time the parties
enter the commitment; however, they do not pay money or delivery securities
until a later date. Typically, no income accrues on securities a portfolio
has committed to purchase before the securities are delivered, although the
portfolio may earn income on securities it has in a segregated account. A
portfolio will only enter into these types of transactions with the intention
of actually acquiring the securities, but may sell them before the settlement
date.
A portfolio uses when-issued, delayed-delivery and forward delivery
transactions to secure what it considers being an advantageous price and yield
at the time of purchase. When a portfolio engages in when-issued, delayed-
delivery and forward delivery transactions, it relies on the other party to
consummate the sale. If the other party fails to complete the sale, the
portfolio may miss the opportunity to obtain the security at a favorable price
or yield.
When purchasing a security on a when-issued, delayed delivery, or forward
delivery basis, the portfolio assumes the rights and risks of ownership of the
security, including the risk of price and yield changes. At the time of
settlement, the market value of the security may be more or less than the
purchase price. The yield available in the market when the delivery takes
place also may be higher than those obtained in the transaction itself.
Because a portfolio does not pay for the security until the delivery date,
these risks are in addition to the risks associated with its other
investments.
RESTRICTED SECURITIES
- --------------------------------------------------------------------------------
Each portfolio may purchase restricted securities that are not registered for
sale to the general public but which are eligible for resale to qualified
institutional investors under Rule 144A of the Securities Act of 1933. Under
the supervision of the Fund's board, the adviser determines the liquidity of
such investments by considering all relevant factors. Provided that a dealer
or institutional trading market in such securities exists, these restricted
securities are not treated as illiquid securities for purposes of a
portfolio's investment limitations. The priced realized from the sales of
these securities could be more or less than those originally paid by the
portfolio or less than what may be considered the fair value of such
securities.
INVESTMENT POLICIES
Whenever an investment limitation sets forth a percentage limitation on
investment or utilization of assets, such limitation shall (with the exception
of a limitation relating to borrowing) be determined immediately after and as
a result of a portfolio's acquisition of such security or other asset.
Accordingly, any later increase or decrease resulting from a change in values,
net assets or other circumstances will not be considered when determining
whether the investment complies with the investment limitations of the
portfolio.
FUNDAMENTAL INVESTMENT POLICIES
- --------------------------------------------------------------------------------
The following investment limitations are fundamental, which means a portfolio
cannot change them without shareholder approval. Each portfolio will not:
. with respect to 75% of its assets, invest more than 5% of its total assets
at the time of purchase in 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);
. with respect to 75% of its assets, purchase more than 10% of any class of
the outstanding voting securities of any issuer;
. borrow money, except (1) from banks and as a temporary measure for
extraordinary or emergency purposes and then, in no event, in excess of 33
1/3% (10% for the NWQ Balanced Portfolio) of the portfolio's gross assets
valued at the lower of market or cost;
. invest for the purpose of exercising control over management of any
company;
. invest in physical commodities or contracts on physical commodities;
15
<PAGE>
. invest more than 25% of its assets in companies within a single industry;
however, there are no limitations on investments made in instruments issued
or guaranteed by the U.S. government and its agencies when the portfolio
adopts a temporary defensive position;
. invest more than an aggregate of 15% of the net 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 ;
. issue senior securities, as defined in the Investment Company Act of 1940,
as amended, except that this restriction shall not be deemed to prohibit a
portfolio from (1) making any permitted borrowings, mortgages or pledges,
or (2) entering repurchase transactions;
. make loans except by purchasing debt securities in accordance with its
investment objective and policies, or entering into repurchase agreements,
or by lending its portfolio securities to banks, brokers, dealers and other
financial institutions so long as the loans are made in compliance with the
Investment Company Act of 1940, as amended, and the Rules and Regulations
or interpretations of the SEC;
. purchase on margin or sell short;
. purchase or retain securities of an issuer if those officers and board
members or its investment adviser owning more than 1/2 1/2 of 1% of such
securities together own more than 5% of such securities;
. purchase or sell real estate or real estate limited partnerships, 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;
. underwrite the securities of other issuers; and
. write or acquire options or interests in oil, gas, mineral leases or other
mineral exploration or development programs.
NON-FUNDAMENTAL POLICIES
- --------------------------------------------------------------------------------
The following investment limitations are non-fundamental, which means that the
portfolios may change them without shareholder approval. The portfolios will
not:
. 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;
. pledge, mortgage, or hypothecate any of its assets to an extent greater
than 33 1/3% (10% for the NWQ Balanced Portfolio) of its total assets at
fair market value; and
. purchase additional securities when borrowings exceed 5% of total assets.
MANAGEMENT OF THE PORTFOLIOS
The business of the Fund is managed by its governing board, which, in turn,
elects officers who are responsible for the day-to-day operations of the Fund
and who execute policies formulated by the board. The Fund pays each board
member who is not also an officer or affiliated person (independent board
member) a $150 quarterly retainer fee per active portfolio per quarter and a
$2,000 meeting fee. In addition, each independent board member is reimbursed
for travel and other expenses incurred while attending board meetings. The
$2,000 meeting fee and expense reimbursements are aggregated for all of the
board members and allocated proportionately among the portfolios of the UAM
Funds complex. The Fund does not pay the remaining board members, each of whom
are affiliated with the Fund, for their services as board members. UAM or its
affiliates or CGFSC pay the Fund's officers.
The following table lists the board members and officers of the Fund and
provides information regarding their present positions, date of birth,
address, principal occupations during the past five years, aggregate
compensation received from the Fund and total compensation received from the
UAM Funds complex.
<TABLE>
<CAPTION>
Total
Aggregate Compensation
Position Compensation from From UAM
UAM Registrant as of Funds Complex as
Name, Address, DOB Funds, Inc. Principal Occupations During the Past 5 years October 31, 1998 of October 31, 1998
<S> <C> <C> <C> <C>
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Total
Aggregate Compensation
Position Compensation from From UAM
UAM Registrant as of Funds Complex as
Name, Address, DOB Funds, INC. Principal Occupations During The Past 5 Years October 31, 1998 of October 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John T. Bennett, Jr. Director President of Squam Investment Management Company,
College Road -- RFD 3 Inc. and Great Island Investment Company, Inc.;
Meredith, NH 03253 President of Bennett Management Company from
1/26/29 1988 to 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Nancy J. Dunn Director Vice President for Finance and Administration
10 Garden Street and Treasurer of Radcliffe College since 1991.
Cambridge, MA 02138
8/14/51
- ------------------------------------------------------------------------------------------------------------------------------------
William A. Humenuk Director Executive Vice President and Chief Administrative
100 King Street West Officer of Philip Services Corp.; Director, Hofler
P.O. Box 2440, LCD-1, Corp.; Formerly, a Partner in the Philadelphia
Hamilton Ontario, office of the law firm Dechert Price & Rhoads.
Canada L8N-4J6
4/21/42
- ------------------------------------------------------------------------------------------------------------------------------------
Philip D. English Director President and Chief Executive Officer of
16 West Madison Street Broventure Company, Inc.; Chairman of the
Baltimore, MD 21201 Board of Chektec Corporation and Cyber
8/5/48 Scientific, Inc
- ------------------------------------------------------------------------------------------------------------------------------------
Norton H. Reamer* Director, Chairman, Chief Executive Officer and a 0 0
One International Place President Director of United Asset Management
Boston, MA 02110 and Corporation; Director, Partner or Trustee
3/21/35 Chairman of each of the Investment Companies of the
Eaton Vance Group of Mutual Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
Peter M. Whitman, Jr.* Director President and Chief Investment Officer 0 0
One Financial Center of Dewey Square Investors Corporation
Boston, MA 02111 since 1988; Director and Chief Executive
7/1/43 Officer of H.T. Investors, Inc., formerly
a subsidiary of Dewey Square.
- ------------------------------------------------------------------------------------------------------------------------------------
William H. Park Vice Executive Vice President and Chief 0 0
One International Place President Financial Officer of United Asset
Boston, MA 02110 Management Corporation.
9/19/47
- ------------------------------------------------------------------------------------------------------------------------------------
Gary L. French Treasurer President of UAMFSI and UAMFDI, 0 0
211 Congress Street formerly Vice President of Operations,
Boston, MA 02110 Development and Control of Fidelity Investments
7/4/51 in 1995; Treasurer of the Fidelity Group
of Mutual Funds from 1991 to 1995.
- ------------------------------------------------------------------------------------------------------------------------------------
Michael E. DeFao Secretary Vice President and General Counsel 0 0
211 Congress Street of UAMFSI and UAMFDI; Associate Attorney
Boston, MA 02110 of Ropes & Gray (a law firm) from 1993 to 1995.
2/28/68
- ------------------------------------------------------------------------------------------------------------------------------------
R. Flaherty Assistant Vice President of UAMFSI; formerly 0 0
211 Congress Street Treasurer Manager of Fund Administration and
Boston, MA 02110 Compliance of CGFSC from 1995 to 1996;
9/18/63 Deloitte & Touche LLP from 1985 to
1995, Senior Manager.
- ------------------------------------------------------------------------------------------------------------------------------------
Michael J. Leary Assistant Vice President of Chase Global Funds 0 0
73 Tremont Street Treasurer Services Company since 1993. Manager
Boston, MA 02108 of Audit at Ernst & Young from 1988 to 1993.
11/23/65
- ------------------------------------------------------------------------------------------------------------------------------------
Michelle Azrialy Assistant Assistant Treasurer of Chase Global 0 0
73 Tremont Street Secretary Funds Services Company since 1996.
Boston, MA 02108 Senior Public Accountant with Price
4/12/69 Waterhouse LLP from 1991 to 1994.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
_________
*These board members are "interested persons" of the Fund as that term is
defined in the 1940 Act.
CODE OF ETHICS
The Fund has adopted a Code of Ethics that restricts to a certain extent
personal transactions by access persons of the Fund and imposes certain
disclosure and reporting obligations.
17
<PAGE>
PRINCIPAL HOLDERS OF SECURITIES
As of ____________, 1998, the members of the governing board and officers of
the Fund as a group owned less than 1% of the Fund's outstanding shares.
As of ____________, 1998, the following persons or organizations held of
record or beneficially 5% or more of the shares of a portfolio:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
PERCENTAGE OF
NAME AND ADDRESS OF SHAREHOLDER SHARES OWNED PORTFOLIO CLASS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Any persons or organizations listed above as owning 25% or more of the
outstanding shares of a portfolio may be presumed to "control" (as that term
is defined in the 1940 Act) the 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 the
portfolio.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
CONTROL OF ADVISER
The adviser is located at One Financial Center, Boston, MA 02111. The
adviser is a wholly-owned subsidiary of UAM and has provided investment
management services to corporations, pension and profit-sharing plans, 401(k)
and thrift plans, trusts, estates and other institutions and individuals since
1970.
UAM is 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 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. Several UAM
Affiliated Firms also act as investment advisers to separate series or
portfolios of the UAM Funds complex.
INVESTMENT ADVISORY AGREEMENT
SERVICE PERFORMED BY ADVISER
Pursuant to each Investment Advisory Agreement (Advisory Agreement) between
the Fund, on behalf of each portfolio, and the adviser, the adviser has agreed
to:
. Manage the investment and reinvestment of the assets of the portfolios.
. Continuously review, supervise and administer the investment program of the
portfolios.
. Determine in its discretion the securities a portfolio will buy or sell and
the portion of its assets such portfolio will hold uninvested.
LIMITATION OF LIABILITY
In the absence of (1) willful misfeasance, bad faith, or gross negligence of
the part of the adviser in the performance of its obligations and duties under
the Advisory Agreement, (2) reckless disregard by the adviser of its
obligations and duties under the Advisory Agreement, or (3) a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation
for services, the adviser shall not be subject to any liability whatsoever to
the Fund, for any error of judgment, mistake of law or any other act or
omission in the course of, or connected with, rendering services under the
Advisory Agreements.
18
<PAGE>
CONTINUING AN ADVISORY AGREEMENT
Unless sooner terminated, an Advisory Agreement shall continue for periods of
one year so long as such continuance is specifically approved at least
annually (a) by a majority of those members of the governing board of the Fund
who are not parties to the Advisory Agreement or interested persons of any
such party and (b) by a majority of the governing board of the Fund or a
majority of the shareholders of the portfolio. An Advisory Agreement may be
terminated at any time by the Fund, without the payment of any penalty, by
vote of a majority of the portfolios' shareholders on 60 days' written notice
to the adviser. The adviser may terminate the Advisory Agreements at any time,
without the payment of any penalty, upon 90 days' written notice to the Fund.
An Advisory Agreement will automatically and immediately terminate if it is
assigned.
INVESTMENT ADVISORY FEE
For its services, the adviser receives an advisory fee calculated by applying
the annual percentage rates listed below to the average daily net assets of
the portfolio for the month. The adviser's fee is paid in monthly
installments.
------------------------------------------------------------------------------
ANNUAL PERCENTAGE RATE
------------------------------------------------------------------------------
NWQ Balanced Portfolio 0.70%
------------------------------------------------------------------------------
NWQ Small Cap Value Portfolio 1.00%
------------------------------------------------------------------------------
NWQ Special Equity Portfolio 0.85%
------------------------------------------------------------------------------
EXPENSE LIMITATION
The adviser may voluntarily agree to limit the expenses of portfolios. The
adviser may further reduce its compensation to the extent that the expenses of
a portfolio exceeds such lower expense limitation as the adviser may, by
notice to the portfolio, declare to be appropriate. The expenses subject to
this limitation are exclusive of brokerage commissions, interest, taxes,
deferred organizational and extraordinary expenses and, if the Fund has a
distribution plan, payments required under such plan. The prospectus describes
the terms of any expense limitation that are in effect from time to time.
PHILOSOPHY AND STYLE
The adviser strives to achieve enhanced risk-adjusted returns or what is
commonly referred to as Northwest quadrant performance. The adviser utilizes a
top-down, theme-driven approach to value and believes the most important
investment decision is determining the major, long-term, macro-economic trends
that drive market prices. From this macro-economic standpoint, The adviser
develops a dominant theme that focuses on those market sectors that they
believe will be the primary beneficiaries of underlying
economic/monetary/social trends. Within these sectors that possess a
fundamental "tailwind," the adviser seeks to identify statistically
undervalued companies by applying traditional value screens. The adviser's
fundamental research focuses on companies that possess below-average price-to-
book and price-to-earnings ratios and above-average dividend yields. The
adviser's investment objective is to achieve consistently enhanced returns on
an absolute and risk-adjusted basis, throughout a variety of economic
environments.
Regarding The NWQ Special Equity Portfolio, the adviser seeks to identify
statistically undervalued companies where a catalyst exists to recognize value
or improve a company's profitability. The stock selection process is
opportunistic and is driven by a strong bottom-up fundamental research,
focusing on both qualitative and quantitative measures.
REPRESENTATIVE INSTITUTIONAL CLIENTS
As of the date of this SAI, the adviser's representative institutional clients
included American Airlines, Raytheon Corp., Bank of Boston, and Guy Gannett
Publishing.
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.
DISTRIBUTOR
- --------------------------------------------------------------------------------
UAMFDI serves as the Fund's distributor. The Fund offers its shares
continuously. While UAMFDI will use its best efforts to sell shares of the
Fund, it is not obligated to sell any particular amount of shares. UAMFDI
receives no compensation for its services. UAMFDI, an affiliate of UAM, is
located at 211 Congress Street, Boston, Massachusetts 02110.
19
<PAGE>
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
ADMINISTRATOR
Pursuant to a Fund Administration Agreement with the Fund, UAMFSI manages,
administers and conducts the general business activities of the Fund. As a
part of its responsibilities, UAMFSI provides and oversees the provision by
various third parties of administrative, fund accounting, dividend disbursing
and transfer agent services for the Fund. UAMFSI, an affiliate of UAM, has its
principal office at 211 Congress Street, Boston, Massachusetts 02110.
UAMFSI will bear all expenses in connection with the performance of its
services under the Fund Administration Agreement. Other expenses to be
incurred in the operation of the Fund will be borne by the Fund or other
parties, including
. Taxes, interest, brokerage fees and commissions.
. Salaries and fees of officers and members of the Board who are not officers,
directors, shareholders or employees of an affiliate of UAM, including
UAMFSI, UAMFDI or the adviser.
. SEC fees and states Blue-Sky fees.
. EDGAR filing fees.
. Processing services and related fees.
. Advisory and administration fees.
. Charges and expenses of pricing and data services, independent public
accountants and custodians.
. Insurance premiums including fidelity bond premiums.
. Outside legal expenses.
. Costs of maintenance of corporate existence.
. Typesetting and printing of prospectuses for regulatory purposes and for
distribution to current shareholders of the Fund.
. Printing and production costs of shareholders' reports and corporate
meetings.
. Cost and expenses of Fund stationery and forms.
. Costs of special telephone and data lines and devices.
. Trade association dues and expenses.
. Any extraordinary expenses and other customary Fund expenses.
Unless sooner terminated, the Fund Administration Agreement shall continue in
effect from year to year provided the board specifically approves such
continuance at least annually. The Board or UAMFSI may terminate the Fund
Administration Agreement, without penalty, on not less than ninety (90) days'
written notice. The Fund Administration Agreement shall automatically
terminate upon its assignment by UAMFSI without the prior written consent of
the Fund.
UAMFSI will from time to time employ or associate with such person or persons
as may be fit to assist them in the performance of the Fund Administration
Agreement. Such person or persons may be officers and employees who are
employed by both UAMFSI and the Fund. UAMFSI will pay such person or persons
for such employment. The Fund will not incur any obligations with respect to
such persons.
SUB-ADMINISTRATOR
UAMFSI has subcontracted some of the its administrative and fund accounting
services to CGFSC, an affiliate of The Chase Manhattan Bank, by a Mutual Funds
Service Agreement dated April 15, 1996. CGFSC is located at 73 Tremont Street,
Boston, Massachusetts 02108.
SUB-TRANSFER AGENT AND SUB-SHAREHOLDER SERVICING AGENT
UAMFSI has subcontracted its transfer agent and dividend-disbursing agent
services to DST Systems, Inc. under an Agency Agreement between UAMFSI and DST
Systems Inc. DST Systems, Inc., is located at P.O. Box 419534, Kansas City,
Missouri 64141-6534.
UAMSSC serves as sub-shareholder servicing agent for the Fund under an
agreement between UAMSSC and UAMFSI. The principal place of business of UAMSSC
is 825 Duportail Road, Wayne, Pennsylvania 19087.
20
<PAGE>
Administrative Fees
In exchange for administrative services, each portfolio pays a four-part fee
to UAMFSI as follows:
A. A portfolio specific fee to UAMFSI calculated from the aggregate net
assets of each portfolio at the following rates:
<TABLE>
<CAPTION>
Annual Rate
<S> <C>
NWQ Balanced Portfolio 0.06%
----------------------------------------------------------------------------------------------------
NWQ Small Cap Value Portfolio 0.04%
----------------------------------------------------------------------------------------------------
NWQ Special Equity Portfolio 0.04%
----------------------------------------------------------------------------------------------------
</TABLE>
B. An annual base fee that UAMFSI pays to CGFSC for its sub-administration and
other services calculated at the annual rate of $52,500 for the first
operational class; $7,500 for each additional operational class; and 0.04%
of their pro rata share of the combined assets of the UAM Funds.
C. An annual base fee that UAMFSI pays to DST Systems, Inc. for its services
as transfer agent and dividend-disbursing agent equal to $10,500 for the
first operational class and $10,500 for each additional class.
D. An annual base fee that UAMFSI pays to UAMSSC for its services as sub-
shareholder-servicing agent equal to $7,500 for the first operational class
and $2,500 for each additional class.
Each portfolio also pays certain account and transaction fees and out-of-
pocket expenses that may be based on the number of open and closed accounts,
the type of account or the services provided to the account.
CUSTODIAN
- --------------------------------------------------------------------------------
The Chase Manhattan Bank, 3 Chase MetroTech Center, Brooklyn, New York 11245,
provides for the custody of the Fund's assets pursuant to the terms of a
custodian agreement with the Fund.
INDEPENDENT PUBLIC ACCOUNTANT
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as independent accountants for the Fund.
SERVICE AND DISTRIBUTION PLANS
- --------------------------------------------------------------------------------
The Fund has adopted a Distribution Plan and a Shareholder Servicing Plan (the
"Plans") for their Institutional Service Class Shares pursuant to Rule 12b-1
under the Investment Company Act of 1940.
Shareholder Servicing Plan
The Shareholder Servicing Plan (Service Plan) permits the Fund to compensate
broker-dealers or other financial institutions (Service Agents) that have
agreed with UAMFDI to provide administrative support services to Institutional
Service Class shareholders that are their customers. Under the Service Plan,
Institutional Service Class Shares may pay service fees at the maximum annual
rate of 0.25% of the average daily net asset value of such shares held by the
Service Agent for the benefit of its customers. The Fund pays these fees out
of the assets allocable to Institutional Service Class Shares to UAMFDI, to
the Service Agent directly or through UAMFDI. Each item for which a payment
may be made under the Service Plan constitutes personal service and/or
shareholder account maintenance and may constitute an expense of distributing
Fund Service Class Shares as the SEC construes such term under Rule 12b-1.
Services for which Institutional Service Class Shares may compensate Service
Agents include:
. Acting as the sole shareholder of record and nominee for beneficial owners.
. Maintaining account records for such beneficial owners of the Fund's shares.
. Opening and closing accounts.
. Answering questions and handling correspondence from shareholders about
their accounts.
. Processing shareholder orders to purchase, redeem and exchange shares.
. Handling the transmission of funds representing the purchase price or
redemption proceeds.
. Issuing confirmations for transactions in the Fund's shares by shareholders.
21
<PAGE>
. Distributing current copies of prospectuses, statements of additional
information and shareholder reports.
. Assisting customers in completing application forms, selecting dividend and
other account options and opening any necessary custody accounts.
. Providing account maintenance and accounting support for all transactions.
. Performing such additional shareholder services as may be agreed upon by the
Fund and the Service Agent, provided that any such additional shareholder
services must constitute a permissible non-banking activity in accordance
with the then current regulations of, and interpretations thereof by, the
Board of Governors of the Federal Reserve System, if applicable.
RULE 12B-1 DISTRIBUTION PLAN
The Distribution Plan permits a portfolio to pay UAMFDI or others for certain
distribution, promotional and related expenses involved in marketing its
Institutional Service Class Shares. Under the Distribution Plan, Institutional
Service Class Shares may pay distribution fees at the maximum annual rate of
0.75% of the average daily net asset value of such shares held by the Service
Agent for the benefit of its customers. These expenses include, among other
things:
. Advertising the availability of services and products.
. Designing materials to send to customers and developing methods of making
such materials accessible to customers.
. Providing information about the product needs of customers.
. Providing facilities to solicit Fund sales and to answer questions from
prospective and existing investors about the Fund.
. Receiving and answering correspondence from prospective investors, including
requests for sales literature, prospectuses and statements of additional
information.
. Displaying and making available sales literature and prospectuses.
. Acting as liaison between shareholders and the Fund, including obtaining
information from the Fund and providing performance and other information
about the Fund.
In addition, the Service Class Shares may make payments directly to other
unaffiliated parties, who either aid in the distribution of their shares or
provide services to the Class.
FEES PAID UNDER THE SERVICE AND DISTRIBUTION PLANS
The Plans permit Institutional Service Class shares to pay distribution and
service fees at the maximum annual rate of 1.00% of the class' average daily
net assets for the year. The Fund's governing board has limited the amount
the Institutional Service Class may pay under the Plans to 0.25% of the class'
average daily net assets for the year, and may increase such amount to the
plan maximum at any time.
The Fund will not reimburse the Distributor or others for distribution
expenses incurred in excess of the amount permitted by the Plans.
Subject to seeking best price and execution, the Fund may buy or sell
portfolio securities through firms that receive payments under the Plans.
UAMFDI, at its own expense, may pay dealers for aid in distribution or for aid
in providing administrative services to shareholders.
APPROVING, AMENDING AND TERMINATING THE FUND'S DISTRIBUTION ARRANGEMENTS
Shareholders of each portfolio have approved the Plans. The Plans also were
approved by the governing board of the Fund, including a majority of the
members of the board who are not interested persons of the Fund and who have
no direct or indirect financial interest in the operation of the Plans (Plan
Members), by votes cast in person at meetings called for the purpose of voting
on these Plans.
Continuing the Plans
The Plans continue in effect from year to year so long as they are approved
annually by a majority of the Fund's board members and its Plan Members. To
continue the Plans, the board must determine whether such continuation is in
the best interest of the Institutional Service Class shareholders and that
there is a reasonable likelihood of the Plans providing a benefit to the
Class. The Fund's board has determined that the Fund's distribution
arrangements are likely to benefit the Fund and its shareholders by enhancing
the Fund's ability to efficiently service the accounts of its Institutional
Service Class shareholders.
22
<PAGE>
Amending the Plans
A majority of the Fund's governing board and a majority of its the Plan
Members must approve any material amendment to the Plans. Likewise, any
amendment materially increasing the maximum percentage payable under the Plans
must be approved by a majority of the outstanding voting securities of the
Class, as well as by a majority of the Plan Members.
Terminating the Plans
A majority of the Plan Members or a majority of the outstanding voting
securities of the Class may terminate the Plans at any time without penalty.
In addition, the Plans will terminate automatically upon their assignment.
Miscellaneous
So long as the Plans are in effect, the non-interested board members will
select and nominate the Plan Members of the Fund.
The Fund and UAMFDI intend to comply with the Conduct Rules of the National
Association of Securities Dealers relating to investment company sales
charges. with these rules.
Pursuant to the Plans, the board reviews, at least quarterly, a written report
of the amounts expended under each agreement with Service Agents and the
purposes for which the expenditures were made.
ADDITIONAL NON-12B-1 SHAREHOLDER SERVICING ARRANGEMENTS
In addition to payments by the Fund under the Plans, UAM and any of its
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. The adviser may compensate its affiliated companies for
referring investors to the portfolios.
BROKERAGE ALLOCATION AND OTHER PRACTICES
SELECTION OF BROKERS
- --------------------------------------------------------------------------------
The Advisory Agreements authorize the adviser to select the brokers or dealers
that will execute the purchases and sales of investment securities for a
portfolio. The Advisory Agreement also directs the adviser to use its best
efforts to obtain the best execution with respect to all transactions for a
portfolio. The adviser may select brokers based on research, statistical and
pricing services they provide to the adviser. Information and research
provided by a broker will be in addition to, and not instead of, the services
the adviser is required to perform under the Advisory Agreement. In so doing,
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. The adviser may place portfolio orders with
qualified broker-dealers who refer clients to the adviser.
SIMULTANEOUS TRANSACTIONS
- --------------------------------------------------------------------------------
The adviser makes investment decision for a portfolio independently of
decisions made for its other clients. When a security is suitable for the
investment objective of more than one client, it may be prudent for an adviser
to engage in a simultaneous transaction, that is, buy or sell the same
security for more than one client. The adviser strives to allocate such
transactions among its clients, including the portfolios, in a fair and
reasonable manner. Although there is no specified formula for allocating such
transactions, the Fund's governing board periodically reviews the various
allocation methods used by the adviser, and the results of such allocations.
BROKERAGE COMMISSIONS
- --------------------------------------------------------------------------------
EQUITY SECURITIES
Generally, equity securities are bought and sold through brokerage
transactions for which commissions are payable. Purchases from underwriters
will include the underwriting commission or concession, and purchases from
dealers serving as market makers will include a dealer's mark-up or reflect a
dealer's mark-down.
23
<PAGE>
DEBT SECURITIES
Debt securities are usually bought and sold directly from the issuer or an
underwriter or market maker for the securities. Generally, each Fund will not
pay brokerage commissions for such purchases. When a debt security is bought
from an underwriter, the purchase price will usually include an underwriting
commission or concession. The purchase price for securities bought from
dealers serving as market makers will similarly include the dealer's mark up
or reflect a dealer's mark down. When a portfolio executes transactions in
the over-the-counter market, it will deal with primary market makers unless
prices that are more favorable are otherwise obtainable.
CAPITAL STOCK AND OTHER SECURITIES
DESCRIPTION OF SHARES AND VOTING RIGHTS
- --------------------------------------------------------------------------------
The Fund's Articles of Incorporation, as amended, permit its governing board
to issue three billion shares of common stock, with a $.001 par value. The
governing board has the power to create and designate one or more series
(portfolios) or classes of shares of common stock and to classify or
reclassify any unissued shares at any time and without shareholder approval.
When issued and paid for, the shares of each series and class of the Fund are
fully paid and nonassessable, and have no pre-emptive rights or preference as
to conversion, exchange, dividends, retirement or other features.
The shares of each series and class have non-cumulative voting rights, which
means that the holders of more than 50% of the shares voting for the election
of members of the governing board can elect all of the members if they choose
to do so. On each matter submitted to a vote of the shareholders, 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. Shares of all classes will vote together as a single class except
when otherwise required by law or as determined by the members of the Fund's
governing board.
If the Fund is liquidated, the shareholders of each portfolio or any class
thereof are entitled to receive the net assets belonging to that portfolio, or
in the case of a class, belonging to that portfolio and allocable to that
class. The Fund will distribute is net assets to its shareholders in
proportion to the number of shares of that portfolio or class thereof held by
them and recorded on the books of the Fund. The liquidation of any portfolio
or class thereof may be authorized at any time by vote of a majority of the
members of the governing board.
The governing board has authorized three classes of shares, Institutional,
Institutional Service and Adviser. The three classes represent interests in
the same assets of a portfolio and, except as discussed below, are identical
in all respects. Unlike Institutional and Adviser Class Shares, Institutional
Service Class Shares bear certain expenses related to shareholder servicing
and the distribution of such shares and have exclusive voting rights with
respect to matters relating to such distribution expenditures. The Adviser
Class Shares impose a sales load on purchases. The classes also have
different exchange privileges. The net income attributable to Institutional
Service Class Shares and the dividends payable on Institutional Service Class
Shares will be reduced by the amount of the shareholder servicing and
distribution fees; accordingly, the net asset value of the Institutional
Service Class Shares will be reduced by such amount to the extent a portfolio
has undistributed net income.
The Fund will not hold annual meetings except when required to by the
Investment Company Act of 1940, as amended, or other applicable law.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund tries to distribute substantially all of the net investment income of
a portfolio and net realized capital gains so as to avoid income taxes on its
dividends and distributions and the imposition of the federal excise tax on
undistributed income and capital gains. However, the Fund cannot predict the
time or amount of any such dividends or distributions.
Distributions by a portfolio reduce its net asset value ("NAV"). A
distribution that reduces the NAV of a portfolio below its cost basis is
taxable as described in the prospectus of the portfolios, although from an
investment standpoint, it is a return of capital. If you buy shares of a
portfolio on or before the "record date" -- the date that establishes which
shareholders will receive an upcoming distribution -- for a distribution, you
will receive some of the money you invested as a taxable distribution.
Unless the shareholder elects otherwise in writing, all dividend and capital
gains distributions are automatically received in additional shares of a
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
24
<PAGE>
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 will be treated as a separate entity (and hence as a separate
"regulated investment company") for federal tax purposes. Each portfolio will
distribute its net capital gains to its investors, but will not offset (for
federal income tax purposes) such gains against any net capital losses of
another portfolio.
PURCHASE REDEMPTION AND PRICING OF SHARES
PURCHASE OF SHARES
- -------------------------------------------------------------------------------
Service Agents may enter confirmed purchase orders on behalf of their
customers. If shares of a Portfolio are purchased in this manner, the Service
Agent must receive your investment order before the close of trading on the
New York Stock Exchange ("NYSE") and transmit it to UAMSSC before the close of
its business day to receive that day's share price. UAMSSC must receive proper
payment for the order by the time the portfolio is priced on the following
business day. Service Agents are responsible to their customers and the Fund
for timely transmission of all subscription and redemption requests,
investment information, documentation and money.
Purchases of shares of a Portfolio will be made in full and fractional shares
of the Portfolio calculated to three decimal places. Certificates for
fractional shares will not be issued. Certificates for whole shares will not
be issued except at the written request of the shareholder.
The Fund reserves the right in its sole discretion 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.
IN-KIND PURCHASES
If accepted by the Fund, shareholders may purchase shares of a portfolio in
exchange for securities that are eligible for acquisition by the portfolio.
Securities to be exchanged that are accepted by the Fund will be valued as
described under "VALUATION OF SHARES" at the next determination of net asset
value after 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 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:
. At the time of exchange, such securities are eligible to be included in the
portfolio (current market quotations must be readily available for such
securities).
. The investor represents and agrees that all securities offered to be
exchanged are liquid securities and not subject to any restrictions upon
their sale by the Portfolio under the Securities Act of 1933, or otherwise.
. The value of any such securities (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.
Investors who are subject to Federal taxation upon exchange may realize a gain
or loss for Federal income tax purposes depending upon the cost of securities
or local currency exchanged. Investors interested in such exchanges should
contact the adviser.
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
When you redeem, your shares may be worth more or less than the price you paid
for them depending on the market value of the investments held by the
portfolio.
By Mail
Requests to redeem shares must include:
25
<PAGE>
. Share certificates, if issued.
. A letter of instruction or an 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.
. Any required signature guarantees (see "SIGNATURE GUARANTEES").
. Any other necessary legal documents, if required, in the case of estates,
trusts, guardianships, custodianships, corporations, pension and profit
sharing plans and other organizations.
BY TELEPHONE
The following tasks cannot be accomplished by telephone:
. Changing the name of the commercial bank or the account designated to
receive redemption proceeds (this can be accomplished only by a written
request signed by each shareholder, with each signature guaranteed).
. Redemption of certificated shares by telephone.
The Fund and its Sub-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, as well as 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. The Fund or Sub-Transfer Agent may
be liable for any losses due to unauthorized or fraudulent telephone
instructions if the Fund or the Sub-Transfer Agent does not employ the
procedures described above. Neither the Fund nor the Sub-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.
REDEMPTIONS-IN-KIND
If the governing board determines that it would be detrimental to the best
interests of remaining shareholders of the Fund to make payment wholly or
partly in cash, the Fund may pay redemption proceeds in whole or in part by a
distribution in-kind of liquid securities held by a Portfolio in lieu of cash
in conformity with applicable rules of the SEC. Investors may incur brokerage
charges on the sale of portfolio securities received in payment of
redemptions.
However, the Fund has made an election with the SEC 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 SEC. 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 governing board believes 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 under "Valuation of Shares'. A redeeming shareholder
would normally incur brokerage expenses if these securities were converted to
cash.
SIGNATURE GUARANTEES
To protect your account, the Fund and its sub-transfer agent 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
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 that 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.
26
<PAGE>
OTHER REDEMPTION INFORMATION
Normally, the Fund will pay for all shares redeemed under proper procedures
within one business day of and no more than seven days after the receipt of
the request, or earlier if required under applicable law. 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 determined by
the SEC.
The Fund may suspend redemption privileges or postpone the date of payment
. During any period that both the NYSE and custodian bank are closed, or
trading on the NYSE is restricted as determined by the Commission.
. 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.
. For such other periods as the Commission may permit.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
The exchange privilege is only available with respect to portfolios that are
qualified for sale in the shareholder's state of residence. Exchanges are
based on the respective net asset values of the shares involved. The
Institutional Class and Institutional Service Class Shares of UAM Funds do not
charge a sales commission or charge of any kind.
Neither the Fund nor any of its service providers will be responsible for the
authenticity of the exchange instructions received by telephone. The
governing board of the Fund may restrict the exchange privilege at any time.
Such instructions may include limiting the amount or frequency of exchanges
and may be for the purpose of assuring such exchanges do not disadvantage the
Fund and its shareholders.
TRANSFER OF SHARES
- --------------------------------------------------------------------------------
Shareholders may transfer shares of each portfolio to another person by making
a written request to the Fund. Your request should clearly identify the
account and number of shares you wish to transfer. All registered owners
should sign the request 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
"Signature Guarantees". As in the case of redemptions, the written request
must be received in good order before any transfer can be made.
VALUATION OF SHARES
- --------------------------------------------------------------------------------
The Fund does not price its shares on those days when the New York Stock
Exchange is closed, which are currently: New Year's Day; Dr. Martin Luther
King, Jr. Day; Presidents' Day; Good Friday; Memorial Day; Independence Day;
Labor Day; Thanksgiving Day; and Christmas Day.
EQUITY SECURITIES
Equity securities listed on a securities exchange for which market quotations
are readily available are valued at the last quoted sale price of the day.
Price information on listed securities is taken from the exchange where the
security is primarily traded. Unlisted equity securities and listed
securities not traded on the valuation date for which market quotations are
readily available are valued neither exceeding the asked prices nor less than
the bid prices. Quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents. The converted value is based upon the
bid price of the foreign currency against U.S. dollars quoted by any major
bank or by a broker.
DEBT SECURITIES
Debt securities are valued according to the broadest and most representative
market, which will ordinarily be the over-the-counter market. Debt securities
may be valued based on prices provided by a pricing service when such prices
are believed to reflect the fair market value of such securities. Securities
purchased with remaining maturities of 60 days or less are valued at amortized
cost when the Board of Directors determines that amortized cost reflects fair
value.
OTHER ASSETS
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 governing board.
27
<PAGE>
PERFORMANCE CALCULATIONS
The portfolios measure performance by calculating yield and total return. Both
yield and total return figures are based on historical earnings and are not
intended to indicate future performance. Performance quotations by investment
companies are subject to rules adopted by the SEC, 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 SEC.
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 SEC. An explanation of the method used to compute or express
performance follows.
Performance is calculated separately for Institutional Class and Service Class
Shares. Dividends paid by a Portfolio with respect to Institutional Class and
Service Class Shares, to the extent any dividends are paid, will be calculated
in the same manner at the same time on the same day and will be in the same
amount, except that service fees, distribution charges and any incremental
transfer agency costs relating to Service Class Shares will be borne
exclusively by that class.
TOTAL RETURN
- --------------------------------------------------------------------------------
Total return is the change in value of an investment in a portfolio over a
given period, assuming reinvestment of any dividends and capital gains. A
cumulative or aggregate total return reflects actual performance over a stated
period of time. An average annual total return is a hypothetical rate of
return that, if achieved annually, would have produced the same cumulative
total return if performance had been constant over the entire period.
The average annual total return of a 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 one, five and ten-year period and the deduction of
all applicable Fund expenses on an annual basis. Since Institutional Service
Class Shares bear additional service and distribution expenses, their average
annual total return will generally be lower than that of the Institutional
Class Shares.
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).
The average annual total rates of return of the Institutional and Service
Classes of the Portfolios are as follows:
<TABLE>
<CAPTION>
One Year Ended Five Years Ended Since Inception Inception Date
October 31, 1998 October 31, 1998 Through Year Ended
October 31, 1998
<S> <C> <C> <C> <C>
NWQ Balanced Portfolio 8/2/94
Institutional Class Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Institutional Service Class Shares 1/22/96
- ------------------------------------------------------------------------------------------------------------------------------------
NWQ Small Cap Value Portfolio 11/4/97
Institutional Class Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Institutional Service Class Shares
- ------------------------------------------------------------------------------------------------------------------------------------
NWQ Special Equity Portfolio 11/4/97
Institutional Class Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Institutional Service Class Shares
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
YIELD
- --------------------------------------------------------------------------------
Yield refers to the income generated by an investment in a portfolio over a
given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all funds. As this
differs from other accounting methods, the quoted yield may not equal the
income actually paid to shareholders.
28
<PAGE>
The 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. Since Institutional Service Class Shares bear additional service
and distribution expenses, their yield will generally be lower than that of
the Institutional Class Shares.
Yield is obtained using the following formula:
Yield = 2((a-b)/(cd)+1)6-1
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
- --------------------------------------------------------------------------------
The Portfolios' performance may be compared to data prepared by independent
services which monitor the performance of investment companies, data reported
in financial and industry publications, and various indices as further
described in the Portfolios' SAI. This information may also be included in
sales literature and advertising.
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. Please see APPENDIX B for publications, indices and averages that
may be used.
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 each portfolio, 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 each
portfolio to calculate its performance. In addition, there can be no assurance
that each portfolio will continue this performance as compared to such other
averages.
TAXES
In order for a portfolio to continue to qualify for federal income tax
treatment as a regulated investment company under the Internal Revenue Code of
1986, as amended, 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, as applicable.
Each portfolio will distribute to shareholders annually any net capital gains
that have been recognized for federal income tax purposes. Shareholders will
be advised on the nature of the payments.
If for any taxable year a portfolio does not qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code, all of
the portfolio's taxable income would be subject to tax at regular corporate
rates without any deduction for distributions to shareholders. In this event,
a portfolio's distributions to shareholders would be taxable as ordinary
income to the extent of the current and accumulated earnings and profits of
the particular portfolio, and would be eligible for the dividends received
deduction in the case of corporate shareholders. The portfolios intend to
qualify as a "regulated investment company" each year.
Dividends and interest received by each portfolio may give rise to withholding
and other taxes imposed by foreign countries. These taxes may reduce each
portfolio's dividends but are included in the taxable income reported on your
tax statement if each portfolio qualifies for this tax treatment and elects to
pass it through to you. Consult a tax adviser for more information regarding
deductions and credits for foreign taxes.
29
<PAGE>
EXPENSES
<TABLE>
<CAPTION>
Investment Investment Sub-
Advisory Fees Advisory Fees Administrator Administrator Brokerage
NWQ Balanced Portfolio Paid Waived Fee (UAMFSI) Fee (CGFSC) Commissions
1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 $226,063 $103,517 $126,732 $98,488 $29,327
- ------------------------------------------------------------------------------------------------------------------------------------
1996 -0- $ 80,598 $ 95,007 $96,165 $19,189
- ------------------------------------------------------------------------------------------------------------------------------------
NWQ Small Cap Value Portfolio
1998
- ------------------------------------------------------------------------------------------------------------------------------------
1997*
- ------------------------------------------------------------------------------------------------------------------------------------
NWQ Special Equity Portfolio
1998
- ------------------------------------------------------------------------------------------------------------------------------------
1997* $18,699
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*During the period from November 4, 1997 (initial offering) to October 31,
1997.
<TABLE>
<CAPTION>
Distribution and Service Plan Expenses Paid During Fiscal Year Ended October 31, 1998
NWQ Balanced Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
NWQ Small Cap Value Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
NWQ Special Equity Portfolio
</TABLE>
FINANCIAL STATEMENTS
The Financial Statements for each portfolio for the fiscal year ended October
31, 1998, the Financial Highlights for the respective periods presented, and
the report thereon by PricewaterhouseCoopers LLP, the Fund's independent
accountant, which appear in portfolio's 1998 Annual Report, are incorporated
by reference into this Statement of Additional Information. No other parts
are incorporated by reference herein. Copies of the 1998 Annual Report may be
obtained free of charge by telephoning the UAM Funds Service Center at the
telephone number appearing on the front page of this Statement of Additional
Information.
30
<PAGE>
UAM Funds
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
THE RICE, HALL, JAMES PORTFOLIOS
Rice, Hall, James Small Cap Portfolio
Rice, Hall, James Small/Mid Cap Portfolio
Institutional Class Shares
Statement of Additional Information
__________, 1999
This statement of additional information (SAI) is not a prospectus. However,
you should read it in conjunction with the Prospectus of The Rice, Hall, James
Portfolios' Institutional Class Shares dated _________, 1999. You may obtain
a Prospectus for the portfolios by contacting the UAM Funds at the address
listed above.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
UAM FUNDS........................................................................... 1
DEFINITIONS......................................................................... 1
THE FUND............................................................................ 1
DESCRIPTION OF THE PORTFOLIOS AND THEIR INVESTMENTS AND RISKS....................... 1
Equity Securities.................................................................. 1
Debt Securities.................................................................... 2
Derivatives........................................................................ 5
Foreign Securities................................................................. 9
Investment Companies............................................................... 11
Repurchase Agreements.............................................................. 11
Securities Lending................................................................. 11
Short-Term Investments............................................................. 12
When-Issued, Forward Commitment and Delayed Delivery Transactions.................. 12
Restricted Securities.............................................................. 13
INVESTMENT POLICIES................................................................. 13
Fundamental Investment Policies.................................................... 13
Non-Fundamental Policies........................................................... 14
MANAGEMENT OF THE PORTFOLIOS........................................................ 14
CODE OF ETHICS...................................................................... 15
PRINCIPAL HOLDERS OF SECURITIES..................................................... 15
INVESTMENT ADVISORY AND OTHER SERVICES.............................................. 16
Investment adviser................................................................. 16
Distributor........................................................................ 17
Administrative Services............................................................ 17
Custodian.......................................................................... 19
Independent Public Accountant...................................................... 19
BROKERAGE ALLOCATION AND OTHER PRACTICES............................................ 19
Selection of Brokers............................................................... 19
Simultaneous Transactions.......................................................... 19
Brokerage Commissions.............................................................. 20
CAPITAL STOCK AND OTHER SECURITIES.................................................. 20
Description Of Shares And Voting Rights............................................ 20
Dividends and Capital Gains Distributions.......................................... 21
PURCHASE REDEMPTION AND PRICING OF SHARES........................................... 21
Purchase of Shares................................................................. 21
Redemption of Shares............................................................... 22
Exchange Privilege................................................................. 23
Transfer Of Shares................................................................. 23
Valuation of Shares................................................................ 23
PERFORMANCE CALCULATIONS............................................................ 24
Total Return....................................................................... 24
Yield.............................................................................. 25
Comparisons........................................................................ 25
TAXES............................................................................... 25
EXPENSES............................................................................ 26
FINANCIAL STATEMENTS................................................................ 26
</TABLE>
1
<PAGE>
DEFINITIONS
The "Fund" is UAM Funds, Inc.
The term "adviser" means Rice, Hall, James & Associates, the Fund's
investment adviser.
UAM is United Asset Management Corporation.
UAMFSI is UAM Fund Services, Inc., the Fund's administrator.
UAMFDI is UAM Fund Distributors, Inc., the Fund's distributor.
UAMSSC is UAM Fund Shareholder Servicing Center, the Fund's sub-shareholder-
servicing agent.
CGFSC is Chase Global Funds Service Company, the Fund's sub-administrator.
UAM Funds Complex includes UAM Funds, Inc., UAM Funds Trust, UAM Funds Trust
II and all of their portfolios.
The term "portfolios" is used to refer to The Rice, Hall, James Portfolios as
a group, while "portfolio" refers to a single Rice, Hall, James Portfolio.
The terms "board" and "governing board" refer to the Fund's Board of Directors
as a group, while "board member" refers to a single member of the board.
All other defined terms, which are not otherwise defined in this SAI, have the
same meaning in the SAI as they do in the prospectus of The Rice, Hall, James
Portfolios.
THE FUND
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 Fund changed its
name to "UAM Funds, Inc." The Fund's principal executive office is located at
One International Place, Boston, MA 02110; shareholders should direct all
correspondence to the address listed on the cover of this SAI.
The Fund is an open-end, management investment company under the Investment
Company Act of 1940. The Rice, Hall, James Portfolios are a diversified series
of the Fund. This means that with respect to 75% of its total assets, the
portfolios may not invest more than 5% of its total assets in the securities
of any one issuer (except U.S. government securities). The remaining 25% of
its total assets are not subject to this restriction. To the extent a
portfolio invests a significant portion of its assets in the securities of a
particular issuer, it will be subject to an increased risk of loss if the
market value of such issuer's securities declines.
DESCRIPTION OF THE PORTFOLIOS AND THEIR INVESTMENTS AND RISKS
EQUITY SECURITIES
- --------------------------------------------------------------------------------
Some of the portfolios may invest in equity securities such as common and
preferred stocks. While investing in stocks allows a portfolio to participate
in the benefits of owning a company, a portfolio must accept the risks of
ownership. Unlike bondholders, who have preference to a company's earnings
and cash flow, preferred stockholders followed by common stockholders in order
of priority, are entitled only to the residual amount after a company meets
its other obligations. For this reason, the value of a company's stock will
usually react more strongly to actual or perceived changes in the company's
financial condition or prospects than its debt obligations. Stockholders of a
company that fares poorly can lose money.
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 values 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
1
<PAGE>
value of a preferred stock than in a more senior debt security with similar
stated yield characteristics. Types of preferred stocks include adjustable-
rate preferred stock, fixed dividend preferred stock, perpetual preferred
stock, and sinking fund preferred stock.
STOCK MARKET RISK
Stock markets tend to move in cycles with short or extended periods of rising
and falling stock prices. The value of a company's stock may fall because of:
. Factors that directly relate to that company, such as decisions made by its
management or lower demand for the company's products or services.
. Factors affecting an entire industry, such as increases in production
costs.
. Changes in financial market conditions that are relatively unrelated to the
company or its industry, such as changes in interest rates, currency
exchange rates or inflation rates.
RIGHTS AND WARRANTS
A portfolio may purchase warrants and rights, which are securities permitting,
but not obligating, their holder to purchase the underlying securities at a
predetermined price. Generally, warrants and stock purchase rights do not
carry with them the right to receive dividends or exercise voting rights with
respect to the underlying securities, and they do not represent any rights in
the assets of the issuer. Therefore, an investment in warrants and rights may
entail greater risk than certain other types of investments. In addition, the
value of warrants and rights does not necessarily change with the value of the
underlying securities, and they cease to have value if they are not exercised
on or prior to their expiration date. Investment in warrants and rights
increases the potential profit or loss to be realized from the investment of a
given amount of a portfolio's assets as compared with investing the same
amount in the underlying stock.
CONVERTIBLE SECURITIES
A portfolio may purchase corporate bonds, debentures and preferred stock that
are convertible into common stock. In exchange for the conversion feature,
many corporations will pay a lower rate of interest on convertible securities
than debt securities of the same corporation.
Convertible corporate bonds, debentures and preferred stock are subject to the
same risks as similar securities without the convertible feature. In
addition, their market price tends to go up if the stock price moves up. For
this reason, convertible securities are more volatile in price during times of
steady interest rates than other types of fixed income securities.
DEBT SECURITIES
- --------------------------------------------------------------------------------
Debt securities are used by corporations and governments to borrow money from
investors. Most debt securities promise a variable or fixed rate of return
and repayment of the amount borrowed at maturity. Some debt securities, such
as zero-coupon bonds, do not pay current interest and are purchased at a
discount from their face value. Debt securities may include, among other
things, all types of bills, notes, bonds, mortgage-backed securities or asset-
backed securities.
The total return of a debt instrument is composed of two elements: the
percentage change in the security's price and interest income earned. The
YIELD TO MATURITY of a debt security estimates its total return only if the
price of the debt security remains unchanged during the holding period and
coupon interest is reinvested at the same yield to maturity. The total return
of a debt instrument, therefore, will be determined not only by how much
interest is earned, but also by how much the price of the security and
interest rates change.
INTEREST RATES
The price of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up, the value of the bond will go
down, and vice versa). One can estimate the anticipated change in the price of
a fixed rate security for each 1% shift in interest rates by using a risk
measure known as EFFECTIVE DURATION. An effective duration of 4 years, for
example, would suggest that for each 1% reduction in interest rates at all
maturity levels, the price of a security is estimated to increase by 4%. An
increase in rates by the same magnitude is estimated to reduce the price of
the security by 4%. By knowing the yield and the effective duration of a debt
security, one can estimate total return based on an expectation of how much
interest rates, in general, will change.
While serving as a good estimator of prospective returns, effective duration
is an imperfect measure. While lower interest rates generally improve the
value of a fixed income portfolio, lower interest rates may also introduce
certain risks which may
2
<PAGE>
independently cause the share price of the portfolio to fall. Lower rates
motivate people to pay off mortgage-backed and asset-backed securities earlier
than expected, which introduces REINVESTMENT RISK. Reinvesting portfolio
assets at lower rates may reduce the yield of the portfolio. The unexpected
timing of mortgage and asset-backed prepayments caused by the variations in
interest rates may also shorten or lengthen the AVERAGE MATURITY of the
portfolio. Neglecting this drift in average maturity may have the unintended
effect of increasing or reducing the effective duration of the portfolio which
may in turn adversely affect the expected performance of the portfolio.
CREDIT RATING
Coupon interest is offered to investors of fixed income securities as
compensation for assuming risk, although short-term U.S. treasury securities,
such as 3 month treasury bills, are considered "risk free." Corporate
securities offer higher yields than U.S. treasuries because their payment of
interest and complete repayment of principal is less certain. The credit
rating or financial condition of an issuer may affect the value of a debt
security. Generally, the lower the quality rating of a security, the greater
the risks that the issuer will fail to pay interest and return principal. To
compensate investors for taking on increased risk, issuers with lower credit
ratings usually offer their investors a higher "risk premium" in the form of
higher interest rates above comparable U.S. treasuries.
Changes in investor confidence regarding the certainty of interest and
principal payments of a fixed income corporate security will result in an
adjustment to this "risk premium." Since an issuer's outstanding debt carries
a fixed coupon, adjustments to the risk premium must occur in the price, which
effects the yield to maturity of the bond. If an issuer defaults or becomes
unable to honor its financial obligations, the bond may lose some or all of
its value
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade. The adviser may retain securities that are downgraded, if
it believes that keeping those securities is warranted.
Rating agencies are organizations that assign ratings to securities based
primarily on the rating agency's assessment of the issuer's financial
strength. The portfolios currently use ratings compiled by Standard and
Poor's Ratings Services, Duff & Phelps Rating Co., Fitch IBCA, Inc. and,
Moody's Investor Services. Credit ratings are only an agency's opinion, not an
absolute standard of quality, and they do not reflect an evaluation of market
risk. APPENDIX A contains further information concerning the ratings of
certain rating agencies and their significance.
The adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time a portfolio buys it. A rating
agency may change its credit ratings at any time. The adviser monitors the
rating of the security and will take appropriate actions if a rating agency
reduces the security's rating. A portfolio is not obligated to dispose of
securities whose issuers subsequently are in default or which are downgraded
below the above-stated ratings
INVESTMENT-GRADE FIXED-INCOME SECURITIES
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade.
U.S. GOVERNMENT SECURITIES
For a discussion of these securities see "SHORT-TERM INVESTMENTS - GOVENEMNT
SECURITIES," below.
CORPORATE BONDS
For a discussion of these securities see "SHORT-TERM INVESTMENTS - CORPORATE
BONDS," below.
MORTGAGE-BACKED SECURITIES AND MORTGAGE PASS-THROUGH SECURITIES
Mortgage-backed securities are interests in pools of mortgage loans that
various governmental, government-related and private organizations assemble as
securities for sale to investors. Mortgage-backed securities differ from other
forms of debt securities because they make monthly payments that consist of
both interest and principal payments. (Other debt securities normally provide
for periodic payment of interest in fixed amounts with principal payments at
maturity or specified call dates.) In effect, these payments are a "pass-
through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of such
securities.
3
<PAGE>
Governmental entities, private insurers and the mortgage poolers may insure or
guaranty the timely payment of interest and principal of these pools through
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance and letters of credit issue the insurance and
guarantees. The adviser will consider such insurance and guarantees and the
creditworthiness of the issuers thereof in determining whether a mortgage-
related security meets its investment quality standards. It is possible that
the private insurers or guarantors will not meet their obligations under the
insurance policies or guarantee arrangements.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA)
GNMA, a wholly owned U.S. government corporation within the Department of
Housing and Urban Development, is the principal governmental guarantor of
mortgage-related securities. GNMA, which is backed by the faith and credit of
the U.S. government, guarantees the timely payment of principal and interest
on securities issued by institutions approved by GNMA and backed by pools of
Federal Housing Administration ("FHA") insured or Veterans' Administration
("VA") guaranteed mortgages. GNMA does not guarantee the market value or yield
of mortgage-backed securities or the value of portfolio shares. To buy GNMA
securities, a portfolio may have to pay a premium over the maturity value of
the underlying mortgages, which the portfolio may lose if prepayment occurs.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)
FNMA is a government-sponsored corporation owned entirely by private
stockholders. FNMA, which is regulated by the Secretary of Housing and Urban
development, purchases conventional mortgages from a list of approved
seller/servicers, including 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, but are not backed by the
full faith and credit of the U.S. government.
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC)
FHLMC is a corporate instrumentality of the U.S. government whose stock is
owned by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970
to increase the availability of mortgage credit for residential housing. FHLMC
issues Participation Certificates (PCs) which represent interests in
conventional mortgages from its national portfolio. Like FNMA, FHLMC
guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the U.S.
government.
COMMERCIAL BANKS, SAVINGS AND LOAN INSTITUTIONS, PRIVATE MORTGAGE INSURANCE
COMPANIES, MORTGAGE BANKERS AND OTHER SECONDARY MARKET ISSUERS
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. In addition to
guaranteeing the mortgage-related security, such issuers may service and/or
have originated the underlying mortgage loans. Pools created by these issuers
generally offer a higher rate of interest than pools created by GNMA, FHLMC or
FNMA, because they are not guaranteed by a government agency.
RISK OF INVESTING IN MORTGAGE-BACKED SECURITIES
Yield characteristics of mortgage-backed securities differ from those of
traditional fixed income securities. The major differences include interest
and principal payments that are more frequent (usually monthly), adjustable
interest rates, and the possibility that prepayments of principal may be made
substantially earlier than their final distribution dates so that the price of
the security will generally decline when interest rates rise.
The portfolio may fail to recover fully its investment in mortgage-backed
securities notwithstanding any direct or indirect governmental, agency or
other guarantee because the counter-party failed to meet its commitments.
Changes in interest rates and a variety of economic, geographic, social and
other factors, such as the sale of the underlying property, refinancing or
foreclosure, can cause the loans underlying a mortgage-backed security to be
repaid sooner than expected. If the prepayment rates increase, a portfolio may
have to reinvest its principal at a rate of interest that is lower than the
rate on existing mortgage-backed securities. Conversely, when interest rates
are rising many mortgage-backed securities will see a decline in the
prepayment rate, extending their average life. Extending the average life of a
mortgage-backed security increases
4
<PAGE>
the risk of depreciation due to future increases in market interest rates. For
these reasons, mortgage-backed securities may be less effective than other
types of U.S. government securities as a means of "locking in" interest rates.
DERIVATIVES
- --------------------------------------------------------------------------------
Derivatives are financial instruments whose value is based on an underlying
asset, such as a stock or a bond, or an underlying economic factor, such as an
interest rate or an index. A portfolio tries to minimize its loss by investing
in derivatives to protect them from broad fluctuations in market prices,
interest rates or foreign currency exchange rates. Investing in derivatives
for these purposes is known as "hedging." When hedging is successful, the
portfolio will have offset any depreciation in the value of its portfolio
securities by the appreciation in the value of the derivative position.
Although techniques other than the sale and purchase of derivatives could be
used to control the exposure of the portfolio to market fluctuations, the use
of derivatives may be a more effective means of hedging this exposure. The
following derivatives may be purchased by the portfolios:
FUTURES
A futures contract is an agreement between two parties whereby one party is
obligated to buy and the other is obligated to sell a financial instrument at
an agreed upon price and time. The parties to a futures contract do not have
to pay for or deliver the underlying financial instrument until the delivery
date. The parties to a futures contract can hold the contract until its
delivery date, although in many cases they close the contract early by taking
an opposite position in an identical contract. The financial instrument
underlying the contract may be a stock, stock index, bond, bond index,
interest rate, foreign exchange rate or other similar instrument. A portfolio
will incur commission expenses in both opening and closing futures positions.
Futures contracts are traded in the United States on commodity exchanges or
boards of trade -- known as "contract markets" -- approved for such trading
and regulated by the Commodity Futures Trading Commission, a federal agency.
These contract markets standardize the terms, including the maturity date and
underlying financial instrument, of all futures contracts. Contract markets
require both the purchaser and seller to deposit "initial margin" with a
futures broker, known as a futures commission merchant, when they enter into
the contract. Initial margin deposits are typically equal to a percentage of
the contract's value. After they open a futures contract, the parties to the
transaction must compare the purchase price of the contract to its daily
market value. If the value of the futures contract changes in such a way that
a party's position declines, that party must make additional "variation
margin" payments so that the margin payment is adequate. On the other hand,
the value of the contract may change in such a way that there is excess margin
on deposit, possibly entitling the party that has a gain to receive all or a
portion of this amount.
A portfolio may take a "short position" by selling futures contracts on
securities it owns or on securities with characteristics similar to those of
securities it owns. For example, when a portfolio expects interest rates to
rise or securities prices to fall, it can seek to offset a decline in the
value of its holdings by selling futures contracts so that a portfolio is
obligated to sell the securities at a future lower price. When a portfolio's
short hedging position is successful, the appreciation in the value of the
futures position will offset substantially any depreciation in the value of
the holdings of the portfolio. On the other hand, a decline in the value of
the futures position would offset any unanticipated appreciation in the value
of the holdings of the portfolio.
On other occasions, a portfolio may take a "long" position by purchasing
futures contracts. For example, when a portfolio expects interest rates to
fall or securities' prices to rise, it can seek to secure a better rate or
price than might later be available by purchasing a futures contract. A
portfolio may also buy futures contracts as a substitute for transactions in
securities, to alter the investment characteristics of portfolio securities or
to gain or increase its exposure to a particular securities market.
OPTIONS
An option is a contract between two parties for the purchase and sale of a
financial instrument for a specified price (known as the "strike price" or
"exercise price") at any time during the option period. Unlike a futures
contract, an option grants a right (not an obligation) to buy or sell a
financial instrument. Generally, a seller of an option can grant a buyer two
kinds of rights: a "call" (the right to buy the security) or a "put" (the
right to sell the security). Options have various types of underlying
instruments, including specific securities, indices of securities prices,
foreign currencies, interest rates and futures contracts. Options may be
traded on an exchange (exchange-traded-options) or may be customized
agreements between the parties (over-the-counter or OTC options). Like
futures, a financial intermediary, known as a clearing corporation,
financially backs exchange-traded options. However, OTC options have no such
intermediary and are subject to the risk that the counter-party will not
fulfill its obligations under the contract.
PURCHASING PUT AND CALL OPTIONS
When a portfolio purchases a put option, it buys the right to sell the
instrument underlying the option at a fixed strike price. In return for this
right, the portfolio pays the current market price for the option (known as
the "option premium"). A portfolio may
5
<PAGE>
purchase put options to offset or hedge against a decline in the market value
of its securities ("protective puts") or to benefit from a decline in the
price of securities that it does not own. The portfolio would ordinarily
realize a gain if, during the option period, the value of the underlying
securities decreased below the exercise price sufficiently to cover the
premium and transaction costs. However, if the price of the underlying
instrument does not fall enough to offset the cost of purchasing the option, a
put buyer would lose the premium and related transaction costs.
Call options are similar to put options, except that the portfolio obtains the
right to purchase, rather than sell, the underlying instrument at the option's
strike price. A portfolio would normally purchase call options in anticipation
of an increase in the market value of securities it owns or wants to buy. A
portfolio would ordinarily realize a gain if, during the option period, the
value of the underlying instrument exceeded the exercise price plus the
premium paid and related transaction costs. Otherwise, the portfolio would
realize either no gain or a loss on the purchase of the call option.
The purchaser of an option may terminate its position by:
. Allowing it to expire and losing its entire premium;
. Exercising the option and either selling (in the case of a put option) or
buying (in the case of a call option) the underlying instrument at the
strike price; or
. Closing it out in the secondary market at its current price.
SELLING (WRITING) PUT AND CALL OPTIONS
When a portfolio writes a call option it assumes an obligation to sell
specified securities to the holder of the option at a specified price if the
option is exercised at any time before the expiration date. Similarly, when a
portfolio writes a put option it assumes an obligation to purchase specified
securities from the option holder at a specified price if the option is
exercised at any time before the expiration date. A portfolio may terminate
its position in an exchange-traded put option before exercise by buying an
option identical to the one it has written. Similarly, it may cancel an over-
the-counter option by entering into an offsetting transaction with the
counter-party to the option.
A portfolio could try to hedge against an increase in the value of securities
it would like to acquire by writing a put option on those securities. If
security prices rise, the portfolio would expect the put option to expire and
the premium it received to offset the increase in the security's value. If
security prices remain the same over time, the portfolio would hope to profit
by closing out the put option at a lower price. If security prices fall, the
portfolio may lose an amount of money equal to the difference between the
value of the security and the premium it received. Writing covered put options
may deprive a portfolio of the opportunity to profit from a decrease in the
market price of the securities it would like to acquire.
The characteristics of writing call options are similar to those of writing
put options, except that call writers expect to profit if prices remain the
same or fall. A portfolio could try to hedge against a decline in the value
of securities it already owns by writing a call option. If the price of that
security falls as expected, the portfolio would expect the option to expire
and the premium it received to offset the decline of the security's value.
However, the portfolio must be prepared to deliver the underlying instrument
in return for the strike price, which may deprive it of the opportunity to
profit from an increase in the market price of the securities it holds.
A portfolio is permitted only to write covered options. A portfolio can cover
a call option by owning, at the time of selling the option:
. The underlying security (or securities convertible into the underlying
security without additional consideration), index, interest rate, foreign
currency or futures contract.
. A call option on the same security or index with the same or lesser
exercise price.
. A call option on the same security or index with a greater exercise price,
with the difference between the exercise prices maintained as a segregated
account containing cash, or liquid debt securities.
. Cash, or liquid securities equal to at least the market value of the
optioned securities, interest rate, foreign currency or futures contract.
. In the case of an index, a portfolio of securities that corresponds to the
index.
A portfolio can cover a put option by, at the time of selling the option:
. Entering into a short position in the underlying security.
6
<PAGE>
. Purchasing a put option on the same security, index, interest rate, foreign
currency or futures contract with the same or greater exercise price.
. Purchasing a put option on the same security, index, interest rate, foreign
currency or futures contract with a lesser exercise price, with the
difference between the exercise prices maintained as a segregated account
containing cash, or liquid securities.
. Maintaining the entire exercise price in liquid securities.
OPTIONS ON SECURITIES INDICES
Options on securities indices are similar to options on securities, except
that the exercise of securities index options requires cash settlement
payments and does not involve the actual purchase or sale of securities. In
addition, securities index options are designed to reflect price fluctuations
in a group of securities or segment of the securities market rather than price
fluctuations in a single security.
OPTIONS ON FUTURES
An option on a futures contract provides the holder with the right to buy a
futures contract (in the case of a call option) or sell a futures contract (in
the case of a put option) at a fixed time and price. Upon exercise of the
option by the holder, the contract market clearing house establishes a
corresponding short position for the writer of the option (in the case of a
call option) or a corresponding long position (in the case of a put option).
If the option is exercised, the parties will be subject to the futures
contracts. In addition, the writer of an option on a futures contract is
subject to initial and variation margin requirements on the option position.
Options on futures contracts are traded on the same contract market as the
underlying futures contract.
The buyer or seller of an option on a futures contract may terminate the
option early by purchasing or selling an option of the same series (i.e., the
same exercise price and expiration date) as the option previously purchased or
sold. The difference between the premiums paid and received represents the
trader's profit or loss on the transaction.
A portfolio may purchase put and call options on futures contracts instead of
selling or buying futures contracts. A portfolio may buy a put option on a
futures contract for the same reasons it would sell a futures contract. It
also may purchase such put options in order to hedge a long position in the
underlying futures contract. A portfolio may buy call options on futures
contracts for the same purpose as the actual purchase of the futures
contracts, such as in anticipation of favorable market conditions.
A portfolio may write a call option on a futures contract to hedge against a
decline in the prices of the instrument underlying the futures contracts. If
the price of the futures contract at expiration were below the exercise price,
the portfolio would retain the option premium, which would offset, in part,
any decline in the value of its portfolio securities.
The writing of a put option on a futures contract is similar to the purchase
of the futures contracts, except that, if market price declines, the portfolio
would pay more than the market price for the underlying instrument. The
premium received on the sale of the put option, less any transaction costs,
would reduce the net cost to the portfolio.
COMBINED POSITIONS
A portfolio may purchase and write options in combination with each other, or
in combination with futures or forward contracts, to adjust the risk and
return characteristics of the overall position. For example, a portfolio could
construct a combined position whose risk and return characteristics are
similar to selling a futures contract by purchasing a put option and writing a
call option on the same underlying instrument. Alternatively, a portfolio
could write a call option at one strike price and buy a call option at a lower
price to reduce the risk of the written call option in the event of a
substantial price increase. Because combined options positions involve
multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.
ADDITIONAL RISKS OF DERIVATIVES
While transactions in derivatives may reduce certain risks, these transactions
themselves entail certain other risks. For example, unanticipated changes in
interest rates, securities prices or currency exchange rates may result in a
poorer overall performance of the portfolio than if it had not entered into
any derivatives transactions. Derivatives may magnify a portfolio's gains or
losses, causing it to make or lose substantially more than it invested.
When used for hedging purposes, increases in the value of the securities a
portfolio holds or intends to acquire should offset any losses incurred with a
derivative. Purchasing derivatives for purposes other than hedging could
expose the portfolio to greater risks.
7
<PAGE>
CORRELATION OF PRICES
The portfolio's ability to hedge its securities through derivatives depends on
the degree to which price movements in the underlying index or instrument
correlate with price movements in the relevant securities. In the case of poor
correlation, the price of the securities a portfolio is hedging may not move
in the same amount, or even in the same direction as the hedging instrument.
The adviser will try to minimize this risk by investing only in those
contracts whose behavior it expects to resemble the portfolio securities it is
trying to hedge. However, if the portfolio's prediction of interest and
currency rates, market value, volatility or other economic factors is
incorrect, the portfolio may lose money, or may not make as much money as it
could have.
Derivative prices can diverge from the prices of their underlying instruments,
even if the characteristics of the underlying instruments are very similar to
the derivative. Listed below are some of the factors that may cause such a
divergence.
. Current and anticipated short-term interest rates, changes in volatility of
the underlying instrument, and the time remaining until expiration of the
contract.
. A difference between the derivatives and securities markets, including
different levels of demand, how the instruments are traded, the imposition
of daily price fluctuation limits or trading of an instrument stops.
. Differences between the derivatives, such as different margin requirements,
different liquidity of such markets and the participation of speculators in
such markets.
Derivatives based upon a narrower index of securities, such as those of a
particular industry group, may present greater risk than derivatives based on
a broad market index. Since narrower indices are made up of a smaller number
of securities, they are more susceptible to rapid and extreme price
fluctuations because of changes in the value of those securities.
While currency futures and options values are expected to correlate with
exchange rates, they may not reflect other factors that affect the value of
the investments of a portfolio. A currency hedge, for example, should protect
a yen-denominated security from a decline in the yen, but will not protect a
portfolio against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of a portfolio's foreign-denominated
investments changes in response to many factors other than exchange rates, it
may not be possible to match the amount of currency options and futures to the
value of the portfolio's investments precisely over time.
LACK OF LIQUIDITY
Before a futures contract or option is exercised or expires, a portfolio can
terminate it only by entering into a closing purchase or sale transaction.
This requires a secondary market for such instruments on the exchange where
the portfolio originally entered into the transaction. If there is no
secondary market for the contract, or the market is illiquid, a portfolio may
have to purchase or sell the instrument underlying the contract, make or
receive a cash settlement or meet ongoing variation margin requirements. The
inability to close out derivative positions could have an adverse impact on
the ability of the portfolio to hedge its investments and may prevent a
portfolio from realizing profits or limiting its losses.
Derivatives may become illiquid (i.e., difficult to sell at a desired time and
price) under a variety of market conditions. For example:
. During periods of market volatility, a commodity exchange may suspend or
limit trading in a particular derivative instrument, an entire category of
derivatives or all derivatives.
. A portfolio may have difficulty liquidating its existing positions or
recovering excess variation margin payments because of exchange or clearing
house equipment failures, government intervention, insolvency of a
brokerage firm or clearing house or other disruptions of normal trading
activity.
. Investors may lose interest in a particular derivative or category of
derivatives.
MANAGEMENT RISK
If the adviser incorrectly predicts stock market and interest rate trends, a
portfolio may lose money by investing in derivatives. For example, if a
portfolio were to write a call option based on its adviser's expectation that
the price of the underlying security would fall, but the price were to rise
instead, the portfolio could be required to sell the security upon exercise at
a price below the current market price. Similarly, if a portfolio were to
write a put option based on the adviser's expectation that the price of the
underlying security would rise, but the price were to fall instead, the
portfolio could be required to purchase the security upon exercise at a price
higher than the current market price.
8
<PAGE>
Margin
Because of the low margin deposits required upon the opening of a derivative
position, such transactions involve an extremely high degree of leverage.
Consequently, a relatively small price movement in a derivative may result in
an immediate and substantial loss (as well as gain) to the portfolio and it
may lose more than it originally invested in the derivative.
If the price of a futures contract changes adversely, a portfolio may have to
sell securities at a time when it is disadvantageous to do so to meet its
minimum daily margin requirement. A portfolio may lose its margin deposits if
a broker with whom it has an open futures contract or related option becomes
insolvent or declares bankruptcy.
FOREIGN SECURITIES
- --------------------------------------------------------------------------------
AMERICAN DEPOSITARY RECEIPTS (ADRS)
American Depositary Receipts (ADRs) are certificates evidencing ownership of
shares of a foreign issuer. These certificates are issued by depository banks
and generally trade on an established market in the United States or
elsewhere. A custodian bank or similar financial institution in the issuer's
home country holds the underlying shares in trust. The depository bank may not
have physical custody of the underlying securities at all times and may charge
fees for various services, including forwarding dividends and interest and
corporate actions. ADRs are alternatives to directly purchasing the underlying
foreign securities in their national markets and currencies. However, ADRs
continue to be subject to many of the risks associated with investing directly
in foreign securities.
RISKS OF FOREIGN SECURITIES
Foreign securities, foreign currencies, and securities issued by U.S. entities
with substantial foreign operations may involve significant risks in addition
to the risks inherent in U.S. investments.
Local political, economic, regulatory, or social instability, military action
or unrest, or adverse diplomatic developments may affect the value of foreign
investments. A foreign government may take actions adverse to the interests
of U.S. investors, including expropriation or nationalization of assets,
confiscatory taxation and other restrictions on U.S. investment.
Foreign Currency Risk
The securities of foreign companies are frequently denominated in foreign
currencies. A portfolio's net asset value is denominated in U.S. dollars.
Thus, changes in foreign currency rates and in exchange control regulations
may positively or negatively affect the value of the securities of a
portfolio. A portfolio also may incur costs to convert foreign currencies
into U.S. dollars and vice versa. In addition:
. Foreign currency exchange rates reflect relative values of two currencies,
usually the U.S. dollar and the foreign currency in question.
. Complex political and economic factors applicable to the issuing country
may affect the value of U.S. dollars and foreign currencies.
. The actions of U.S. and foreign governments may affect significantly the
currency exchange rates.
. government intervention may increase risks involved in purchasing or
selling foreign currency options, forward contracts and futures contracts,
since exchange rates may not be free to fluctuate in response to other
market forces.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
round-lot transactions in the inter-bank market and thus may not reflect
exchange rates for smaller odd-lot transactions (less than $1 million) where
rates may be less favorable. The inter-bank market in foreign currencies is a
global, around-the-clock market. To the extent that a market is closed while
the markets for the underlying currencies remain open, certain markets may not
always reflect significant price and rate movements.
The Euro
The single currency for the European Economic and Monetary Union ("EMU"), the
Euro, is scheduled to replace the national currencies for participating member
countries over a period that begins on January 1, 1999 and ends in July 2002.
At the end of that period, use of the Euro will be compulsory and countries in
the EMU will no longer maintain separate currencies in any form. Until then,
however, each country and issuers within each country are free to choose
whether to use the Euro.
9
<PAGE>
On January 1, 1999, existing national currencies will become denominations of
the Euro at fixed rates according to practices prescribed by the European
Monetary Institute and the Euro will become available as a book-entry
currency. Beginning on or about that date, the portfolios expect member
states to begin conducting financial market transactions in Euro and
redenominating many investments, currency balances and transfer mechanisms
into Euro. The portfolios also anticipate pricing, trading, settling and
valuing investments whose nominal values remain in their existing domestic
currencies in Euro. Accordingly, the portfolios expect the conversion to the
Euro to impact investments in countries that will adopt the Euro in all
aspects of the investment process, including trading, foreign exchange,
payments, settlements, cash accounts, custody and accounting. Some of the
uncertainties surrounding the conversion to the Euro include:
. Will the payment and operational systems of banks and other financial
institutions be ready by the scheduled launch date?
. Will the conversion to the Euro have legal consequences on outstanding
financial contracts that refer to existing currencies rather than Euro?
. How will existing currencies be exchanged into Euro?
. Will suitable clearing and settlement payment systems for the new currency
be created?
Stock Exchange and Market Risk
The adviser anticipates that in most cases an exchange or over-the-counter
(OTC) market located outside of the United States will be the best available
market for foreign securities. Foreign stock markets, while growing in volume
and sophistication, are generally not as developed as those in the United
States, and securities of some foreign issuers may be less liquid and more
volatile than securities of comparable U.S. issuers. Foreign security trading,
settlement and custodial practices are often less developed than those in U.S.
markets. This may lead to increased risk or substantial delays in case of a
failed trade or the insolvency of, or breach of duty by, a foreign broker-
dealer, securities depository or foreign sub-custodian. In addition, the costs
associated with foreign investments, including withholding taxes, brokerage
commissions and custodial costs, are generally higher than with U.S.
investments.
Legal System and Regulation Risks
Foreign countries have different legal systems and different regulations
concerning financial disclosure, accounting, and auditing standards.
Corporate financial information that would be disclosed under U.S. law may not
be available. Foreign accounting and auditing standards may render a foreign
corporate balance sheet more difficult to understand and interpret than one
subject to U.S. law and standards. Foreign markets may offer less protection
to investors than U.S. markets such as:
. Foreign accounting, auditing, and financial reporting requirements may
render a foreign corporate balance sheet more difficult to understand and
interpret than one subject to U.S. law and standards.
. Adequate public information on foreign issuers may not be available, and it
may be difficult to secure dividends and information regarding corporate
actions on a timely basis.
. In general, there is less overall governmental supervision and regulation
of securities exchanges, brokers, and listed companies than in the United
States.
. OTC markets tend to be less regulated than stock exchange markets and, in
certain countries, may be totally unregulated.
. Economic or political concerns may influence regulatory enforcement and may
make it difficult for investors to enforce their legal rights.
. Restrictions on transferring securities within the United States or to U.S.
persons may make a particular security less liquid than foreign securities
of the same class that are not subject to such restrictions.
EMERGING MARKETS
Investing in emerging markets may magnify the risks of foreign investing.
Security prices in emerging markets can be significantly more volatile than
those in more developed markets, reflecting the greater uncertainties of
investing in less established markets and economies. In particular, countries
with emerging markets may have (1) relatively unstable governments, (2) may
present the risks of nationalization of businesses, restrictions on foreign
ownership and prohibitions on the repatriation of assets, and (3) may have
less protection of property rights than more developed countries. The
economies of countries with emerging markets may be based on only a few
industries, may be highly vulnerable to changes in local or global trade
conditions, and may suffer from extreme and volatile debt burdens or inflation
rates. Local securities markets may trade a
10
<PAGE>
small number of securities and may be unable to respond effectively to
increases in trading volume, potentially making prompt liquidation of holdings
difficult or impossible at times.
Certain foreign governments levy withholding taxes on dividend and interest
income. Although in some countries a portfolio may recover a portion of these
taxes, the portion they cannot recover will reduce the income the portfolio
receives from its investments. The portfolios do not expect such foreign
withholding taxes to have a significant impact on performance.
INVESTMENT COMPANIES
- --------------------------------------------------------------------------------
The portfolios reserve the right to invest up to 10% of their total assets,
calculated at the time of investment, in the securities of other open-ended 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. A 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 received permission from the SEC to allow each of its portfolios
to invest, for cash management purposes, the greater of 5% of its total assets
or $2.5 million in the UAM DSI Money Market Portfolio, provided that the
investment is consistent with the portfolio's investment policies and
restrictions. Based upon the portfolio's assets invested in the UAM 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 UAM DSI Money Market Portfolio. The investing portfolio will bear
expenses of the UAM DSI Money Market Portfolio on the same basis as all of its
other shareholders.
REPURCHASE AGREEMENTS
- --------------------------------------------------------------------------------
In a repurchase agreement, a portfolio buys a security for a relatively short
period (usually not more than 7 days) and simultaneously agrees to sell it
back at a specified date and price. A portfolio normally uses repurchase
agreements to earn income on assets that are not invested. A portfolio will
require the counter-party to the agreement to deliver securities serving as
collateral for each repurchase agreement to its custodian either physically or
in book-entry form. The counter party must add to the collateral whenever the
price of the repurchase agreement rises (i.e., the borrower "marks to the
market" on a daily basis).
If the seller of the security declares bankruptcy or otherwise becomes
financially unable to buy back the security, the portfolio's right to sell the
security may be restricted. In addition, the value of the security might
decline before the portfolio can sell it and the portfolio might incur
expenses in enforcing its rights.
SECURITIES LENDING
- --------------------------------------------------------------------------------
To earn additional income, the portfolios may lend up to one-third of their
total assets (including the value of the collateral for the loans) at fair
market value to broker- dealers or other financial institutions. A portfolio
may reinvest any cash collateral in short-term securities and money market
funds. A portfolio will only lend its securities if:
. The borrower provides collateral at least equal to the market value of the
securities loaned.
. The collateral pledged and maintained by the borrower must consist of cash,
an irrevocable letter of credit issued by a domestic U.S. bank or
securities issued or guaranteed by the U.S. government.
. The borrower adds to the collateral whenever the price of the securities
loaned rises (i.e., the borrower "marks to the market" on a daily basis).
. The portfolio can terminate the loan at any time; and
. The portfolio receives reasonable interest on the loan (which may include
the Portfolio investing any cash collateral in interest bearing short-term
investments).
These risks are similar to the ones involved with repurchase agreements. When
a portfolio lends securities, there is a risk that it will lose money because
the borrower fails to return the securities involved in the transaction. In
addition, the borrower may become financially unable to honor its contractual
obligations, which may delay or prevent the portfolio from liquidating the
collateral.
11
<PAGE>
SHORT-TERM INVESTMENTS
- --------------------------------------------------------------------------------
To earn a return on uninvested assets, meet anticipated redemptions, or for
temporary defensive purposes, each portfolio may invest a portion of its
assets in the short-term investments described below.
BANK OBLIGATIONS
A portfolio will only invest in a security issued by a commercial bank if the
bank:
. Has total assets of at least $1 billion, or the equivalent in other
currencies;
. Is a U.S. bank and a member of the Federal Deposit Insurance Corporation;
and
. Is a foreign branch of a U.S. bank and the adviser believes the security is
of an investment quality comparable with other debt securities that a
portfolio may purchase.
Time Deposits
Time deposits are non-negotiable deposits, such as savings accounts or
certificates of deposit, held by a financial institution for a fixed term with
the understanding that the depositor can withdraw its money only by giving
notice to the institution. However, there may be early withdrawal penalties
depending upon market conditions and the remaining maturity of the obligation.
A portfolio may only purchase time deposits maturing from two business days
through seven calendar days.
Certificates of Deposit
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or savings and loan association for a definite
period of time and earning a specified return.
Banker's Acceptance
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).
COMMERCIAL PAPER
Commercial paper constitutes short-term obligations with maturities ranging
from 2 to 270 days issued by banks, corporations and other borrowers. Such
investments are unsecured and usually discounted. A portfolio may invest in
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. See APPENDIX A for a description
of commercial paper ratings.
U.S. GOVERNMENT SECURITIES
A portfolio may buy debt securities that are issued or guaranteed by the
U.S. Treasury or by an agency or instrumentality of the U.S. government. Some
U.S. government securities, such as Treasury bills, notes and bonds are
supported by the full faith and credit of the U.S. government. Others,
however, are supported only by the right of the instrumentality to borrow from
the U.S. government.
While U.S. government securities are guaranteed as to principal and interest,
their market value is not guaranteed. U.S. government securities are subject
to the same interest rate and credit risks as other fixed income securities.
However, since U.S. government securities are of the highest quality, the
credit risk is minimal. The U.S. government does not guarantee the net asset
value of the assets of a portfolio.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED DELIVERY TRANSACTIONS
- --------------------------------------------------------------------------------
A when-issued security is one whose terms are available and for which a market
exists, but which have not been issued. In a forward delivery transaction, a
portfolio contracts to purchase securities for a fixed price at a future date
beyond customary settlement time. "Delayed delivery" refers to securities
transactions on the secondary market where settlement occurs in the future. In
each of these transactions, the parties fix the payment obligation and the
interest rate that they will receive on the securities at the time the parties
enter the commitment; however, they do not pay money or delivery securities
until a later date. Typically, no income accrues on securities a portfolio
has committed to purchase before the securities are delivered, although the
12
<PAGE>
portfolio may earn income on securities it has in a segregated account. A
portfolio will only enter into these types of transactions with the intention
of actually acquiring the securities, but may sell them before the settlement
date.
A portfolio uses when-issued, delayed-delivery and forward delivery
transactions to secure what it considers an advantageous price and yield at
the time of purchase. When a portfolio engages in when-issued, delayed-
delivery and forward delivery transactions, it relies on the other party to
consummate the sale. If the other party fails to complete the sale, the
portfolio may miss the opportunity to obtain the security at a favorable price
or yield.
When purchasing a security on a when-issued, delayed delivery, or forward
delivery basis, the portfolio assumes the rights and risks of ownership of the
security, including the risk of price and yield changes. At the time of
settlement, the market value of the security may be more or less than the
purchase price. The yield available in the market when the delivery takes
place also may be higher than those obtained in the transaction itself.
Because a portfolio does not pay for the security until the delivery date,
these risks are in addition to the risks associated with its other
investments.
RESTRICTED SECURITIES
- --------------------------------------------------------------------------------
Each portfolio may purchase restricted securities that are not registered for
sale to the general public but which are eligible for resale to qualified
institutional investors under Rule 144A of the Securities Act of 1933. Under
the supervision of the Fund's board, the adviser determines the liquidity of
such investments by considering all relevant factors. Provided that a dealer
or institutional trading market in such securities exists, these restricted
securities are not treated as illiquid securities for purposes of a
portfolio's investment limitations. The priced realized from the sales of
these securities could be more or less than those originally paid by the
portfolio or less than what may be considered the fair value of such
securities.
INVESTMENT POLICIES
Whenever an investment limitation sets forth a percentage limitation on
investment or utilization of assets, such limitation shall (with the exception
of a limitation relating to borrowings) be determined immediately after and as
a result of a portfolio's acquisition of such security or other asset.
Accordingly, any later increase or decrease resulting from a change in values,
net assets or other circumstances will not be considered when determining
whether the investment complies with the investment limitations of the
portfolio.
FUNDAMENTAL INVESTMENT POLICIES
- --------------------------------------------------------------------------------
The following investment limitations are fundamental, which means the
portfolios cannot change them without shareholder approval. Each portfolio
will not:
. with respect to 75% of its assets, invest more than 5% of its total assets
at the time of purchase in securities of any single issuer (other than
obligations issued or guaranteed as to principal and interest by the of the
U.S. government or any if its agencies or instrumentalities);
. with respect to 75% of its assets, purchase more than 10% of any class of
the outstanding voting securities of any issuer;
. borrow, except from banks and as a temporary measure for extraordinary or
emergency purposes and then, in no event, in excess of 33 1/3% of the
portfolio's gross assets valued at the lower of market or cost;
. invest in physical commodities or contracts on physical commodities;
. invest more than 25% of its assets in companies within a single industry;
however, there are no limitations on investments made in instruments issued
or guaranteed by the U.S. government and its agencies when the portfolio
adopts a temporary defensive position;
. issue senior securities, as defined in the Investment Company Act of 1940,
as amended, except that this restriction shall not be deemed to prohibit a
portfolio from (1) making any permitted borrowings, mortgages or pledges,
or (2) entering into options, futures or repurchase transactions.
. make loans except by purchasing debt securities in accordance with its
investment objective and policies, entering into repurchase agreements, or
by lending its portfolio securities to banks, brokers, dealers and other
financial institutions so
13
<PAGE>
long as the loans are in compliance with the Investment Company Act of
1940, as amended, and the rules and regulations or interpretations of the
SEC;
. purchase or sell real estate or real estate limited partnerships, 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; and
. underwrite the securities of other issuers.
NON-FUNDAMENTAL POLICIES
- --------------------------------------------------------------------------------
In addition to the policies described above, the following limitations are
non-fundamental (i.e., the portfolio may change them without shareholder
approval) policies of the portfolios. The portfolios will not:
. invest for the purpose of exercising control over management of any
company;
. invest in stock or bond futures and/or options on futures unless (1) not
more than 5% of the portfolio's assets are required as deposit to secure
obligations under such futures and/or options on futures contracts
provided; however, that in the case of an option that is in-the-money may
be excluded in computing such 5% and (2) not more than 20% of the
portfolio's assets are invested in stock or bond futures and options;
. 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;
. pledge, mortgage, or hypothecate any of its assets to an extent greater
than 33 1/3% of its total assets at fair market value;
. purchase additional securities when borrowings exceed 5% of total assets;
. purchase on margin or sell short, except as permitted herein; and
MANAGEMENT OF THE PORTFOLIOS
The business of the Fund is managed by its governing board, which, in turn,
elects officers who are responsible for the day-to-day operations of the Fund
and who execute policies formulated by the board. The Fund pays each board
member who is not also an officer or affiliated person (independent board
member) a $150 quarterly retainer fee per active portfolio per quarter and a
$2,000 meeting fee. In addition, each independent board member is reimbursed
for travel and other expenses incurred while attending board meetings. The
$2,000 meeting fee and expense reimbursements are aggregated for all of the
board members and allocated proportionately among the portfolios of the UAM
Funds complex. The Fund does not pay the remaining board members, each of whom
are affiliated with the Fund, for their services as board members. UAM or its
affiliates or CGFSC pay the Fund's officers.
The following table lists the board members and officers of the Fund and
provides information regarding their present positions, date of birth,
address, principal occupations during the past five years, aggregate
compensation received from the Fund and total compensation received from the
UAM Funds complex.
<TABLE>
<CAPTION>
Total
Compensation
Aggregate Compensation From UAM
Position UAM from Registrant as of Funds Complex as
Name, Address, DOB Funds, Inc. Principal Occupations During the Past 5 years October 31, 1998 of October 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John T. Bennett, Jr. Director President of Squam Investment Management Company,
College Road -- RFD 3 Inc. and Great Island Investment Company, Inc.;
Meredith, NH 03253 President of Bennett Management Company from
1/26/29 1988 to 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Nancy J. Dunn Director Vice President for Finance and Administration and Treasurer
10 Garden Street of Radcliffe College since 1991.
Cambridge, MA 02138
8/14/51
- ------------------------------------------------------------------------------------------------------------------------------------
William A. Humenuk Director Executive Vice President and Chief Administrative Officer of
100 King Street West Philip Services Corp.; Director, Hofler Corp.; Formerly, a
P.O. Box 2440, LCD-1, Partner in the Philadelphia office of the law firm Dechert
Hamilton Ontario, Price & Rhoads.
Canada L8N-4J6
4/21/42
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Total
Compensation
Aggregate Compensation From UAM
Position UAM from Registrant as of Funds Complex as
Name, Address, DOB Funds, Inc. Principal Occupations During the Past 5 years October 31, 1998 of October 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Philip D. English Director President and Chief Executive Officer of
16 West Madison Street Broventure Company, Inc.; Chairman of the
Baltimore, MD 21201 Board of Chektec Corporation and Cyber
8/5/48 Scientific, Inc
- ------------------------------------------------------------------------------------------------------------------------------------
Norton H. Reamer* Director, Chairman, Chief Executive Officer and a 0 0
One International Place President and Director of UnitedAsset Management Corporation;
Boston, MA 02110 Chairman Director, Partner or Trustee of each of the
3/21/35 Investment Companies of the Eaton Vance Group
of Mutual Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
Peter M. Whitman, Jr.* Director President and Chief Investment Officer of 0 0
One Financial Center Dewey Square Investors Corporation since
Boston, MA 02111 1988; Director and Chief Executive Officer
7/1/43 of H.T. Investors, Inc., formerly a
subsidiary of Dewey Square.
- ------------------------------------------------------------------------------------------------------------------------------------
William H. Park Vice President Executive Vice President and Chief Financial 0 0
One International Place Officer of United Asset Management Corporation.
Boston, MA 02110
9/19/47
- ------------------------------------------------------------------------------------------------------------------------------------
Gary L. French Treasurer President of UAMFSI and UAMFDI, formerly Vice 0 0
211 Congress Street President of Operations, Development and Control
Boston, MA 02110 of Fidelity Investments in 1995; Treasurer of the
7/4/51 Fidelity Group of Mutual Funds from 1991 to 1995.
- ------------------------------------------------------------------------------------------------------------------------------------
Michael E. DeFao Secretary Vice President and General Counsel of UAMFSI and 0 0
211 Congress Street UAMFDI; Associate Attorney of Ropes & Gray (a law
Boston, MA 02110 firm) from 1993 to 1995.
2/28/68
- ------------------------------------------------------------------------------------------------------------------------------------
Robert R. Flaherty Assistant Vice President of UAMFSI; formerly Manager of Fund 0 0
211 Congress Street Treasurer Administration and Compliance of CGFSC from 1995
Boston, MA 02110 to 1996; Deloitte & Touche LLP from 1985 to 1995,
9/18/63 Senior Manager.
- ------------------------------------------------------------------------------------------------------------------------------------
Michael J. Leary Assistant Vice President of Chase Global Funds Services Company 0 0
73 Tremont Street Treasurer since 1993. Manager of Audit at Ernst & Young from
Boston, MA 02108 1988 to 1993.
11/23/65
- ------------------------------------------------------------------------------------------------------------------------------------
Michelle Azrialy Assistant Assistant Treasurer of Chase Global Funds Services 0 0
73 Tremont Street Secretary Company since 1996. Senior Public Accountant with
Boston, MA 02108 Price Waterhouse LLP from 1991 to 1994.
4/12/69
</TABLE>
____
*These board members are "interested persons" of the Fund as that term is
defined in the 1940 Act.
CODE OF ETHICS
The Fund has adopted a Code of Ethics that restricts to a certain extent
personal transactions by access persons of the Fund and imposes certain
disclosure and reporting obligations.
PRINCIPAL HOLDERS OF SECURITIES
As of ____________, 1998, the members of the governing board and officers of
the Fund as a group owned less than 1% of the Fund's outstanding shares.
As of ____________, 1998, the following persons or organizations held of
record or beneficially 5% or more of the shares of a portfolio:
<TABLE>
<CAPTION>
Percentage of
Name and Address of Shareholder Shares Owned Portfolio Class
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
Any persons or organizations listed above as owning 25% or more of the
outstanding shares of a portfolio may be presumed to "control" (as that term
is defined in the 1940 Act) the 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 the
portfolio.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
CONTROL OF ADVISER
The adviser is located at 600 West Broadway, Suite 1000, San Diego, CA 92101.
The adviser is a wholly-owned subsidiary of UAM and has provided investment
management services to corporations, pension and profit-sharing plans, 401(k)
and thrift plans, trusts, estates and other institutions and individuals since
1970.
UAM is 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 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. Several UAM
Affiliated Firms also act as investment advisers to separate series or
portfolios of the UAM Funds complex.
INVESTMENT ADVISORY AGREEMENT
Service Performed by Adviser
Pursuant to each Investment Advisory Agreement (Advisory Agreement) between
the Fund, on behalf of each portfolio, and the adviser, the adviser has agreed
to:
. Manage the investment and reinvestment of the assets of the portfolios.
. Continuously review, supervise and administer the investment program of the
portfolios.
. Determine in its discretion the securities a portfolio will buy or sell and
the portion of its assets such portfolio will hold uninvested.
Limitation of Liability
In the absence of (1) willful misfeasance, bad faith, or gross negligence of
the part of the adviser in the performance of its obligations and duties under
the Advisory Agreement, (2) reckless disregard by the adviser of its
obligations and duties under the Advisory Agreement, or (3) a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation
for services, the adviser shall not be subject to any liability whatsoever to
the Fund, for any error of judgment, mistake of law or any other act or
omission in the course of, or connected with, rendering services under the
Advisory Agreement.
Continuing an Advisory Agreement
Unless sooner terminated, an Advisory Agreement shall continue for periods of
one year so long as such continuance is specifically approved at least
annually (a) by a majority of those members of the governing board of the Fund
who are not parties to the Advisory Agreement or interested persons of any
such party and (b) by a majority of the governing board of the Fund or a
majority of the shareholders of the portfolio. An Advisory Agreement may be
terminated at any time by the Fund, without the payment of any penalty, by
vote of a majority of the portfolios' shareholders on 60 days' written notice
to the adviser. The adviser may terminate the Advisory Agreements at any time,
without the payment of any penalty, upon 90 days' written notice to the Fund.
An Advisory Agreement will automatically and immediately terminate if it is
assigned.
16
<PAGE>
Investment Advisory Fee
For its services, the adviser receives an advisory fee calculated by applying
the annual percentage rates listed below to the average daily net assets of
the portfolio for the month. The adviser's fee is paid in monthly
installments.
<TABLE>
<CAPTION>
Annual Percentage Rate
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Rice, Hall, James Small Cap Portfolio 0.75%
- ----------------------------------------------------------------------------------------------------------
Rice, Hall, James Small/Mid Cap Portfolio 0.80%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Expense Limitation
The adviser may voluntarily agree to limit the expenses of the portfolios. The
adviser may further reduce its compensation to the extent that the expenses of
a portfolio exceeds such lower expense limitation as the adviser may, by
notice to the portfolio, declare to be appropriate. The expenses subject to
this limitation are exclusive of brokerage commissions, interest, taxes,
deferred organizational and extraordinary expenses and, if the Fund has a
distribution plan, payments required under such plan. The prospectus describes
the terms of any expense limitation that are in effect from time to time.
PHILOSOPHY AND STYLE
RICE, HALL, JAMES SMALL CAP PORTFOLIO
The adviser applies a value oriented approach to small capitalization growth
stocks. The portfolio is constructed through bottom up research where stocks
selected must possess catalysts - positive fundamental changes which the
adviser believes should lead to greater investor recognition and,
subsequently, higher stock prices. The price earnings ratios of selected
stocks are typically lower than the projected 3 to 5 year earnings growth
rates. Stocks are sold when they reach preset upside targets, violate preset
downside price limits or when a deterioration of the fundamental assumptions
or catalysts occur.
RICE, HALL, JAMES SMALL/MID CAP PORTFOLIO
The adviser practices a company specific approach to making investment
decisions. This approach focuses on identifying stocks of growth companies
that are selling at a discount to the companies' projected earnings growth
rates. Specifically, the adviser requires that candidates for inclusion in
the portfolio have price/earnings ratios that are lower than the 3 to 5 year
projected earnings growth rate. In addition, the stocks must possess
catalysts, which are defined by the adviser as fundamental events that
ultimately lead to increases in revenue growth rates, expanding profit margins
and/or increases in earnings growth rates that are generally not anticipated
by the market. Such events can include new product introductions or
applications, discovery of niche markets, new management, corporate or
industry restructures, regulatory change, end market expansion, etc. Most
importantly, the adviser must be convinced that such change will lead to
greater investor recognition and a subsequent rise in the stock prices within
a 12 to 24 month period. Stocks are sold when they reach their upside target,
violate the present downside limit or when a deterioration of the fundamental
assumptions or catalysts occurs.
REPRESENTATIVE INSTITUTIONAL CLIENTS
As of the date of this SAI, the adviser's representative institutional clients
included University of Kansas Endowment, San Diego Society of Natural History,
American Business Products, City of San Diego and California Western School of
Law.
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.
DISTRIBUTOR
- --------------------------------------------------------------------------------
UAMFDI serves as the Fund's distributor. The Fund offers its shares
continuously. While UAMFDI will use its best efforts to sell shares of the
Fund, it is not obligated to sell any particular amount of shares. UAMFDI
receives no compensation for its services, and any amounts it may receive
under a Service and Distribution Plan are passed through in their entirety to
third parties. UAMFDI, an affiliate of UAM, is located at 211 Congress
Street, Boston, Massachusetts 02110.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
ADMINISTRATOR
Pursuant to a Fund Administration Agreement with the Fund, UAMFSI manages,
administers and conducts the general business activities of the Fund. As a
part of its responsibilities, UAMFSI provides and oversees the provision by
various third
17
<PAGE>
parties of administrative, fund accounting, dividend disbursing and transfer
agent services for the Fund. UAMFSI, an affiliate of UAM, has its principal
office at 211 Congress Street, Boston, Massachusetts 02110.
UAMFSI will bear all expenses in connection with the performance of its
services under the Fund Administration Agreement. Other expenses to be
incurred in the operation of the Fund will be borne by the Fund or other
parties, including
. Taxes, interest, brokerage fees and commissions.
. Salaries and fees of officers and members of the Board who are not
officers, directors, shareholders or employees of an affiliate of UAM,
including UAMFSI, UAMFDI or the adviser.
. SEC fees and state Blue-Sky fees.
. EDGAR filing fees.
. Processing services and related fees.
. Advisory and administration fees.
. Charges and expenses of pricing and data services, independent public
accountants and custodians.
. Insurance premiums including fidelity bond premiums.
. Outside legal expenses.
. Costs of maintenance of corporate existence.
. Typesetting and printing of prospectuses for regulatory purposes and for
distribution to current shareholders of the Fund.
. Printing and production costs of shareholders' reports and corporate
meetings.
. Cost and expenses of Fund stationery and forms.
. Costs of special telephone and data lines and devices.
. Trade association dues and expenses.
. Any extraordinary expenses and other customary Fund expenses.
Unless sooner terminated, the Fund Administration Agreement shall continue in
effect from year to year provided the board specifically approves such
continuance at least annually. The Board or UAMFSI may terminate the Fund
Administration Agreement, without penalty, on not less than ninety (90) days'
written notice. The Fund Administration Agreement shall automatically
terminate upon its assignment by UAMFSI without the prior written consent of
the Fund.
UAMFSI will from time to time employ or associate with such person or persons
as may be fit to assist them in the performance of the Fund Administration
Agreement. Such person or persons may be officers and employees who are
employed by both UAMFSI and the Fund. UAMFSI will pay such person or persons
for such employment. The Fund will not incur any obligations with respect to
such persons.
SUB-ADMINISTRATOR
UAMFSI has subcontracted some of the its administrative and fund accounting
services to CGFSC, an affiliate of The Chase Manhattan Bank, by a Mutual Funds
Service Agreement dated April 15, 1996. CGFSC is located at 73 Tremont Street,
Boston, Massachusetts 02108.
SUB-TRANSFER AGENT AND SUB-SHAREHOLDER SERVICING AGENT
UAMFSI has subcontracted its transfer agent and dividend-disbursing agent
services to DST Systems, Inc. under an Agency Agreement between UAMFSI and DST
Systems Inc. DST Systems, Inc., is located at P.O. Box 419534, Kansas City,
Missouri 64141-6534.
UAMSSC serves as sub-shareholder servicing agent for the Fund under an
agreement between UAMSSC and UAMFSI. The principal place of business of UAMSSC
is 825 Duportail Road, Wayne, Pennsylvania 19087.
ADMINISTRATIVE FEES
In exchange for administrative services, each portfolio pays a four-part fee
to UAMFSI as follows:
18
<PAGE>
A. A portfolio specific fee to UAMFSI calculated from the aggregate net
assets of each portfolio at the following rates:
<TABLE>
<CAPTION>
ANNUAL RATE
<S> <C>
Rice, Hall, James Small Cap Portfolio 0.04%
- ---------------------------------------------------------------------------
Rice, Hall, James Small/Mid Cap Portfolio 0.04%
- ---------------------------------------------------------------------------
</TABLE>
B. An annual base fee that UAMFSI pays to CGFSC for its sub-administration and
other services calculated at the annual rate of $52,500 for the first
operational class; $7,500 for each additional operational class; and 0.04%
of their pro rata share of the combined assets of the UAM Funds.
C. An annual base fee that UAMFSI pays to DST Systems, Inc. for its services
as transfer agent and dividend-disbursing agent equal to $10,500 for the
first operational class and $10,500 for each additional class.
D. An annual base fee that UAMFSI pays to UAMSSC for its services as sub-
shareholder-servicing agent equal to $7,500 for the first operational class
and $2,500 for each additional class.
Each portfolio also pays certain account and transaction fees and out-of-
pocket expenses that may be based on the number of open and closed accounts,
the type of account or the services provided to the account.
SHAREHOLDER SERVICING ARRANGEMENTS
UAM and any of its 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. The adviser may also compensate its affiliated
companies for referring investors to the portfolios.
CUSTODIAN
- --------------------------------------------------------------------------------
The Chase Manhattan Bank, 3 Chase MetroTech Center, Brooklyn, New York 11245,
provides for the custody of the Fund's assets pursuant to the terms of a
custodian agreement with the Fund.
INDEPENDENT PUBLIC ACCOUNTANT
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as independent accountants for the Fund.
BROKERAGE ALLOCATION AND OTHER PRACTICES
SELECTION OF BROKERS
- --------------------------------------------------------------------------------
The Advisory Agreements authorize the adviser to select the brokers or dealers
that will execute the purchases and sales of investment securities for a
portfolio. The Advisory Agreement also directs the adviser to use its best
efforts to obtain the best execution with respect to all transactions for a
portfolio. The adviser may select brokers based on research, statistical and
pricing services they provide to the adviser. Information and research
provided by a broker will be in addition to, and not instead of, the services
the adviser is required to perform under the Advisory Agreement. In so doing,
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. The adviser may place portfolio orders with
qualified broker-dealers who refer clients to the adviser.
SIMULTANEOUS TRANSACTIONS
- --------------------------------------------------------------------------------
The adviser makes investment decisions for a portfolio independently of
decisions made for its other clients. When a security is suitable for the
investment objective of more than one client, it may be prudent for the
adviser to engage in a simultaneous transaction, that is, buy or sell the same
security for more than one client. The adviser strives to allocate such
transactions among its clients, including the portfolios, in a fair and
reasonable manner. Although there is no specified formula for allocating
19
<PAGE>
such transactions, the Fund's governing board periodically reviews the various
allocation methods used by the adviser, and the results of such allocations.
BROKERAGE COMMISSIONS
- --------------------------------------------------------------------------------
EQUITY SECURITIES
Generally, equity securities are bought and sold through brokerage
transactions for which commissions are payable. Purchases from underwriters
will include the underwriting commission or concession, and purchases from
dealers serving as market makers will include a dealer's mark-up or reflect a
dealer's mark-down.
DEBT SECURITIES
Debt securities are usually bought and sold directly from the issuer or an
underwriter or market maker for the securities. Generally, each Fund will not
pay brokerage commissions for such purchases. When a debt security is bought
from an underwriter, the purchase price will usually include an underwriting
commission or concession. The purchase price for securities bought from
dealers serving as market makers will similarly include the dealer's mark up
or reflect a dealer's mark down. When a portfolio executes transactions in
the over-the-counter market, it will deal with primary market makers unless
prices that are more favorable are otherwise obtainable.
CAPITAL STOCK AND OTHER SECURITIES
DESCRIPTION OF SHARES AND VOTING RIGHTS
- --------------------------------------------------------------------------------
The Fund's Articles of Incorporation, as amended, permit its governing board
to issue three billion shares of common stock, with a $.001 par value. The
governing board has the power to create and designate one or more series
(portfolios) or classes of shares of common stock and to classify or
reclassify any unissued shares at any time and without shareholder approval.
When issued and paid for, the shares of each series and class of the Fund are
fully paid and nonassessable, and have no pre-emptive rights or preference as
to conversion, exchange, dividends, retirement or other features.
The shares of each series and class have non-cumulative voting rights, which
means that the holders of more than 50% of the shares voting for the election
of members of the governing board can elect all of the members if they choose
to do so. On each matter submitted to a vote of the shareholders, 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. Shares of all classes will vote together as a single class except
when otherwise required by law or as determined by the members of the Fund's
governing board.
If the Fund is liquidated, the shareholders of each portfolio or any class
thereof are entitled to receive the net assets belonging to that portfolio, or
in the case of a class, belonging to that portfolio and allocable to that
class. The Fund will distribute is net assets to its shareholders in
proportion to the number of shares of that portfolio or class thereof held by
them and recorded on the books of the Fund. The liquidation of any portfolio
or class thereof may be authorized at any time by vote of a majority of the
members of the governing board.
The governing board has authorized three classes of shares, Institutional,
Institutional Service and Adviser. The three classes represent interests in
the same assets of a portfolio and, except as discussed below, are identical
in all respects. Unlike Institutional and Adviser Class Shares, Institutional
Service Class Shares bear certain expenses related to shareholder servicing
and the distribution of such shares and have exclusive voting rights with
respect to matters relating to such distribution expenditures. The Adviser
Class Shares impose a sales load on purchases. The classes also have
different exchange privileges. The net income attributable to Institutional
Service Class Shares and the dividends payable on Institutional Service Class
Shares will be reduced by the amount of the shareholder servicing and
distribution fees; accordingly, the net asset value of the Institutional
Service Class Shares will be reduced by such amount to the extent a portfolio
has undistributed net income.
The Fund will not hold annual meetings except when required to by the
Investment Company Act of 1940, as amended, or other applicable law.
20
<PAGE>
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund tries to distribute substantially all of the net investment income of
a portfolio and net realized capital gains so as to avoid income taxes on its
dividends and distributions and the imposition of the federal excise tax on
undistributed income and capital gains. However, the Fund cannot predict the
time or amount of any such dividends or distributions.
Distributions by a portfolio reduce its net asset value ("NAV'). A
distribution that reduces the NAV of a portfolio below its cost basis is
taxable as described in the prospectus of the portfolios, although from an
investment standpoint, it is a return of capital. If you buy shares of a
portfolio on or before the "record date" -- the date that establishes which
shareholders will receive an upcoming distribution -- for a distribution, you
will receive some of the money you invested as a taxable distribution.
Unless the shareholder elects otherwise in writing, all dividend and capital
gains distributions are automatically received in additional shares of a
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 will be treated as a separate entity (and hence as a separate
"regulated investment company") for federal tax purposes. Each portfolio will
distribute its net capital gains to its investors, but will not offset (for
federal income tax purposes) such gains against any net capital losses of
another portfolio.
PURCHASE REDEMPTION AND PRICING OF SHARES
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
Service Agents may enter confirmed purchase orders on behalf of their
customers. If shares of a portfolio are purchased in this manner, the Service
Agent must receive your investment order before the close of trading on the
New York Stock Exchange ("NYSE') and transmit it to UAMSSC before the close of
its business day to receive that day's share price. UAMSSC must receive proper
payment for the order by the time the portfolio is priced on the following
business day. Service Agents are responsible to their customers and the Fund
for timely transmission of all subscription and redemption requests,
investment information, documentation and money.
Purchases of shares of a Portfolio will be made in full and fractional shares
of the Portfolio calculated to three decimal places. Certificates for
fractional shares will not be issued. Certificates for whole shares will not
be issued except at the written request of the shareholder.
The Fund reserves the right in its sole discretion 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.
IN-KIND PURCHASES
If accepted by the Fund, shareholders may purchase shares of a portfolio in
exchange for securities that are eligible for acquisition by the portfolio.
Securities to be exchanged that are accepted by the Fund will be valued as
described under "VALUATION OF SHARES" at the next determination of net asset
value after 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 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:
. At the time of exchange, such securities are eligible to be included in the
portfolio (current market quotations must be readily available for such
securities).
. The investor represents and agrees that all securities offered to be
exchanged are liquid securities and not subject to any restrictions upon
their sale by the Portfolio under the Securities Act of 1933, or otherwise.
21
<PAGE>
. The value of any such securities (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.
Investors who are subject to Federal taxation upon exchange may realize a gain
or loss for Federal income tax purposes depending upon the cost of securities
or local currency exchanged. Investors interested in such exchanges should
contact the adviser.
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
When you redeem, your shares may be worth more or less than the price you paid
for them depending on the market value of the investments held by the
portfolio.
BY MAIL
Requests to redeem shares must include:
. Share certificates, if issued.
. A letter of instruction or an 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.
. Any required signature guarantees (see "SIGNATURE GUARANTEES").
. Any other necessary legal documents, if required, in the case of estates,
trusts, guardianships, custodianships, corporations, pension and profit
sharing plans and other organizations.
BY TELEPHONE
The following tasks cannot be accomplished by telephone:
. Changing the name of the commercial bank or the account designated to
receive redemption proceeds (this can be accomplished only by a written
request signed by each shareholder, with each signature guaranteed).
. Redemption of certificated shares by telephone.
The Fund and its Sub-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, as well as 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. The Fund or Sub-Transfer Agent may
be liable for any losses due to unauthorized or fraudulent telephone
instructions if the Fund or the Sub-Transfer Agent does not employ the
procedures described above. Neither the Fund nor the Sub-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.
REDEMPTIONS-IN-KIND
If the governing board determines that it would be detrimental to the best
interests of remaining shareholders of the Fund to make payment wholly or
partly in cash, the Fund may pay redemption proceeds in whole or in part by a
distribution in-kind of liquid securities held by a Portfolio in lieu of cash
in conformity with applicable rules of the SEC. Investors may incur brokerage
charges on the sale of portfolio securities received in payment of
redemptions.
However, the Fund has made an election with the SEC 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 SEC. 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 governing board believes 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 under "Valuation of Shares." A redeeming shareholder
would normally incur brokerage expenses if these securities were converted to
cash.
22
<PAGE>
SIGNATURE GUARANTEES
To protect your account, the Fund and its sub-transfer agent 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
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 that 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.
OTHER REDEMPTION INFORMATION
Normally, the Fund will pay for all shares redeemed under proper procedures
within one business day of and no more than seven days after the receipt of
the request, or earlier if required under applicable law. 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 determined by
the SEC.
The Fund may suspend redemption privileges or postpone the date of payment
. During any period that both the NYSE and custodian bank are closed, or
trading on the NYSE is restricted as determined by the Commission.
. 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.
. For such other periods as the Commission may permit.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
The exchange privilege is only available with respect to portfolios that are
qualified for sale in the shareholder's state of residence. Exchanges are
based on the respective net asset values of the shares involved. The
Institutional Class and Institutional Service Class Shares of UAM Funds do not
charge a sales commission or charge of any kind.
Neither the Fund nor any of its service providers will be responsible for the
authenticity of the exchange instructions received by telephone. The
governing board of the Fund may restrict the exchange privilege at any time.
Such instructions may include limiting the amount or frequency of exchanges
and may be for the purpose of assuring such exchanges do not disadvantage the
Fund and its shareholders.
TRANSFER OF SHARES
- --------------------------------------------------------------------------------
Shareholders may transfer shares of each portfolio to another person by making
a written request to the Fund. Your request should clearly identify the
account and number of shares you wish to transfer. All registered owners
should sign the request 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
"Signature Guarantees." As in the case of redemptions, the written request
must be received in good order before any transfer can be made.
VALUATION OF SHARES
- --------------------------------------------------------------------------------
The Fund does not price its shares on those days when the New York Stock
Exchange is closed, which are currently: New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day; Good Friday; Memorial Day; Independence Day; Labor
Day; Thanksgiving Day; and Christmas Day.
EQUITY SECURITIES
Equity securities listed on a securities exchange for which market quotations
are readily available are valued at the last quoted sale price of the day.
Price information on listed securities is taken from the exchange where the
security is primarily traded.
23
<PAGE>
Unlisted equity securities and listed securities not traded on the valuation
date for which market quotations are readily available are valued neither
exceeding the asked prices nor less than the bid prices. Quotations of foreign
securities in a foreign currency are converted to U.S. dollar equivalents. The
converted value is based upon the bid price of the foreign currency against
U.S. dollars quoted by any major bank or by a broker.
DEBT SECURITIES
Debt securities are valued according to the broadest and most representative
market, which will ordinarily be the over-the-counter market. Debt securities
may be valued based on prices provided by a pricing service when such prices
are believed to reflect the fair market value of such securities. Securities
purchased with remaining maturities of 60 days or less are valued at amortized
cost when the Board of Directors determines that amortized cost reflects fair
value.
OTHER ASSETS
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 governing board.
PERFORMANCE CALCULATIONS
The portfolios measure performance by calculating yield and total return. Both
yield and total return figures are based on historical earnings and are not
intended to indicate future performance. Performance quotations by investment
companies are subject to rules adopted by the SEC, 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 SEC.
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 SEC. An explanation of the method used to compute or express
performance follows.
Performance is calculated separately for Institutional Class and Service Class
Shares. Dividends paid by a Portfolio with respect to Institutional Class and
Service Class Shares, to the extent any dividends are paid, will be calculated
in the same manner at the same time on the same day and will be in the same
amount, except that service fees, distribution charges and any incremental
transfer agency costs relating to Service Class Shares will be borne
exclusively by that class.
TOTAL RETURN
- --------------------------------------------------------------------------------
Total return is the change in value of an investment in a portfolio over a
given period, assuming reinvestment of any dividends and capital gains. A
cumulative or aggregate total return reflects actual performance over a stated
period of time. An average annual total return is a hypothetical rate of
return that, if achieved annually, would have produced the same cumulative
total return if performance had been constant over the entire period.
The average annual total return of a 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 one, five and ten-year period and the deduction of
all applicable Fund expenses on an annual basis. Since Institutional Service
Class Shares bear additional service and distribution expenses, their average
annual total return will generally be lower than that of the Institutional
Class Shares.
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).
24
<PAGE>
The average annual total rates of return of the Institutional Class of the
Portfolios are as follows:
<TABLE>
<CAPTION>
Since Inception
One Year Ended Through Year Ended
October 31, 1998 October 31, 1998 Inception Date
<S> <C> <C> <C>
Rice, Hall, James Small Cap Portfolio
Institutional Class Shares 7/1/94
- ---------------------------------------------------------------------------------------------
Rice, Hall, James Small/Mid Cap Portfolio
Institutional Class Shares 11/1/96
- ---------------------------------------------------------------------------------------------
</TABLE>
YIELD
- --------------------------------------------------------------------------------
Yield refers to the income generated by an investment in a portfolio over a
given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all funds. As this
differs from other accounting methods, the quoted yield may not equal the
income actually paid to shareholders.
The 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. Since Institutional Service Class Shares bear additional service
and distribution expenses, their yield will generally be lower than that of
the Institutional Class Shares.
Yield is obtained using the following formula:
Yield = 2((a-b)/(cd)+1)6-1
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
- --------------------------------------------------------------------------------
The Portfolios' performance may be compared to data prepared by independent
services which monitor the performance of investment companies, data reported
in financial and industry publications, and various indices as further
described in the Portfolios' SAI. This information may also be included in
sales literature and advertising.
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. Please see APPENDIX B for publications, indices and averages that
may be used.
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 each portfolio, 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 each
portfolio to calculate its performance. In addition, there can be no assurance
that each portfolio will continue this performance as compared to such other
averages.
TAXES
In order for a portfolio to continue to qualify for federal income tax
treatment as a regulated investment company under the Internal Revenue Code of
1986, as amended, 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, as applicable.
Each portfolio will distribute to shareholders annually any net capital gains
that have been recognized for federal income tax purposes. Shareholders will
be advised on the nature of the payments.
25
<PAGE>
If for any taxable year a portfolio does not qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code, all of
the portfolio's taxable income would be subject to tax at regular corporate
rates without any deduction for distributions to shareholders. In this event,
a portfolio's distributions to shareholders would be taxable as ordinary
income to the extent of the current and accumulated earnings and profits of
the particular portfolio, and would be eligible for the dividends received
deduction in the case of corporate shareholders. The portfolios intend to
qualify as a "regulated investment company" each year.
Dividends and interest received by each portfolio may give rise to withholding
and other taxes imposed by foreign countries. These taxes would reduce each
portfolio's dividends but are included in the taxable income reported on your
tax statement if each portfolio qualifies for this tax treatment and elects to
pass it through to you. Consult a tax adviser for more information regarding
deductions and credits for foreign taxes.
EXPENSES
<TABLE>
<CAPTION>
Investment Investment Sub-
Advisory Fees Advisory Fees Administrator Administrator Brokerage
Paid Waived Fee (UAMFSI) Fee (CGFSC) Commissions
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Rice, Hall, James Small Cap Portfolio
1998
- ---------------------------------------------------------------------------------------------------------------------------------
1997 $320,608 -0- $88,251 $81,427 $72,700
- ---------------------------------------------------------------------------------------------------------------------------------
1996 $197,797 -0- $93,851 $76,774 $93,309
- ---------------------------------------------------------------------------------------------------------------------------------
Rice, Hall, James Small/Mid Cap Portfolio
1998
- ---------------------------------------------------------------------------------------------------------------------------------
1997* -0- $42,239 $36,970 $34,858 $31,408
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*During the period from November 1, 1996 (initial offering) to October 31,
1997.
FINANCIAL STATEMENTS
The Financial Statements for each portfolio for the fiscal year ended October
31, 1998, the Financial Highlights for the respective periods presented, and
the report thereon by PricewaterhouseCoopers LLP, the Fund's independent
accountant, which appear in portfolio's 1998 Annual Report, are incorporated
by reference into this Statement of Additional Information. No other parts
are incorporated by reference herein. Copies of the 1998 Annual Report may be
obtained free of charge by telephoning the UAM Funds at the telephone number
appearing on the front page of this Statement of Additional Information.
26
<PAGE>
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
THE SAMI PREFERRED STOCK INCOME PORTFOLIO
Institutional Class Shares
STATEMENT OF ADDITIONAL INFORMATION
__________, 1999
This statement of additional information (SAI) is not a prospectus. However, you
should read it in conjunction with the Prospectus of The SAMI Preferred Stock
Income Portfolio Institutional Class Shares dated _______, 1999. You may obtain
a Prospectus for The SAMI Preferred Stock Income Portfolio by contacting the UAM
Funds at the address listed above.
1
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
DEFINITIONS.................................................................... 1
THE FUND....................................................................... 1
DESCRIPTION OF THE PORTFOLIO AND ITS INVESTMENTS AND RISKS..................... 1
Preferred Equity Securities................................................... 1
Debt Securities............................................................... 3
Derivatives................................................................... 6
Investment Companies.......................................................... 10
Repurchase Agreements......................................................... 10
Securities Lending............................................................ 10
Short-Term Investments........................................................ 11
When-Issued, Forward Commitment and Delayed Delivery Transactions............. 12
Restricted Securities......................................................... 12
INVESTMENT POLICIES............................................................ 12
Fundamental Investment Policies............................................... 12
Non-Fundamental Policies...................................................... 12
MANAGEMENT OF THE PORTFOLIO.................................................... 13
CODE OF ETHICS................................................................. 14
PRINCIPAL HOLDERS OF SECURITIES................................................ 15
INVESTMENT ADVISORY AND OTHER SERVICES......................................... 15
Investment Adviser............................................................ 15
Distributor................................................................... 16
Administrative Services....................................................... 16
Custodian..................................................................... 18
Independent Public Accountant................................................. 18
BROKERAGE ALLOCATION AND OTHER PRACTICES....................................... 18
Selection of Brokers.......................................................... 18
Simultaneous Transactions..................................................... 18
Brokerage Commissions......................................................... 18
CAPITAL STOCK AND OTHER SECURITIES............................................. 19
Description Of Shares And Voting Rights....................................... 19
Dividends and Capital Gains Distributions..................................... 19
PURCHASE REDEMPTION AND PRICING OF SHARES...................................... 20
Purchase of Shares............................................................ 20
Redemption of Shares.......................................................... 20
Exchange Privilege............................................................ 22
Transfer Of Shares............................................................ 22
Valuation of Shares........................................................... 22
PERFORMANCE CALCULATIONS....................................................... 23
Total Return.................................................................. 23
Yield......................................................................... 23
Comparisons................................................................... 24
TAXES.......................................................................... 24
EXPENSES....................................................................... 25
FINANCIAL STATEMENTS........................................................... 25
</TABLE>
1
<PAGE>
DEFINITIONS
The "Fund" is UAM Funds, Inc.
The term "adviser" means Spectrum Asset Management, Inc., the Fund's
investment adviser.
UAM is United Asset Management Corporation.
UAMFSI is UAM Fund Services, Inc., the Fund's administrator.
UAMFDI is UAM Fund Distributors, Inc., the Fund's distributor.
UAMSSC is UAM Fund Shareholder Servicing Center, the Fund's sub-shareholder-
servicing agent.
CGFSC is Chase Global Funds Service Company, the Fund's sub-administrator.
UAM Funds Complex includes UAM Funds, Inc., UAM Funds Trust, UAM Funds Trust
II and all of their portfolios.
The term "the portfolio" is used to refer to the SAMI Preferred Stock Income
Portfolio, while "portfolio" or "portfolios" refers to some or all portfolios
of the UAM Funds Complex.
The terms "board" and "governing board" refer to the Fund's Board of Directors
as a group, while "board member" refers to a single member of the board.
All other defined terms, which are not otherwise defined in this SAI, have the
same meaning in the SAI as they do in the prospectus of the SAMI Preferred
Stock Income Portfolio.
THE FUND
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 Fund changed its
name to "UAM Funds, Inc." The Fund's principal executive office is located at
One International Place, Boston, MA 02110; shareholders should direct all
correspondence to the address listed on the cover of this SAI.
The Fund is an open-end, management investment company under the Investment
Company Act of 1940. The SAMI Preferred Stock Income Portfolio is a
diversified series of the Fund. This means that with respect to 75% of its
total assets, the portfolio may not invest more than 5% of its total assets in
the securities of any one issuer (except U.S. government securities). The
remaining 25% of its total assets are not subject to this restriction. To the
extent the portfolio invests a significant portion of its assets in the
securities of a particular issuer, it will be subject to an increased risk of
loss if the market value of such issuer's securities declines.
DESCRIPTION OF THE PORTFOLIO AND ITS INVESTMENTS AND RISKS PREFERRED
EQUITY SECURITIES
- --------------------------------------------------------------------------------
The portfolio may invest in preferred stocks. While investing in preferred
stocks, like investing in common stocks, allows the portfolio to participate
in the benefits of owning a company, the portfolio must accept the risks of
ownership. Unlike bondholders, who have preference to a company's earnings
and cash flow, preferred stockholders followed by common stockholders in order
of priority, are entitled only to the residual amount after a company meets
its other obligations. For this reason, the value of a company's stock will
usually react more strongly to actual or perceived changes in the company's
financial condition or prospects than its debt obligations. Stockholders of a
company that fares poorly can lose money.
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 values 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.
1
<PAGE>
The portfolio will invest primarily in investment grade, utility preferred
securities of varying maturities. Investment grade preferred stocks are
generally considered to be those having a rating of at least "Baa" or higher
by Moody's Investors Service, Inc. ("Moody's") or "BBB-" by Standard & Poor's
Ratings Services ("S&P"). Bonds rated Baa or BBB- may posses speculative
characteristics and may be more sensitive to changes in the economy and the
financial condition of issuers than higher rated bonds. See APPENDIX A
attached and also "SHORT-TERM INVESTMENTS - CORPORATE DEBT OBLIGATIONS...."
below.
FIXED DIVIDEND PREFERRED STOCK
Fixed dividend preferred stock is preferred stock that has a dividend rate
which is determined at the time of issue and is distributed, usually, on an
annual basis.
ADJUSTABLE-RATE 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 rate 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
Sinking fund preferred stock is preferred stock which provides for the issuer
to be able to redeem the outstanding preferred stock according to a
predetermined schedule.
PERPETUAL PREFERRED STOCK
Perpetual preferred stock is preferred stock that has no sinking fund or
maturity feature, but does include a call feature.
STOCK MARKET RISKS
Stock markets tend to move in cycles with short or extended periods of rising
and falling stock prices. The value of a company's stock may fall because of:
. Factors that directly relate to that company, such as decisions made by its
management or lower demand for the company's products or services.
. Factors affecting an entire industry, such as increases in production
costs.
. Changes in financial market conditions that are relatively unrelated to the
company or its industry, such as changes in interest rates, currency
exchange rates or inflation rates.
BANKING INDUSTRY RISKS
Banking industry stocks are subject to the traditional risks associated with
equity stock investing. The portfolio is also subject to special risks as a
result of being significntly invested in the finanical services industries.
These more pronounced risks revolve around changes in interest rates, economic
growth, and governmental regulations.
PUBLIC UTILITY INDUSTRY RISKS
Public utilities stocks are subject to the traditional risks associated with
equity stock investing, as well as additional risks specific to the public
utility industry, 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;
. difficulty in obtaining fuel for electric generation at reasonable prices;
. difficulty in obtaining natural gas for resale;
2
<PAGE>
. 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;
. the effects of energy conservation;
. the effects of regulatory changes, such as the possible adverse effects on
profits of recent increased competition among certain utility companies,
including telecommunications companies;
. the uncertainties resulting from such companies' diversification into new
domestic and international businesses; and
. agreements by many of these companies linking future rate increases to
inflation or other factors not directly related to the actual operating
profits of the enterprise.
DEBT SECURITIES
- --------------------------------------------------------------------------------
Debt securities are used by corporations and governments to borrow money from
investors. Most debt securities promise a variable or fixed rate of return
and repayment of the amount borrowed at maturity. Some debt securities, such
as zero-coupon bonds, do not pay current interest and are purchased at a
discount from their face value. Debt securities may include, among other
things, all types of bills, notes, bonds, mortgage-backed securities or asset-
backed securities.
The total return of a debt instrument is composed of two elements: the
percentage change in the security's price and interest income earned. The
YIELD TO MATURITY of a debt security estimates its total return only if the
price of the debt security remains unchanged during the holding period and
coupon interest is reinvested at the same yield to maturity. The total return
of a debt instrument, therefore, will be determined not only by how much
interest is earned, but also by how much the price of the security and
interest rates change.
INTEREST RATES
The price of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up, the value of the bond will go
down, and vice versa). One can estimate the anticipated change in the price of
a fixed rate security for each 1% shift in interest rates by using a risk
measure known as EFFECTIVE DURATION. An effective duration of 4 years, for
example, would suggest that for each 1% reduction in interest rates at all
maturity levels, the price of a security is estimated to increase by 4%. An
increase in rates by the same magnitude is estimated to reduce the price of
the security by 4%. By knowing the yield and the effective duration of a debt
security, one can estimate total return based on an expectation of how much
interest rates, in general, will change.
While serving as a good estimator of prospective returns, effective duration
is an imperfect measure. While lower interest rates generally improve the
value of a fixed income portfolio, lower interest rates may also introduce
certain risks which may independently cause the share price of the portfolio
to fall. Lower rates motivate people to pay off mortgage-backed and asset-
backed securities earlier than expected, which introduces REINVESTMENT RISK.
Reinvesting portfolio assets at lower rates may reduce the yield of the
portfolio. The unexpected timing of mortgage and asset-backed prepayments
caused by the variations in interest rates may also shorten or lengthen the
AVERAGE MATURITY of the portfolio. Neglecting this drift in average maturity
may have the unintended effect of increasing or reducing the effective
duration of the portfolio which may in turn adversely affect the expected
performance of the portfolio.
CREDIT RATING
Coupon interest is offered to investors of fixed income securities as
compensation for assuming risk, although short-term U.S. treasury securities,
such as 3 month treasury bills, are considered "risk free." Corporate
securities offer higher yields than U.S. treasuries because their payment of
interest and complete repayment of principal is less certain. The credit
rating or financial condition of an issuer may affect the value of a debt
security. Generally, the lower the quality rating of a security, the greater
the risks that the issuer will fail to pay interest and return principal. To
compensate investors for taking on increased risk, issuers with lower credit
ratings usually offer their investors a higher "risk premium" in the form of
higher interest rates above comparable U.S. treasuries.
Changes in investor confidence regarding the certainty of interest and
principal payments of a fixed income corporate security will result in an
adjustment to this "risk premium." Since an issuer's outstanding debt carries
a fixed coupon, adjustments to the risk premium must occur in the price, which
effects the yield to maturity of the bond. If an issuer defaults or becomes
unable to honor its financial obligations, the bond may lose some or all of
its value
3
<PAGE>
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade. The adviser may retain securities that are downgraded, if
it believes that keeping those securities is warranted.
Rating agencies are organizations that assign ratings to securities based
primarily on the rating agency's assessment of the issuer's financial
strength. The portfolio currently uses ratings compiled by Standard and
Poor's Ratings Services, Duff & Phelps Rating Co., Fitch IBCA, Inc. and,
Moody's Investor Services. Credit ratings are only an agency's opinion, not an
absolute standard of quality, and they do not reflect an evaluation of market
risk. APPENDIX A contains further information concerning the ratings of
certain rating agencies and their significance.
The adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time a portfolio buys it. A rating
agency may change its credit ratings at any time. The adviser monitors the
rating of the security and will take appropriate actions if a rating agency
reduces the security's rating. A portfolio is not obligated to dispose of
securities whose issuers subsequently are in default or which are downgraded
below the above-stated ratings
INVESTMENT-GRADE FIXED-INCOME SECURITIES
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade.
U.S. GOVERNMENT SECURITIES
For a discussion of these securities see "SHORT-TERM INVESTMENTS - GOVERNMENT
SECURITIES", below.
CORPORATE BONDS
For a discussion of these securities see "SHORT-TERM INVESTMENTS - CORPORATE
BONDS," below.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities are interests in pools of mortgage loans that
various governmental, government-related and private organizations assemble as
securities for sale to investors. Mortgage-backed securities differ from other
forms of debt securities because they make monthly payments that consist of
both interest and principal payments. (Other debt securities normally provide
for periodic payment of interest in fixed amounts with principal payments at
maturity or specified call dates.) In effect, these payments are a "pass-
through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of such
securities.
Governmental entities, private insurers and the mortgage poolers may insure or
guaranty the timely payment of interest and principal of these pools through
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance and letters of credit issue the insurance and
guarantees. The adviser will consider such insurance and guarantees and the
creditworthiness of the issuers thereof in determining whether a mortgage-
related security meets its investment quality standards. It is possible that
the private insurers or guarantors will not meet their obligations under the
insurance policies or guarantee arrangements.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.
Government National Mortgage Association (GNMA)
GNMA, a wholly owned U.S. government corporation within the Department of
Housing and Urban Development, is the principal governmental guarantor of
mortgage-related securities. GNMA, which is backed by the faith and credit of
the U.S. government, guarantees the timely payment of principal and interest
on securities issued by institutions approved by GNMA and backed by pools of
FHA-insured or VA-guaranteed mortgages. GNMA does not guarantee the market
value or yield of mortgage-backed securities or the value of portfolio shares.
To buy GNMA securities, a portfolio may have to pay a premium over the
maturity value of the underlying mortgages, which a portfolio may lose if
prepayment occurs.
4
<PAGE>
Federal National Mortgage Association (FNMA)
FNMA is a government-sponsored corporation owned entirely by private
stockholders. FNMA, which is regulated by the Secretary of Housing and Urban
development, purchases conventional mortgages from a list of approved
seller/servicers, including 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, but are not backed by the
full faith and credit of the U.S. government.
Federal Home Loan Mortgage Corporation (FHLMC)
FHLMC is a corporate instrumentality of the U.S. government whose stock is
owned by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970
to increase the availability of mortgage credit for residential housing. FHLMC
issues Participation Certificates (PCs) which represent interests in
conventional mortgages from its national portfolio. Like FNMA, FHLMC
guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the U.S.
government.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. In addition to
guaranteeing the mortgage-related security, such issuers may service and/or
have originated the underlying mortgage loans. Pools created by these issuers
generally offer a higher rate of interest than pools created by GNMA, FNMA and
FHLMC because they are not guaranteed by a government agency.
Risk of Investing in Mortgage-Backed Securities
Yield characteristics of mortgage-backed securities differ from those of
traditional fixed income securities. The major differences include interest
and principal payments that are more frequent (usually monthly), adjustable
interest rates, and the possibility that prepayments of principal may be made
substantially earlier than their final distribution dates (so that the price
of the security will generally decline when interest rates rise).
A portfolio may fail to recover fully its investment in mortgage-backed
securities notwithstanding any direct or indirect governmental, agency or
other guarantee because the counter-party failed to meet its commitments.
Changes in interest rates and a variety of economic, geographic, social and
other factors, such as the sale of the underlying property, refinancing or
foreclosure, can cause the loans underlying a mortgage-backed security to be
repaid sooner than expected. If the prepayment rates increase, a portfolio may
have to reinvest its principal at a rate of interest that is lower than the
rate on existing mortgage-backed securities. Conversely, when interest rates
are rising many mortgage-backed securities will see a decline in the
prepayment rate, extending their average life. Extending the average life of a
mortgage-backed security increases the risk of depreciation due to future
increases in market interest rates. For these reasons, mortgage-backed
securities may be less effective than other types of U.S. government
securities as a means of "locking in" interest rates.
Dollar rolls involve potential risks of loss that are different from those
related to the securities underlying the transaction. For example, if the
counter-party becomes insolvent, the Portfolio may not be able to buy the
security back from the counter-party. The Portfolio could lose money if the
value of the securities it sold increases above their repurchase price. Since
the counter-party may deliver similar, but not identical, securities to the
Portfolio, the securities that the Portfolio are required to repurchase may be
worth less than the securities it sold.
Collateralized Mortgage Obligations (CMOs)
CMOs are hybrids between mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, CMOs usually pay interest and prepaid principal
semiannually. While whole mortgage loans may collateralize CMOs, portfolio of
mortgage-backed securities guaranteed by GNMA, FHLMC, or FNMA, and their
income streams more typically collateralize them.
A REMIC is a CMO that qualifies for special tax treatment under the Internal
Revenue Code of 1986, as amended, and invests in certain mortgages primarily
secured by interests in real property and other permitted investments.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC certificate, often referred to as a
"tranche," is issued at a specific interest rate and must be fully retired by
its final distribution date. Generally, all classes of CMOs or REMIC
certificates pay or accrue interest monthly. Investing in the lowest tranche
of CMOs and REMIC certificates involves risks similar to those associated with
investing in equity securities.
5
<PAGE>
DERIVATIVES
- --------------------------------------------------------------------------------
Derivatives are financial instruments whose value is based on an underlying
asset, such as a stock or a bond, or an underlying economic factor, such as an
interest rate or an index. The portfolio tries to minimize its loss by
investing in derivatives to protect them from broad fluctuations in market
prices, interest rates or foreign currency exchange rates. Investing in
derivatives for these purposes is known as "hedging." When hedging is
successful, the portfolio will have offset any depreciation in the value of
its portfolio securities by the appreciation in the value of the derivative
position. Although techniques other than the sale and purchase of derivatives
could be used to control the exposure of the portfolio to market fluctuations,
the use of derivatives may be a more effective means of hedging this exposure.
The following derivatives may be purchased by the portfolio:
FUTURES
A futures contract is an agreement between two parties whereby one party is
obligated to buy and the other is obligated to sell a financial instrument at
an agreed upon price and time. The parties to a futures contract do not have
to pay for or deliver the underlying financial instrument until the delivery
date. The parties to a futures contract can hold the contract until its
delivery date, although in many cases they close the contract early by taking
an opposite position in an identical contract. The financial instrument
underlying the contract may be a stock, stock index, bond, bond index,
interest rate, foreign exchange rate or other similar instrument. The
portfolio will incur commission expenses in both opening and closing futures
positions.
Futures contracts are traded in the United States on commodity exchanges or
boards of trade -- known as "contract markets" -- approved for such trading
and regulated by the Commodity Futures Trading Commission, a federal agency.
These contract markets standardize the terms, including the maturity date and
underlying financial instrument, of all futures contracts. Contract markets
require both the purchaser and seller to deposit "initial margin" with a
futures broker, known as a futures commission merchant, when they enter into
the contract. Initial margin deposits are typically equal to a percentage of
the contract's value. After they open a futures contract, the parties to the
transaction must compare the purchase price of the contract to its daily
market value. If the value of the futures contract changes in such a way that
a party's position declines, that party must make additional "variation
margin" payments so that the margin payment is adequate. On the other hand,
the value of the contract may change in such a way that there is excess margin
on deposit, possibly entitling the party that has a gain to receive all or a
portion of this amount.
The portfolio may take a "short position" by selling futures contracts on
securities it owns or on securities with characteristics similar to those of
securities it owns. For example, when the portfolio expects interest rates to
rise or securities prices to fall, it can seek to offset a decline in the
value of its holdings by selling futures contracts so that the portfolio is
obligated to sell the securities at a future lower price. When the portfolio's
short hedging position is successful, the appreciation in the value of the
futures position will offset substantially any depreciation in the value of
the holdings of the portfolio. On the other hand, a decline in the value of
the futures position would offset any unanticipated appreciation in the value
of the holdings of the portfolio.
On other occasions, the portfolio may take a "long" position by purchasing
futures contracts. For example, when the portfolio expects interest rates to
fall or securities' prices to rise, it can seek to secure a better rate or
price than might later be available by purchasing a futures contract. The
portfolio may also buy futures contracts as a substitute for transactions in
securities, to alter the investment characteristics of portfolio securities or
to gain or increase its exposure to a particular securities market.
OPTIONS
An option is a contract between two parties for the purchase and sale of a
financial instrument for a specified price (known as the "strike price" or
"exercise price") at any time during the option period. Unlike a futures
contract, an option grants a right (not an obligation) to buy or sell a
financial instrument. Generally, a seller of an option can grant a buyer two
kinds of rights: a "call" (the right to buy the security) or a "put" (the
right to sell the security). Options have various types of underlying
instruments, including specific securities, indices of securities prices,
foreign currencies, interest rates and futures contracts. Options may be
traded on an exchange (exchange-traded-options) or may be customized
agreements between the parties (over-the-counter or "OTC options"). Like
futures, a financial intermediary, known as a clearing corporation,
financially backs exchange-traded options. However, OTC options have no such
intermediary and are subject to the risk that the counter-party will not
fulfill its obligations under the contract.
Purchasing Put and Call Options
When the portfolio purchases a put option, it buys the right to sell the
instrument underlying the option at a fixed strike price. In return for this
right, the portfolio pays the current market price for the option (known as
the "option premium"). The portfolio may purchase put options to offset or
hedge against a decline in the market value of its securities ("protective
puts") or to benefit from a decline in the price of securities that it does
not own. The portfolio would ordinarily realize a gain if, during the option
6
<PAGE>
period, the value of the underlying securities decreased below the exercise
price sufficiently to cover the premium and transaction costs. However, if the
price of the underlying instrument does not fall enough to offset the cost of
purchasing the option, a put buyer would lose the premium and related
transaction costs.
Call options are similar to put options, except that the portfolio obtains the
right to purchase, rather than sell, the underlying instrument at the option's
strike price. The portfolio would normally purchase call options in
anticipation of an increase in the market value of securities it owns or wants
to buy. The portfolio would ordinarily realize a gain if, during the option
period, the value of the underlying instrument exceeded the exercise price
plus the premium paid and related transaction costs. Otherwise, the portfolio
would realize either no gain or a loss on the purchase of the call option.
The purchaser of an option may terminate its position by:
. Allowing it to expire and losing its entire premium;
. Exercising the option and either selling (in the case of a put option) or
buying (in the case of a call option) the underlying instrument at the
strike price; or
. Closing it out in the secondary market at its current price.
Selling (Writing) Put and Call Options
When the portfolio writes a call option it assumes an obligation to sell
specified securities to the holder of the option at a specified price if the
option is exercised at any time before the expiration date. Similarly, when
the portfolio writes a put option it assumes an obligation to purchase
specified securities from the option holder at a specified price if the option
is exercised at any time before the expiration date. The portfolio may
terminate its position in an exchange-traded put option before exercise by
buying an option identical to the one it has written. Similarly, it may
cancel an over-the-counter option by entering into an offsetting transaction
with the counter-party to the option.
The portfolio could try to hedge against an increase in the value of
securities it would like to acquire by writing a put option on those
securities. If security prices rise, the portfolio would expect the put
option to expire and the premium it received to offset the increase in the
security's value. If security prices remain the same over time, the
portfolio would hope to profit by closing out the put option at a lower price.
If security prices fall, the portfolio may lose an amount of money equal to
the difference between the value of the security and the premium it received.
Writing covered put options may deprive the portfolio of the opportunity to
profit from a decrease in the market price of the securities it would like to
acquire.
The characteristics of writing call options are similar to those of writing
put options, except that call writers expect to profit if prices remain the
same or fall. The portfolio could try to hedge against a decline in the value
of securities it already owns by writing a call option. If the price of that
security falls as expected, the portfolio would expect the option to expire
and the premium it received to offset the decline of the security's value.
However, the portfolio must be prepared to deliver the underlying instrument
in return for the strike price, which may deprive it of the opportunity to
profit from an increase in the market price of the securities it holds.
The portfolio is permitted only to write covered options. The portfolio can
cover a call option by owning, at the time of selling the option:
. The underlying security (or securities convertible into the underlying
security without additional consideration), index, interest rate, foreign
currency or futures contract.
. A call option on the same security or index with the same or lesser
exercise price.
. A call option on the same security or index with a greater exercise price,
with the difference between the exercise prices maintained as a segregated
account containing cash, or liquid securities.
. Cash, or liquid securities equal to at least the market value of the
optioned securities, interest rate, foreign currency or futures contract.
. In the case of an index, the portfolio of securities that corresponds to
the index.
. The portfolio can cover a put option by, at the time of selling the option:
. Entering into a short position in the underlying security.
. Purchasing a put option on the same security, index, interest rate, foreign
currency or futures contract with the same or greater exercise price.
7
<PAGE>
. Purchasing a put option on the same security, index, interest rate, foreign
currency or futures contract with a lesser exercise price, with the
difference between the exercise prices maintained as a segregated account
containing cash, or liquid securities.
. Maintaining the entire exercise price in liquid securities.
OPTIONS ON SECURITIES INDICES
Options on securities indices are similar to options on securities, except
that the exercise of securities index options requires cash settlement
payments and does not involve the actual purchase or sale of securities. In
addition, securities index options are designed to reflect price fluctuations
in a group of securities or segment of the securities market rather than price
fluctuations in a single security.
OPTIONS ON FUTURES
An option on a futures contract provides the holder with the right to buy a
futures contract (in the case of a call option) or sell a futures contract (in
the case of a put option) at a fixed time and price. Upon exercise of the
option by the holder, the contract market clearing house establishes a
corresponding short position for the writer of the option (in the case of a
call option) or a corresponding long position (in the case of a put option).
If the option is exercised, the parties will be subject to the futures
contracts. In addition, the writer of an option on a futures contract is
subject to initial and variation margin requirements on the option position.
Options on futures contracts are traded on the same contract market as the
underlying futures contract.
The buyer or seller of an option on a futures contract may terminate the
option early by purchasing or selling an option of the same series (i.e., the
same exercise price and expiration date) as the option previously purchased or
sold. The difference between the premiums paid and received represents the
trader's profit or loss on the transaction.
The portfolio may purchase put and call options on futures contracts instead
of selling or buying futures contracts. The portfolio may buy a put option on
a futures contract for the same reasons it would sell a futures contract. It
also may purchase such put options in order to hedge a long position in the
underlying futures contract. The portfolio may buy call options on futures
contracts for the same purpose as the actual purchase of the futures
contracts, such as in anticipation of favorable market conditions.
The portfolio may write a call option on a futures contract to hedge against a
decline in the prices of the instrument underlying the futures contracts. If
the price of the futures contract at expiration were below the exercise price,
the portfolio would retain the option premium, which would offset, in part,
any decline in the value of its portfolio securities.
The writing of a put option on a futures contract is similar to the purchase
of the futures contracts, except that, if market price declines, the portfolio
would pay more than the market price for the underlying instrument. The
premium received on the sale of the put option, less any transaction costs,
would reduce the net cost to the portfolio.
COMBINED POSITIONS
The portfolio may purchase and write options in combination with each other,
or in combination with futures or forward contracts, to adjust the risk and
return characteristics of the overall position. For example, the portfolio
could construct a combined position whose risk and return characteristics are
similar to selling a futures contract by purchasing a put option and writing a
call option on the same underlying instrument. Alternatively, the portfolio
could write a call option at one strike price and buy a call option at a lower
price to reduce the risk of the written call option in the event of a
substantial price increase. Because combined options positions involve
multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.
ADDITIONAL RISKS OF DERIVATIVES
While transactions in derivatives may reduce certain risks, these transactions
themselves entail certain other risks. For example, unanticipated changes in
interest rates, securities prices or currency exchange rates may result in a
poorer overall performance of the portfolio than if it had not entered into
any derivatives transactions. Derivatives may magnify the portfolio's gains
or losses, causing it to make or lose substantially more than it invested.
When used for hedging purposes, increases in the value of the securities the
portfolio holds or intends to acquire should offset any losses incurred with a
derivative. Purchasing derivatives for purposes other than hedging could
expose the portfolio to greater risks.
8
<PAGE>
CORRELATION OF PRICES
The portfolio's ability to hedge its securities through derivatives depends on
the degree to which price movements in the underlying index or instrument
correlate with price movements in the relevant securities. In the case of poor
correlation, the price of the securities the portfolio is hedging may not move
in the same amount, or even in the same direction as the hedging instrument.
The adviser will try to minimize this risk by investing only in those
contracts whose behavior it expects to resemble the portfolio securities it is
trying to hedge. However, if the portfolio's prediction of interest and
currency rates, market value, volatility or other economic factors is
incorrect, the portfolio may lose money, or may not make as much money as it
could have.
Derivative prices can diverge from the prices of their underlying instruments,
even if the characteristics of the underlying instruments are very similar to
the derivative. Listed below are some of the factors that may cause such a
divergence.
. Current and anticipated short-term interest rates, changes in volatility of
the underlying instrument, and the time remaining until expiration of the
contract.
. A difference between the derivatives and securities markets, including
different levels of demand, how the instruments are traded, the imposition
of daily price fluctuation limits or trading of an instrument stops.
. Differences between the derivatives, such as different margin requirements,
different liquidity of such markets and the participation of speculators in
such markets.
Derivatives based upon a narrower index of securities, such as those of a
particular industry group, may present greater risk than derivatives based on
a broad market index. Since narrower indices are made up of a smaller number
of securities, they are more susceptible to rapid and extreme price
fluctuations because of changes in the value of those securities.
While currency futures and options values are expected to correlate with
exchange rates, they may not reflect other factors that affect the value of
the investments of the portfolio. A currency hedge, for example, should
protect a yen-denominated security from a decline in the yen, but will not
protect the portfolio against a price decline resulting from deterioration in
the issuer's creditworthiness. Because the value of the portfolio's foreign-
denominated investments changes in response to many factors other than
exchange rates, it may not be possible to match the amount of currency options
and futures to the value of the portfolio's investments precisely over time.
LACK OF LIQUIDITY
Before a futures contract or option is exercised or expires, the portfolio can
terminate it only by entering into a closing purchase or sale transaction.
This requires a secondary market for such instruments on the exchange where
the portfolio originally entered into the transaction. If there is no
secondary market for the contract, or the market is illiquid, the portfolio
may have to purchase or sell the instrument underlying the contract, make or
receive a cash settlement or meet ongoing variation margin requirements. The
inability to close out derivative positions could have an adverse impact on
the ability of the portfolio to hedge its investments and may prevent the
portfolio from realizing profits or limiting its losses.
Derivatives may become illiquid (i.e., difficult to sell at a desired time and
price) under a variety of market conditions. For example:
. During periods of market volatility, a commodity exchange may suspend or
limit trading in a particular derivative instrument, an entire category of
derivatives or all derivatives.
. The portfolio may have difficulty liquidating its existing positions or
recovering excess variation margin payments because of exchange or clearing
house equipment failures, government intervention, insolvency of a
brokerage firm or clearing house or other disruptions of normal trading
activity.
. Investors may lose interest in a particular derivative or category of
derivatives.
MANAGEMENT RISK
If the adviser incorrectly predicts stock market and interest rate trends, the
portfolio may lose money by investing in derivatives. For example, if the
portfolio were to write a call option based on its adviser's expectation that
the price of the underlying security would fall, but the price were to rise
instead, the portfolio could be required to sell the security upon exercise at
a price below the current market price. Similarly, if the portfolio were to
write a put option based on the adviser's expectation that the price of the
underlying security would rise, but the price were to fall instead, the
portfolio could be required to purchase the security upon exercise at a price
higher than the current market price.
9
<PAGE>
MARGIN
Because of the low margin deposits required upon the opening of a derivative
position, such transactions involve an extremely high degree of leverage.
Consequently, a relatively small price movement in a derivative may result in
an immediate and substantial loss (as well as gain) to the portfolio and it
may lose more than it originally invested in the derivative.
If the price of a futures contract changes adversely, the portfolio may have
to sell securities at a time when it is disadvantageous to do so to meet its
minimum daily margin requirement. The portfolio may lose its margin deposits
if a broker with whom it has an open futures contract or related option
becomes insolvent or declares bankruptcy.
INVESTMENT COMPANIES
- --------------------------------------------------------------------------------
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-ended 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 received permission from the SEC to allow each of its portfolios
to invest, for cash management purposes, the greater of 5% of its total assets
or $2.5 million in the UAM DSI Money Market Portfolio, provided that the
investment is consistent with the portfolio's investment policies and
restrictions. Based upon the portfolio's assets invested in the UAM 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 UAM DSI Money Market Portfolio. The investing portfolio will bear
expenses of the UAM DSI Money Market Portfolio on the same basis as all of its
other shareholders.
REPURCHASE AGREEMENTS
- --------------------------------------------------------------------------------
In a repurchase agreement, the portfolio buys a security for a relatively
short period (usually not more than 7 days) and simultaneously agrees to sell
it back at a specified date and price. The portfolio normally uses repurchase
agreements to earn income on assets that are not invested. The portfolio will
require the counter-party to the agreement to deliver securities serving as
collateral for each repurchase agreement to its custodian either physically or
in book-entry form. The counter party must add to the collateral whenever the
price of the repurchase agreement rises (i.e., the borrower "marks to the
market" on a daily basis).
If the seller of the security declares bankruptcy or otherwise becomes
financially unable to buy back the security, the portfolio's right to sell the
security may be restricted. In addition, the value of the security might
decline before the portfolio can sell it and the portfolio might incur
expenses in enforcing its rights.
SECURITIES LENDING
- -------------------------------------------------------------------------------
To earn additional income, the portfolio may lend up to one-third of its total
assets (including the value of the collateral for the loans) at fair market
value to broker- dealers or other financial institutions. The portfolio may
reinvest any cash collateral in short-term securities and money market funds.
The portfolio will only lend its securities if:
. The borrower provides collateral at least equal to the market value of the
securities loaned.
. The collateral pledged and maintained by the borrower must consist of cash,
an irrevocable letter of credit issued by a domestic U.S. bank or
securities issued or guaranteed by the U. S. government.
. The borrower adds to the collateral whenever the price of the securities
loaned rises (i.e., the borrower "marks to the market" on a daily basis).
. The portfolio can terminate the loan at any time; and
. The portfolio receives reasonable interest on the loan (which may include
the Portfolio investing any cash collateral in interest bearing short-term
investments).
These risks are similar to the ones involved with repurchase agreements. When
the portfolio lends securities, there is a risk that it will lose money
because the borrower fails to return the securities involved in the
transaction. In addition, the borrower may become financially unable to honor
its contractual obligations, which may delay or prevent the portfolio from
liquidating the collateral.
10
<PAGE>
SHORT-TERM INVESTMENTS
- --------------------------------------------------------------------------------
To earn a return on uninvested assets, meet anticipated redemptions, or for
temporary defensive purposes, the portfolio may invest a portion of its assets
in the short-term investments described below:
BANK OBLIGATIONS
The portfolio will only invest in a security issued by a commercial bank if
the bank:
. Has total assets of at least $1 billion, or the equivalent in other
currencies;
. Is a U.S. bank and a member of the Federal Deposit Insurance Corporation;
and
. Is a foreign branch of a U.S. bank and the adviser believes the security is
of an investment quality comparable with other debt securities that the
portfolio may purchase.
TIME DEPOSITS
Time deposits are non-negotiable deposits, such as savings accounts or
certificates of deposit, held by a financial institution for a fixed term with
the understanding that the depositor can withdraw its money only by giving
notice to the institution. However, there may be early withdrawal penalties
depending upon market conditions and the remaining maturity of the obligation.
The portfolio may only purchase time deposits maturing from two business days
through seven calendar days.
CERTIFICATES OF DEPOSIT
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or savings and loan association for a definite
period of time and earning a specified return.
BANKER'S ACCEPTANCE
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).
COMMERCIAL PAPER
Commercial paper constitutes short-term obligations with maturities ranging
from 2 to 270 days issued by banks, corporations and other borrowers. Such
investments are unsecured and usually discounted. The portfolio may invest in
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. See APPENDIX A for a description
of commercial paper ratings.
U.S. GOVERNMENT SECURITIES
A portfolio may buy debt securities that are issued or guaranteed by the U.S.
Treasury or by an agency or instrumentality of the U.S. government. Some U.S.
government securities, such as Treasury bills, notes and bonds are supported
by the full faith and credit of the U.S. government. Others, however, are
supported only by the right of the instrumentality to borrow from the U.S.
government.
While U.S. government securities are guaranteed as to principal and interest,
their market value is not guaranteed. U.S. government securities are subject
to the same interest rate and credit risks as other fixed income securities.
However, since U.S. government securities are of the highest quality, the
credit risk is minimal. The U.S. government does not guarantee the net asset
value of the assets of the portfolio.
CORPORATE BONDS
A portfolio may buy corporate bonds and notes that are considered investment
grade securities. Investment grade securities have received one of the four
highest grades assigned by a rating agency, or determined to be of comparable
quality by the adviser. Corporations issue bonds and notes to raise money for
working capital or for capital expenditures such as plant construction,
equipment purchases and expansion. In return for the money loaned to the
corporation by investors, the corporation promises to pay investors interest,
and repay the principal amount of the bond or note.
11
<PAGE>
Like other debt securities, corporate debt securities involve a risk that the
corporate issuer will not make timely payment of either interest or principal,
or may default entirely. In addition, the market price of corporate debt
securities may go down because of changes in interest rates.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED DELIVERY TRANSACTIONS
- --------------------------------------------------------------------------------
A when-issued security is one whose terms are available and for which a market
exists, but which have not been issued. In a forward delivery transaction,
the portfolio contracts to purchase securities for a fixed price at a future
date beyond customary settlement time. "Delayed delivery" refers to
securities transactions on the secondary market where settlement occurs in the
future. In each of these transactions, the parties fix the payment obligation
and the interest rate that they will receive on the securities at the time the
parties enter the commitment; however, they do not pay money or delivery
securities until a later date. Typically, no income accrues on securities the
portfolio has committed to purchase before the securities are delivered,
although the portfolio may earn income on securities it has in a segregated
account. The portfolio will only enter into these types of transactions with
the intention of actually acquiring the securities, but may sell them before
the settlement date.
The portfolio uses when-issued, delayed-delivery and forward delivery
transactions to secure what it considers an advantageous price and yield at
the time of purchase. When the portfolio engages in when-issued, delayed-
delivery and forward delivery transactions, it relies on the other party to
consummate the sale. If the other party fails to complete the sale, the
portfolio may miss the opportunity to obtain the security at a favorable price
or yield.
When purchasing a security on a when-issued, delayed delivery, or forward
delivery basis, the portfolio assumes the rights and risks of ownership of the
security, including the risk of price and yield changes. At the time of
settlement, the market value of the security may be more or less than the
purchase price. The yield available in the market when the delivery takes
place also may be higher than those obtained in the transaction itself.
Because the portfolio does not pay for the security until the delivery date,
these risks are in addition to the risks associated with its other
investments.
RESTRICTED SECURITIES
- --------------------------------------------------------------------------------
The portfolio may purchase restricted securities that are not registered for
sale to the general public but which are eligible for resale to qualified
institutional investors under Rule 144A of the Securities Act of 1933. Under
the supervision of the Fund's board, the adviser determines the liquidity of
such investments by considering all relevant factors. Provided that a dealer
or institutional trading market in such securities exists, these restricted
securities are not treated as illiquid securities for purposes of a
portfolio's investment limitations. The priced realized from the sales of
these securities could be more or less than those originally paid by the
portfolio or less than what may be considered the fair value of such
securities.
INVESTMENT POLICIES
Whenever an investment limitation sets forth a percentage limitation on
investment or utilization of assets, such limitation shall (with the exception
of a limitation relating to borrowing) be determined immediately after and as
a result of the portfolio's acquisition of such security or other asset.
Accordingly, any later increase or decrease resulting from a change in values,
net assets or other circumstances will not be considered when determining
whether the investment complies with the investment limitations of the
portfolio.
FUNDAMENTAL INVESTMENT POLICIES
- --------------------------------------------------------------------------------
The following investment limitations are fundamental, which means the
portfolio cannot change them without shareholder approval. The portfolio
will not:
. issue senior securities, as defined in the Investment Company Act of 1940,
as amended, except that this restriction shall not be deemed to prohibit
the portfolio from (1) making any permitted borrowings, mortgages or
pledges, or (2) entering into options, futures or repurchase transactions;
and
NON-FUNDAMENTAL POLICIES
- --------------------------------------------------------------------------------
In addition to the policies described above, the following limitations are
non-fundamental (i.e., the portfolio may change them without shareholder
approval) policies of the portfolio. The portfolio will not:
12
<PAGE>
. with respect to 75% of its assets, invest more than 5% of its total assets
at the time of purchase in securities of any single issuer (other than
obligations issued or guaranteed as to principal and interest by the U.S.
government or any agency or instrumentality thereof);
. with respect to 75% of its assets, purchase more than 10% of any class of
the outstanding voting securities of any issuer;
. 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 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;
. 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,
. invest for the purpose of exercising control over management of any
company;
. invest in physical commodities, except for hedging, liquidity and related
purposes as provided in the prospectus and herein;
. 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;
. make loans except (1) 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 (2) by lending its
portfolio securities to banks, brokers, dealers and other financial
institutions so long as such loans are not inconsistent with the Investment
Company Act of 1940, as amended, and the rules and regulations or
interpretations of the SEC thereunder;
. pledge, mortgage, or hypothecate any of its assets to an extent greater
than 10% of its total assets at fair market value.
. purchase additional securities when the portfolio's borrowings exceed 5% of
it total gross assets;
. purchase on margin or sell short;
. 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;
. underwrite the securities of other issuers or invest more than an aggregate
of 10% of the net 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;
and
MANAGEMENT OF THE PORTFOLIO
The business of the Fund is managed by its governing board, which, in turn,
elects officers who are responsible for the day-to-day operations of the Fund
and who execute policies formulated by the board. The Fund pays each board
member who is not also an officer or affiliated person (independent board
member) a $150 quarterly retainer fee per active portfolio per quarter and a
$2,000 meeting fee. In addition, each independent board member is reimbursed
for travel and other expenses incurred while attending board meetings. The
$2,000 meeting fee and expense reimbursements are aggregated for all of the
board members and allocated proportionately among the portfolios of the UAM
Funds complex. The Fund does not pay the remaining board members, each of whom
are affiliated with the Fund, for their services as board members. UAM or its
affiliates CGFSC pay the Fund's officers.
The following table lists the board members and officers of the Fund and
provides information regarding their present positions, date of birth,
address, principal occupations during the past five years, aggregate
compensation received from the Fund and total compensation received from the
UAM Funds complex.
13
<PAGE>
<TABLE>
<CAPTION>
Position
UAM
<S> <C> <C>
Name, Address, DOB Funds, Inc. Principal Occupations During the Past 5 years
From UAM Director President of Squam Investment Management Company, Inc. and
John T. Bennett, Jr. Great Island Investment Company, Inc.; President of Bennett
College Road -- RFD 3 Management Company from 1988 to 1993.
Meredith, NH 03253
1/26/29
- -----------------------------------------------------------------------------------------------------
Nancy J. Dunn Director Vice President for Finance and Administration and Treasurer
10 Garden Street of Radcliffe College since 1991.
Cambridge, MA 02138
8/14/51
- -----------------------------------------------------------------------------------------------------
William A. Humenuk Director Executive Vice President and Chief Administrative Officer of
100 King Street West Philip Services Corp.; Director, Hofler Corp.; Formerly, a
P.O. Box 2440, LCD-1, Partner in the Philadelphia office of the law firm Dechert
Hamilton Ontario, Price & Rhoads.
Canada L8N-4J6
4/21/42
- -----------------------------------------------------------------------------------------------------
Philip D. English Director President and Chief Executive Officer of Broventure Company,
16 West Madison Street Inc.; Chairman of the Board of Chektec Corporation and Cyber
Baltimore, MD 21201 Scientific, Inc
8/5/48
- -----------------------------------------------------------------------------------------------------
Norton H. Reamer* Director, Chairman, Chief Executive Officer and a Director of United
One International Place President Asset Management Corporation; Director, Partner or Trustee
Boston, MA 02110 and of each of the Investment Companies of the Eaton Vance Group
3/21/35 Chairman of Mutual Funds.
- -----------------------------------------------------------------------------------------------------
Peter M. Whitman, Jr.* Director President and Chief Investment Officer of Dewey Square
One Financial Center Investors Corporation since 1988; Director and Chief
Boston, MA 02111 Executive Officer of H.T. Investors, Inc., formerly a
7/1/43 subsidiary of Dewey Square.
- -----------------------------------------------------------------------------------------------------
William H. Park Vice Executive Vice President and Chief Financial Officer of
One International Place President United Asset Management Corporation.
Boston, MA 02110
9/19/47
- -----------------------------------------------------------------------------------------------------
Gary L. French Treasurer President of UAMFSI and UAMFDI, formerly Vice President of
211 Congress Street Operations, Development and Control of Fidelity Investments
Boston, MA 02110 in 1995; Treasurer of the Fidelity Group of Mutual Funds
7/4/51 from 1991 to 1995.
- -----------------------------------------------------------------------------------------------------
Michael E. DeFao Secretary Vice President and General Counsel of UAMFSI and UAMFDI;
211 Congress Street Associate Attorney of Ropes & Gray (a law firm) from 1993 to
Boston, MA 02110 1995.
2/28/68
- -----------------------------------------------------------------------------------------------------
Robert R. Flaherty Assistant Vice President of UAMFSI; formerly Manager of Fund
211 Congress Street Treasurer Administration and Compliance of CGFSC from 1995 to 1996;
Boston, MA 02110 Deloitte & Touche LLP from 1985 to 1995, Senior Manager.
9/18/63
- -----------------------------------------------------------------------------------------------------
Michael J. Leary Assistant Vice President of Chase Global Funds Services Company since
73 Tremont Street Treasurer 1993. Manager of Audit at Ernst & Young from 1988 to 1993.
Boston, MA 02108
11/23/65
- -----------------------------------------------------------------------------------------------------
Michelle Azrialy Assistant Assistant Treasurer of Chase Global Funds Services Company
73 Tremont Street Secretary since 1996. Senior Public Accountant with Price Waterhouse
Boston, MA 02108 LLP from 1991 to 1994.
4/12/69
<CAPTION>
Total
Aggregate Compensation
Compensation from from UAM
Registrant as of Funds Complex as
October 31, 1998 of October 31, 1998
<S> <C> <C>
Name, Address, DOB
From UAM
John T. Bennett, Jr.
College Road -- RFD 3
Meredith, NH 03253
1/26/29
- -------------------------------------------------------------------------------
Nancy J. Dunn
10 Garden Street
Cambridge, MA 02138
8/14/51
- -------------------------------------------------------------------------------
William A. Humenuk
100 King Street West
P.O. Box 2440, LCD-1,
Hamilton Ontario,
Canada L8N-4J6
4/21/42
- -------------------------------------------------------------------------------
Philip D. English
16 West Madison Street
Baltimore, MD 21201
8/5/48
- -------------------------------------------------------------------------------
Norton H. Reamer* 0 0
One International Place
Boston, MA 02110
3/21/35
- -------------------------------------------------------------------------------
Peter M. Whitman, Jr.* 0 0
One Financial Center
Boston, MA 02111
7/1/43
- -------------------------------------------------------------------------------
William H. Park 0 0
One International Place
Boston, MA 02110
9/19/47
- -------------------------------------------------------------------------------
Gary L. French 0 0
211 Congress Street
Boston, MA 02110
7/4/51
- -------------------------------------------------------------------------------
Michael E. DeFao 0 0
211 Congress Street
Boston, MA 02110
2/28/68
- -------------------------------------------------------------------------------
Robert R. Flaherty 0 0
211 Congress Street
Boston, MA 02110
9/18/63
- -------------------------------------------------------------------------------
Michael J. Leary 0 0
73 Tremont Street
Boston, MA 02108
11/23/65
- -------------------------------------------------------------------------------
Michelle Azrialy 0 0
73 Tremont Street
Boston, MA 02108
4/12/69
</TABLE>
______________
* These board members are "interested persons" of the Fund as that term is
defined in the 1940 Act.
CODE OF ETHICS
The Fund has adopted a Code of Ethics that restricts to a certain extent
personal transactions by access persons of the Fund and imposes certain
disclosure and reporting obligations.
14
<PAGE>
PRINCIPAL HOLDERS OF SECURITIES
As of ____________, 1998, the members of the governing board and officers of
the Fund as a group owned less than 1% of the Fund's outstanding shares.
As of ____________, 1998, the following persons or organizations held of
record or beneficially 5% or more of the shares of the portfolio:
<TABLE>
<CAPTION>
Percentage of
Name and Address of Shareholder Shares Owned Portfolio Class
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
</TABLE>
Any persons or organizations listed above as owning 25% or more of the
outstanding shares of the portfolio may be presumed to "control" (as that term
is defined in the 1940 Act) the 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 the
portfolio.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
CONTROL OF ADVISER
The adviser is located at Four High Ridge Park, Stamford, CT 06905. The
adviser is a wholly-owned subsidiary of UAM and has provided investment
management services to corporations, pension and profit-sharing plans, 401(k)
and thrift plans, trusts, estates and other institutions and individuals since
1970.
UAM is 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 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. Several UAM
Affiliated Firms also act as investment advisers to separate series or
portfolio of the UAM Funds complex.
INVESTMENT ADVISORY AGREEMENT
SERVICE PERFORMED BY ADVISER
Pursuant to the Investment Advisory Agreement (Advisory Agreement) between
the Fund, on behalf of the portfolio, and the adviser, the adviser has agreed
to:
. Manage the investment and reinvestment of the assets of the portfolio.
. Continuously review, supervise and administer the investment program of the
portfolio.
. Determine in its discretion the securities the portfolio will buy or sell
and the portion of its assets the portfolio will hold uninvested.
LIMITATION OF LIABILITY
In the absence of (1) willful misfeasance, bad faith, or gross negligence of
the part of the adviser in the performance of its obligations and duties under
the Advisory Agreement, (2) reckless disregard by the adviser of its
obligations and duties under the Advisory Agreement, or (3) a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation
for services, the adviser shall not be subject to any liability whatsoever to
the Fund, for any error of judgment, mistake of law or any other act or
omission in the course of, or connected with, rendering services under the
Advisory Agreement.
15
<PAGE>
CONTINUING AN ADVISORY AGREEMENT
Unless sooner terminated, an Advisory Agreement shall continue for periods of
one year so long as such continuance is specifically approved at least
annually (a) by a majority of those members of the governing board of the Fund
who are not parties to the Advisory Agreement or interested persons of any
such party and (b) by a majority of the governing board of the Fund or a
majority of the shareholders of the portfolio. An Advisory Agreement may be
terminated at any time by the Fund, without the payment of any penalty, by
vote of a majority of the portfolio' shareholders on 60 days' written notice
to the adviser. The adviser may terminate the Advisory Agreements at any time,
without the payment of any penalty, upon 90 days' written notice to the Fund.
An Advisory Agreement will automatically and immediately terminate if it is
assigned.
INVESTMENT ADVISORY FEE
For its services, the adviser receives an advisory fee calculated by applying
the annual percentage rate listed below to the average daily net assets of the
portfolio for the month. The adviser's fee is paid in monthly installments.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Annual Percentage Rate
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SAMI Preferred Stock Income 0.70%
Portfolio
----------------------------------------------------------------------------
</TABLE>
EXPENSE LIMITATION
The adviser may voluntarily agree to limit the expenses of portfolio. The
adviser may further reduce its compensation to the extent that the expenses of
a portfolio exceeds such lower expense limitation as the adviser may, by
notice to the portfolio, declare to be appropriate. The expenses subject to
this limitation are exclusive of brokerage commissions, interest, taxes,
deferred organizational and extraordinary expenses and, if the Fund has a
distribution plan, payments required under such plan. The prospectus describes
the terms of any expense limitation that are in effect from time to time.
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.
DISTRIBUTOR
- --------------------------------------------------------------------------------
UAMFDI serves as the Fund's distributor. The Fund offers its shares
continuously. While UAMFDI will use its best efforts to sell shares of the
Fund, it is not obligated to sell any particular amount of shares. UAMFDI
receives no compensation for its services, and any amounts it may receive
under a Service and Distribution Plan are passed through in their entirety to
third parties. UAMFDI, an affiliate of UAM, is located at 211 Congress
Street, Boston, Massachusetts 02110.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
ADMINISTRATOR
Pursuant to a Fund Administration Agreement with the Fund, UAMFSI manages,
administers and conducts the general business activities of the Fund. As a
part of its responsibilities, UAMFSI provides and oversees the provision by
various third parties of administrative, fund accounting, dividend disbursing
and transfer agent services for the Fund. UAMFSI, an affiliate of UAM, has its
principal office at 211 Congress Street, Boston, Massachusetts 02110.
UAMFSI will bear all expenses in connection with the performance of its
services under the Fund Administration Agreement. Other expenses to be
incurred in the operation of the Fund will be borne by the Fund or other
parties, including
. Taxes, interest, brokerage fees and commissions.
. Salaries and fees of officers and members of the Board who are not officers,
directors, shareholders or employees of an affiliate of UAM, including
UAMFSI, UAMFDI or the adviser.
. SEC fees and state Blue-Sky fees.
. EDGAR filing fees.
16
<PAGE>
. Processing services and related fees.
. Advisory and administration fees.
. Charges and expenses of pricing and data services, independent public
accountants and custodians.
. Insurance premiums including fidelity bond premiums.
. Outside legal expenses.
. Costs of maintenance of corporate existence.
. Typesetting and printing of prospectuses for regulatory purposes and for
distribution to current shareholders of the Fund.
. Printing and production costs of shareholders' reports and corporate
meetings.
. Cost and expenses of Fund stationery and forms.
. Costs of special telephone and data lines and devices.
. Trade association dues and expenses.
. Any extraordinary expenses and other customary Fund expenses.
Unless sooner terminated, the Fund Administration Agreement shall continue
in effect from year to year provided the board specifically approves such
continuance at least annually. The Board or UAMFSI may terminate the Fund
Administration Agreement, without penalty, on not less than ninety (90)
days' written notice. The Fund Administration Agreement shall automatically
terminate upon its assignment by UAMFSI without the prior written consent
of the Fund.
UAMFSI will from time to time employ or associate with such person or
persons as may be fit to assist them in the performance of the Fund
Administration Agreement. Such person or persons may be officers and
employees who are employed by both UAMFSI and the Fund. UAMFSI will pay
such person or persons for such employment. The Fund will not incur any
obligations with respect to such persons.
SUB-ADMINISTRATOR
UAMFSI has subcontracted some of the its administrative and fund accounting
services to CGFSC, an affiliate of The Chase Manhattan Bank, by a Mutual
Funds Service Agreement dated April 15, 1996. CGFSC is located at 73
Tremont Street, Boston, Massachusetts 02108.
SUB-TRANSFER AGENT AND SUB-SHAREHOLDER SERVICING AGENT
UAMFSI has subcontracted its transfer agent and dividend-disbursing agent
services to DST Systems, Inc. under an Agency Agreement between UAMFSI and
DST Systems Inc. DST Systems, Inc., is located at P.O. Box 419534, Kansas
City, Missouri 64141-6534.
UAMSSC serves as sub-shareholder servicing agent for the Fund under an
agreement between UAMSSC and UAMFSI. The principal place of business of
UAMSSC is 825 Duportail Road, Wayne, Pennsylvania 19087.
ADMINISTRATIVE FEES
In exchange for administrative services, the portfolio pays a four-part fee
to UAMFSI as follows:
A. A portfolio specific fee to UAMFSI calculated from the aggregate net
assets of the portfolio at the following rates:
- ------------------------------------------------------------------------------
Annual Rate
- ------------------------------------------------------------------------------
SAMI Preferred Stock Income Portfolio 0.06%
B. An annual base fee that UAMFSI pays to CGFSC for its sub-administration
and other services calculated at the annual rate of $52,500 for the
first operational class; $7,500 for each additional operational class;
and 0.04% of their pro rata share of the combined assets of the UAM
Funds.
C. An annual base fee that UAMFSI pays to DST Systems, Inc. for its
services as transfer agent and dividend-disbursing agent equal to
$10,500 for the first operational class and $10,500 for each additional
class.
D. An annual base fee that UAMFSI pays to UAMSSC for its services as sub-
shareholder-servicing agent equal to $7,500 for the first operational
class and $2,500 for each additional class.
17
<PAGE>
The portfolio also pays certain account and transaction fees and out-of-pocket
expenses that may be based on the number of open and closed accounts, the type
of account or the services provided to the account.
SHAREHOLDER SERVICING ARRANGEMENTS
UAM and any of its 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. The adviser may also compensate its affiliated
companies for referring investors to the portfolio.
CUSTODIAN
- --------------------------------------------------------------------------------
The Chase Manhattan Bank, 3 Chase MetroTech Center, Brooklyn, New York 11245,
provides for the custody of the Fund's assets pursuant to the terms of a
custodian agreement with the Fund.
INDEPENDENT PUBLIC ACCOUNTANT
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as independent accountants for the Fund.
BROKERAGE ALLOCATION AND OTHER PRACTICES
SELECTION OF BROKERS
- --------------------------------------------------------------------------------
The Advisory Agreement authorizes the adviser to select the brokers or dealers
that will execute the purchases and sales of investment securities for the
portfolio. The Advisory Agreement also directs the adviser to use its best
efforts to obtain the best execution with respect to all transactions for the
adviser. The adviser may select brokers based on research, statistical and
pricing services they provide to the adviser. Information and research
provided by a broker will be in addition to, and not instead of, the services
the adviser is required to perform under the Advisory Agreement. In so doing,
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. The adviser may place portfolio orders with
qualified broker-dealers who refer clients to the adviser.
SIMULTANEOUS TRANSACTIONS
- --------------------------------------------------------------------------------
The adviser makes investment decisions for the portfolio independently of
decisions made for its other clients. When a security is suitable for the
investment objective of more than one client, it may be prudent for the
adviser to engage in a simultaneous transaction, that is, buy or sell the same
security for more than one client. The adviser strives to allocate such
transactions among its clients, including the portfolio, in a fair and
reasonable manner. Although there is no specified formula for allocating such
transactions, the Fund's governing board periodically reviews the various
allocation methods used by the adviser, and the results of such allocations.
BROKERAGE COMMISSIONS
- --------------------------------------------------------------------------------
EQUITY SECURITIES
Generally, equity securities are bought and sold through brokerage
transactions for which commissions are payable. Purchases from underwriters
will include the underwriting commission or concession, and purchases from
dealers serving as market makers will include a dealer's mark-up or reflect a
dealer's mark-down.
DEBT SECURITIES
Debt securities are usually bought and sold directly from the issuer or an
underwriter or market maker for the securities. Generally, the Fund will not
pay brokerage commissions for such purchases. When a debt security is bought
from an underwriter, the purchase price will usually include an underwriting
commission or concession. The purchase price for
18
<PAGE>
securities bought from dealers serving as market makers will similarly include
the dealer's mark up or reflect a dealer's mark down. When the portfolio
executes transactions in the over-the-counter market, it will deal with
primary market makers unless prices that are more favorable are otherwise
obtainable.
CAPITAL STOCK AND OTHER SECURITIES
DESCRIPTION OF SHARES AND VOTING RIGHTS
- --------------------------------------------------------------------------------
The Fund's Articles of Incorporation, as amended, permit its governing board
to issue three billion shares of common stock, with a $.001 par value. The
governing board has the power to create and designate one or more series
(portfolio) or classes of shares of common stock and to classify or reclassify
any unissued shares at any time and without shareholder approval. When
issued and paid for, the shares of each series and class of the Fund are fully
paid and nonassessable, and have no pre-emptive rights or preference as to
conversion, exchange, dividends, retirement or other features.
The shares of each series and class have non-cumulative voting rights, which
means that the holders of more than 50% of the shares voting for the election
of members of the governing board can elect all of the members if they choose
to do so. On each matter submitted to a vote of the shareholders, 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. Shares of all classes will vote together as a single class except
when otherwise required by law or as determined by the members of the Fund's
governing board.
If the Fund is liquidated, the shareholders of the portfolio or any class
thereof are entitled to receive the net assets belonging to the portfolio, or
in the case of a class, belonging to the portfolio and allocable to that
class. The Fund will distribute is net assets to its shareholders in
proportion to the number of shares of the portfolio or class thereof held by
them and recorded on the books of the Fund. The liquidation of the portfolio
or any class thereof may be authorized at any time by vote of a majority of
the members of the governing board.
The governing board has authorized three classes of shares, Institutional,
Institutional Service and Adviser. The three classes represent interests in
the same assets of a portfolio and, except as discussed below, are identical
in all respects. Unlike Institutional and Adviser Class Shares, Institutional
Service Class Shares bear certain expenses related to shareholder servicing
and the distribution of such shares and have exclusive voting rights with
respect to matters relating to such distribution expenditures. The Adviser
Class Shares impose a sales load on purchases. The classes also have
different exchange privileges. The net income attributable to Institutional
Service Class Shares and the dividends payable on Institutional Service Class
Shares will be reduced by the amount of the shareholder servicing and
distribution fees; accordingly, the net asset value of the Institutional
Service Class Shares will be reduced by such amount to the extent a portfolio
has undistributed net income.
The Fund will not hold annual meetings except when required to by the
Investment Company Act of 1940, as amended, or other applicable law.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund tries to distribute substantially all of the net investment income of
the portfolio and net realized capital gains so as to avoid income taxes on
its dividends and distributions and the imposition of the federal excise tax
on undistributed income and capital gains. However, the Fund cannot predict
the time or amount of any such dividends or distributions.
Distributions by the portfolio reduce its net asset value ("NAV"). A
distribution that reduces the NAV of the portfolio below its cost basis is
taxable as described in the prospectus of the portfolio, although from an
investment standpoint, it is a return of capital. If you buy shares of the
portfolio on or before the "record date" -- the date that establishes which
shareholders will receive an upcoming distribution -- for a distribution, you
will receive some of the money you invested as a taxable distribution.
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.
19
<PAGE>
The portfolio will be treated as a separate entity (and hence as a separate
"regulated investment company") for federal tax purposes. The portfolio will
distribute its net capital gains to its investors, but will not offset (for
federal income tax purposes) such gains against any net capital losses of
another portfolio.
PURCHASE REDEMPTION AND PRICING OF SHARES
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
Service Agents may enter confirmed purchase orders on behalf of their
customers. If shares of the portfolio are purchased in this manner, the
Service Agent must receive your investment order before the close of trading
on the New York Stock Exchange ("NYSE") and transmit it to UAMSSC before the
close of its business day to receive that day's share price. UAMSSC must
receive proper payment for the order by the time the portfolio is priced on
the following business day. Service Agents are responsible to their customers
and the Fund for timely transmission of all subscription and redemption
requests, investment information, documentation and money.
Purchases of shares of the portfolio will be made in full and fractional
shares of the portfolio calculated to three decimal places. Certificates for
fractional shares will not be issued. Certificates for whole shares will not
be issued except at the written request of the shareholder.
The Fund reserves the right in its sole discretion 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.
IN-KIND PURCHASES
If accepted by the Fund, shareholders may purchase shares of the portfolio in
exchange for securities that are eligible for acquisition by the portfolio.
Securities to be exchanged that are accepted by the Fund will be valued as
described under "VALUATION OF SHARES" at the next determination of net asset
value after acceptance. Shares issued by the 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 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 the portfolio
unless:
. At the time of exchange, such securities are eligible to be included in the
portfolio (current market quotations must be readily available for such
securities).
. The investor represents and agrees that all securities offered to be
exchanged are liquid securities and not subject to any restrictions upon
their sale by the portfolio under the Securities Act of 1933, or otherwise.
. The value of any such securities (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.
Investors who are subject to Federal taxation upon exchange may realize a gain
or loss for Federal income tax purposes depending upon the cost of securities
or local currency exchanged. Investors interested in such exchanges should
contact the adviser.
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
When you redeem, your shares may be worth more or less than the price you paid
for them depending on the market value of the investments held by the
portfolio.
BY MAIL
Requests to redeem shares must include:
. Share certificates, if issued.
20
<PAGE>
. A letter of instruction or an 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.
. Any required signature guarantees (see "SIGNATURE GUARANTEES").
. Any other necessary legal documents, if required, in the case of estates,
trusts, guardianships, custodianships, corporations, pension and profit
sharing plans and other organizations.
BY TELEPHONE
The following tasks cannot be accomplished by telephone:
. Changing the name of the commercial bank or the account designated to
receive redemption proceeds (this can be accomplished only by a written
request signed by each shareholder, with each signature guaranteed).
. Redemption of certificated shares by telephone.
The Fund and its Sub-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, as well as 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. The Fund or Sub-Transfer Agent may
be liable for any losses due to unauthorized or fraudulent telephone
instructions if the Fund or the Sub-Transfer Agent does not employ the
procedures described above. Neither the Fund nor the Sub-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.
REDEMPTIONS-IN-KIND
If the governing board determines that it would be detrimental to the best
interests of remaining shareholders of the Fund to make payment wholly or
partly in cash, the Fund may pay 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 SEC. Investors may incur
brokerage charges on the sale of portfolio securities received in payment of
redemptions.
However, the Fund has made an election with the SEC 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 SEC. 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 governing board believes 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 under "Valuation of Shares." A redeeming shareholder
would normally incur brokerage expenses if these securities were converted to
cash.
SIGNATURE GUARANTEES
To protect your account, the Fund and its sub-transfer agent 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
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 that 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.
OTHER REDEMPTION INFORMATION
Normally, the Fund will pay for all shares redeemed under proper procedures
within one business day of and no more than seven days after the receipt of
the request, or earlier if required under applicable law. The Fund may suspend
the right of
21
<PAGE>
redemption or postpone the date at times when both the NYSE and Custodian Bank
are closed, or under any emergency circumstances determined by the SEC.
The Fund may suspend redemption privileges or postpone the date of payment
. During any period that both the NYSE and custodian bank are closed, or
trading on the NYSE is restricted as determined by the Commission.
. 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.
. For such other periods as the Commission may permit.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
The exchange privilege is only available with respect to the portfolio if the
portfolio is qualified for sale in the shareholder's state of residence.
Exchanges are based on the respective net asset values of the shares involved.
The Institutional Class and Institutional Service Class Shares of UAM Funds do
not charge a sales commission or charge of any kind.
Neither the Fund nor any of its service providers will be responsible for the
authenticity of the exchange instructions received by telephone. The
governing board of the Fund may restrict the exchange privilege at any time.
Such instructions may include limiting the amount or frequency of exchanges
and may be for the purpose of assuring such exchanges do not disadvantage the
Fund and its shareholders.
TRANSFER OF SHARES
- --------------------------------------------------------------------------------
Shareholders may transfer shares of the portfolio to another person by making
a written request to the Fund. Your request should clearly identify the
account and number of shares you wish to transfer. All registered owners
should sign the request 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
"Signature Guarantees". As in the case of redemptions, the written request
must be received in good order before any transfer can be made.
VALUATION OF SHARES
- --------------------------------------------------------------------------------
The Fund does not price its shares on those days when the New York Stock
Exchange is closed, which are currently: New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day; Good Friday; Memorial Day; Independence Day; Labor
Day; Thanksgiving Day; and Christmas Day.
EQUITY SECURITIES
Equity securities listed on a securities exchange for which market quotations
are readily available are valued at the last quoted sale price of the day.
Price information on listed securities is taken from the exchange where the
security is primarily traded. Unlisted equity securities and listed
securities not traded on the valuation date for which market quotations are
readily available are valued neither exceeding the asked prices nor less than
the bid prices. Quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents. The converted value is based upon the
bid price of the foreign currency against U.S. dollars quoted by any major
bank or by a broker.
DEBT SECURITIES
Debt securities are valued according to the broadest and most representative
market, which will ordinarily be the over-the-counter market. Debt securities
may be valued based on prices provided by a pricing service when such prices
are believed to reflect the fair market value of such securities. Securities
purchased with remaining maturities of 60 days or less are valued at amortized
cost when the Board of Directors determines that amortized cost reflects fair
value.
OTHER ASSETS
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 governing board.
22
<PAGE>
PERFORMANCE CALCULATIONS
The portfolio measures performance by calculating yield and total return. Both
yield and total return figures are based on historical earnings and are not
intended to indicate future performance. Performance quotations by investment
companies are subject to rules adopted by the SEC, 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 SEC.
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 SEC. An explanation of the method used to compute or express
performance follows.
Performance is calculated separately for Institutional Class and Service Class
Shares. Dividends paid by the portfolio with respect to Institutional Class
Shares and Service Class Shares, to the extent any dividends are paid, will be
calculated in the same manner at the same time on the same day and will be in
the same amount, except that service fees, distribution charges and any
incremental transfer agency costs relating to Service Class Shares will be
borne exclusively by that class.
TOTAL RETURN
- --------------------------------------------------------------------------------
Total return is the change in value of an investment in the portfolio over a
given period, assuming reinvestment of any dividends and capital gains. A
cumulative or aggregate total return reflects actual performance over a stated
period of time. An average annual total return is a hypothetical rate of
return that, if achieved annually, would have produced the same cumulative
total return if performance had been constant over the entire period.
The average annual total return of the 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 one, five and ten-year period and the deduction of
all applicable Fund expenses on an annual basis. Since Institutional Service
Class Shares bear additional service and distribution expenses, their average
annual total return will generally be lower than that of the Institutional
Class Shares.
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).
The average annual total rates of return of the Institutional Class of the
Portfolio are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Since Inception
One Year Ended Five Years Ended Through Year Ended
October 31, 1998 October 31, 1998 October 31, 1998 Inception Date
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SAMI Preferred Stock Income
Portfolio 6/23/92
Institutional Class Shares
</TABLE>
YIELD
- --------------------------------------------------------------------------------
Yield refers to the income generated by an investment in the portfolio over a
given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all funds. As this
differs from other accounting methods, the quoted yield may not equal the
income actually paid to shareholders.
The 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. Since Institutional Service Class Shares bear additional service
and distribution expenses, their yield will generally be lower than that of
the Institutional Class Shares.
Yield is obtained using the following formula:
23
<PAGE>
Yield = 2((a-b)/(cd)+1)/6/-1
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
- --------------------------------------------------------------------------------
The portfolio's performance may be compared to data prepared by independent
services which monitor the performance of investment companies, data reported
in financial and industry publications, and various indices as further
described in the portfolio' s SAI. This information may also be included in
sales literature and advertising.
To help investors better evaluate how an investment in the 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. Please see APPENDIX B for publications, indices and averages that
may be used.
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 portfolio, 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
portfolio to calculate its performance. In addition, there can be no assurance
that the portfolio will continue this performance as compared to such other
averages.
TAXES
In order for the portfolio to continue to qualify for federal income tax
treatment as a regulated investment company under the Internal Revenue Code of
1986, as amended, 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.
The portfolio will distribute to shareholders annually any net capital gains
that have been recognized for federal income tax purposes. Shareholders will
be advised on the nature of the payments.
If for any taxable year the portfolio does not qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code, all of
the portfolio's taxable income would be subject to tax at regular corporate
rates without any deduction for distributions to shareholders. In this event,
the portfolio's distributions to shareholders would be taxable as ordinary
income to the extent of the current and accumulated earnings and profits of
the particular portfolio, and would be eligible for the dividends received
deduction in the case of corporate shareholders. The portfolio intends to
qualify as a "regulated investment company" each year.
Dividends and interest received by the portfolio may give rise to withholding
and other taxes imposed by foreign countries. These taxes would reduce the
portfolio's dividends but are included in the taxable income reported on your
tax statement if the portfolio qualifies for this tax treatment and elects to
pass it through to you. Consult a tax adviser for more information regarding
deductions and credits for foreign taxes.
24
<PAGE>
EXPENSES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Investment Investment Sub-
Advisory Fees Advisory Fees Administrator Administrator Brokerage
Paid Waived Fee (UAMFSI) Fee (CGFSC) Commissions
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SAMI Preferred Stock Income
Portfolio
1998
- -----------------------------------------------------------------------------------------------------------------------------------
1997 $166,174 $56,371 $93,115 $74,045 $31,180
- -----------------------------------------------------------------------------------------------------------------------------------
1996 $173,576 $60,615 $85,405 $74,344 $28,892
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
FINANCIAL STATEMENTS
The Financial Statements for the portfolio for the fiscal year ended October
31, 1998, the Financial Highlights for the respective periods presented, and
the report thereon by PricewaterhouseCoopers LLP, the Fund's independent
accountant, which appear in portfolio's 1998 Annual Report, are incorporated
by reference into this Statement of Additional Information. No other parts
are incorporated by reference herein. Copies of the 1998 Annual Report may be
obtained free of charge by telephoning the UAM Funds at the telephone number
appearing on the front page of this Statement of Additional Information.
25
<PAGE>
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
THE SIRACH PORTFOLIOS
SIRACH BOND PORTFOLIO
SIRACH EQUITY PORTFOLIO
SIRACH GROWTH PORTFOLIO
SIRACH SPECIAL EQUITY PORTFOLIO
SIRACH STRATEGIC BALANCED PORTFOLIO
INSTITUTIONAL CLASS SHARES
INSTITUTIONAL SERVICE CLASS SHARES
STATEMENT OF ADDITIONAL INFORMATION
__________, 1999
This statement of additional information (SAI) is not a prospectus. However, you
should read it in conjunction with the Prospectus of The Sirach Portfolios
Institutional Class Shares dated ______, 1999 and the Prospectus of The Sirach
Portfolios' Institutional Service Class Shares dated _____, 1999. You may obtain
a Prospectus for The Sirach Portfolios by contacting the UAM Funds at the
address listed above.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
DEFINITIONS.............................................................................................. 1
THE FUND................................................................................................. 1
DESCRIPTION OF PORTFOLIOS AND THEIR INVESTMENTS AND RISKS................................................ 1
Equity Securities (All Portfolios except Sirach Bond Portfolio)...................................... 1
Debt Securities (Sirach Strategic Balanced Portfolio and Sirach Bond Portfolio)...................... 2
Derivatives (Sirach Strategic Balanced Portfolio and Sirach Bond Portfolio)........................... 6
Foreign Securities.................................................................................... 10
Investment Companies.................................................................................. 12
Repurchase Agreements................................................................................. 13
Securities Lending.................................................................................... 13
Short-Term Investments................................................................................ 13
When-Issued, Forward Commitment and Delayed Delivery Transactions..................................... 14
Restricted Securities................................................................................. 15
INVESTMENT POLICIES...................................................................................... 15
Fundamental Investment Policies (all portfolios except Sirach Special Equity Portfolio)............... 15
Non-Fundamental Policies (all portfolios except Sirach Special Equity Portfolio)...................... 15
Fundamental Investment Policies (Sirach Special Equity Portfolio).................................... 16
MANAGEMENT OF THE PORTFOLIOS............................................................................. 17
CODE OF ETHICS........................................................................................... 18
PRINCIPAL HOLDERS OF SECURITIES.......................................................................... 18
INVESTMENT ADVISORY AND OTHER SERVICES................................................................... 19
Investment adviser.................................................................................... 19
Distributor........................................................................................... 20
Administrative Services............................................................................... 20
Custodian............................................................................................. 22
Independent Public Accountant......................................................................... 22
Service And Distribution Plans........................................................................ 22
BROKERAGE ALLOCATION AND OTHER PRACTICES................................................................. 24
Selection of Brokers.................................................................................. 24
Simultaneous Transactions............................................................................. 24
Brokerage Commissions................................................................................. 25
CAPITAL STOCK AND OTHER SECURITIES....................................................................... 25
Description Of Shares And Voting Rights............................................................... 25
Dividends and Capital Gains Distributions............................................................. 25
PURCHASE REDEMPTION AND PRICING OF SHARES................................................................ 26
Purchase of Shares.................................................................................... 26
Redemption of Shares.................................................................................. 27
Exchange Privilege.................................................................................... 28
Transfer Of Shares.................................................................................... 28
Valuation of Shares................................................................................... 28
PERFORMANCE CALCULATIONS................................................................................. 29
Total Return.......................................................................................... 29
Yield................................................................................................. 30
Comparisons........................................................................................... 30
TAXES.................................................................................................... 30
EXPENSES................................................................................................. 31
FINANCIAL STATEMENTS..................................................................................... 31
</TABLE>
1
<PAGE>
DEFINITIONS
The "Fund" is UAM Funds, Inc.
The term "adviser" means Sirach Capital Management, Inc., the Fund's
investment adviser.
UAM is United Asset Management Corporation.
UAMFSI is UAM Fund Services, Inc., the Fund's administrator.
UAMFDI is UAM Fund Distributors, Inc., the Fund's distributor.
UAMSSC is UAM Fund Shareholder Servicing Center, the Fund's sub-shareholder-
servicing agent.
CGFSC is Chase Global Funds Service Company, the Fund's sub-administrator.
UAM Funds Complex includes UAM Funds, Inc., UAM Funds Trust, UAM Funds Trust
II and all of their portfolios.
The term "portfolios" is used to refer to The Sirach Portfolios as a group,
while "portfolio" refers to a single Sirach Portfolio.
The terms "board" and "governing board" refer to the Fund's Board of Directors
as a group, while "board member" refers to a single member of the board.
All other defined terms, which are not otherwise defined in this SAI, have the
same meaning in the SAI as they do in the prospectuses of The Sirach
Portfolios.
THE FUND
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 Fund changed its
name to "UAM Funds, Inc." The Fund's principal executive office is located at
One International Place, Boston, MA 02110; shareholders should direct all
correspondence to the address listed on the cover of this SAI.
The Fund is an open-end, management investment company under the Investment
Company Act of 1940. The Sirach Portfolios are a diversified series of the
Fund. This means that with respect to 75% of its total assets, the portfolio
may not invest more than 5% of its total assets in the securities of any one
issuer (except U.S. government securities). The remaining 25% of its total
assets are not subject to this restriction. To the extent the portfolio
invests a significant portion of its assets in the securities of a particular
issuer, it will be subject to an increased risk of loss if the market value of
such issuer's securities declines.
DESCRIPTION OF PORTFOLIOS AND THEIR INVESTMENTS AND RISKS
EQUITY SECURITIES (ALL PORTFOLIOS EXCEPT SIRACH BOND PORTFOLIO)
- --------------------------------------------------------------------------------
Some of the portfolios may invest in equity securities such as common and
preferred stocks. While investing in stocks allows a portfolio to participate
in the benefits of owning a company, a portfolio must accept the risks of
ownership. Unlike bondholders, who have preference to a company's earnings
and cash flow, preferred stockholders followed by common stockholders in order
of priority, are entitled only to the residual amount after a company meets
its other obligations. For this reason, the value of a company's stock will
usually react more strongly to actual or perceived changes in the company's
financial condition or prospects than its debt obligations. Stockholders of a
company that fares poorly can lose money.
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 values 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. Types of preferred stocks
1
<PAGE>
Some of the portfolios may invest in equity securities such as common and
preferred stocks. While investing in stocks allows a portfolio to participate
in the benefits of owning a company, a portfolio must accept the risks of
ownership. Unlike bondholders, who have preference to a company's earnings and
cash flow, preferred stockholders followed by common stockholders in order of
priority, are entitled only to the residual amount after a company meets its
other obligations. For this reason, the value of a company's stock will
usually react more strongly to actual or perceived changes in the company's
financial condition or prospects than its debt obligations. Stockholders of a
company that fares poorly can lose money.
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 values 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. Types of preferred stocks include adjustable-rate
preferred stock, fixed dividend preferred stock, perpetual preferred stock,
and sinking fund preferred stock.
STOCK MARKET RISK
Stock markets tend to move in cycles with short or extended periods of rising
and falling stock prices. The value of a company's stock may fall because of:
. Factors that directly relate to that company, such as decisions made by its
management or lower demand for the company's products or services.
. Factors affecting an entire industry, such as increases in production
costs.
. Changes in financial market conditions that are relatively unrelated to the
company or its industry, such as changes in interest rates, currency
exchange rates or inflation rates.
RIGHTS AND WARRANTS
A portfolio may purchase warrants and rights, which are securities permitting,
but not obligating, their holder to purchase the underlying securities at a
predetermined price. Generally, warrants and stock purchase rights do not
carry with them the right to receive dividends or exercise voting rights with
respect to the underlying securities, and they do not represent any rights in
the assets of the issuer. Therefore, an investment in warrants and rights may
entail greater risk than certain other types of investments. In addition, the
value of warrants and rights does not necessarily change with the value of the
underlying securities, and they cease to have value if they are not exercised
on or prior to their expiration date. Investment in warrants and rights
increases the potential profit or loss to be realized from the investment of a
given amount of a portfolio's assets as compared with investing the same
amount in the underlying stock.
CONVERTIBLE SECURITIES (ALL PORTFOLIOS)
A portfolio may purchase corporate bonds, debentures and preferred stock that
are convertible into common stock. In exchange for the conversion feature,
many corporations will pay a lower rate of interest on convertible securities
than debt securities of the same corporation.
Convertible corporate bonds, debentures and preferred stock are subject to the
same risks as similar securities without the convertible feature. In
addition, their market price tends to go up if the stock price moves up. For
this reason, convertible securities are more volatile in price during times of
steady interest rates than other types of fixed income securities.
DEBT SECURITIES (SIRACH STRATEGIC BALANCED PORTFOLIO AND SIRACH BOND PORTFOLIO)
- --------------------------------------------------------------------------------
Debt securities are used by corporations and governments to borrow money from
investors. Most debt securities promise a variable or fixed rate of return and
repayment of the amount borrowed at maturity. Some debt securities, such as
zero-coupon bonds, do not pay current interest and are purchased at a discount
from their face value. Debt securities may include, among other things, all
types of bills, notes, bonds, mortgage-backed securities or asset-backed
securities.
The total return of a debt instrument is composed of two elements: the
percentage change in the security's price and interest income earned. The
YIELD TO MATURITY of a debt security estimates its total return only if the
price of the debt security remains unchanged during the holding period and
coupon interest is reinvested at the same yield to maturity. The total return
of a debt instrument, therefore, will be determined not only by how much
interest is earned, but also by how much the price of the security and
interest rates change.
2
<PAGE>
INTEREST RATES
The price of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up, the value of the bond will go
down, and vice versa). One can estimate the anticipated change in the price of
a fixed rate security for each 1% shift in interest rates by using a risk
measure known as EFFECTIVE DURATION. An effective duration of 4 years, for
example, would suggest that for each 1% reduction in interest rates at all
maturity levels, the price of a security is estimated to increase by 4%. An
increase in rates by the same magnitude is estimated to reduce the price of
the security by 4%. By knowing the yield and the effective duration of a debt
security, one can estimate total return based on an expectation of how much
interest rates, in general, will change.
While serving as a good estimator of prospective returns, effective duration
is an imperfect measure. While lower interest rates generally improve the
value of a fixed income portfolio, lower interest rates may also introduce
certain risks which may independently cause the share price of the portfolio
to fall. Lower rates motivate people to pay off mortgage-backed and asset-
backed securities earlier than expected, which introduces REINVESTMENT RISK.
Reinvesting portfolio assets at lower rates may reduce the yield of the
portfolio. The unexpected timing of mortgage and asset-backed prepayments
caused by the variations in interest rates may also shorten or lengthen the
AVERAGE MATURITY of the portfolio. Neglecting this drift in average maturity
may have the unintended effect of increasing or reducing the effective
duration of the portfolio which may in turn adversely affect the expected
performance of the portfolio.
CREDIT RATING
Coupon interest is offered to investors of fixed income securities as
compensation for assuming risk, although short-term U.S. treasury securities,
such as 3 month treasury bills, are considered "risk free." Corporate
securities offer higher yields than U.S. treasuries because their payment of
interest and complete repayment of principal is less certain. The credit
rating or financial condition of an issuer may affect the value of a debt
security. Generally, the lower the quality rating of a security, the greater
the risks that the issuer will fail to pay interest and return principal. To
compensate investors for taking on increased risk, issuers with lower credit
ratings usually offer their investors a higher "risk premium" in the form of
higher interest rates above comparable U.S. treasuries.
Changes in investor confidence regarding the certainty of interest and
principal payments of a fixed income corporate security will result in an
adjustment to this "risk premium." Since an issuer's outstanding debt carries
a fixed coupon, adjustments to the risk premium must occur in the price, which
effects the yield to maturity of the bond. If an issuer defaults or becomes
unable to honor its financial obligations, the bond may lose some or all of
its value
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade. The adviser may retain securities that are downgraded, if
it believes that keeping those securities is warranted.
Rating agencies are organizations that assign ratings to securities based
primarily on the rating agency's assessment of the issuer's financial
strength. The portfolios currently use ratings compiled by Standard and
Poor's Ratings Services, Duff & Phelps Rating Co., Fitch IBCA, Inc. and,
Moody's Investor Services. Credit ratings are only an agency's opinion, not an
absolute standard of quality, and they do not reflect an evaluation of market
risk. APPENDIX A contains further information concerning the ratings of
certain rating agencies and their significance.
The adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time a portfolio buys it. A rating
agency may change its credit ratings at any time. The adviser monitors the
rating of the security and will take appropriate actions if a rating agency
reduces the security's rating. A portfolio is not obligated to dispose of
securities whose issuers subsequently are in default or which are downgraded
below the above-stated ratings
INVESTMENT-GRADE FIXED-INCOME SECURITIES
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade.
U.S. GOVERNMENT SECURITIES
For a discussion of these securities see "SHORT-TERM INVESTMENTS - GOVERNMENT
SECURITIES," below.
3
<PAGE>
CORPORATE BONDS
For a discussion of these securities see "SHORT-TERM INVESTMENTS - CORPORATE
BONDS," below.
MORTGAGE-BACKED SECURITIES AND MORTGAGE PASS-THROUGH SECURITIES
Mortgage-backed securities are interests in pools of mortgage loans that
various governmental, government-related and private organizations assemble as
securities for sale to investors. Mortgage-backed securities differ from other
forms of debt securities because they make monthly payments that consist of
both interest and principal payments. (Other debt securities normally provide
for periodic payment of interest in fixed amounts with principal payments at
maturity or specified call dates.) In effect, these payments are a "pass-
through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of such
securities.
Governmental entities, private insurers and the mortgage poolers may insure or
guaranty the timely payment of interest and principal of these pools through
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance and letters of credit issue the insurance and
guarantees. The adviser will consider such insurance and guarantees and the
creditworthiness of the issuers thereof in determining whether a mortgage-
related security meets its investment quality standards. It is possible that
the private insurers or guarantors will not meet their obligations under the
insurance policies or guarantee arrangements.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.
Government National Mortgage Association (GNMA)
GNMA, a wholly owned U.S. government corporation within the Department of
Housing and Urban Development, is the principal governmental guarantor of
mortgage-related securities. GNMA, which is backed by the faith and credit of
the U.S. government, guarantees the timely payment of principal and interest
on securities issued by institutions approved by GNMA and backed by pools of
FHA-insured or VA-guaranteed mortgages. GNMA does not guarantee the market
value or yield of mortgage-backed securities or the value of portfolio shares.
To buy GNMA securities, a portfolio may have to pay a premium over the
maturity value of the underlying mortgages, which the portfolio may lose if
prepayment occurs.
Federal National Mortgage Association (FNMA)
FNMA is a government-sponsored corporation owned entirely by private
stockholders. FNMA, which is regulated by the Secretary of Housing and Urban
development, purchases conventional mortgages from a list of approved
seller/servicers, including 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, but are not backed by the
full faith and credit of the U.S. government.
Federal Home Loan Mortgage Corporation (FHLMC)
FHLMC is a corporate instrumentality of the U.S. government whose stock is
owned by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970
to increase the availability of mortgage credit for residential housing. FHLMC
issues Participation Certificates (PCs) which represent interests in
conventional mortgages from its national portfolio. Like FNMA, FHLMC
guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the U.S.
government.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. In addition to
guaranteeing the mortgage-related security, such issuers may service and/or
have originated the underlying mortgage loans. Pools created by these issuers
generally offer a higher rate of interest than pools created by GNMA, FNMA &
FHLMC because they are not guaranteed by a government agency.
Risk of Investing in Mortgage-Backed Securities
Yield characteristics of mortgage-backed securities differ from those of
traditional fixed income securities. The major differences include interest
and principal payments that are more frequent (usually monthly), adjustable
interest rates, and the possibility
4
<PAGE>
that prepayments of principal may be made substantially earlier than their
final distribution dates so that the price of the security will generally
decline when interest rates rise.
The portfolio may fail to recover fully its investment in mortgage-backed
securities notwithstanding any direct or indirect governmental, agency or
other guarantee because the counter-party failed to meet its commitments.
Changes in interest rates and a variety of economic, geographic, social and
other factors, such as the sale of the underlying property, refinancing or
foreclosure, can cause the loans underlying a mortgage-backed security to be
repaid sooner than expected. If the prepayment rates increase, a portfolio may
have to reinvest its principal at a rate of interest that is lower than the
rate on existing mortgage-backed securities. Conversely, when interest rates
are rising many mortgage-backed securities will see a decline in the
prepayment rate, extending their average life. Extending the average life of a
mortgage-backed security increases the risk of depreciation due to future
increases in market interest rates. For these reasons, mortgage-backed
securities may be less effective than other types of U.S. government
securities as a means of "locking in" interest rates.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)
CMOs are hybrids between mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, CMOs usually pay interest and prepaid principal
semiannually. While whole mortgage loans may collateralize CMOs, portfolios of
mortgage-backed securities guaranteed by GNMA, FHLMC, or FNMA, and their
income streams more typically collateralize them.
A REMIC is a CMO that qualifies for special tax treatment under the Internal
Revenue Code of 1986, as amended, and invests in certain mortgages primarily
secured by interests in real property and other permitted investments.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC certificate, often referred to as a
"tranche," is issued at a specific interest rate and must be fully retired by
its final distribution date. Generally, all classes of CMOs or REMIC
certificates pay or accrue interest monthly. Investing in the lowest tranche
of CMOs and REMIC certificates involves risks similar to those associated with
investing in equity securities.
OTHER ASSET-BACKED SECURITIES
A broad range of assets, including automobile loans, computer leases and
credit card receivables, are being securitized in pass-through structures
similar to the mortgage pass-through or CMO structures described above. In
general, the collateral supporting these securities is of shorter maturity
than mortgage loans and is less likely to experience substantial prepayments
with interest rate fluctuations.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the
benefit of any security interest in the related assets, which raises the
possibility that recoveries on repossessed collateral may not be available to
support payments on these securities. For example, credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which allow debtors
to reduce their balances by offsetting certain amounts owed on the credit
cards. Most issuers of asset-backed securities backed by automobile
receivables permit the servicers of such receivables to retain possession of
the underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the rated asset-backed securities. Because
of the large number of vehicles involved and technical requirements under
state laws, the trustee for the holders of asset-backed securities backed by
automobile receivables may not have a proper security interest in all of the
obligations backing such receivables.
To lessen the effect of failures by obligors on underlying assets to make
payments, the entity administering the pool of assets may agree to ensure the
receipt of payments on the underlying pool occurs in a timely fashion
("liquidity protection"). In addition, asset-backed securities may obtain
insurance, such as guarantees, policies or letters of credit obtained by the
issuer or sponsor from third parties, for some or all of the assets in the
pool ("credit support"). Delinquency or loss more than that anticipated or
failure of the credit support could adversely affect the return on an
investment in such a security.
A portfolio may also invest in residual interests in asset-backed securities,
which is the excess cash flow remaining after making required payments on the
securities and paying related administrative expenses. The amount of residual
cash flow resulting from a particular issue of asset-backed securities depends
in part on the characteristics of the underlying assets, the coupon rates on
the securities, prevailing interest rates, the amount of administrative
expenses and the actual prepayment experience on the underlying assets.
STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities are derivative multiple-class mortgage-
backed securities. Stripped mortgage-backed securities usually have two
classes that receive different proportions of interest and principal
distributions on a pool of mortgage assets. Typically, one class will receive
some of the interest and most of the principal, while the other class will
receive most of
5
<PAGE>
the interest and the remaining principal. In extreme cases, one class will
receive all of the interest ("interest only" or "IO" class) while the other
class will receive the entire principal (the "principal only" or "PO" class).
The cash flows and yields on IOs and POs are extremely sensitive to the rate
of principal payments (including prepayments) on the underlying mortgage loans
or mortgage-backed securities. A rapid rate of principal payments may
adversely affect the yield to maturity of IOs. Slower than anticipated
prepayments of principal may adversely affect the yield to maturity of a PO.
The yields and market risk of interest only and principal only stripped
mortgage-backed securities, respectively, may be more volatile than those of
other fixed income securities, including traditional mortgage-backed
securities.
YANKEE BONDS
Yankee bonds are dollar-denominated bonds issued inside the United States by
foreign entities. Investment in these securities involve certain risks which
are not typically associated with investing in domestic securities. See
"FOREIGN SECURITIES".
ZERO COUPON BONDS
These securities make no periodic payments of interest, but instead are sold
at a discount from their face value. When held to maturity, their entire
income, which consists of accretion of discount, comes from the difference
between the issue price and their value at maturity. The amount of the
discount rate varies depending on factors including the time remaining until
maturity, prevailing interest rates, the security's liquidity and the issuer's
credit quality. The market value of zero coupon securities may exhibit greater
price volatility than ordinary debt securities because a stripped security
will have a longer duration than an ordinary debt security with the same
maturity. A portfolio's investments in pay-in-kind, delayed and zero coupon
bonds may require it to sell certain of its portfolio securities to generate
sufficient cash to satisfy certain income distribution requirements.
These securities may include U.S. Treasury securities that have had their
interest payments ("coupons") separated from the underlying principal
("corpus") by their holder, typically a custodian bank or investment brokerage
firm. Once the holder of the security has stripped or separated corpus and
coupons, it may sell each component separately. The principal or corpus is
then sold at a deep discount because the buyer receives only the right to
receive a future fixed payment on the security and does not receive any rights
to periodic interest (cash) payments. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold
bundled in such form. The underlying U.S. Treasury security is held in book-
entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. Under a Federal Reserve program
known as "STRIPS" or "Separate Trading of Registered Interest and Principal of
Securities," a portfolio can record its beneficial ownership of the coupon or
corpus directly in the book-entry record-keeping system.
DERIVATIVES (SIRACH STRATEGIC BALANCED PORTFOLIO AND SIRACH BOND PORTFOLIO)
- --------------------------------------------------------------------------------
Derivatives are financial instruments whose value is based on an underlying
asset, such as a stock or a bond, or an underlying economic factor, such as an
interest rate or an index. A portfolio tries to minimize its loss by investing
in derivatives to protect them from broad fluctuations in market prices,
interest rates or foreign currency exchange rates. Investing in derivatives
for these purposes is known as "hedging." When hedging is successful, the
portfolio will have offset any depreciation in the value of its portfolio
securities by the appreciation in the value of the derivative position.
Although techniques other than the sale and purchase of derivatives could be
used to control the exposure of the portfolio to market fluctuations, the use
of derivatives may be a more effective means of hedging this exposure.
FUTURES
A futures contract is an agreement between two parties whereby one party is
obligated to buy and the other is obligated to sell a financial instrument at
an agreed upon price and time. The parties to a futures contract do not have
to pay for or deliver the underlying financial instrument until the delivery
date. The parties to a futures contract can hold the contract until its
delivery date, although in many cases they close the contract early by taking
an opposite position in an identical contract. The financial instrument
underlying the contract may be a stock, stock index, bond, bond index,
interest rate, foreign exchange rate or other similar instrument. A portfolio
will incur commission expenses in both opening and closing futures positions.
Futures contracts are traded in the United States on commodity exchanges or
boards of trade -- known as "contract markets" -- approved for such trading
and regulated by the Commodity Futures Trading Commission, a federal agency.
These contract markets standardize the terms, including the maturity date and
underlying financial instrument, of all futures contracts.
6
<PAGE>
Contract markets require both the purchaser and seller to deposit "initial
margin" with a futures broker, known as a futures commission merchant, when
they enter into the contract. Initial margin deposits are typically equal to a
percentage of the contract's value. After they open a futures contract, the
parties to the transaction must compare the purchase price of the contract to
its daily market value. If the value of the futures contract changes in such a
way that a party's position declines, that party must make additional
"variation margin" payments so that the margin payment is adequate. On the
other hand, the value of the contract may change in such a way that there is
excess margin on deposit, possibly entitling the party that has a gain to
receive all or a portion of this amount.
A portfolio may take a "short position" by selling futures contracts on
securities it owns or on securities with characteristics similar to those of
securities it owns. For example, when a portfolio expects interest rates to
rise or securities prices to fall, it can seek to offset a decline in the
value of its holdings by selling futures contracts so that a portfolio is
obligated to sell the securities at a future lower price. When a portfolio's
short hedging position is successful, the appreciation in the value of the
futures position will offset substantially any depreciation in the value of
the holdings of the portfolio. On the other hand, a decline in the value of
the futures position would offset any unanticipated appreciation in the value
of the holdings of the portfolio.
On other occasions, a portfolio may take a "long" position by purchasing
futures contracts. For example, when a portfolio expects interest rates to
fall or securities' prices to rise, it can seek to secure a better rate or
price than might later be available by purchasing a futures contract. A
portfolio may also buy futures contracts as a substitute for transactions in
securities, to alter the investment characteristics of portfolio securities or
to gain or increase its exposure to a particular securities market.
OPTIONS
An option is a contract between two parties for the purchase and sale of a
financial instrument for a specified price (known as the "strike price" or
"exercise price") at any time during the option period. Unlike a futures
contract, an option grants a right (not an obligation) to buy or sell a
financial instrument. Generally, a seller of an option can grant a buyer two
kinds of rights: a "call" (the right to buy the security) or a "put" (the
right to sell the security). Options have various types of underlying
instruments, including specific securities, indices of securities prices,
foreign currencies, interest rates and futures contracts. Options may be
traded on an exchange (exchange-traded-options) or may be customized
agreements between the parties (over-the-counter or OTC options). Like
futures, a financial intermediary, known as a clearing corporation,
financially backs exchange-traded options. However, OTC options have no such
intermediary and are subject to the risk that the counter-party will not
fulfill its obligations under the contract.
Purchasing Put and Call Options
When a portfolio purchases a put option, it buys the right to sell the
instrument underlying the option at a fixed strike price. In return for this
right, the portfolio pays the current market price for the option (known as
the "option premium"). A portfolio may purchase put options to offset or hedge
against a decline in the market value of its securities ("protective puts") or
to benefit from a decline in the price of securities that it does not own.
The portfolio would ordinarily realize a gain if, during the option period,
the value of the underlying securities decreased below the exercise price
sufficiently to cover the premium and transaction costs. However, if the price
of the underlying instrument does not fall enough to offset the cost of
purchasing the option, a put buyer would lose the premium and related
transaction costs.
Call options are similar to put options, except that the portfolio obtains the
right to purchase, rather than sell, the underlying instrument at the option's
strike price. A portfolio would normally purchase call options in anticipation
of an increase in the market value of securities it owns or wants to buy. A
portfolio would ordinarily realize a gain if, during the option period, the
value of the underlying instrument exceeded the exercise price plus the
premium paid and related transaction costs. Otherwise, the portfolio would
realize either no gain or a loss on the purchase of the call option.
The purchaser of an option may terminate its position by:
. Allowing it to expire and losing its entire premium;
. Exercising the option and either selling (in the case of a put option) or
buying (in the case of a call option) the underlying instrument at the
strike price; or
. Closing it out in the secondary market at its current price.
Selling (Writing) Put and Call Options
When a portfolio writes a call option it assumes an obligation to sell
specified securities to the holder of the option at a specified price if the
option is exercised at any time before the expiration date. Similarly, when a
portfolio writes a put option it assumes an obligation to purchase specified
securities from the option holder at a specified price if the option is
exercised at any time
7
<PAGE>
before the expiration date. A portfolio may terminate its position in an
exchange-traded put option before exercise by buying an option identical to
the one it has written. Similarly, it may cancel an over-the-counter option by
entering into an offsetting transaction with the counter-party to the option.
A portfolio could try to hedge against an increase in the value of securities
it would like to acquire by writing a put option on those securities. If
security prices rise, the portfolio would expect the put option to expire and
the premium it received to offset the increase in the security's value. If
security prices remain the same over time, the portfolio would hope to profit
by closing out the put option at a lower price. If security prices fall, the
portfolio may lose an amount of money equal to the difference between the
value of the security and the premium it received. Writing covered put options
may deprive a portfolio of the opportunity to profit from a decrease in the
market price of the securities it would like to acquire.
The characteristics of writing call options are similar to those of writing
put options, except that call writers expect to profit if prices remain the
same or fall. A portfolio could try to hedge against a decline in the value
of securities it already owns by writing a call option. If the price of that
security falls as expected, the portfolio would expect the option to expire
and the premium it received to offset the decline of the security's value.
However, the portfolio must be prepared to deliver the underlying instrument
in return for the strike price, which may deprive it of the opportunity to
profit from an increase in the market price of the securities it holds.
A portfolio is permitted only to write covered options. A portfolio can cover
a call option by owning, at the time of selling the option:
. The underlying security (or securities convertible into the underlying
security without additional consideration), index, interest rate, foreign
currency or futures contract.
. A call option on the same security or index with the same or lesser
exercise price.
. A call option on the same security or index with a greater exercise price,
with the difference between the exercise prices maintained as a segregated
account containing cash, U.S. government securities or other liquid high-
grade debt securities.
. Cash, U.S. government securities or other liquid high-grade debt or equity
securities equal to at least the market value of the optioned securities,
interest rate, foreign currency or futures contract.
. In the case of an index, a portfolio of securities that corresponds to the
index.
A portfolio can cover a put option by, at the time of selling the option:
. Entering into a short position in the underlying security.
. Purchasing a put option on the same security, index, interest rate, foreign
currency or futures contract with the same or greater exercise price.
. Purchasing a put option on the same security, index, interest rate, foreign
currency or futures contract with a lesser exercise price, with the
difference between the exercise prices maintained as a segregated account
containing cash, U.S. government securities or other liquid high-grade debt
securities.
. Maintaining the entire exercise price in liquid high-grade debt securities.
Options on Securities Indices
Options on securities indices are similar to options on securities, except
that the exercise of securities index options requires cash settlement
payments and does not involve the actual purchase or sale of securities. In
addition, securities index options are designed to reflect price fluctuations
in a group of securities or segment of the securities market rather than price
fluctuations in a single security.
Options on Futures
An option on a futures contract provides the holder with the right to buy a
futures contract (in the case of a call option) or sell a futures contract (in
the case of a put option) at a fixed time and price. Upon exercise of the
option by the holder, the contract market clearing house establishes a
corresponding short position for the writer of the option (in the case of a
call option) or a corresponding long position (in the case of a put option).
If the option is exercised, the parties will be subject to the futures
contracts. In addition, the writer of an option on a futures contract is
subject to initial and variation margin requirements on the option position.
Options on futures contracts are traded on the same contract market as the
underlying futures contract.
8
<PAGE>
The buyer or seller of an option on a futures contract may terminate the
option early by purchasing or selling an option of the same series (i.e., the
same exercise price and expiration date) as the option previously purchased or
sold. The difference between the premiums paid and received represents the
trader's profit or loss on the transaction.
A portfolio may purchase put and call options on futures contracts instead of
selling or buying futures contracts. A portfolio may buy a put option on a
futures contract for the same reasons it would sell a futures contract. It
also may purchase such put options in order to hedge a long position in the
underlying futures contract. A portfolio may buy call options on futures
contracts for the same purpose as the actual purchase of the futures
contracts, such as in anticipation of favorable market conditions.
A portfolio may write a call option on a futures contract to hedge against a
decline in the prices of the instrument underlying the futures contracts. If
the price of the futures contract at expiration were below the exercise price,
the portfolio would retain the option premium, which would offset, in part,
any decline in the value of its portfolio securities.
The writing of a put option on a futures contract is similar to the purchase
of the futures contracts, except that, if market price declines, the portfolio
would pay more than the market price for the underlying instrument. The
premium received on the sale of the put option, less any transaction costs,
would reduce the net cost to the portfolio.
Combined Positions
A portfolio may purchase and write options in combination with each other, or
in combination with futures or forward contracts, to adjust the risk and
return characteristics of the overall position. For example, a portfolio could
construct a combined position whose risk and return characteristics are
similar to selling a futures contract by purchasing a put option and writing a
call option on the same underlying instrument. Alternatively, a portfolio
could write a call option at one strike price and buy a call option at a lower
price to reduce the risk of the written call option in the event of a
substantial price increase. Because combined options positions involve
multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.
ADDITIONAL RISKS OF DERIVATIVES
While transactions in derivatives may reduce certain risks, these transactions
themselves entail certain other risks. For example, unanticipated changes in
interest rates, securities prices or currency exchange rates may result in a
poorer overall performance of the portfolio than if it had not entered into
any derivatives transactions. Derivatives may magnify a portfolio's gains or
losses, causing it to make or lose substantially more than it invested.
When used for hedging purposes, increases in the value of the securities a
portfolio holds or intends to acquire should offset any losses incurred with a
derivative. Purchasing derivatives for purposes other than hedging could
expose the portfolio to greater risks.
Correlation of Prices
The portfolio's ability to hedge its securities through derivatives depends on
the degree to which price movements in the underlying index or instrument
correlate with price movements in the relevant securities. In the case of poor
correlation, the price of the securities a portfolio is hedging may not move
in the same amount, or even in the same direction as the hedging instrument.
The adviser will try to minimize this risk by investing only in those
contracts whose behavior it expects to resemble the portfolio securities it is
trying to hedge. However, if the portfolio's prediction of interest and
currency rates, market value, volatility or other economic factors is
incorrect, the portfolio may lose money, or may not make as much money as it
could have.
Derivative prices can diverge from the prices of their underlying instruments,
even if the characteristics of the underlying instruments are very similar to
the derivative. Listed below are some of the factors that may cause such a
divergence.
. Current and anticipated short-term interest rates, changes in volatility of
the underlying instrument, and the time remaining until expiration of the
contract.
. A difference between the derivatives and securities markets, including
different levels of demand, how the instruments are traded, the imposition
of daily price fluctuation limits or trading of an instrument stops.
. Differences between the derivatives, such as different margin requirements,
different liquidity of such markets and the participation of speculators in
such markets.
Derivatives based upon a narrower index of securities, such as those of a
particular industry group, may present greater risk than derivatives based on
a broad market index. Since narrower indices are made up of a smaller number
of securities, they are more susceptible to rapid and extreme price
fluctuations because of changes in the value of those securities.
9
<PAGE>
While currency futures and options values are expected to correlate with
exchange rates, they may not reflect other factors that affect the value of
the investments of a portfolio. A currency hedge, for example, should protect
a Yen-denominated security from a decline in the Yen, but will not protect a
portfolio against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of a portfolio's foreign-denominated
investments changes in response to many factors other than exchange rates, it
may not be possible to match the amount of currency options and futures to the
value of the portfolio's investments precisely over time.
Lack of Liquidity
Before a futures contract or option is exercised or expires, a portfolio can
terminate it only by entering into a closing purchase or sale transaction.
This requires a secondary market for such instruments on the exchange where
the portfolio originally entered into the transaction. If there is no
secondary market for the contract, or the market is illiquid, a portfolio may
have to purchase or sell the instrument underlying the contract, make or
receive a cash settlement or meet ongoing variation margin requirements. The
inability to close out derivative positions could have an adverse impact on
the ability of the portfolio to hedge its investments and may prevent a
portfolio from realizing profits or limiting its losses.
Derivatives may become illiquid (i.e., difficult to sell at a desired time and
price) under a variety of market conditions. For example:
. During periods of market volatility, a commodity exchange may suspend or
limit trading in a particular derivative instrument, an entire category of
derivatives or all derivatives.
. A portfolio may have difficulty liquidating its existing positions or
recovering excess variation margin payments because of exchange or clearing
house equipment failures, government intervention, insolvency of a
brokerage firm or clearing house or other disruptions of normal trading
activity.
. Investors may lose interest in a particular derivative or category of
derivatives.
Management Risk
If the adviser incorrectly predicts stock market and interest rate trends, a
portfolio may lose money by investing in derivatives. For example, if a
portfolio were to write a call option based on its adviser's expectation that
the price of the underlying security would fall, but the price were to rise
instead, the portfolio could be required to sell the security upon exercise at
a price below the current market price. Similarly, if a portfolio were to
write a put option based on the adviser's expectation that the price of the
underlying security would rise, but the price were to fall instead, the
portfolio could be required to purchase the security upon exercise at a price
higher than the current market price.
Margin
Because of the low margin deposits required upon the opening of a derivative
position, such transactions involve an extremely high degree of leverage.
Consequently, a relatively small price movement in a derivative may result in
an immediate and substantial loss (as well as gain) to the portfolio and it
may lose more than it originally invested in the derivative.
If the price of a futures contract changes adversely, a portfolio may have to
sell securities at a time when it is disadvantageous to do so to meet its
minimum daily margin requirement. A portfolio may lose its margin deposits if
a broker with whom it has an open futures contract or related option becomes
insolvent or declares bankruptcy.
FOREIGN SECURITIES
- --------------------------------------------------------------------------------
AMERICAN DEPOSITARY RECEIPTS (ADRS)
American Depositary Receipts (ADRs) are certificates evidencing ownership of
shares of a foreign issuer. These certificates are issued by depository banks
and generally trade on an established market in the United States or
elsewhere. A custodian bank or similar financial institution in the issuer's
home country holds the underlying shares in trust. The depository bank may not
have physical custody of the underlying securities at all times and may charge
fees for various services, including forwarding dividends and interest and
corporate actions. ADRs are alternatives to directly purchasing the underlying
foreign securities in their national markets and currencies. However, ADRs
continue to be subject to many of the risks associated with investing directly
in foreign securities.
10
<PAGE>
RISKS OF FOREIGN SECURITIES
Foreign securities, foreign currencies, and securities issued by U.S. entities
with substantial foreign operations may involve significant risks in addition
to the risks inherent in U.S. investments.
Local political, economic, regulatory, or social instability, military action
or unrest, or adverse diplomatic developments may affect the value of foreign
investments. A foreign government may take actions adverse to the interests
of U.S. investors, including expropriation or nationalization of assets,
confiscatory taxation and other restrictions on U.S. investment.
Foreign Currency Risk
The securities of foreign companies are frequently denominated in foreign
currencies. A portfolios' net asset value is denominated in U.S. dollars.
Thus, changes in foreign currency rates and in exchange control regulations
may positively or negatively affect the value of the securities of a
portfolio. A portfolio also may incur costs to convert foreign currencies
into U.S. dollars and vice versa. In addition:
. Foreign currency exchange rates reflect relative values of two currencies,
usually the U.S. dollar and the foreign currency in question.
. Complex political and economic factors applicable to the issuing country
may affect the value U.S. dollars and foreign currencies.
. The actions of U.S. and foreign governments may affect significantly the
currency exchange rates.
. government intervention may increase risks involved in purchasing or
selling foreign currency options, forward contracts and futures contracts,
since exchange rates may not be free to fluctuate in response to other
market forces.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
round-lot transactions in the inter-bank market and thus may not reflect
exchange rates for smaller odd-lot transactions (less than $1 million) where
rates may be less favorable. The inter-bank market in foreign currencies is a
global, around-the-clock market. To the extent that a market is closed while
the markets for the underlying currencies remain open, certain markets may not
always reflect significant price and rate movements.
The Euro
The single currency for the European Economic and Monetary Union (EMU), the
Euro, is scheduled to replace the national currencies for participating member
countries over a period that begins on January 1, 1999, and ends in July 2002.
At the end of that period, use of the Euro will be compulsory and countries in
the EMU will no longer maintain separate currencies in any form. Until then,
however, each country and issuers within each country are free to choose
whether to use the Euro.
On January 1, 1999, existing national currencies will become denominations of
the Euro at fixed rates according to practices prescribed by the European
Monetary Institute and the Euro will become available as a book-entry
currency. Beginning on or about that date, the portfolio expects member
states to begin conducting financial market transactions in Euro and
redenominating many investments, currency balances and transfer mechanisms
into Euro. The portfolios also anticipate pricing, trading, settling and
valuing investments whose nominal values remain in their existing domestic
currencies in Euro. Accordingly, the portfolios expect the conversion to the
Euro to impact investments in countries that will adopt the Euro in all
aspects of the investment process including, trading, foreign exchange,
payments, settlements, cash accounts, custody and accounting will be impacted.
Some of the uncertainties surrounding the conversion to the Euro, include
. Will the payment and operational systems of banks and other financial
institutions be ready by the scheduled launch date?
. Will the conversion to the Euro have legal consequences on outstanding
financial contracts that refer to existing currencies rather than Euro?
. How will existing currencies be exchanged into Euro?
. Will suitable clearing and settlement payment systems for the new currency
be created?
Stock Exchange and Market Risk
The adviser anticipates that in most cases an exchange or over-the-counter
(OTC) market located outside of the United States will be the best available
market for foreign securities. Foreign stock markets, while growing in volume
and sophistication, are generally not as developed as those in the United
States, and securities of some foreign issuers may be less liquid and more
11
<PAGE>
volatile than securities of comparable U.S. issuers. Foreign security trading,
settlement and custodial practices are often less developed than those in U.S.
markets. This may lead to increased risk or substantial delays in case of a
failed trade or the insolvency of, or breach of duty by, a foreign broker-
dealer, securities depository or foreign sub-custodian. In addition, the costs
associated with foreign investments, including withholding taxes, brokerage
commissions and custodial costs, are generally higher than with U.S.
investments.
Legal System and Regulation Risks
Foreign countries have different legal systems and different regulations
concerning financial disclosure, accounting, and auditing standards.
Corporate financial information that would be disclosed under U.S. law may not
be available. Foreign accounting and auditing standards may render a foreign
corporate balance sheet more difficult to understand and interpret than one
subject to U.S. law and standards. Foreign markets may offer less protection
to investors than U.S. markets:
. Foreign accounting, auditing, and financial reporting requirements may
render a foreign corporate balance sheet more difficult to understand and
interpret than one subject to U.S. law and standards.
. Adequate public information on foreign issuers may not be available, and it
may be difficult to secure dividends and information regarding corporate
actions on a timely basis.
. In general, there is less overall governmental supervision and regulation
of securities exchanges, brokers, and listed companies than in the United
States.
. OTC markets tend to be less regulated than stock exchange markets and, in
certain countries, may be totally unregulated.
. Economic or political concerns may influence regulatory enforcement and may
make it difficult for investors to enforce their legal rights.
. Restrictions on transferring securities within the United States or to U.S.
persons may make a particular security less liquid than foreign securities
of the same class that are not subject to such restrictions.
EMERGING MARKETS
Investing in emerging markets may magnify the risks of foreign investing.
Security prices in emerging markets can be significantly more volatile than
those in more developed markets, reflecting the greater uncertainties of
investing in less established markets and economies. In particular, countries
with emerging markets may have (1) relatively unstable governments, (2) may
present the risks of nationalization of businesses, restrictions on foreign
ownership and prohibitions on the repatriation of assets, and (3) may have
less protection of property rights than more developed countries. The
economies of countries with emerging markets may be based on only a few
industries, may be highly vulnerable to changes in local or global trade
conditions, and may suffer from extreme and volatile debt burdens or inflation
rates. Local securities markets may trade a small number of securities and may
be unable to respond effectively to increases in trading volume, potentially
making prompt liquidation of holdings difficult or impossible at times.
Certain foreign governments levy withholding taxes on dividend and interest
income. Although in some countries a portfolio may recover a portion of these
taxes, the portion they cannot recover will reduce the income the portfolio
receives from its investments. The portfolios do not expect such foreign
withholding taxes to have a significant impact on performance.
INVESTMENT COMPANIES
- --------------------------------------------------------------------------------
The portfolios reserve the right to invest up to 10% of their total assets,
calculated at the time of investment, in the securities of other open-ended 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 advisor fee paid by the portfolio.
The Fund has received permission from the SEC to allow each of its portfolios
to invest, for cash management purposes, the greater of 5% of its total assets
or $2.5 million in the UAM DSI Money Market Portfolio provided that the
investment is consistent with the portfolio's investment policies and
restrictions. Based upon the portfolio's assets invested in the UAM 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 UAM DSI Money Market Portfolio. The investing portfolio will bear
expenses of the UAM DSI Money Market Portfolio on the same basis as all of its
other shareholders.
12
<PAGE>
REPURCHASE AGREEMENTS
- --------------------------------------------------------------------------------
In a repurchase agreement, a portfolio buys a security for a relatively short
period (usually not more than 7 days) and simultaneously agrees to sell it
back at a specified date and price. A portfolio normally uses repurchase
agreements to earn income on assets that are not invested. A portfolio will
require the counter-party to the agreement to deliver securities serving as
collateral for each repurchase agreement to its custodian either physically or
in book-entry form. The counter party must add to the collateral whenever the
price of the repurchase agreement rises (i.e., the borrower "marks to the
market" on a daily basis).
If the seller of the security declares bankruptcy or otherwise becomes
financially unable to buy back the security, the portfolio's right to sell the
security may be restricted. In addition, the value of the security might
decline before the portfolio can sell it and the portfolio might incur
expenses in enforcing its rights.
SECURITIES LENDING
- --------------------------------------------------------------------------------
To earn additional income, the portfolios may lend up to one-third of their
total assets (including the value of the collateral for the loans) at fair
market value to broker- dealers or other financial institutions. A portfolio
may reinvest any cash collateral in short-term securities and money market
funds. A portfolio will only lend its securities if
. The borrower provides collateral at least equal to the market value of
the securities loaned.
. The collateral pledged and maintained by the borrower must consist of cash,
an irrevocable letter of credit issued by a domestic U.S. bank or
securities issued or guaranteed by the U.S. government.
. The borrower adds to the collateral whenever the price of the securities
loaned rises (i.e., the borrower "marks to the market" on a daily basis).
. The portfolio can terminate the loan at any time; and
. The portfolio receives reasonable interest on the loan (which may include
the Portfolio investing any cash collateral in interest bearing short-term
investments).
These risks are similar to the ones involved with repurchase agreements. When
a portfolio lends securities, there is a risk that it will lose money because
the borrower fails to return the securities involved in the transaction. In
addition, the borrower may become financially unable to honor its contractual
obligations, which may delay or prevent the portfolio from liquidating the
collateral.
SHORT-TERM INVESTMENTS
- --------------------------------------------------------------------------------
To earn a return on uninvested assets, meet anticipated redemptions, or for
temporary defensive purposes, each portfolio may invest a portion of its
assets in the short-term investments described below.
BANK OBLIGATIONS
A portfolio will only invest in a security issued by a commercial bank if the
bank:
. Has total assets of at least $1 billion, or the equivalent in other
currencies;
. Is a U.S. bank and a member of the Federal Deposit Insurance Corporation;
and
. Is a foreign branch of a U.S. bank and the adviser believes the security is
of an investment quality comparable with other debt securities that a
portfolio may purchase.
Time Deposits
Time deposits are non-negotiable deposits, such as savings accounts or
certificates of deposit, held by a financial institution for a fixed term with
the understanding that the depositor can withdraw its money only by giving
notice to the institution. However, there may be early withdrawal penalties
depending upon market conditions and the remaining maturity of the obligation.
A portfolio may only purchase time deposits maturing from two business days
through seven calendar days.
13
<PAGE>
CERTIFICATES OF DEPOSIT
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or savings and loan association for a definite
period of time and earning a specified return.
BANKER'S ACCEPTANCE
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).
COMMERCIAL PAPER
Commercial paper is constitutes short-term obligations with maturities ranging
from 2 to 270 days issued by banks, corporations and other borrowers. Such
investments are unsecured and usually discounted. A portfolio may invest in
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. See APPENDIX A for a description
of commercial paper ratings.
U.S. GOVERNMENT SECURITIES
A portfolio may buy debt securities that are issued or guaranteed by the U.S.
Treasury or by an agency or instrumentality of the U.S. government. Some U.S.
government securities, such as Treasury bills, notes and bonds are supported
by the full faith and credit of the U.S. government. Others, however, are
supported only by the right of the instrumentality to borrow from the U.S.
government.
While U.S. government securities are guaranteed as to principal and interest,
their market value is not guaranteed. U.S. government securities are subject
to the same interest rate and credit risks as other fixed income securities.
However, since U.S. government securities are of the highest quality, the
credit risk is minimal. The U.S. government does not guarantee the net asset
value of the assets of a portfolio.
CORPORATE BONDS
A portfolio may buy corporate bonds and notes that are considered investment
grade securities. Investment grade securities have received one of the four
highest grades assigned by a rating agency, or determined to be of comparable
quality by the adviser. Corporations issue bonds and notes to raise money for
working capital or for capital expenditures such as plant construction,
equipment purchases and expansion. In return for the money loaned to the
corporation by investors, the corporation promises to pay investors interest,
and repay the principal amount of the bond or note.
Like other debt securities, corporate debt securities involve a risk that the
corporate issuer will not make timely payment of either interest or principal,
or may default entirely. In addition, the market price of corporate debt
securities may go down because of changes in interest rates.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED DELIVERY TRANSACTIONS
- --------------------------------------------------------------------------------
A when-issued security is one whose terms are available and for which a market
exists, but which have not been issued. In a forward delivery transaction, a
portfolio contracts to purchase securities for a fixed price at a future date
beyond customary settlement time. "Delayed delivery" refers to securities
transactions on the secondary market where settlement occurs in the future. In
each of these transactions, the parties fix the payment obligation and the
interest rate that they will receive on the securities at the time the parties
enter the commitment; however, they do not pay money or delivery securities
until a later date. Typically, no income accrues on securities a portfolio has
committed to purchase before the securities are delivered, although the
portfolio may earn income on securities it has in a segregated account. A
portfolio will only enter into these types of transactions with the intention
of actually acquiring the securities, but may sell them before the settlement
date.
A portfolio uses when-issued, delayed-delivery and forward delivery
transactions to secure what it considers being an advantageous price and yield
at the time of purchase. When a portfolio engages in when-issued, delayed-
delivery and forward delivery transactions, it relies on the other party to
consummate the sale. If the other party fails to complete the sale, the
portfolio may miss the opportunity to obtain the security at a favorable price
or yield.
When purchasing a security on a when-issued, delayed delivery, or forward
delivery basis, the portfolio assumes the rights and risks of ownership of the
security, including the risk of price and yield changes. At the time of
settlement, the market value of the security may be more or less than the
purchase price. The yield available in the market when the delivery takes
place also may
14
<PAGE>
be higher than those obtained in the transaction itself. Because a portfolio
does not pay for the security until the delivery date, these risks are in
addition to the risks associated with its other investments.
RESTRICTED SECURITIES
- --------------------------------------------------------------------------------
Each portfolio may purchase restricted securities that are not registered for
sale to the general public but which are eligible for resale to qualified
institutional investors under Rule 144A of the Securities Act of 1933. Under
the supervision of the Fund's board, the adviser determines the liquidity of
such investments by considering all relevant factors. Provided that a dealer
or institutional trading market in such securities exists, these restricted
securities are not treated as illiquid securities for purposes of a
portfolio's investment limitations. The priced realized from the sales of
these securities could be more or less than those originally paid by the
portfolio or less than what may be considered the fair value of such
securities.
INVESTMENT POLICIES
Whenever an investment limitation sets forth a percentage limitation on
investment or utilization of assets, such limitation shall (with the exception
of a limitation relating to borrowing) be determined immediately after and as
a result of a portfolio's acquisition of such security or other asset.
Accordingly, any later increase or decrease resulting from a change in values,
net assets or other circumstances will not be considered when determining
whether the investment complies with the investment limitations of the
portfolio.
FUNDAMENTAL INVESTMENT POLICIES (ALL PORTFOLIOS EXCEPT SIRACH SPECIAL EQUITY
- --------------------------------------------------------------------------------
PORTFOLIO)
- ----------
The following investment limitations are fundamental, which means a portfolio
cannot change them without shareholder approval. Each portfolio will not:
. with respect to 75% of its assets, invest more than 5% of its total assets
at the time of purchase in 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);
. with respect to 75% of its assets, purchase more than 10% of any class of
the outstanding voting securities of any issuer;
. borrow, except from banks and as a temporary measure for extraordinary or
emergency purposes and then, in no event, in excess of 33 1/3% of each
portfolio's gross assets valued at the lower of market or cost;
. invest in physical commodities or contracts on physical commodities;
. invest more than 25% of its assets in companies within a single industry;
however, there are no limitations on investments made in instruments issued
or guaranteed by the U.S. government and its agencies when the portfolio
adopts a temporary defensive position;
. issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit a portfolio from (1) making any
permitted borrowings, mortgages or pledges, or (2) entering repurchase
transactions;
. make loans except (i) by purchasing debt securities in accordance with its
investment objectives and policies, or entering into repurchase agreements,
subject to the limitation described below 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 Investment Company Act of
1940, as amended or the Rules and Regulations or interpretations of the
Commission thereunder;
. purchase or sell real estate or real estate limited partnerships, although
it may purchase or sell securities of companies which deal in real estate
and may purchase and sell securities which are secured by interests in real
estate; and
. underwrite the securities of other issuers.
NON-FUNDAMENTAL POLICIES (ALL PORTFOLIOS EXCEPT SIRACH SPECIAL EQUITY PORTFOLIO)
- --------------------------------------------------------------------------------
In addition to the policies described above, the following limitations are
fundamental policies of the Sirach Special Equity portfolio and non-
fundamental (i.e., the portfolio may change them without shareholder approval)
policies of the Sirach Strategic Balanced, Sirach Growth, Sirach Equity and
Sirach Bond portfolios. Each of the portfolios will not:
15
<PAGE>
. invest for the purpose of exercising control over management of any
company;
. 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;
. invest more than an aggregate of 15% of the net 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;
. pledge, mortgage, or hypothecate any of its assets to an extent greater
than 10% (33 1/3% for the Sirach Bond Portfolio) of its total assets at
fair market value;
. purchase additional securities when borrowings exceed 5% of total assets;
. purchase on margin or sell short; and
FUNDAMENTAL INVESTMENT POLICIES (SIRACH SPECIAL EQUITY PORTFOLIO)
- --------------------------------------------------------------------------------
The following investment limitations are fundamental, which means a portfolio
cannot change them without shareholder approval. The portfolio will not:
. with respect to 75% of its assets, invest more than 5% of its total assets
at the time of purchase in 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);
. with respect to 75% of its assets, purchase more than 10% of any class of
the outstanding voting securities of any issuer;
. borrow, except from banks and as a temporary measure for extraordinary or
emergency purposes and then, in no event, in excess of 33 1/3% of each
portfolio's gross assets valued at the lower of market or cost;
. invest for the purpose of exercising control over management of any
company;
. invest in physical commodities or contracts on physical commodities;
. invest more than 25% of its assets in companies within a single industry;
however, there are no limitations on investments made in instruments issued
or guaranteed by the U.S. government and its agencies when the portfolio
adopts a temporary defensive position;
. 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;
. invest more than an aggregate of 15% of the net 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;
. issue senior securities, as defined in the Investment Company Act of 1940,
as amended, except that this restriction shall not be deemed to prohibit a
portfolio from (1) making any permitted borrowings, mortgages or pledges,
or (2) entering repurchase transactions;
. make loans except (i) by purchasing debt securities in accordance with its
investment objectives and policies, or entering into repurchase agreements,
subject to the limitation described below 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 Investment Company Act of
1940, as amended or the Rules and Regulations or interpretations of the
Commission thereunder;
. pledge, mortgage, or hypothecate any of its assets to an extent greater
than 10% of its total assets at fair market value;
. purchase additional securities when borrowings exceed 5% of total assets;
. purchase on margin or sell short;
. purchase or retain securities of an issuer if those officers and board
members or its investment adviser owning more than 1/2 of 1% of such
securities together own more than 5% of such securities;
. purchase or sell real estate or real estate limited partnerships, although
it may purchase or sell securities of companies which deal in real estate
and may purchase and sell securities which are secured by interests in real
estate; and
16
<PAGE>
. underwrite the securities of other issuers.
MANAGEMENT OF THE PORTFOLIOS
The business of the Fund is managed by its governing board, which, in turn,
elects officers who are responsible for the day-to-day operations of the Fund
and who execute policies formulated by the board. The Fund pays each board
member who is not also an officer or affiliated person (independent board
member) a $150 quarterly retainer fee per active portfolio per quarter and a
$2,000 meeting fee. In addition, each independent board member is reimbursed
for travel and other expenses incurred while attending board meetings. The
$2,000 meeting fee and expense reimbursements are aggregated for all of the
board members and allocated proportionately among the portfolios of the UAM
Funds complex. The Fund does not pay the remaining board members , each of
whom are affiliated with the Fund, for their services as board members. UAM or
its affiliates or CGFSC pay the Fund's officers.
The following table lists the board members and officers of the Fund and
provides information regarding their present positions, date of birth,
address, principal occupations during the past five years, aggregate
compensation received from the Fund and total compensation received from the
UAM Funds complex.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Total
Aggregate Compensation
Position Compensation from From UAM Funds
UAM Registrant as of Complex as of
Name, Address, DOB Funds, INC. Principal Occupations During the past 5 years October 31, 1998 October 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John T. Bennett, Jr. Director President of Squam Investment Management Company,
College Road -- RFD 3 Inc. and Great Island Investment Company, Inc.;
Meredith, NH 03253 President of Bennett Management Company from
1/26/29 1988 to 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Nancy J. Dunn Director Vice President for Finance and Administration
10 Garden Street and Treasurer of Radcliffe College since 1991.
Cambridge, MA 02138
8/14/51
- ------------------------------------------------------------------------------------------------------------------------------------
William A. Humenuk Director Executive Vice President and Chief Administrative
100 King Street West Officer of Philip Services Corp.; Director, Hofler
P.O. Box 2440, LCD-1, Corp.; Formerly, a Partner in the Philadelphia office
Hamilton Ontario, of the law firm Dechert Price & Rhoads.
Canada L8N-4J6
4/21/42
- ------------------------------------------------------------------------------------------------------------------------------------
Philip D. English Director President and Chief Executive Officer of Broventure
16 West Madison Street Company, Inc.; Chairman of the Board of Chektec
Baltimore, MD 21201 Corporation and Cyber Scientific, Inc
8/5/48
- -----------------------------------------------------------------------------------------------------------------------------------
Norton H. Reamer* Director, Chairman, Chief Executive Officer and a Director of United 0 0
One International Place President and Asset Management Corporation; Director, Partner or Trustee
Boston, MA 02110 Chairman of each of the Investment Companies of the Eaton Vance Group
3/21/35 of Mutual Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Peter M. Whitman, Jr.* Director President and Chief Investment Officer of Dewey Square 0 0
One Financial Center Investors Corporation since 1988; Director and Chief
Boston, MA 02111 Executive Officer of H.T. Investors, Inc., formerly a
7/1/43 subsidiary of Dewey Square.
- -----------------------------------------------------------------------------------------------------------------------------------
William H. Park Vice Executive Vice President and Chief Financial Officer of 0 0
One International Place President United Asset Management Corporation.
Boston, MA 02110
9/19/47
- -----------------------------------------------------------------------------------------------------------------------------------
Gary L. French Treasurer President of UAMFSI and UAMFDI, formerly Vice President of 0 0
211 Congress Street Operations, Development and Control of Fidelity Investments
Boston, MA 02110 in 1995; Treasurer of the Fidelity Group of Mutual Funds
7/4/51 from 1991 to 1995.
- -----------------------------------------------------------------------------------------------------------------------------------
Michael E. DeFao Secretary Vice President and General Counsel of UAMFSI and UAMFDI; 0 0
211 Congress Street Associate Attorney of Ropes & Gray (a law firm) from 1993 to
Boston, MA 02110 1995.
2/28/68
- -----------------------------------------------------------------------------------------------------------------------------------
Robert R. Flaherty Assistant Vice President of UAMFSI; formerly Manager of Fund 0 0
211 Congress Street Treasurer Administration and Compliance of CGFSC from 1995 to 1996;
Boston, MA 02110 Deloitte & Touche LLP from 1985 to 1995, Senior Manager.
9/18/63
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Total
Aggregate Compensation
Position Compensation from from UAM Funds
UAM Registrant as of Complex as of
NamE, Address, DOB Funds, INC. Principal Occupations During the Past 5 years October 31, 1998 October 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael J. Leary Assistant Vice President of Chase Global Funds Services 0 0
73 Tremont Street Treasurer Company since 1993. Manager of Audit at Ernst &
Boston, MA 02108 Young from 1988 to 1993.
11/23/65
- -----------------------------------------------------------------------------------------------------------------------------------
Michelle Azrialy Assistant Assistant Treasurer of Chase Global Funds Services 0 0
73 Tremont Street Secretary Company since 1996. Senior Public Accountant with
Boston, MA 02108 Price Waterhouse LLP from 1991 to 1994.
4/12/69
</TABLE>
______
* These board members are "interested persons" of the Fund as that term is
defined in the 1940 Act.
CODE OF ETHICS
The Fund has adopted a Code of Ethics that restricts to a certain extent
personal transactions by access persons of the Fund and imposes certain
disclosure and reporting obligations.
PRINCIPAL HOLDERS OF SECURITIES
As of ____________, 1998, the members of the governing board and officers of
the Fund as a group owned less than 1% of the Fund's outstanding shares.
As of ____________, 1998, the following persons or organizations held of
record or beneficially 5% or more of the shares of a portfolio:
<TABLE>
<CAPTION>
Percentage of
Name and Address of Shareholder Shares Owned Portfolio Class
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
Any persons or organizations listed above as owning 25% or more of the
outstanding shares of a portfolio may be presumed to "control" (as that term
is defined in the 1940 Act) the 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 the
portfolio.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
CONTROL OF ADVISER
The adviser is located at 3323 One Union Square, Seattle, Washington 98101.
The adviser is a wholly-owned subsidiary of UAM and has provided investment
management services to corporations, pension and profit-sharing plans, 401(k)
and thrift plans, trusts, estates and other institutions and individuals since
1970.
UAM is 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 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
18
<PAGE>
employed and securities selected by UAM Affiliated Firms are separately chosen
by each of them. Several UAM Affiliated Firms also act as investment advisers
to separate series or portfolios of the UAM Funds complex.
INVESTMENT ADVISORY AGREEMENT
Service Performed by Adviser
Pursuant to each Investment Advisory Agreement (Advisory Agreements) between
the Fund, on behalf of each portfolio, and the adviser, the adviser has agreed
to:
. Manage the investment and reinvestment of the assets of the portfolios.
. Continuously review, supervise and administer the investment program of the
portfolios.
. Determine in its discretion the securities a portfolio will buy or sell and
the portion of its assets such portfolio will hold uninvested.
Limitation of Liability
In the absence of (1) willful misfeasance, bad faith, or gross negligence of
the part of the adviser in the performance of its obligations and duties under
the Advisory Agreements, (2) reckless disregard by the adviser of its
obligations and duties under the Advisory Agreements, or (3) a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation
for services, the adviser shall not be subject to any liability whatsoever to
the Fund, for any error of judgment, mistake of law or any other act or
omission in the course of, or connected with, rendering services under the
Advisory Agreements.
Continuing an Advisory Agreement
Unless sooner terminated, an Advisory Agreement shall continue for periods of
one year so long as such continuance is specifically approved at least
annually (a) by a majority of those members of the governing board of the Fund
who are not parties to the Advisory Agreement or interested persons of any
such party and (b) by a majority of the governing board of the Fund or a
majority of the shareholders of the portfolio. An Advisory Agreement may be
terminated at any time by the Fund, without the payment of any penalty, by
vote of a majority of the portfolios' shareholders on 60 days' written notice
to the adviser. The adviser may terminate the Advisory Agreements at any time,
without the payment of any penalty, upon 90 days' written notice to the Fund.
An Advisory Agreement will automatically and immediately terminate if it is
assigned.
Investment Advisory Fee
For its services, the adviser receives an advisory fee calculated by applying
the annual percentage rates listed below to the average daily net assets of
the portfolio for the month. The adviser's fee is paid in monthly
installments.
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Annual Percentage Rate
- --------------------------------------------------------------
<S> <C>
Sirach Growth Portfolio 0.65%
- --------------------------------------------------------------
Sirach Special Equity Portfolio 0.70%
- --------------------------------------------------------------
Sirach Strategic Balanced Portfolio 0.65%
- --------------------------------------------------------------
Sirach Equity Portfolio 0.65%
- --------------------------------------------------------------
Sirach Bond Portfolio 0.35%
</TABLE>
Expense Limitation
The adviser may voluntarily agree to limit the expenses of the portfolios.
The adviser may further reduce its compensation to the extent that the
expenses of a portfolio exceed such lower expense limitation as the adviser
may, by notice to the portfolio, declare to be appropriate. The expenses
subject to this limitation are exclusive of brokerage commissions, interest,
taxes, deferred organizational and extraordinary expenses and, if the Fund has
a distribution plan, payments required under such plan. The prospectus
describes the terms of any expense limitation that are in effect from time to
time.
PHILOSOPHY AND STYLE
The adviser specializes in identifying and investing in growth-oriented
securities which have demonstrated strong earnings acceleration and what the
adviser judges to be strong relative price strength and value. The adviser
emphasizes disciplined security selection in all asset classes. As equity
analysts, the adviser monitors a large list of companies, which have passed an
initial screening process. The adviser's investment objective is to identify
the point at which a good company is becoming a good investment, purchase the
stock at a fair value, and then to identify when that good investment period
is coming to an end. To achieve the objective of identifying good
investments, the adviser uses a disciplined equity selection process that is
built on a
19
<PAGE>
number of buying tests. To identify when a good investment period is changing,
the adviser uses disciplined selling tests. Capital protection is an integral
part of the adviser's investment management objective.
In managing fixed income portfolios, the adviser regularly assesses monetary
policy, inflation expectations, economic trends and capital market flows and
then establishes a duration target and maturity structure. Sector weightings
are determined by business cycle analysis, relative valuation and expected
interest rate volatility. The adviser also screens for mispriced securities
emphasizing both incremental yield and potential price performance. Before
any security is purchased, a thorough credit and fundamental analysis is done.
REPRESENTATIVE INSTITUTIONAL CLIENTS
As of the date of this SAI, the adviser's representative institutional clients
included Boeing, Honda of America and United Technologies.
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.
DISTRIBUTOR
- --------------------------------------------------------------------------------
UAMFDI serves as the Fund's distributor. The Fund offers its shares
continuously. While UAMFDI will use its best efforts to sell shares of the
Fund, it is not obligated to sell any particular amount of shares. UAMFDI
receives no compensation for its services, and any amounts it may receive
under a Service and Distribution Plan are passed through their entirety to
third parties. UAMFDI, an affiliate of UAM, is located at 211 Congress Street,
Boston, Massachusetts 02110.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Administrator
Pursuant to a Fund Administration Agreement with the Fund, UAMFSI manages,
administers and conducts the general business activities of the Fund. As a
part of its responsibilities, UAMFSI provides and oversees the provision by
various third parties of administrative, fund accounting, dividend disbursing
and transfer agent services for the Fund. UAMFSI, an affiliate of UAM, has its
principal office at 211 Congress Street, Boston, Massachusetts 02110.
UAMFSI will bear all expenses in connection with the performance of its
services under the Fund Administration Agreement. Other expenses to be
incurred in the operation of the Fund will be borne by the Fund or other
parties, including
. Taxes, interest, brokerage fees and commissions.
. Salaries and fees of officers and members of the Board who are not
officers, directors, shareholders or employees of an affiliate of UAM,
including UAMFSI, UAMFDI or the adviser.
. SEC fees and states Blue-Sky fees.
. EDGAR filing fees.
. Processing services and related fees.
. Advisory and administration fees.
. Charges and expenses of pricing and data services, independent public
accountants and custodians.
. Insurance premiums including fidelity bond premiums.
. Outside legal expenses.
. Costs of maintenance of corporate existence.
. Typesetting and printing of prospectuses for regulatory purposes and for
distribution to current shareholders of the Fund.
. Printing and production costs of shareholders' reports and corporate
meetings.
. Cost and expenses of Fund stationery and forms.
. Costs of special telephone and data lines and devices.
20
<PAGE>
. Trade association dues and expenses.
. Any extraordinary expenses and other customary Fund expenses.
Unless sooner terminated, the Fund Administration Agreement shall continue in
effect from year to year provided the board specifically approves such
continuance at least annually. The Board or UAMFSI may terminate the Fund
Administration Agreement, without penalty, on not less than ninety (90) days'
written notice. The Fund Administration Agreement shall automatically
terminate upon its assignment by UAMFSI without the prior written consent of
the Fund.
UAMFSI will from time to time employ or associate with such person or persons
as may be fit to assist them in the performance of the Fund Administration
Agreement. Such person or persons may be officers and employees who are
employed by both UAMFSI and the Fund. UAMFSI will pay such person or persons
for such employment. The Fund will not incur any obligations with respect to
such persons.
SUB-ADMINISTRATOR
UAMFSI has subcontracted some of the its administrative and fund accounting
services to CGFSC, an affiliate of The Chase Manhattan Bank, by a Mutual Funds
Service Agreement dated April 15, 1996. CGFSC is located at 73 Tremont Street,
Boston, Massachusetts 02108.
SUB-TRANSFER AGENT AND SUB-SHAREHOLDER SERVICING AGENT
UAMFSI has subcontracted its transfer agent and dividend-disbursing agent
services to DST Systems, Inc. under an Agency Agreement between UAMFSI and DST
Systems Inc. DST Systems, Inc., is located at P.O. Box 419534, Kansas City,
Missouri 64141-6534.
UAMSSC serves as sub-shareholder servicing agent for the Fund under an
agreement between UAMSSC and UAMFSI. The principal place of business of UAMSSC
is 825 Duportail Road, Wayne, Pennsylvania 19087.
ADMINISTRATIVE FEES
In exchange for administrative services, each portfolio pays a four-part fee
to UAMFSI as follows:
A. A portfolio specific fee to UAMFSI calculated from the aggregate net
assets of each portfolio at the following rates:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
ANNUAL RATE
--------------------------------------------------------------------------
<S> <C>
Strategic Balanced portfolio 0.06%
--------------------------------------------------------------------------
Growth portfolio 0.04%
--------------------------------------------------------------------------
Special Equity portfolio 0.04%
--------------------------------------------------------------------------
Equity portfolio 0.04%
</TABLE>
B. An annual base fee that UAMFSI pays to CGFSC for its sub-administration and
other services calculated at the annual of $52,500 for the first
operational class; $7,500 for each additional operational class; and 0.04%
of their pro rata share rate of combined assets of the UAM Funds.
C. An annual base fee that UAMFSI pays to DST Systems, Inc. for its services
as transfer agent and dividend-disbursing agent equal to $10,500 for the
first operational class and $10,500 for each additional class.
D. An annual base fee that UAMFSI pays to UAMSSC for its services as sub-
shareholder-servicing agent equal to $7,500 for the first operational class
and $2,500 for each additional class.
Each portfolio also pays certain account and transaction fees and out-of-
pocket expenses that may be based on the number of open and closed accounts,
the type of account or the services provided to the account.
CUSTODIAN
- --------------------------------------------------------------------------------
The Chase Manhattan Bank, 3 Chase MetroTech Center, Brooklyn, New York 11245,
provides for the custody of the Fund's assets pursuant to the terms of a
custodian agreement with the Fund.
INDEPENDENT PUBLIC ACCOUNTANT
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as independent accountants for the Fund.
21
<PAGE>
SERVICE AND DISTRIBUTION PLANS
- --------------------------------------------------------------------------------
The Fund has adopted a Distribution Plan and a Shareholder Servicing Plan (the
"Plans") for their Institutional Service Class Shares pursuant to Rule 12b-1
under the Investment Company Act of 1940.
SHAREHOLDER SERVICING PLAN
The Shareholder Servicing Plan (Service Plan) permits the Fund to compensate
broker-dealers or other financial institutions (Service Agents) that have
agreed with UAMFDI to provide administrative support services to Institutional
Service Class shareholders that are their customers. Under the Service Plan,
Institutional Service Class Shares may pay service fees at the maximum annual
rate of 0.25% of the average daily net asset value of such shares held by the
Service Agent for the benefit of its customers. The Fund pays these fees out
of the assets allocable to Institutional Service Class Shares to UAMFDI, to
the Service Agent directly or through UAMFDI. Each item for which a payment
may be made under the Service Plan constitutes personal service and/or
shareholder account maintenance and may constitute an expense of distributing
Fund Service Class Shares as the SEC construes such term under Rule 12b-1.
Services for which Institutional Service Class Shares may compensate Service
Agents include:
. Acting as the sole shareholder of record and nominee for beneficial owners.
. Maintaining account records for such beneficial owners of the Fund's
shares.
. Opening and closing accounts.
. Answering questions and handling correspondence from shareholders about
their accounts.
. Processing shareholder orders to purchase, redeem and exchange shares.
. Handling the transmission of funds representing the purchase price or
redemption proceeds.
. Issuing confirmations for transactions in the Fund's shares by
shareholders.
. Distributing current copies of prospectuses, statements of additional
information and shareholder reports.
. Assisting customers in completing application forms, selecting dividend and
other account options and opening any necessary custody accounts.
. Providing account maintenance and accounting support for all transactions.
. Performing such additional shareholder services as may be agreed upon by
the Fund and the Service Agent, provided that any such additional
shareholder services must constitute a permissible non-banking activity in
accordance with the then current regulations of, and interpretations
thereof by, the Board of Governors of the Federal Reserve System, if
applicable.
RULE 12B-1 DISTRIBUTION PLAN
The Distribution Plan permits a portfolio to pay UAMFDI or others for certain
distribution, promotional and related expenses involved in marketing its
Institutional Service Class Shares. Under the Distribution Plan, Institutional
Service Class Shares may pay distribution fees at the maximum annual rate of
0.75% of the average daily net asset value of such shares held by the Service
Agent for the benefit of its customers. These expenses include, among other
things:
. Advertising the availability of services and products.
. Designing materials to send to customers and developing methods of making
such materials accessible to customers.
. Providing information about the product needs of customers.
. Providing facilities to solicit Fund sales and to answer questions from
prospective and existing investors about the Fund.
. Receiving and answering correspondence from prospective investors,
including requests for sales literature, prospectuses and statements of
additional information.
. Displaying and making available sales literature and prospectuses.
. Acting as liaison between shareholders and the Fund, including obtaining
information from the Fund and providing performance and other information
about the Fund.
22
<PAGE>
In addition, the Service Class Shares may make payments directly to other
unaffiliated parties, who either aid in the distribution of their shares or
provide services to the Class.
FEES PAID UNDER THE SERVICE AND DISTRIBUTION PLANS
The Plans permit Institutional Service Class shares to pay distribution and
service fees at the maximum annual rate of 1.00% of the class' average daily
net assets for the year. The Fund's governing board has limited the amount
the Institutional Service Class may pay under the Plans to 0.25% of the class'
average daily net assets for the year, and may increase such amount to the
plan maximum at any time.
The Fund will not reimburse the Distributor or others for distribution
expenses incurred in excess of the amount permitted by the Plans.
Subject to seeking best price and execution, the Fund may buy or sell
portfolio securities through firms that receive payments under the Plans.
UAMFDI, at its own expense, may pay dealers for aid in distribution or for aid
in providing administrative services to shareholders.
APPROVING, AMENDING AND TERMINATING THE FUND'S DISTRIBUTION ARRANGEMENTS
Shareholders of each portfolio have approved the Plans. The Plans also were
approved by the governing board of the Fund, including a majority of the
members of the board who are not interested persons of the Fund and who have
no direct or indirect financial interest in the operation of the Plans (Plan
Members), by votes cast in person at meetings called for the purpose of voting
on these Plans.
CONTINUING THE PLANS
The Plans continue in effect from year to year so long as they are approved
annually by a majority of the Fund's board members and its Plan Members. To
continue the Plans, the board must determine whether such continuation is in
the best interest of the Institutional Service Class shareholders and that
there is a reasonable likelihood of the Plans providing a benefit to the
Class. The Fund's board has determined that the Fund's distribution
arrangements are likely to benefit the Fund and its shareholders by enhancing
the Fund's ability to efficiently service the accounts of its Institutional
Service Class shareholders.
AMENDING THE PLANS
A majority of the Fund's governing board and a majority of its the Plan
Members must approve any material amendment to the Plans. Likewise, any
amendment materially increasing the maximum percentage payable under the Plans
must be approved by a majority of the outstanding voting securities of the
Class, as well as by a majority of the Plan Members.
TERMINATING THE PLANS
A majority of the Plan Members or a majority of the outstanding voting
securities of the Class may terminate the Plans at any time without penalty.
In addition, the Plans will terminate automatically upon their assignment.
Miscellaneous
So long as the Plans are in effect, the non-interested board members will
select and nominate the Plan Members of the Fund.
The Fund and UAMFDI intend to comply with the Conduct Rules of the National
Association of Securities Dealers relating to investment company sales
charges. with these rules.
Pursuant to the Plans, the board reviews, at least quarterly, a written report
of the amounts expended under each agreement with Service Agents and the
purposes for which the expenditures were made.
ADDITIONAL NON-12B-1 SHAREHOLDER SERVICING ARRANGEMENTS
In addition to payments by the Fund under the Plans, UAM and any of its
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. The adviser may compensate its affiliated companies for
referring investors to the portfolios.
23
<PAGE>
BROKERAGE ALLOCATION AND OTHER PRACTICES
SELECTION OF BROKERS
- --------------------------------------------------------------------------------
The Advisory Agreements authorize the adviser to select the brokers or dealers
that will execute the purchases and sales of investment securities for a
portfolio. The Advisory Agreement also directs the adviser to use its best
efforts to obtain the best execution with respect to all transactions for a
portfolio. The adviser may select brokers based on research, statistical and
pricing services they provide to the adviser. Information and research
provided by a broker will be in addition to, and not instead of, the services
the adviser is required to perform under the Advisory Agreement. In so doing,
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. The adviser may place portfolio orders with
qualified broker-dealers who refer clients to the adviser.
SIMULTANEOUS TRANSACTIONS
- --------------------------------------------------------------------------------
The adviser makes investment decisions for a portfolio independently of
decisions made for its other clients. When a security is suitable for the
investment objective of more than one client, it may be prudent for the
adviser to engage in a simultaneous transaction, that is, buy or sell the same
security for more than one client. The adviser strives to allocate such
transactions among its clients, including the portfolios, in a fair and
reasonable manner. Although there is no specified formula for allocating such
transactions, the Fund's governing board periodically reviews the various
allocation methods used by the adviser, and the results of such allocations.
BROKERAGE COMMISSIONS
- --------------------------------------------------------------------------------
EQUITY SECURITIES
Generally, equity securities are bought and sold through brokerage
transactions for which commissions are payable. Purchases from underwriters
will include the underwriting commission or concession, and purchases from
dealers serving as market makers will include a dealer's mark-up or reflect a
dealer's mark-down.
DEBT SECURITIES
Debt securities are usually bought and sold directly from the issuer or an
underwriter or market maker for the securities. Generally, each Fund will not
pay brokerage commissions for such purchases. When a debt security is bought
from an underwriter, the purchase price will usually include an underwriting
commission or concession. The purchase price for securities bought from
dealers serving as market makers will similarly include the dealer's mark up
or reflect a dealer's mark down. When a portfolio executes transactions in
the over-the-counter market, it will deal with primary market makers unless
prices that are more favorable are otherwise obtainable.
CAPITAL STOCK AND OTHER SECURITIES
DESCRIPTION OF SHARES AND VOTING RIGHTS
- --------------------------------------------------------------------------------
The Fund's Articles of Incorporation, as amended, permit its governing board
to issue three billion shares of common stock, with a $.001 par value. The
governing board has the power to create and designate one or more series
(portfolios) or classes of shares of common stock and to classify or
reclassify any unissued shares at any time and without shareholder approval.
When issued and paid for, the shares of each series and class of the Fund are
fully paid and nonassessable, and have no pre-emptive rights or preference as
to conversion, exchange, dividends, retirement or other features.
The shares of each series and class have non-cumulative voting rights, which
means that the holders of more than 50% of the shares voting for the election
of members of the governing board can elect all of the members if they choose
to do so. On each matter submitted to a vote of the shareholders, 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. Shares of all classes will vote together as a single class except
when otherwise required by law or as determined by the members of the Fund's
governing board.
24
<PAGE>
If the Fund is liquidated, the shareholders of each portfolio or any class
thereof are entitled to receive the net assets belonging to that portfolio, or
in the case of a class, belonging to that portfolio and allocable to that
class. The Fund will distribute is net assets to its shareholders in
proportion to the number of shares of that portfolio or class thereof held by
them and recorded on the books of the Fund. The liquidation of any portfolio
or class thereof may be authorized at any time by vote of a majority of the
members of the governing board.
The governing board has authorized three classes of shares, Institutional,
Institutional Service and Adviser. The three classes represent interests in
the same assets of a portfolio and, except as discussed below, are identical
in all respects. Unlike Institutional and Adviser Class Shares, Institutional
Service Class Shares bear certain expenses related to shareholder servicing
and the distribution of such shares and have exclusive voting rights with
respect to matters relating to such distribution expenditures. The Adviser
Class Shares impose a sales load on purchases. The classes also have
different exchange privileges. The net income attributable to Institutional
Service Class Shares and the dividends payable on Institutional Service Class
Shares will be reduced by the amount of the shareholder servicing and
distribution fees; accordingly, the net asset value of the Institutional
Service Class Shares will be reduced by such amount to the extent a portfolio
has undistributed net income.
The Fund will not hold annual meetings except when required to by the
Investment Company Act of 1940, as amended, or other applicable law.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund tries to distribute substantially all of the net investment income of
a portfolio and net realized capital gains so as to avoid income taxes on its
dividends and distributions and the imposition of the federal excise tax on
undistributed income and capital gains. However, the Fund cannot predict the
time or amount of any such dividends or distributions.
Distributions by a portfolio reduce its net asset value ("NAV"). A
distribution that reduces the NAV of a portfolio below its cost basis is
taxable as described in the prospectus of the portfolios, although from an
investment standpoint, it is a return of capital. If you buy shares of a
portfolio on or before the "record date" -- the date that establishes which
shareholders will receive an upcoming distribution -- for a distribution, you
will receive some of the money you invested as a taxable distribution.
Unless the shareholder elects otherwise in writing, all dividend and capital
gains distributions are automatically received in additional shares of a
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 will be treated as a separate entity (and hence as a separate
"regulated investment company") for federal tax purposes. Each portfolio will
distribute its net capital gains to its investors, but will not offset (for
federal income tax purposes) such gains against any net capital losses of
another portfolio.
PURCHASE REDEMPTION AND PRICING OF SHARES
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
Service Agents may enter confirmed purchase orders on behalf of their
customers. If shares of a Portfolio are purchased in this manner, the Service
Agent must receive your investment order before the close of trading on the
New York Stock Exchange ("NYSE") and transmit it to UAMSSC before the close of
its business day to receive that day's share price. UAMSSC must receive proper
payment for the order by the time the portfolio is priced on the following
business day. Service Agents are responsible to their customers and the Fund
for timely transmission of all subscription and redemption requests,
investment information, documentation and money.
Purchases of shares of a Portfolio will be made in full and fractional shares
of the Portfolio calculated to three decimal places. Certificates for
fractional shares will not be issued. Certificates for whole shares will not
be issued except at the written request of the shareholder.
The Fund reserves the right in its sole discretion 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.
25
<PAGE>
IN-KIND PURCHASES
If accepted by the Fund, shareholders may purchase shares of a portfolio in
exchange for securities that are eligible for acquisition by the portfolio.
Securities to be exchanged that are accepted by the Fund will be valued as
described under "VALUATION OF SHARES" at the next determination of net asset
value after 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 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:
. At the time of exchange, such securities are eligible to be included in the
portfolio (current market quotations must be readily available for such
securities).
. The investor represents and agrees that all securities offered to be
exchanged are liquid securities and not subject to any restrictions upon
their sale by the Portfolio under the Securities Act of 1933, or otherwise.
. The value of any such securities (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.
Investors who are subject to Federal taxation upon exchange may realize a gain
or loss for Federal income tax purposes depending upon the cost of securities
or local currency exchanged. Investors interested in such exchanges should
contact the adviser.
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
When you redeem, your shares may be worth more or less than the price you paid
for them depending on the market value of the investments held by the
portfolio.
BY MAIL
Requests to redeem shares must include:
. Share certificates, if issued.
. A letter of instruction or an 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.
. Any required signature guarantees (see "SIGNATURE GUARANTEES").
. Any other necessary legal documents, if required, in the case of estates,
trusts, guardianships, custodianships, corporations, pension and profit
sharing plans and other organizations.
BY TELEPHONE
The following tasks cannot be accomplished by telephone:
. Changing the name of the commercial bank or the account designated to
receive redemption proceeds (this can be accomplished only by a written
request signed by each shareholder, with each signature guaranteed).
. Redemption of certificated shares by telephone.
The Fund and its Sub-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, as well as 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. The Fund or Sub-Transfer Agent may
be liable for any losses due to unauthorized or fraudulent telephone
instructions if the Fund or the Sub-Transfer Agent does not employ the
procedures described above. Neither the Fund nor the Sub-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.
26
<PAGE>
REDEMPTIONS-IN-KIND
If the governing board determines that it would be detrimental to the best
interests of remaining shareholders of the Fund to make payment wholly or
partly in cash, the Fund may pay redemption proceeds in whole or in part by a
distribution in-kind of liquid securities held by a Portfolio in lieu of cash
in conformity with applicable rules of the SEC. Investors may incur brokerage
charges on the sale of portfolio securities received in payment of
redemptions.
However, the Fund has made an election with the SEC 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 SEC. 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 governing board believes 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 under "Valuation of Shares'. A redeeming shareholder
would normally incur brokerage expenses if these securities were converted to
cash.
SIGNATURE GUARANTEES
To protect your account, the Fund and its sub-transfer agent 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
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 that 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.
OTHER REDEMPTION INFORMATION
Normally, the Fund will pay for all shares redeemed under proper procedures
within one business day of and no more than seven days after the receipt of
the request, or earlier if required under applicable law. 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 determined by
the SEC.
The Fund may suspend redemption privileges or postpone the date of payment
. During any period that both the NYSE and custodian bank are closed, or
trading on the NYSE is restricted as determined by the Commission.
. 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.
. For such other periods as the Commission may permit.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
The exchange privilege is only available with respect to portfolios that are
qualified for sale in the shareholder's state of residence. Exchanges are
based on the respective net asset values of the shares involved. The
Institutional Class and Institutional Service Class Shares of UAM Funds do not
charge a sales commission or charge of any kind.
Neither the Fund nor any of its service providers will be responsible for the
authenticity of the exchange instructions received by telephone. The governing
board of the Fund may restrict the exchange privilege at any time. Such
instructions may include limiting the amount or frequency of exchanges and may
be for the purpose of assuring such exchanges do not disadvantage the Fund and
its shareholders.
27
<PAGE>
TRANSFER OF SHARES
- --------------------------------------------------------------------------------
Shareholders may transfer shares of each portfolio to another person by making
a written request to the Fund. Your request should clearly identify the
account and number of shares you wish to transfer. All registered owners
should sign the request 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
"Signature Guarantees". As in the case of redemptions, the written request
must be received in good order before any transfer can be made.
VALUATION OF SHARES
- --------------------------------------------------------------------------------
The Fund does not price its shares on those days when the New York Stock
Exchange is closed, which are currently: New Year's Day; Dr. Martin Luther
King, Jr. Day; Presidents' Day; Good Friday; Memorial Day; Independence Day;
Labor Day; Thanksgiving Day; and Christmas Day.
EQUITY SECURITIES
Equity securities listed on a securities exchange for which market quotations
are readily available are valued at the last quoted sale price of the day.
Price information on listed securities is taken from the exchange where the
security is primarily traded. Unlisted equity securities and listed
securities not traded on the valuation date for which market quotations are
readily available are valued neither exceeding the asked prices nor less than
the bid prices. Quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents. The converted value is based upon the
bid price of the foreign currency against U.S. dollars quoted by any major
bank or by a broker.
DEBT SECURITIES
Debt securities are valued according to the broadest and most representative
market, which will ordinarily be the over-the-counter market. Debt securities
may be valued based on prices provided by a pricing service when such prices
are believed to reflect the fair market value of such securities. Securities
purchased with remaining maturities of 60 days or less are valued at amortized
cost when the Board of Directors determines that amortized cost reflects fair
value.
OTHER ASSETS
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 governing board.
PERFORMANCE CALCULATIONS
The portfolios measure performance by calculating yield and total return. Both
yield and total return figures are based on historical earnings and are not
intended to indicate future performance. Performance quotations by investment
companies are subject to rules adopted by the SEC, 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 SEC.
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 SEC. An explanation of the method used to compute or express
performance follows.
Performance is calculated separately for Institutional Class and Service Class
Shares. Dividends paid by a Portfolio with respect to Institutional Class and
Service Class Shares, to the extent any dividends are paid, will be calculated
in the same manner at the same time on the same day and will be in the same
amount, except that service fees, distribution charges and any incremental
transfer agency costs relating to Service Class Shares will be borne
exclusively by that class.
TOTAL RETURN
- --------------------------------------------------------------------------------
Total return is the change in value of an investment in a portfolio over a
given period, assuming reinvestment of any dividends and capital gains. A
cumulative or aggregate total return reflects actual performance over a stated
period of time. An average annual total return is a hypothetical rate of
return that, if achieved annually, would have produced the same cumulative
total return if performance had been constant over the entire period.
The average annual total return of a 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
28
<PAGE>
assumes that all dividends and distributions are reinvested when paid. The
quotation assumes the amount was completely redeemed at the end of each one,
five and ten-year period and the deduction of all applicable Fund expenses on
an annual basis. Since Institutional Service Class Shares bear additional
service and distribution expenses, their average annual total return will
generally be lower than that of the Institutional Class Shares.
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).
The average annual total rates of return of the Institutional and Service
Classes of the Portfolios are as follows:
<TABLE>
<CAPTION>
SINCE INCEPTION
ONE YEAR ENDED FIVE YEARS ENDED THROUGH YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1998 OCTOBER 31, 1998 INCEPTION DATE
<S> <C> <C> <C> <C>
Sirach Growth Portfolio
Institutional Class Shares 12/1/93
-------------------------------------------------------------------------------------------------------------------
Institutional Service Class Shares 3/22/97
-------------------------------------------------------------------------------------------------------------------
Sirach Special Equity Portfolio
Institutional Class Shares 10/2/89
-------------------------------------------------------------------------------------------------------------------
Institutional Service Class Shares 3/22/96
-------------------------------------------------------------------------------------------------------------------
Sirach Strategic Balanced Portfolio
Institutional Class Shares 12/1/93
-------------------------------------------------------------------------------------------------------------------
Institutional Service Class Shares 3/7/97
-------------------------------------------------------------------------------------------------------------------
Sirach Equity Portfolio
Institutional Class Shares 7/1/96
-------------------------------------------------------------------------------------------------------------------
Institutional Service Class Shares
-------------------------------------------------------------------------------------------------------------------
</TABLE>
YIELD
- --------------------------------------------------------------------------------
Yield refers to the income generated by an investment in a portfolio over a
given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all funds. As this
differs from other accounting methods, the quoted yield may not equal the
income actually paid to shareholders.
The 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. Since Institutional Service Class Shares bear additional service
and distribution expenses, their yield will generally be lower than that of
the Institutional Class Shares.
Yield is obtained using the following formula:
Yield = 2((a-b)/(cd)+1)/6/-1
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.
29
<PAGE>
COMPARISONS
- --------------------------------------------------------------------------------
The Portfolios' performance may be compared to data prepared by independent
services which monitor the performance of investment companies, data reported
in financial and industry publications, and various indices as further
described in the Portfolios' SAI. This information may also be included in
sales literature and advertising.
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. Please see APPENDIX B for publications, indices and averages that
may be used.
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 each portfolio, 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 each
portfolio to calculate its performance. In addition, there can be no assurance
that each portfolio will continue this performance as compared to such other
averages.
TAXES
In order for a portfolio to continue to qualify for federal income tax
treatment as a regulated investment company under the Internal Revenue Code of
1986, as amended, 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, as applicable.
Each portfolio will distribute to shareholders annually any net capital gains
that have been recognized for federal income tax purposes. Shareholders will
be advised on the nature of the payments.
If for any taxable year a portfolio does not qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code, all of
the portfolio's taxable income would be subject to tax at regular corporate
rates without any deduction for distributions to shareholders. In this event,
a portfolio's distributions to shareholders would be taxable as ordinary
income to the extent of the current and accumulated earnings and profits of
the particular portfolio, and would be eligible for the dividends received
deduction in the case of corporate shareholders. The portfolios intend to
qualify as a "regulated investment company" each year.
Dividends and interest received by each portfolio may give rise to withholding
and other taxes imposed by foreign countries. These taxes would reduce each
portfolio's dividends but are included in the taxable income reported on your
tax statement if each portfolio qualifies for this tax treatment and elects to
pass it through to you. Consult a tax adviser for more information regarding
deductions and credits for foreign taxes.
30
<PAGE>
EXPENSES
<TABLE>
<CAPTION>
INVESTMENT INVESTMENT SUB-
ADVISORY FEES ADVISORY FEES ADMINISTRATOR ADMINISTRATOR BROKERAGE
PAID WAIVED FEE (UAMFSI) FEE (CGFSC) COMMISSIONS
<S> <C> <C> <C> <C> <C>
Sirach Growth portfolio
1998
--------------------------------------------------------------------------------------------------------------------------------
1997 $ 981,338 $ 60,383 $149,705 $337,150
--------------------------------------------------------------------------------------------------------------------------------
1996 $ 793,566 $ 27,651 $131,653 $329,607
--------------------------------------------------------------------------------------------------------------------------------
Sirach Special Equity Portfolio
1998
--------------------------------------------------------------------------------------------------------------------------------
1997 $2,768,336 $158,197 $386,035 $489,884
--------------------------------------------------------------------------------------------------------------------------------
1996 $3,404,812 $105,982 $511,951 $651,694
--------------------------------------------------------------------------------------------------------------------------------
Sirach Strategic Balanced portfolio
1998
--------------------------------------------------------------------------------------------------------------------------------
1997 $ 550,068 $ 50,769 $104,773 $120,042
--------------------------------------------------------------------------------------------------------------------------------
1996 $ 578,683 $ 27,143 $106,746 $128,066
--------------------------------------------------------------------------------------------------------------------------------
Sirach Equity Portfolio
1998
--------------------------------------------------------------------------------------------------------------------------------
1997 $ 18,699 $ 6,234 $ 47,783 $ 41,994
--------------------------------------------------------------------------------------------------------------------------------
1996/*/ $ 0 $ 286 $ 9,168 $ 2,786
--------------------------------------------------------------------------------------------------------------------------------
Sirach Bond Portfolio
1998
1997
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*During the period from July 1, 1996 (initial offering) to October 31, 1996.
DISTRIBUTION AND SERVICE PLAN EXPENSES
PAID DURING FISCAL YEAR ENDED OCTOBER
31, 1998
Sirach Growth portfolio
- --------------------------------------------------------------------------------
Sirach Special Equity portfolio
- --------------------------------------------------------------------------------
Sirach Strategic Balanced portfolio
- --------------------------------------------------------------------------------
Sirach Equity portfolio
- --------------------------------------------------------------------------------
Sirach Bond portfolio
FINANCIAL STATEMENTS
The Financial Statements for each portfolio for the fiscal year ended October
31, 1998, the Financial Highlights for the respective periods presented, and
the report thereon by PricewaterhouseCoopers LLP, the Fund's independent
accountant, which appear in portfolio's 1998 Annual Report, are incorporated
by reference into this Statement of Additional Information. No other parts
are incorporated by reference herein. Copies of the 1998 Annual Report may be
obtained free of charge by telephoning the UAM Funds at the telephone number
appearing on the front page of this Statement of Additional Information.
31
<PAGE>
UAM FUNDS
PO BOX 419081
KANSAS CITY, MO 64141-6081
(TOLL FREE) 1-877-UAM-LINK (826-5465)
THE STERLING PARTNERS' PORTFOLIOS
STERLING PARTNERS' BALANCED PORTFOLIO
STERLING PARTNERS' EQUITY PORTFOLIO
STERLING PARTNERS' SMALL CAP VALUE PORTFOLIO
INSTITUTIONAL CLASS SHARES
INSTITUTIONAL SERVICE CLASS SHARES
STATEMENT OF ADDITIONAL INFORMATION
__________, 1999
This statement of additional information (SAI) is not a prospectus. However,
you should read it in conjunction with the Prospectus of The Sterling
Partners' Portfolios Institutional Class Shares dated _______, 1999 and the
Prospectus of The Sterling Partners' Portfolios Institutional Service Class
Shares dated _______, 1999. You may obtain a Prospectus for The Sterling
Partners' Portfolios by contacting the UAM Funds at the address listed above.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
DEFINITIONS......................................................... 1
THE FUND............................................................ 1
DESCRIPTION OF PORTFOLIOS AND THEIR INVESTMENTS AND RISKS........... 1
Equity Securities.................................................. 1
Debt Securities (Sterling Partners' Balanced Portfolio)........... 2
Derivatives........................................................ 6
Foreign Securities................................................. 10
Investment Companies............................................... 12
Repurchase Agreements.............................................. 12
Securities Lending................................................. 13
Short-Term Investments............................................. 13
When-Issued, Forward Commitment and Delayed Delivery Transactions.. 14
Restricted Securities.............................................. 14
INVESTMENT POLICIES................................................. 15
Fundamental Investment Policies of All Portfolios.................. 15
MANAGEMENT OF THE PORTFOLIOS........................................ 16
CODE OF ETHICS...................................................... 17
PRINCIPAL HOLDERS OF SECURITIES..................................... 17
INVESTMENT ADVISORY AND OTHER SERVICES.............................. 17
Investment adviser................................................. 17
Distributor........................................................ 18
Administrative Services............................................ 19
Custodian.......................................................... 20
Independent Public Accountant...................................... 20
Service And Distribution Plans..................................... 20
BROKERAGE ALLOCATION AND OTHER PRACTICES............................ 22
Selection of Brokers............................................... 22
Simultaneous Transactions.......................................... 22
Brokerage Commissions.............................................. 23
CAPITAL STOCK AND OTHER SECURITIES.................................. 23
Description Of Shares And Voting Rights............................ 23
Dividends and Capital Gains Distributions.......................... 24
PURCHASE REDEMPTION AND PRICING OF SHARES........................... 24
Purchase of Shares................................................. 24
Redemption of Shares............................................... 25
Exchange Privilege................................................. 26
Transfer Of Shares................................................. 26
Valuation of Shares................................................ 26
PERFORMANCE CALCULATIONS............................................ 27
Total Return....................................................... 27
Yield.............................................................. 28
Comparisons........................................................ 28
TAXES............................................................... 28
EXPENSES............................................................ 29
FINANCIAL STATEMENTS................................................ 29
</TABLE>
1
<PAGE>
DEFINITIONS
The "Fund" is UAM Funds, Inc.
The term "adviser" means Sterling Capital Management Inc., the Fund's
investment adviser.
UAM is United Asset Management Corporation.
UAMFSI is UAM Fund Services, Inc., the Fund's administrator.
UAMFDI is UAM Fund Distributors, Inc., the Fund's distributor.
UAMSSC is UAM Fund Shareholder Servicing Center, the Fund's sub-shareholder-
servicing agent.
CGFSC is Chase Global Funds Service Company, the Fund's sub-administrator.
UAM Funds Complex includes UAM Funds, Inc., UAM Funds Trust, UAM Funds Trust
II and all of their portfolios.
The term "portfolios" is used to refer to The Sterling Partners' Portfolios as
a group, while "portfolio" refers to a single Sterling Partners' Portfolio.
The terms "board" and "governing board" refer to the Fund's Board of Directors
as a group, while "board member" refers to a single member of the board.
All other defined terms, which are not otherwise defined in this SAI, have the
same meaning in the SAI as they do in the prospectus of The Sterling Partners'
Portfolios.
THE FUND
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 Fund changed its
name to "UAM Funds, Inc." The Fund's principal executive office is located at
One International Place, Boston, MA 02110; shareholders should direct all
correspondence to the address listed on the cover of this SAI.
The Fund is an open-end, management investment company under the Investment
Company Act of 1940. The Sterling Partners' Portfolios are diversified series
of the Fund. This means that with respect to 75% of its total assets, the
portfolio may not invest more than 5% of its total assets in the securities of
any one issuer (except U.S. government securities). The remaining 25% of its
total assets are not subject to this restriction. To the extent the portfolio
invests a significant portion of its assets in the securities of a particular
issuer, it will be subject to an increased risk of loss if the market value of
such issuer's securities declines.
DESCRIPTION OF PORTFOLIOS AND THEIR INVESTMENTS AND RISKS
EQUITY SECURITIES
- ------------------------------------------------------------------------------
Some of the portfolios may invest in equity securities such as common and
preferred stocks. While investing in stocks allows a portfolio to participate
in the benefits of owning a company, a portfolio must accept the risks of
ownership. Unlike bondholders, who have preference to a company's earnings
and cash flow, preferred stockholders followed by common stockholders in order
of priority, are entitled only to the residual amount after a company meets
its other obligations. For this reason, the value of a company's stock will
usually react more strongly to actual or perceived changes in the company's
financial condition or prospects than its debt obligations. Stockholders of a
company that fares poorly can lose money.
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 values 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
1
<PAGE>
value of a preferred stock than in a more senior debt security with similar
stated yield characteristics. Types of preferred stocks include adjustable-
rate preferred stock, fixed dividend preferred stock, perpetual preferred
stock, and sinking fund preferred stock.
STOCK MARKET RISK
Stock markets tend to move in cycles with short or extended periods of rising
and falling stock prices. The value of a company's stock may fall because of:
. Factors that directly relate to that company, such as decisions made by its
management or lower demand for the company's products or services.
. Factors affecting an entire industry, such as increases in production
costs.
. Changes in financial market conditions that are relatively unrelated to the
company or its industry, such as changes in interest rates, currency
exchange rates or inflation rates.
RIGHTS AND WARRANTS
A portfolio may purchase warrants and rights, which are securities permitting,
but not obligating, their holder to purchase the underlying securities at a
predetermined price. Generally, warrants and stock purchase rights do not
carry with them the right to receive dividends or exercise voting rights with
respect to the underlying securities, and they do not represent any rights in
the assets of the issuer. Therefore, an investment in warrants and rights may
entail greater risk than certain other types of investments. In addition, the
value of warrants and rights does not necessarily change with the value of the
underlying securities, and they cease to have value if they are not exercised
on or prior to their expiration date. Investment in warrants and rights
increases the potential profit or loss to be realized from the investment of a
given amount of a portfolio's assets as compared with investing the same
amount in the underlying stock.
CONVERTIBLE SECURITIES
A portfolio may purchase corporate bonds, debentures and preferred stock that
are convertible into common stock. In exchange for the conversion feature,
many corporations will pay a lower rate of interest on convertible securities
than debt securities of the same corporation.
Convertible corporate bonds, debentures and preferred stock are subject to the
same risks as similar securities without the convertible feature. In
addition, their market price tends to go up if the stock price moves up. For
this reason, convertible securities are more volatile in price during times of
steady interest rates than other types of fixed income securities.
DEBT SECURITIES (STERLING PARTNERS' BALANCED PORTFOLIO)
- --------------------------------------------------------------------------------
Debt securities are used by corporations and governments to borrow money from
investors. Most debt securities promise a variable or fixed rate of return
and repayment of the amount borrowed at maturity. Some debt securities,
such as zero-coupon bonds, do not pay current interest and are purchased at
a discount from their face value. Debt securities may include, among other
things, all types of bills, notes, bonds, mortgage-backed securities or
asset-backed securities.
The total return of a debt instrument is composed of two elements: the
percentage change in the security's price and interest income earned. The
YIELD TO MATURITY of a debt security estimates its total return only if the
price of the debt security remains unchanged during the holding period and
coupon interest is reinvested at the same yield to maturity. The total
return of a debt instrument, therefore, will be determined not only by how
much interest is earned, but also by how much the price of the security and
interest rates change.
INTEREST RATES
The price of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up, the value of the bond will go
down, and vice versa). One can estimate the anticipated change in the price of
a fixed rate security for each 1% shift in interest rates by using a risk
measure known as EFFECTIVE DURATION. An effective duration of 4 years, for
example, would suggest that for each 1% reduction in interest rates at all
maturity levels, the price of a security is estimated to increase by 4%. An
increase in rates by the same magnitude is estimated to reduce the price of
the security by 4%. By knowing the yield and the effective duration of a debt
security, one can estimate total return based on an expectation of how much
interest rates, in general, will change.
While serving as a good estimator of prospective returns, effective duration
is an imperfect measure. While lower interest rates generally improve the
value of a fixed income portfolio, lower interest rates may also introduce
certain risks which may
2
<PAGE>
independently cause the share price of the portfolio to fall. Lower rates
motivate people to pay off mortgage-backed and asset-backed securities earlier
than expected, which introduces REINVESTMENT RISK. Reinvesting portfolio
assets at lower rates may reduce the yield of the portfolio. The unexpected
timing of mortgage and asset-backed prepayments caused by the variations in
interest rates may also shorten or lengthen the AVERAGE MATURITY of the
portfolio. Neglecting this drift in average maturity may have the unintended
effect of increasing or reducing the effective duration of the portfolio which
may in turn adversely affect the expected performance of the portfolio.
CREDIT RATING
Coupon interest is offered to investors of fixed income securities as
compensation for assuming risk, although short-term U.S. treasury securities,
such as 3 month treasury bills, are considered "risk free." Corporate
securities offer higher yields than U.S. treasuries because their payment of
interest and complete repayment of principal is less certain. The credit
rating or financial condition of an issuer may affect the value of a debt
security. Generally, the lower the quality rating of a security, the greater
the risks that the issuer will fail to pay interest and return principal. To
compensate investors for taking on increased risk, issuers with lower credit
ratings usually offer their investors a higher "risk premium" in the form of
higher interest rates above comparable U.S. treasuries.
Changes in investor confidence regarding the certainty of interest and
principal payments of a fixed income corporate security will result in an
adjustment to this "risk premium." Since an issuer's outstanding debt carries
a fixed coupon, adjustments to the risk premium must occur in the price, which
effects the yield to maturity of the bond. If an issuer defaults or becomes
unable to honor its financial obligations, the bond may lose some or all of
its value
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade. The adviser may retain securities that are downgraded, if
it believes that keeping those securities is warranted.
Rating agencies are organizations that assign ratings to securities based
primarily on the rating agency's assessment of the issuer's financial
strength. The portfolios currently use ratings compiled by Standard and
Poor's Ratings Services, Duff & Phelps Rating Co., Fitch IBCA, Inc. and,
Moody's Investor Services. Credit ratings are only an agency's opinion, not an
absolute standard of quality, and they do not reflect an evaluation of market
risk. APPENDIX A contains further information concerning the ratings of
certain rating agencies and their significance.
The adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time a portfolio buys it. A rating
agency may change its credit ratings at any time. The adviser monitors the
rating of the security and will take appropriate actions if a rating agency
reduces the security's rating. A portfolio is not obligated to dispose of
securities whose issuers subsequently are in default or which are downgraded
below the above-stated ratings
INVESTMENT-GRADE FIXED-INCOME SECURITIES
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade.
U.S. GOVERNMENT SECURITIES
For a discussion of these securities see "SHORT-TERM INVESTMENTS - GOVERNMENT
SECURITIES", below.
CORPORATE BONDS
For a discussion of these securities see "SHORT-TERM INVESTMENTS - CORPORATE
BONDS," below.
MORTGAGE-BACKED SECURITIES AND MORTGAGE PASS-THROUGH SECURITIES
Mortgage-backed securities are interests in pools of mortgage loans that
various governmental, government-related and private organizations assemble as
securities for sale to investors. Mortgage-backed securities differ from other
forms of debt securities because they make monthly payments that consist of
both interest and principal payments. (Other debt securities normally provide
for periodic payment of interest in fixed amounts with principal payments at
maturity or specified call dates.) In effect, these payments are a "pass-
through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of such
securities.
3
<PAGE>
Governmental entities, private insurers and the mortgage poolers may insure or
guaranty the timely payment of interest and principal of these pools through
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance and letters of credit issue the insurance and
guarantees. The adviser will consider such insurance and guarantees and the
creditworthiness of the issuers thereof in determining whether a mortgage-
related security meets its investment quality standards. It is possible that
the private insurers or guarantors will not meet their obligations under the
insurance policies or guarantee arrangements.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA)
GNMA, a wholly owned U.S. government corporation within the Department of
Housing and Urban Development, is the principal governmental guarantor of
mortgage-related securities. GNMA, which is backed by the faith and credit of
the U.S. government, guarantees the timely payment of principal and interest
on securities issued by institutions approved by GNMA and backed by pools of
FHA-insured or VA-guaranteed mortgages. GNMA does not guarantee the market
value or yield of mortgage-backed securities or the value of portfolio shares.
To buy GNMA securities, a portfolio may have to pay a premium over the
maturity value of the underlying mortgages, which the portfolio may lose if
prepayment occurs.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)
FNMA is a government-sponsored corporation owned entirely by private
stockholders. FNMA, which is regulated by the Secretary of Housing and Urban
development, purchases conventional mortgages from a list of approved
seller/servicers, including 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, but are not backed by the
full faith and credit of the U.S. government.
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC)
FHLMC is a corporate instrumentality of the U.S. government whose stock is
owned by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970
to increase the availability of mortgage credit for residential housing. FHLMC
issues Participation Certificates (PCs) which represent interests in
conventional mortgages from its national portfolio. Like FNMA, FHLMC
guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the U.S.
government.
COMMERCIAL BANKS, SAVINGS AND LOAN INSTITUTIONS, PRIVATE MORTGAGE INSURANCE
COMPANIES, MORTGAGE BANKERS AND OTHER SECONDARY MARKET ISSUERS
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. In addition to
guaranteeing the mortgage-related security, such issuers may service and/or
have originated the underlying mortgage loans. Pools created by these issuers
generally offer a higher rate of interest than pools created by GNMA, FNMA &
FHLMC because they are not guaranteed by a government agency.
RISK OF INVESTING IN MORTGAGE-BACKED SECURITIES
Yield characteristics of mortgage-backed securities differ from those of
traditional fixed income securities. The major differences include interest
and principal payments that are more frequent (usually monthly), adjustable
interest rates, and the possibility that prepayments of principal may be made
substantially earlier than their final distribution dates so that the price of
the security will generally decline when interest rates rise.
The portfolio may fail to recover fully its investment in mortgage-backed
securities notwithstanding any direct or indirect governmental, agency or
other guarantee because the counter-party failed to meet its commitments.
Changes in interest rates and a variety of economic, geographic, social and
other factors, such as the sale of the underlying property, refinancing or
foreclosure, can cause the loans underlying a mortgage-backed security to be
repaid sooner than expected. If the prepayment rates increase, a portfolio may
have to reinvest its principal at a rate of interest that is lower than the
rate on existing mortgage-backed securities. Conversely, when interest rates
are rising many mortgage-backed securities will see a decline in the
prepayment rate, extending their average life. Extending the average life of a
mortgage-backed security increases
4
<PAGE>
the risk of depreciation due to future increases in market interest rates. For
these reasons, mortgage-backed securities may be less effective than other
types of U.S. government securities as a means of "locking in" interest rates.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs)
CMOs are hybrids between mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, CMOs usually pay interest and prepaid principal
semiannually. While whole mortgage loans may collateralize CMOs, portfolios of
mortgage-backed securities guaranteed by GNMA, FHLMC, or FNMA, and their
income streams more typically collateralize them.
A REMIC is a CMO that qualifies for special tax treatment under the Internal
Revenue Code of 1986, as amended, and invests in certain mortgages primarily
secured by interests in real property and other permitted investments.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC certificate, often referred to as a
"tranche," is issued at a specific interest rate and must be fully retired by
its final distribution date. Generally, all classes of CMOs or REMIC
certificates pay or accrue interest monthly. Investing in the lowest tranche
of CMOs and REMIC certificates involves risks similar to those associated with
investing in equity securities.
OTHER ASSET-BACKED SECURITIES
A broad range of assets, including automobile loans, computer leases and
credit card receivables, are being securitized in pass-through structures
similar to the mortgage pass-through or CMO structures described above. In
general, the collateral supporting these securities is of shorter maturity
than mortgage loans and is less likely to experience substantial prepayments
with interest rate fluctuations.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the
benefit of any security interest in the related assets, which raises the
possibility that recoveries on repossessed collateral may not be available to
support payments on these securities. For example, credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which allow debtors
to reduce their balances by offsetting certain amounts owed on the credit
cards. Most issuers of asset-backed securities backed by automobile
receivables permit the servicers of such receivables to retain possession of
the underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the rated asset-backed securities. Because
of the large number of vehicles involved and technical requirements under
state laws, the trustee for the holders of asset-backed securities backed by
automobile receivables may not have a proper security interest in all of the
obligations backing such receivables.
To lessen the effect of failures by obligors on underlying assets to make
payments, the entity administering the pool of assets may agree to ensure the
receipt of payments on the underlying pool occurs in a timely fashion
("liquidity protection"). In addition, asset-backed securities may obtain
insurance, such as guarantees, policies or letters of credit obtained by the
issuer or sponsor from third parties, for some or all of the assets in the
pool ("credit support"). Delinquency or loss more than that anticipated or
failure of the credit support could adversely affect the return on an
investment in such a security.
A portfolio may also invest in residual interests in asset-backed securities,
which is the excess cash flow remaining after making required payments on the
securities and paying related administrative expenses. The amount of residual
cash flow resulting from a particular issue of asset-backed securities depends
in part on the characteristics of the underlying assets, the coupon rates on
the securities, prevailing interest rates, the amount of administrative
expenses and the actual prepayment experience on the underlying assets.
STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities are derivative multiple-class mortgage-
backed securities. Stripped mortgage-backed securities usually have two
classes that receive different proportions of interest and principal
distributions on a pool of mortgage assets. Typically, one class will receive
some of the interest and most of the principal, while the other class will
receive most of the interest and the remaining principal. In extreme cases,
one class will receive all of the interest ("interest only" or "IO" class)
while the other class will receive the entire principal (the "principal only"
or "PO" class). The cash flows and yields on IOs and POs are extremely
sensitive to the rate of principal payments (including prepayments) on the
underlying mortgage loans or mortgage-backed securities. A rapid rate of
principal payments may adversely affect the yield to maturity of IOs. Slower
than anticipated prepayments of principal may adversely affect the yield to
maturity of a PO. The yields and market risk of interest only and principal
only stripped mortgage-backed securities, respectively, may be more volatile
than those of other fixed income securities, including traditional mortgage-
backed securities.
5
<PAGE>
ZERO COUPON BONDS
These securities make no periodic payments of interest, but instead are sold
at a discount from their face value. When held to maturity, their entire
income, which consists of accretion of discount, comes from the difference
between the issue price and their value at maturity. The amount of the
discount rate varies depending on factors including the time remaining until
maturity, prevailing interest rates, the security's liquidity and the issuer's
credit quality. The market value of zero coupon securities may exhibit greater
price volatility than ordinary debt securities because a stripped security
will have a longer duration than an ordinary debt security with the same
maturity. A portfolio's investments in pay-in-kind, delayed and zero coupon
bonds may require it to sell certain of its portfolio securities to generate
sufficient cash to satisfy certain income distribution requirements.
These securities may include U.S. Treasury securities that have had their
interest payments ("coupons") separated from the underlying principal
("corpus") by their holder, typically a custodian bank or investment brokerage
firm. Once the holder of the security has stripped or separated corpus and
coupons, it may sell each component separately. The principal or corpus is
then sold at a deep discount because the buyer receives only the right to
receive a future fixed payment on the security and does not receive any rights
to periodic interest (cash) payments. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold
bundled in such form. The underlying U.S. Treasury security is held in book-
entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. Under a Federal Reserve program
known as "STRIPS" or "Separate Trading of Registered Interest and Principal of
Securities," a portfolio can record its beneficial ownership of the coupon or
corpus directly in the book-entry record-keeping system.
DERIVATIVES
- --------------------------------------------------------------------------------
Derivatives are financial instruments whose value is based on an underlying
asset, such as a stock or a bond, or an underlying economic factor, such as
an interest rate or an index. A portfolio tries to minimize its loss by
investing in derivatives to protect them from broad fluctuations in market
prices, interest rates or foreign currency exchange rates. Investing in
derivatives for these purposes is known as "hedging." When hedging is
successful, the portfolio will have offset any depreciation in the value of
its portfolio securities by the appreciation in the value of the derivative
position. Although techniques other than the sale and purchase of derivatives
could be used to control the exposure of the portfolio to market
fluctuations, the use of derivatives may be a more effective means of hedging
this exposure.
FUTURES
A futures contract is an agreement between two parties whereby one party is
obligated to buy and the other is obligated to sell a financial instrument at
an agreed upon price and time. The parties to a futures contract do not have
to pay for or deliver the underlying financial instrument until the delivery
date. The parties to a futures contract can hold the contract until its
delivery date, although in many cases they close the contract early by taking
an opposite position in an identical contract. The financial instrument
underlying the contract may be a stock, stock index, bond, bond index,
interest rate, foreign exchange rate or other similar instrument. A portfolio
will incur commission expenses in both opening and closing futures positions.
Each portfolio may invest in stock futures and options, and Sterling Partners'
Balanced Portfolio may invest in bond futures, interest rate futures contracts
and options.
Futures contracts are traded in the United States on commodity exchanges or
boards of trade -- known as "contract markets" -- approved for such trading
and regulated by the Commodity Futures Trading Commission, a federal agency.
These contract markets standardize the terms, including the maturity date and
underlying financial instrument, of all futures contracts. Contract markets
require both the purchaser and seller to deposit "initial margin" with a
futures broker, known as a futures commission merchant, when they enter into
the contract. Initial margin deposits are typically equal to a percentage of
the contract's value. After they open a futures contract, the parties to the
transaction must compare the purchase price of the contract to its daily
market value. If the value of the futures contract changes in such a way that
a party's position declines, that party must make additional "variation
margin" payments so that the margin payment is adequate. On the other hand,
the value of the contract may change in such a way that there is excess margin
on deposit, possibly entitling the party that has a gain to receive all or a
portion of this amount.
A portfolio may take a "short position" by selling futures contracts on
securities it owns or on securities with characteristics similar to those of
securities it owns. For example, when a portfolio expects interest rates to
rise or securities prices to fall, it can seek to offset a decline in the
value of its holdings by selling futures contracts so that a portfolio is
obligated to sell the securities
6
<PAGE>
at a future lower price. When a portfolio's short hedging position is
successful, the appreciation in the value of the futures position will offset
substantially any depreciation in the value of the holdings of the portfolio.
On the other hand, a decline in the value of the futures position would offset
any unanticipated appreciation in the value of the holdings of the portfolio.
On other occasions, a portfolio may take a "long" position by purchasing
futures contracts. For example, when a portfolio expects interest rates to
fall or securities' prices to rise, it can seek to secure a better rate or
price than might later be available by purchasing a futures contract. A
portfolio may also buy futures contracts as a substitute for transactions in
securities, to alter the investment characteristics of portfolio securities or
to gain or increase its exposure to a particular securities market.
OPTIONS
An option is a contract between two parties for the purchase and sale of a
financial instrument for a specified price (known as the "strike price" or
"exercise price") at any time during the option period. Unlike a futures
contract, an option grants a right (not an obligation) to buy or sell a
financial instrument. Generally, a seller of an option can grant a buyer two
kinds of rights: a "call" (the right to buy the security) or a "put" (the
right to sell the security). Options have various types of underlying
instruments, including specific securities, indices of securities prices,
foreign currencies, interest rates and futures contracts. Options may be
traded on an exchange (exchange-traded-options) or may be customized
agreements between the parties (over-the-counter or OTC options). Like
futures, a financial intermediary, known as a clearing corporation,
financially backs exchange-traded options. However, OTC options have no such
intermediary and are subject to the risk that the counter-party will not
fulfill its obligations under the contract.
PURCHASING PUT AND CALL OPTIONS
When a portfolio purchases a put option, it buys the right to sell the
instrument underlying the option at a fixed strike price. In return for this
right, the portfolio pays the current market price for the option (known as
the "option premium"). A portfolio may purchase put options to offset or hedge
against a decline in the market value of its securities ("protective puts") or
to benefit from a decline in the price of securities that it does not own.
The portfolio would ordinarily realize a gain if, during the option period,
the value of the underlying securities decreased below the exercise price
sufficiently to cover the premium and transaction costs. However, if the price
of the underlying instrument does not fall enough to offset the cost of
purchasing the option, a put buyer would lose the premium and related
transaction costs.
Call options are similar to put options, except that the portfolio obtains the
right to purchase, rather than sell, the underlying instrument at the option's
strike price. A portfolio would normally purchase call options in anticipation
of an increase in the market value of securities it owns or wants to buy. A
portfolio would ordinarily realize a gain if, during the option period, the
value of the underlying instrument exceeded the exercise price plus the
premium paid and related transaction costs. Otherwise, the portfolio would
realize either no gain or a loss on the purchase of the call option.
The purchaser of an option may terminate its position by:
. Allowing it to expire and losing its entire premium;
. Exercising the option and either selling (in the case of a put option) or
buying (in the case of a call option) the underlying instrument at the
strike price; or
. Closing it out in the secondary market at its current price.
SELLING (WRITING) PUT AND CALL OPTIONS
When a portfolio writes a call option it assumes an obligation to sell
specified securities to the holder of the option at a specified price if the
option is exercised at any time before the expiration date. Similarly, when a
portfolio writes a put option it assumes an obligation to purchase specified
securities from the option holder at a specified price if the option is
exercised at any time before the expiration date. A portfolio may terminate
its position in an exchange-traded put option before exercise by buying an
option identical to the one it has written. Similarly, it may cancel an over-
the-counter option by entering into an offsetting transaction with the
counter-party to the option.
A portfolio could try to hedge against an increase in the value of securities
it would like to acquire by writing a put option on those securities. If
security prices rise, the portfolio would expect the put option to expire and
the premium it received to offset the increase in the security's value. If
security prices remain the same over time, the portfolio would hope to profit
by closing out the put option at a lower price. If security prices fall, the
portfolio may lose an amount of money equal to the difference between the
value of the security and the premium it received. Writing covered put options
may deprive a portfolio of the opportunity to profit from a decrease in the
market price of the securities it would like to acquire.
7
<PAGE>
The characteristics of writing call options are similar to those of writing
put options, except that call writers expect to profit if prices remain the
same or fall. A portfolio could try to hedge against a decline in the value
of securities it already owns by writing a call option. If the price of that
security falls as expected, the portfolio would expect the option to expire
and the premium it received to offset the decline of the security's value.
However, the portfolio must be prepared to deliver the underlying instrument
in return for the strike price, which may deprive it of the opportunity to
profit from an increase in the market price of the securities it holds.
A portfolio is permitted only to write covered options. A portfolio can cover
a call option by owning, at the time of selling the option:
. The underlying security (or securities convertible into the underlying
security without additional consideration), index, interest rate, foreign
currency or futures contract.
. A call option on the same security or index with the same or lesser
exercise price.
. A call option on the same security or index with a greater exercise price,
with the difference between the exercise prices maintained as a segregated
account containing cash, U.S. government securities or other liquid high-
grade debt securities.
. Cash, U.S. government securities or other liquid high-grade debt or equity
securities equal to at least the market value of the optioned securities,
interest rate, foreign currency or futures contract.
. In the case of an index, a portfolio of securities that corresponds to the
index.
A portfolio can cover a put option by, at the time of selling the option:
. Entering into a short position in the underlying security.
. Purchasing a put option on the same security, index, interest rate, foreign
currency or futures contract with the same or greater exercise price.
. Purchasing a put option on the same security, index, interest rate, foreign
currency or futures contract with a lesser exercise price, with the
difference between the exercise prices maintained as a segregated account
containing cash, U.S. government securities or other liquid high-grade debt
securities.
. Maintaining the entire exercise price in liquid high-grade debt securities.
OPTIONS ON SECURITIES INDICES
Options on securities indices are similar to options on securities, except
that the exercise of securities index options requires cash settlement
payments and does not involve the actual purchase or sale of securities. In
addition, securities index options are designed to reflect price fluctuations
in a group of securities or segment of the securities market rather than price
fluctuations in a single security.
OPTIONS ON FUTURES
An option on a futures contract provides the holder with the right to buy a
futures contract (in the case of a call option) or sell a futures contract (in
the case of a put option) at a fixed time and price. Upon exercise of the
option by the holder, the contract market clearing house establishes a
corresponding short position for the writer of the option (in the case of a
call option) or a corresponding long position (in the case of a put option).
If the option is exercised, the parties will be subject to the futures
contracts. In addition, the writer of an option on a futures contract is
subject to initial and variation margin requirements on the option position.
Options on futures contracts are traded on the same contract market as the
underlying futures contract.
The buyer or seller of an option on a futures contract may terminate the
option early by purchasing or selling an option of the same series (i.e., the
same exercise price and expiration date) as the option previously purchased or
sold. The difference between the premiums paid and received represents the
trader's profit or loss on the transaction.
A portfolio may purchase put and call options on futures contracts instead of
selling or buying futures contracts. A portfolio may buy a put option on a
futures contract for the same reasons it would sell a futures contract. It
also may purchase such put options in order to hedge a long position in the
underlying futures contract. A portfolio may buy call options on futures
contracts for the same purpose as the actual purchase of the futures
contracts, such as in anticipation of favorable market conditions.
A portfolio may write a call option on a futures contract to hedge against a
decline in the prices of the instrument underlying the futures contracts. If
the price of the futures contract at expiration were below the exercise price,
the portfolio would retain the option premium, which would offset, in part,
any decline in the value of its portfolio securities.
8
<PAGE>
The writing of a put option on a futures contract is similar to the purchase
of the futures contracts, except that, if market price declines, the portfolio
would pay more than the market price for the underlying instrument. The
premium received on the sale of the put option, less any transaction costs,
would reduce the net cost to the portfolio.
COMBINED POSITIONS
A portfolio may purchase and write options in combination with each other, or
in combination with futures or forward contracts, to adjust the risk and
return characteristics of the overall position. For example, a portfolio
could construct a combined position whose risk and return characteristics are
similar to selling a futures contract by purchasing a put option and writing
a call option on the same underlying instrument. Alternatively, a portfolio
could write a call option at one strike price and buy a call option at a
lower price to reduce the risk of the written call option in the event of a
substantial price increase. Because combined options positions involve
multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.
ADDITIONAL RISKS OF DERIVATIVES
While transactions in derivatives may reduce certain risks, these transactions
themselves entail certain other risks. For example, unanticipated changes in
interest rates, securities prices or currency exchange rates may result in a
poorer overall performance of the portfolio than if it had not entered into
any derivatives transactions. Derivatives may magnify a portfolio's gains or
losses, causing it to make or lose substantially more than it invested.
When used for hedging purposes, increases in the value of the securities a
portfolio holds or intends to acquire should offset any losses incurred with a
derivative. Purchasing derivatives for purposes other than hedging could
expose the portfolio to greater risks.
CORRELATION OF PRICES
The portfolio's ability to hedge its securities through derivatives depends on
the degree to which price movements in the underlying index or instrument
correlate with price movements in the relevant securities. In the case of poor
correlation, the price of the securities a portfolio is hedging may not move
in the same amount, or even in the same direction as the hedging instrument.
The adviser will try to minimize this risk by investing only in those
contracts whose behavior it expects to resemble the portfolio securities it is
trying to hedge. However, if the portfolio's prediction of interest and
currency rates, market value, volatility or other economic factors is
incorrect, the portfolio may lose money, or may not make as much money as it
could have.
Derivative prices can diverge from the prices of their underlying instruments,
even if the characteristics of the underlying instruments are very similar to
the derivative. Listed below are some of the factors that may cause such a
divergence.
. Current and anticipated short-term interest rates, changes in volatility of
the underlying instrument, and the time remaining until expiration of the
contract.
. A difference between the derivatives and securities markets, including
different levels of demand, how the instruments are traded, the imposition
of daily price fluctuation limits or trading of an instrument stops.
. Differences between the derivatives, such as different margin requirements,
different liquidity of such markets and the participation of speculators in
such markets.
Derivatives based upon a narrower index of securities, such as those of a
particular industry group, may present greater risk than derivatives based on
a broad market index. Since narrower indices are made up of a smaller number
of securities, they are more susceptible to rapid and extreme price
fluctuations because of changes in the value of those securities.
While currency futures and options values are expected to correlate with
exchange rates, they may not reflect other factors that affect the value of
the investments of a portfolio. A currency hedge, for example, should protect
a Yen-denominated security from a decline in the Yen, but will not protect a
portfolio against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of a portfolio's foreign-denominated
investments changes in response to many factors other than exchange rates, it
may not be possible to match the amount of currency options and futures to the
value of the portfolio's investments precisely over time.
LACK OF LIQUIDITY
Before a futures contract or option is exercised or expires, a portfolio can
terminate it only by entering into a closing purchase or sale transaction.
This requires a secondary market for such instruments on the exchange where
the portfolio originally entered into the transaction. If there is no
secondary market for the contract, or the market is illiquid, a portfolio may
have to purchase or sell the instrument underlying the contract, make or
receive a cash settlement or meet ongoing variation margin
9
<PAGE>
requirements. The inability to close out derivative positions could have an
adverse impact on the ability of the portfolio to hedge its investments and
may prevent a portfolio from realizing profits or limiting its losses.
Derivatives may become illiquid (i.e., difficult to sell at a desired time and
price) under a variety of market conditions. For example:
. During periods of market volatility, a commodity exchange may suspend or
limit trading in a particular derivative instrument, an entire category of
derivatives or all derivatives.
. A portfolio may have difficulty liquidating its existing positions or
recovering excess variation margin payments because of exchange or clearing
house equipment failures, government intervention, insolvency of a
brokerage firm or clearing house or other disruptions of normal trading
activity.
. Investors may lose interest in a particular derivative or category of
derivatives.
MANAGEMENT RISK
If the adviser incorrectly predicts stock market and interest rate trends, a
portfolio may lose money by investing in derivatives. For example, if a
portfolio were to write a call option based on its adviser's expectation that
the price of the underlying security would fall, but the price were to rise
instead, the portfolio could be required to sell the security upon exercise at
a price below the current market price. Similarly, if a portfolio were to
write a put option based on the adviser's expectation that the price of the
underlying security would rise, but the price were to fall instead, the
portfolio could be required to purchase the security upon exercise at a price
higher than the current market price.
MARGIN
Because of the low margin deposits required upon the opening of a derivative
position, such transactions involve an extremely high degree of leverage.
Consequently, a relatively small price movement in a derivative may result in
an immediate and substantial loss (as well as gain) to the portfolio and it
may lose more than it originally invested in the derivative.
If the price of a futures contract changes adversely, a portfolio may have to
sell securities at a time when it is disadvantageous to do so to meet its
minimum daily margin requirement. A portfolio may lose its margin deposits if
a broker with whom it has an open futures contract or related option becomes
insolvent or declares bankruptcy.
FOREIGN SECURITIES
- --------------------------------------------------------------------------------
AMERICAN DEPOSITARY RECEIPTS (ADRS)
American Depositary Receipts (ADRs) are certificates evidencing ownership of
shares of a foreign issuer. These certificates are issued by depository banks
and generally trade on an established market in the United States or
elsewhere. A custodian bank or similar financial institution in the issuer's
home country holds the underlying shares in trust. The depository bank may not
have physical custody of the underlying securities at all times and may charge
fees for various services, including forwarding dividends and interest and
corporate actions. ADRs are alternatives to directly purchasing the underlying
foreign securities in their national markets and currencies. However, ADRs
continue to be subject to many of the risks associated with investing directly
in foreign securities.
RISKS OF FOREIGN SECURITIES
Foreign securities, foreign currencies, and securities issued by U.S. entities
with substantial foreign operations may involve significant risks in addition
to the risks inherent in U.S. investments.
Local political, economic, regulatory, or social instability, military action
or unrest, or adverse diplomatic developments may affect the value of foreign
investments. A foreign government may take actions adverse to the interests
of U.S. investors, including expropriation or nationalization of assets,
confiscatory taxation and other restrictions on U.S. investment.
FOREIGN CURRENCY RISK
The securities of foreign companies are frequently denominated in foreign
currencies. A portfolios' net asset value is denominated in U.S. dollars.
Thus, changes in foreign currency rates and in exchange control regulations
may positively or negatively affect the value of the securities of a
portfolio. A portfolio also may incur costs to convert foreign currencies
into U.S. dollars and vice versa. In addition:
10
<PAGE>
. Foreign currency exchange rates reflect relative values of two currencies,
usually the U.S. dollar and the foreign currency in question.
. Complex political and economic factors applicable to the issuing country
may affect the value U.S. dollars and foreign currencies.
. The actions of U.S. and foreign governments may affect significantly the
currency exchange rates.
. government intervention may increase risks involved in purchasing or
selling foreign currency options, forward contracts and futures contracts,
since exchange rates may not be free to fluctuate in response to other
market forces.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
round-lot transactions in the inter-bank market and thus may not reflect
exchange rates for smaller odd-lot transactions (less than $1 million) where
rates may be less favorable. The inter-bank market in foreign currencies is a
global, around-the-clock market. To the extent that a market is closed while
the markets for the underlying currencies remain open, certain markets may not
always reflect significant price and rate movements.
THE EURO
The single currency for the European Economic and Monetary Union (EMU), the
Euro, is scheduled to replace the national currencies for participating member
countries over a period that begins on January 1, 1999, and ends in July 2002.
At the end of that period, use of the Euro will be compulsory and countries in
the EMU will no longer maintain separate currencies in any form. Until then,
however, each country and issuers within each country are free to choose
whether to use the Euro.
On January 1, 1999, existing national currencies will become denominations of
the Euro at fixed rates according to practices prescribed by the European
Monetary Institute and the Euro will become available as a book-entry
currency. Beginning on or about that date, the portfolio expects member
states to begin conducting financial market transactions in Euro and
redenominating many investments, currency balances and transfer mechanisms
into Euro. The portfolios also anticipate pricing, trading, settling and
valuing investments whose nominal values remain in their existing domestic
currencies in Euro. Accordingly, the portfolios expect the conversion to the
Euro to impact investments in countries that will adopt the Euro in all
aspects of the investment process including, trading, foreign exchange,
payments, settlements, cash accounts, custody and accounting will be impacted.
Some of the uncertainties surrounding the conversion to the Euro, include
. Will the payment and operational systems of banks and other financial
institutions be ready by the scheduled launch date?
. Will the conversion to the Euro have legal consequences on outstanding
financial contracts that refer to existing currencies rather than Euro?
. How will existing currencies be exchanged into Euro?
. Will suitable clearing and settlement payment systems for the new currency
be created?
STOCK EXCHANGE AND MARKET RISK
The adviser anticipates that in most cases an exchange or over-the-counter
(OTC) market located outside of the United States will be the best available
market for foreign securities. Foreign stock markets, while growing in volume
and sophistication, are generally not as developed as those in the United
States, and securities of some foreign issuers may be less liquid and more
volatile than securities of comparable U.S. issuers. Foreign security trading,
settlement and custodial practices are often less developed than those in U.S.
markets. This may lead to increased risk or substantial delays in case of a
failed trade or the insolvency of, or breach of duty by, a foreign broker-
dealer, securities depository or foreign sub-custodian. In addition, the costs
associated with foreign investments, including withholding taxes, brokerage
commissions and custodial costs, are generally higher than with U.S.
investments.
LEGAL SYSTEM AND REGULATION RISKS
Foreign countries have different legal systems and different regulations
concerning financial disclosure, accounting, and auditing standards.
Corporate financial information that would be disclosed under U.S. law may not
be available. Foreign accounting and auditing standards may render a foreign
corporate balance sheet more difficult to understand and interpret than one
subject to U.S. law and standards. Foreign markets may offer less protection
to investors than U.S. markets:
11
<PAGE>
. Foreign accounting, auditing, and financial reporting requirements may
render a foreign corporate balance sheet more difficult to understand and
interpret than one subject to U.S. law and standards.
. Adequate public information on foreign issuers may not be available, and it
may be difficult to secure dividends and information regarding corporate
actions on a timely basis.
. In general, there is less overall governmental supervision and regulation
of securities exchanges, brokers, and listed companies than in the United
States.
. OTC markets tend to be less regulated than stock exchange markets and, in
certain countries, may be totally unregulated.
. Economic or political concerns may influence regulatory enforcement and may
make it difficult for investors to enforce their legal rights.
. Restrictions on transferring securities within the United States or to U.S.
persons may make a particular security less liquid than foreign
securities of the same class that are not subject to such restrictions.
EMERGING MARKETS
Investing in emerging markets may magnify the risks of foreign investing.
Security prices in emerging markets can be significantly more volatile than
those in more developed markets, reflecting the greater uncertainties of
investing in less established markets and economies. In particular, countries
with emerging markets may have (1) relatively unstable governments, (2) may
present the risks of nationalization of businesses, restrictions on foreign
ownership and prohibitions on the repatriation of assets, and (3) may have
less protection of property rights than more developed countries. The
economies of countries with emerging markets may be based on only a few
industries, may be highly vulnerable to changes in local or global trade
conditions, and may suffer from extreme and volatile debt burdens or inflation
rates. Local securities markets may trade a small number of securities and may
be unable to respond effectively to increases in trading volume, potentially
making prompt liquidation of holdings difficult or impossible at times.
Certain foreign governments levy withholding taxes on dividend and interest
income. Although in some countries a portfolio may recover a portion of these
taxes, the portion they cannot recover will reduce the income the portfolio
receives from its investments. The portfolios do not expect such foreign
withholding taxes to have a significant impact on performance.
INVESTMENT COMPANIES
- --------------------------------------------------------------------------------
The portfolios reserve the right to invest up to 10% of their total assets,
calculated at the time of investment, in the securities of other open-ended 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 advisor fee paid by the portfolio.
The Fund has received permission from the SEC to allow each of its portfolios
to invest, for cash management purposes, the greater of 5% of its total assets
or $2.5 million in the UAM DSI Money Market Portfolio provided that the
investment is consistent with the portfolio's investment policies and
restrictions. Based upon the portfolio's assets invested in the UAM 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 UAM DSI Money Market Portfolio. The investing portfolio will bear
expenses of the UAM DSI Money Market Portfolio on the same basis as all of its
other shareholders.
REPURCHASE AGREEMENTS
- --------------------------------------------------------------------------------
In a repurchase agreement, a portfolio buys a security for a relatively short
period (usually not more than 7 days) and simultaneously agrees to sell it
back at a specified date and price. A portfolio normally uses repurchase
agreements to earn income on assets that are not invested. A portfolio will
require the counter-party to the agreement to deliver securities serving as
collateral for each repurchase agreement to its custodian either physically or
in book-entry form. The counter party must add to the collateral whenever the
price of the repurchase agreement rises (i.e., the borrower "marks to the
market" on a daily basis).
If the seller of the security declares bankruptcy or otherwise becomes
financially unable to buy back the security, the portfolio's right to sell the
security may be restricted. In addition, the value of the security might
decline before the portfolio can sell it and the portfolio might incur
expenses in enforcing its rights.
12
<PAGE>
SECURITIES LENDING
- --------------------------------------------------------------------------------
To earn additional income, the portfolios may lend up to one-third of their
total assets (including the value of the collateral for the loans) at fair
market value to broker- dealers or other financial institutions. A portfolio
may reinvest any cash collateral in short-term securities and money market
funds. A portfolio will only lend its securities if
. The borrower provides collateral at least equal to the market value of the
securities loaned.
. The collateral pledged and maintained by the borrower must consist of cash,
an irrevocable letter of credit issued by a domestic U.S. bank or
securities issued or guaranteed by the U.S. government.
. The borrower adds to the collateral whenever the price of the securities
loaned rises (i.e., the borrower "marks to the market" on a daily basis).
. The portfolio can terminate the loan at any time; and
. The portfolio receives reasonable interest on the loan (which may include
the Portfolio investing any cash collateral in interest bearing short-term
investments).
These risks are similar to the ones involved with repurchase agreements. When
a portfolio lends securities, there is a risk that it will lose money because
the borrower fails to return the securities involved in the transaction. In
addition, the borrower may become financially unable to honor its contractual
obligations, which may delay or prevent the portfolio from liquidating the
collateral.
SHORT-TERM INVESTMENTS
- --------------------------------------------------------------------------------
To earn a return on uninvested assets, meet anticipated redemptions, or for
temporary defensive purposes, each portfolio may invest a portion of its
assets in the short-term investments described below.
BANK OBLIGATIONS
A portfolio will only invest in a security issued by a commercial bank if the
bank:
. Has total assets of at least $1 billion, or the equivalent in other
currencies;
. Is a U.S. bank and a member of the Federal Deposit Insurance Corporation;
and
. Is a foreign branch of a U.S. bank and the adviser believes the security is
of an investment quality comparable with other debt securities that a
portfolio may purchase.
TIME DEPOSITS
Time deposits are non-negotiable deposits, such as savings accounts or
certificates of deposit, held by a financial institution for a fixed term with
the understanding that the depositor can withdraw its money only by giving
notice to the institution. However, there may be early withdrawal penalties
depending upon market conditions and the remaining maturity of the obligation.
A portfolio may only purchase time deposits maturing from two business days
through seven calendar days.
CERTIFICATES OF DEPOSIT
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or savings and loan association for a definite
period of time and earning a specified return.
BANKER'S ACCEPTANCE
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).
COMMERCIAL PAPER
Commercial paper constitutes short-term obligations with maturities ranging
from 2 to 270 days issued by banks, corporations and other borrowers. Such
investments are unsecured and usually discounted. A portfolio may invest in
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. See APPENDIX A for a description
of commercial paper ratings.
13
<PAGE>
U.S. GOVERNMENT SECURITIES
A portfolio may buy debt securities that are issued or guaranteed by the U.S.
Treasury or by an agency or instrumentality of the U.S. government. Some U.S.
government securities, such as Treasury bills, notes and bonds are supported
by the full faith and credit of the U.S. government. Others, however, are
supported only by the right of the instrumentality to borrow from the U.S.
government.
While U.S. government securities are guaranteed as to principal and interest,
their market value is not guaranteed. U.S. government securities are subject
to the same interest rate and credit risks as other fixed income securities.
However, since U.S. government securities are of the highest quality, the
credit risk is minimal. The U.S. government does not guarantee the net asset
value of the assets of a portfolio.
CORPORATE BONDS
A portfolio may buy corporate bonds and notes that are considered investment
grade securities. Investment grade securities have received one of the four
highest grades assigned by a rating agency, or determined to be of comparable
quality by the adviser. Corporations issue bonds and notes to raise money for
working capital or for capital expenditures such as plant construction,
equipment purchases and expansion. In return for the money loaned to the
corporation by investors, the corporation promises to pay investors interest,
and repay the principal amount of the bond or note.
Like other debt securities, corporate debt securities involve a risk that the
corporate issuer will not make timely payment of either interest or principal,
or may default entirely. In addition, the market price of corporate debt
securities may go down because of changes in interest rates.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED DELIVERY TRANSACTIONS
- --------------------------------------------------------------------------------
A when-issued security is one whose terms are available and for which a market
exists, but which have not been issued. In a forward delivery transaction, a
portfolio contracts to purchase securities for a fixed price at a future date
beyond customary settlement time. "Delayed delivery" refers to securities
transactions on the secondary market where settlement occurs in the future. In
each of these transactions, the parties fix the payment obligation and the
interest rate that they will receive on the securities at the time the parties
enter the commitment; however, they do not pay money or delivery securities
until a later date. Typically, no income accrues on securities a portfolio has
committed to purchase before the securities are delivered, although the
portfolio may earn income on securities it has in a segregated account. A
portfolio will only enter into these types of transactions with the intention
of actually acquiring the securities, but may sell them before the settlement
date.
A portfolio uses when-issued, delayed-delivery and forward delivery
transactions to secure what it considers being an advantageous price and yield
at the time of purchase. When a portfolio engages in when-issued, delayed-
delivery and forward delivery transactions, it relies on the other party to
consummate the sale. If the other party fails to complete the sale, the
portfolio may miss the opportunity to obtain the security at a favorable price
or yield.
When purchasing a security on a when-issued, delayed delivery, or forward
delivery basis, the portfolio assumes the rights and risks of ownership of the
security, including the risk of price and yield changes. At the time of
settlement, the market value of the security may be more or less than the
purchase price. The yield available in the market when the delivery takes
place also may be higher than those obtained in the transaction itself.
Because a portfolio does not pay for the security until the delivery date,
these risks are in addition to the risks associated with its other
investments.
RESTRICTED SECURITIES
- --------------------------------------------------------------------------------
Each portfolio may purchase restricted securities that are not registered for
sale to the general public but which are eligible for resale to qualified
institutional investors under Rule 144A of the Securities Act of 1933. Under
the supervision of the Fund's board, the adviser determines the liquidity of
such investments by considering all relevant factors. Provided that a dealer
or institutional trading market in such securities exists, these restricted
securities are not treated as illiquid securities for purposes of a
portfolio's investment limitations. The price realized from the sales of these
securities could be more or less than those originally paid by the portfolio
or less than what may be considered the fair value of such securities.
14
<PAGE>
INVESTMENT POLICIES
Whenever an investment limitation sets forth a percentage limitation on
investment or utilization of assets, such limitation (with the exception of a
limitation relating to borrowing) shall be determined immediately after and
as a result of a portfolio's acquisition of such security or other asset.
Accordingly, any later increase or decrease resulting from a change in values,
net assets or other circumstances will not be considered when determining
whether the investment complies with the investment limitations of the
portfolio.
FUNDAMENTAL INVESTMENT POLICIES OF ALL PORTFOLIOS
- --------------------------------------------------------------------------------
The following investment limitations are fundamental, which means a portfolio
cannot change them without shareholder approval. Each portfolio will not:
. with respect to 75% of its assets, invest more than 5% of its total assets
at the time of purchase in 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);
. with respect to 75% of its assets, purchase more than 10% of any class of
the outstanding voting securities of any issuer;
. borrow money, except from banks and as a temporary measure for
extraordinary or emergency purposes and than, in no event, in excess of 10%
of the portfolio's gross assets valued at the lower of market or cost (33
1/3% for the Sterling Partners' Small Cap Value Portfolio), and a portfolio
may not purchase additional securities when borrowings exceed 5% of total
gross assets;
. invest for the purpose of exercising control over management of any
company;
. invest in commodities;
. invest more than 25% of its assets in companies within a single industry;
however, there are no limitations on investments made in instruments issued
or guaranteed by the U.S. government and its agencies a portfolio adopts a
temporary defensive position;
. 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 three years;
. issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit a portfolio from (1) making any
permitted borrowings, mortgages or pledges, or (2) entering into futures or
repurchase transactions;
. make loans except by purchasing debt securities in accordance with its
investment objective and policies, or entering into repurchase agreements,
or lending its portfolio securities to banks, brokers, dealers and other
financial institutions so long as the loans are made in compliance with the
Investment Company Act of 1940, as amended, and the Rules and Regulations
or interpretations of the SEC;
. pledge, mortgage, or hypothecate any of its assets to an extent greater
than 10% of its total assets at fair market value (33 1/3% for the Sterling
Partners' Small Cap Value Portfolio);
. purchase on margin or sell short;
. purchase or retain securities of an issuer if those officers and Directors
of the Fund or its investment advisor owning more than 1/2 of 1% of
such securities together own more than 5% of such securities;
. purchase or sell real estate or real estate limited partnerships, although
it may purchase or sell securities of companies which deal in real estate
and may purchase and sell securities which are secured by interests in real
estate;
. underwrite the securities of other issuers or invest more than an aggregate
of 10% of the net assets of the portfolio, determined at the time
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;
and
. write or acquire options or interests in oil, gas or other mineral
exploration or development programs.
15
<PAGE>
MANAGEMENT OF THE PORTFOLIOS
The business of the Fund is managed by its governing board, which, in turn,
elects officers who are responsible for the day-to-day operations of the Fund
and who execute policies formulated by the board. The Fund pays each board
member who is not also an officer or affiliated person (independent board
member) a $150 quarterly retainer fee per active portfolio per quarter and a
$2,000 meeting fee. In addition, each independent board member is reimbursed
for travel and other expenses incurred while attending board meetings. The
$2,000 meeting fee and expense reimbursements are aggregated for all of the
board members and allocated proportionately among the portfolios of the UAM
Funds complex. The Fund does not pay the remaining board members, each of whom
are affiliated with the Fund, for their services as board members. UAM or its
affiliates or CGFSC pay the Fund's officers.
The following table lists the board members and officers of the Fund and
provides information regarding their present positions, date of birth,
address, principal occupations during the past five years, aggregate
compensation received from the Fund and total compensation received from the
UAM Funds complex.
<TABLE>
<CAPTION>
Total
Aggregate Compensation
Position Compensation from From UAM
UAM Principal Occupations During Registrant as of Funds Complex as
Name, Address, DOB Funds, Inc. the Past 5 years October 31, 1998 of October 31, 1998
<S> <C> <C> <C> <C>
John T. Bennett, Jr. Director President of Squam Investment Management
College Road -- RFD 3 Company, Inc. and Great Island Investment
Meredith, NH 03253 Company, Inc.; President of Bennett
1/26/29 Management Company from 1988 to 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Nancy J. Dunn Director Vice President for Finance and
10 Garden Street Administration and Treasurer of
Cambridge, MA 02138 Radcliffe College since 1991.
8/14/51
- ------------------------------------------------------------------------------------------------------------------------------------
William A. Humenuk Director Executive Vice President and Chief
100 King Street West Administrative Officer of Philip Services
P.O. Box 2440, LCD-1, Corp.; Director, Hofler Corp.; Formerly,
Hamilton Ontario, a Partner in the Philadelphia office
Canada L8N-4J6 of the law firm Dechert Price & Rhoads.
4/21/42
- ------------------------------------------------------------------------------------------------------------------------------------
Philip D. English Director President and Chief Executive Officer of
16 West Madison Street Broventure Company, Inc.; Chairman of the Board
Baltimore, MD 21201 of Chektec Corporation and Cyber Scientific, Inc
8/5/48
- ------------------------------------------------------------------------------------------------------------------------------------
Norton H. Reamer* Director, Chairman, Chief Executive Officer and a Director 0 0
One International Place President of United Asset Management Corporation; Director,
Boston, MA 02110 and Partner or Trustee of each of the Investment
3/21/35 Chairman Companies of the Eaton Vance Group of Mutual Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
Peter M. Whitman, Jr.* Director President and Chief Investment Officer of Dewey 0 0
One Financial Center Square Investors Corporation since 1988; Director
Boston, MA 02111 and Chief Executive Officer of H.T. Investors,
7/1/43 Inc., formerly a subsidiary of Dewey Square.
- ------------------------------------------------------------------------------------------------------------------------------------
William H. Park Vice Executive Vice President and Chief Financial 0 0
One International Place President Officer of United Asset Management Corporation.
Boston, MA 02110
9/19/47
- ------------------------------------------------------------------------------------------------------------------------------------
Gary L. French Treasurer President of UAMFSI and UAMFDI, formerly Vice 0 0
211 Congress Street President of Operations, Development and Control
Boston, MA 02110 of Fidelity Investments in 1995; Treasurer of the
7/4/51 Fidelity Group of Mutual Funds from 1991 to 1995.
- ------------------------------------------------------------------------------------------------------------------------------------
Michael E. DeFao Secretary Vice President and General Counsel of UAMF SI 0 0
211 Congress Street and UAMFDI; Associate Attorney of Ropes & Gray
Boston, MA 02110 (a law firm) from 1993 to 1995.
2/28/68
- ------------------------------------------------------------------------------------------------------------------------------------
Robert R. Flaherty Assistant Vice President of UAMFSI; formerly Manager of 0 0
211 Congress Street Treasurer Fund Administration and Compliance of CGFSC
Boston, MA 02110 from 1995 to 1996; Deloitte & Touche LLP from
9/18/63 1985 to 1995, Senior Manager.
- ------------------------------------------------------------------------------------------------------------------------------------
Michael J. Leary Assistant Vice President of Chase Global Funds Services 0 0
73 Tremont Street Treasurer Company since 1993. Manager of Audit at
Boston, MA 02108 Ernst & Young from 1988 to 1993.
11/23/65
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Total
Aggregate Compensation
Position Compensation from From UAM
UAM Principal Occupations During Registrant as of Funds Complex as
Name, Address, DOB Funds, Inc. the Past 5 years October 31, 1998 of October 31, 1998
<S> <C> <C> <C> <C>
Michelle Azrialy Assistant Assistant Treasurer of Chase Global Funds 0 0
73 Tremont Street Secretary Services Company since 1996. Senior Public
Boston, MA 02108 Accountant with Price Waterhouse LLP from
4/12/69 1991 to 1994.
</TABLE>
____
*These board members are "interested persons" of the Fund as that term is
defined in the 1940 Act.
CODE OF ETHICS
The Fund has adopted a Code of Ethics that restricts to a certain extent
personal transactions by access persons of the Fund and imposes certain
disclosure and reporting obligations.
PRINCIPAL HOLDERS OF SECURITIES
As of ____________, 1998, the members of the governing board and officers of
the Fund as a group owned less than 1% of the Fund's outstanding shares.
As of ____________, 1998, the following persons or organizations held of
record or beneficially 5% or more of the shares of a portfolio:
<TABLE>
<CAPTION>
Percentage of
Name and Address of Shareholder Shares Owned Portfolio Class
<S> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Any persons or organizations listed above as owning 25% or more of the
outstanding shares of a portfolio may be presumed to "control" (as that term
is defined in the 1940 Act) the 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 the
portfolio.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
CONTROL OF ADVISER
The adviser is located at 301 South College Street, Suite 3200, Charlotte, NC
28202. The adviser is a wholly-owned subsidiary of UAM and has provided
investment management services to corporations, pension and profit-sharing
plans, 401(k) and thrift plans, trusts, estates and other institutions and
individuals since 1970.
UAM is 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 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. Several UAM
Affiliated Firms also act as investment advisers to separate series or
portfolios of the UAM Funds complex.
17
<PAGE>
INVESTMENT ADVISORY AGREEMENT
Service Performed by Adviser
Pursuant to each Investment Advisory Agreement (Advisory Agreements) between
the Fund, on behalf of each portfolio, and the adviser, the adviser has agreed
to:
. Manage the investment and reinvestment of the assets of the portfolios.
. Continuously review, supervise and administer the investment program of the
portfolios.
. Determine in its discretion the securities a portfolio will buy or sell and
the portion of its assets such portfolio will hold uninvested.
Limitation of Liability
In the absence of (1) willful misfeasance, bad faith, or gross negligence of
the part of the adviser in the performance of its obligations and duties under
the Advisory Agreements, (2) reckless disregard by the adviser of its
obligations and duties under the Advisory Agreements, or (3) a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation
for services, the adviser shall not be subject to any liability whatsoever to
the Fund, for any error of judgment, mistake of law or any other act or
omission in the course of, or connected with, rendering services under the
Advisory Agreements.
Continuing an Advisory Agreement
Unless sooner terminated, an Advisory Agreement shall continue for periods of
one year so long as such continuance is specifically approved at least
annually (a) by a majority of those members of the governing board of the Fund
who are not parties to the Advisory Agreement or interested persons of any
such party and (b) by a majority of the governing board of the Fund or a
majority of the shareholders of the portfolio. An Advisory Agreement may be
terminated at any time by the Fund, without the payment of any penalty, by
vote of a majority of the portfolios' shareholders on 60 days' written notice
to the adviser. The adviser may terminate the Advisory Agreements at any time,
without the payment of any penalty, upon 90 days' written notice to the Fund.
An Advisory Agreement will automatically and immediately terminate if it is
assigned.
Investment Advisory Fee
For its services, the adviser receives an advisory fee calculated by applying
the annual percentage rates listed below to the average daily net assets of
the portfolio for the month. The adviser's fee is paid in monthly
installments.
<TABLE>
<CAPTION>
ANNUAL PERCENTAGE RATE
<S> <C>
Sterling Partners' Balanced Portfolio 0.75%
- ------------------------------------------------------------------------------------------------------------------------------------
Sterling Partners' Equity Portfolio 0.75%
- ------------------------------------------------------------------------------------------------------------------------------------
Sterling Partners' Small Cap Value Portfolio 1.00%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Expense Limitation
The adviser may voluntarily agree to limit the expenses of the portfolios.
The adviser may further reduce its compensation to the extent that the
expenses of a portfolio exceed such lower expense limitation as the adviser
may, by notice to the portfolio, declare to be appropriate. The expenses
subject to this limitation are exclusive of brokerage commissions, interest,
taxes, deferred organizational and extraordinary expenses and, if the Fund has
a distribution plan, payments required under such plan. The prospectus
describes the terms of any expense limitation that are in effect from time to
time.
REPRESENTATIVE INSTITUTIONAL CLIENTS
As of the date of this SAI, the adviser's representative institutional clients
included Nucor Corp., Dean Witter, Reynolds, Inc., Walter Industries, Inc.,
Georgia Marble Corp., Harriett & Henderson, Sanger Clinic, Adobe Systems,
Inc., Davidson College, Lakeland Regional Medical Center, and Cisco Systems,
Inc.
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.
DISTRIBUTOR
- --------------------------------------------------------------------------------
UAMFDI serves as the Fund's distributor. The Fund offers its shares
continuously. While UAMFDI will use its best efforts to sell shares of the
Fund, it is not obligated to sell any particular amount of shares. UAMFDI
receives no compensation for its
18
<PAGE>
services, and any amounts it may receive under a Service and Distribution Plan
are passed through in their entirety to third parties. UAMFDI, an affiliate of
UAM, is located at 211 Congress Street, Boston, Massachusetts 02110.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
ADMINISTRATOR
Pursuant to a Fund Administration Agreement with the Fund, UAMFSI manages,
administers and conducts the general business activities of the Fund. As a
part of its responsibilities, UAMFSI provides and oversees the provision by
various third parties of administrative, fund accounting, dividend disbursing
and transfer agent services for the Fund. UAMFSI, an affiliate of UAM, has its
principal office at 211 Congress Street, Boston, Massachusetts 02110.
UAMFSI will bear all expenses in connection with the performance of its
services under the Fund Administration Agreement. Other expenses to be
incurred in the operation of the Fund will be borne by the Fund or other
parties, including
. Taxes, interest, brokerage fees and commissions.
. Salaries and fees of officers and members of the Board who are not
officers, directors, shareholders or employees of an affiliate of UAM,
including UAMFSI, UAMFDI or the adviser.
. SEC fees and state Blue-Sky fees.
. EDGAR filing fees.
. Processing services and related fees.
. Advisory and administration fees.
. Charges and expenses of pricing and data services, independent public
accountants and custodians.
. Insurance premiums including fidelity bond premiums.
. Outside legal expenses.
. Costs of maintenance of corporate existence.
. Typesetting and printing of prospectuses for regulatory purposes and for
distribution to current shareholders of the Fund.
. Printing and production costs of shareholders' reports and corporate
meetings.
. Cost and expenses of Fund stationery and forms.
. Costs of special telephone and data lines and devices.
. Trade association dues and expenses.
. Any extraordinary expenses and other customary Fund expenses.
Unless sooner terminated, the Fund Administration Agreement shall continue in
effect from year to year provided the board specifically approves such
continuance at least annually. The Board or UAMFSI may terminate the Fund
Administration Agreement, without penalty, on not less than ninety (90) days'
written notice. The Fund Administration Agreement shall automatically
terminate upon its assignment by UAMFSI without the prior written consent of
the Fund.
UAMFSI will from time to time employ or associate with such person or persons
as may be fit to assist them in the performance of the Fund Administration
Agreement. Such person or persons may be officers and employees who are
employed by both UAMFSI and the Fund. UAMFSI will pay such person or persons
for such employment. The Fund will not incur any obligations with respect to
such persons.
SUB-ADMINISTRATOR
UAMFSI has subcontracted some of the its administrative and fund accounting
services to CGFSC, an affiliate of The Chase Manhattan Bank, by a Mutual Funds
Service Agreement dated April 15, 1996. CGFSC is located at 73 Tremont Street,
Boston, Massachusetts 02108.
19
<PAGE>
SUB-TRANSFER AGENT AND SUB-SHAREHOLDER SERVICING AGENT
UAMFSI has subcontracted its transfer agent and dividend-disbursing agent
services to DST Systems, Inc. under an Agency Agreement between UAMFSI and DST
Systems Inc. DST Systems, Inc., is located at P.O. Box 419534, Kansas City,
Missouri 64141-6534.
UAMSSC serves as sub-shareholder servicing agent for the Fund under an
agreement between UAMSSC and UAMFSI. The principal place of business of UAMSSC
is 825 Duportail Road, Wayne, Pennsylvania 19087.
ADMINISTRATIVE FEES
In exchange for administrative services, each portfolio pays a four-part fee
to UAMFSI as follows:
A. A portfolio specific fee to UAMFSI calculated from the aggregate net
assets of each portfolio at the following rates:
<TABLE>
<CAPTION>
ANNUAL RATE
<S> <C>
Sterling Partners' Balanced Portfolio 0.06%
Sterling Partners' Equity Portfolio 0.06%
Sterling Partners' Small Cap Portfolio 0.04%
</TABLE>
B. An annual base fee that UAMFSI pays to CGFSC for its $52,500 for the first
operational class; sub-administration and other services calculated at
$7,500 for each additional operational class; the annual rate of and 0.04%
of their pro rata share of the combined assets of the UAM Funds.
C. An annual base fee that UAMFSI pays to DST Systems, Inc. for its services
as transfer agent and dividend-disbursing agent equal to $10,500 for the
first operational class and $10,500 for each additional class.
D. An annual base fee that UAMFSI pays to UAMSSC for its services as sub-
shareholder-servicing agent equal to $7,500 for the first operational class
and $2,500 for each additional class.
Each portfolio also pays certain account and transaction fees and out-of-
pocket expenses that may be based on the number of open and closed accounts,
the type of account or the services provided to the account.
CUSTODIAN
- --------------------------------------------------------------------------------
The Chase Manhattan Bank, 3 Chase MetroTech Center, Brooklyn, New York 11245,
provides for the custody of the Fund's assets pursuant to the terms of a
custodian agreement with the Fund.
INDEPENDENT PUBLIC ACCOUNTANT
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as independent accountants for the Fund.
SERVICE AND DISTRIBUTION PLANS
- --------------------------------------------------------------------------------
The Fund has adopted a Distribution Plan and a Shareholder Servicing Plan (the
"Plans") for their Institutional Service Class Shares pursuant to Rule 12b-1
under the Investment Company Act of 1940.
SHAREHOLDER SERVICING PLAN
The Shareholder Servicing Plan (Service Plan) permits the Fund to compensate
broker-dealers or other financial institutions (Service Agents) that have
agreed with UAMFDI to provide administrative support services to Institutional
Service Class shareholders that are their customers. Under the Service Plan,
Institutional Service Class Shares may pay service fees at the maximum annual
rate of 0.25% of the average daily net asset value of such shares held by the
Service Agent for the benefit of its customers. The Fund pays these fees out
of the assets allocable to Institutional Service Class Shares to UAMFDI, to
the Service Agent directly or through UAMFDI. Each item for which a payment
may be made under the Service Plan constitutes personal service and/or
shareholder account maintenance and may constitute an expense of distributing
Fund Service Class Shares as the SEC construes such term under Rule 12b-1.
Services for which Institutional Service Class Shares may compensate Service
Agents include:
. Acting as the sole shareholder of record and nominee for beneficial owners.
. Maintaining account records for such beneficial owners of the Fund's
shares.
20
<PAGE>
. Opening and closing accounts.
. Answering questions and handling correspondence from shareholders about
their accounts.
. Processing shareholder orders to purchase, redeem and exchange shares.
. Handling the transmission of funds representing the purchase price or
redemption proceeds.
. Issuing confirmations for transactions in the Fund's shares by
shareholders.
. Distributing current copies of prospectuses, statements of additional
information and shareholder reports.
. Assisting customers in completing application forms, selecting dividend and
other account options and opening any necessary custody accounts.
. Providing account maintenance and accounting support for all transactions.
. Performing such additional shareholder services as may be agreed upon by
the Fund and the Service Agent, provided that any such additional
shareholder services must constitute a permissible non-banking activity in
accordance with the then current regulations of, and interpretations
thereof by, the Board of Governors of the Federal Reserve System, if
applicable.
RULE 12B-1 DISTRIBUTION PLAN
The Distribution Plan permits a portfolio to pay UAMFDI or others for certain
distribution, promotional and related expenses involved in marketing its
Institutional Service Class Shares. Under the Distribution Plan, Institutional
Service Class Shares may pay distribution fees at the maximum annual rate of
0.75% of the average daily net asset value of such shares held by the Service
Agent for the benefit of its customers. These expenses include, among other
things:
. Advertising the availability of services and products.
. Designing materials to send to customers and developing methods of making
such materials accessible to customers.
. Providing information about the product needs of customers.
. Providing facilities to solicit Fund sales and to answer questions from
prospective and existing investors about the Fund.
. Receiving and answering correspondence from prospective investors,
including requests for sales literature, prospectuses and statements of
additional information.
. Displaying and making available sales literature and prospectuses.
. Acting as liaison between shareholders and the Fund, including obtaining
information from the Fund and providing performance and other information
about the Fund.
In addition, the Service Class Shares may make payments directly to other
unaffiliated parties, who either aid in the distribution of their shares or
provide services to the Class.
FEES PAID UNDER THE SERVICE AND DISTRIBUTION PLANS
The Plans permit Institutional Service Class shares to pay distribution and
service fees at the maximum annual rate of 1.00% of the class' average daily
net assets for the year. The Fund's governing board has limited the amount the
Institutional Service Class may pay under the Plans to 0.25% of the class'
average daily net assets for the year, and may increase such amount to the
plan maximum at any time.
The Fund will not reimburse the Distributor or others for distribution
expenses incurred in excess of the amount permitted by the Plans.
Subject to seeking best price and execution, the Fund may buy or sell
portfolio securities through firms that receive payments under the Plans.
UAMFDI, at its own expense, may pay dealers for aid in distribution or for aid
in providing administrative services to shareholders.
APPROVING, AMENDING AND TERMINATING THE FUND'S DISTRIBUTION ARRANGEMENTS
Shareholders of each portfolio have approved the Plans. The Plans also were
approved by the governing board of the Fund, including a majority of the
members of the board who are not interested persons of the Fund and who have
no direct or indirect
21
<PAGE>
financial interest in the operation of the Plans (Plan Members), by votes cast
in person at meetings called for the purpose of voting on these Plans.
CONTINUING THE PLANS
The Plans continue in effect from year to year so long as they are approved
annually by a majority of the Fund's board members and its Plan Members. To
continue the Plans, the board must determine whether such continuation is in
the best interest of the Institutional Service Class shareholders and that
there is a reasonable likelihood of the Plans providing a benefit to the
Class. The Fund's board has determined that the Fund's distribution
arrangements are likely to benefit the Fund and its shareholders by enhancing
the Fund's ability to efficiently service the accounts of its Institutional
Service Class shareholders.
AMENDING THE PLANS
A majority of the Fund's governing board and a majority of its the Plan
Members must approve any material amendment to the Plans. Likewise, any
amendment materially increasing the maximum percentage payable under the Plans
must be approved by a majority of the outstanding voting securities of the
Class, as well as by a majority of the Plan Members.
TERMINATING THE PLANS
A majority of the Plan Members or a majority of the outstanding voting
securities of the Class may terminate the Plans at any time without penalty.
In addition, the Plans will terminate automatically upon their assignment.
MISCELLANEOUS
So long as the Plans are in effect, the non interested board members will
select and nominate the Plan Members of the Fund.
The Fund and UAMFDI intend to comply with the Conduct Rules of the National
Association of Securities Dealers relating to investment company sales
charges. with these rules.
The portfolios have not offered Institutional Service Class Shares before the
date of this statement of additional information.
Pursuant to the Plans, the board reviews, at least quarterly, a written report
of the amounts expended under each agreement with Service Agents and the
purposes for which the expenditures were made.
ADDITIONAL NON-12B-1 SHAREHOLDER SERVICING ARRANGEMENTS
In addition to payments by the Fund under the Plans, UAM and any of its
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. The adviser may compensate its affiliated companies for
referring investors to the portfolios.
BROKERAGE ALLOCATION AND OTHER PRACTICES
SELECTION OF BROKERS
- --------------------------------------------------------------------------------
The Advisory Agreements authorize the adviser to select the brokers or dealers
that will execute the purchases and sales of investment securities for a
portfolio. The Advisory Agreement also directs the adviser to use its best
efforts to obtain the best execution with respect to all transactions for a
portfolio. The adviser may select brokers based on research, statistical and
pricing services they provide to the adviser. Information and research
provided by a broker will be in addition to, and not instead of, the services
the adviser is required to perform under the Advisory Agreement. In so doing,
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. The adviser may place portfolio orders with
qualified broker-dealers who refer clients to the adviser.
SIMULTANEOUS TRANSACTIONS
- --------------------------------------------------------------------------------
The adviser makes investment decisions for a portfolio independently of
decisions made for its other clients. When a security is suitable for the
investment objective of more than one client, it may be prudent for the
adviser to engage in a simultaneous
22
<PAGE>
transaction, that is, buy or sell the same security for more than one client.
The adviser strives to allocate such transactions among its clients, including
the portfolios, in a fair and reasonable manner. Although there is no
specified formula for allocating such transactions, the Fund's governing board
periodically reviews the various allocation methods used by the adviser, and
the results of such allocations.
BROKERAGE COMMISSIONS
- --------------------------------------------------------------------------------
EQUITY SECURITIES
Generally, equity securities are bought and sold through brokerage
transactions for which commissions are payable. Purchases from underwriters
will include the underwriting commission or concession, and purchases from
dealers serving as market makers will include a dealer's mark-up or reflect a
dealer's mark-down.
Debt Securities
Debt securities are usually bought and sold directly from the issuer or an
underwriter or market maker for the securities. Generally, each Fund will not
pay brokerage commissions for such purchases. When a debt security is bought
from an underwriter, the purchase price will usually include an underwriting
commission or concession. The purchase price for securities bought from
dealers serving as market makers will similarly include the dealer's mark up
or reflect a dealer's mark down. When a portfolio executes transactions in
the over-the-counter market, it will deal with primary market makers unless
prices that are more favorable are otherwise obtainable.
CAPITAL STOCK AND OTHER SECURITIES
DESCRIPTION OF SHARES AND VOTING RIGHTS
- --------------------------------------------------------------------------------
The Fund's Articles of Incorporation, as amended, permit its governing board
to issue three billion shares of common stock, with a $.001 par value. The
governing board has the power to create and designate one or more series
(portfolios) or classes of shares of common stock and to classify or
reclassify any unissued shares at any time and without shareholder approval.
When issued and paid for, the shares of each series and class of the Fund are
fully paid and nonassessable, and have no pre-emptive rights or preference as
to conversion, exchange, dividends, retirement or other features.
The shares of each series and class have non-cumulative voting rights, which
means that the holders of more than 50% of the shares voting for the election
of members of the governing board can elect all of the members if they choose
to do so. On each matter submitted to a vote of the shareholders, 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. Shares of all classes will vote together as a single class except
when otherwise required by law or as determined by the members of the Fund's
governing board.
If the Fund is liquidated, the shareholders of each portfolio or any class
thereof are entitled to receive the net assets belonging to that portfolio, or
in the case of a class, belonging to that portfolio and allocable to that
class. The Fund will distribute is net assets to its shareholders in
proportion to the number of shares of that portfolio or class thereof held by
them and recorded on the books of the Fund. The liquidation of any portfolio
or class thereof may be authorized at any time by vote of a majority of the
members of the governing board.
The governing board has authorized three classes of shares, Institutional,
Institutional Service and Adviser. The three classes represent interests in
the same assets of a portfolio and, except as discussed below, are identical
in all respects. Unlike Institutional and Adviser Class Shares, Institutional
Service Class Shares bear certain expenses related to shareholder servicing
and the distribution of such shares and have exclusive voting rights with
respect to matters relating to such distribution expenditures. The Adviser
Class Shares impose a sales load on purchases. The classes also have
different exchange privileges. The net income attributable to Institutional
Service Class Shares and the dividends payable on Institutional Service Class
Shares will be reduced by the amount of the shareholder servicing and
distribution fees; accordingly, the net asset value of the Institutional
Service Class Shares will be reduced by such amount to the extent a portfolio
has undistributed net income.
The Fund will not hold annual meetings except when required to by the
Investment Company Act of 1940, as amended, or other applicable law
23
<PAGE>
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund tries to distribute substantially all of the net investment income of
a portfolio and net realized capital gains so as to avoid income taxes on its
dividends and distributions and the imposition of the federal excise tax on
undistributed income and capital gains. However, the Fund cannot predict the
time or amount of any such dividends or distributions.
Distributions by a portfolio reduce its net asset value ("NAV"). A
distribution that reduces the NAV of a portfolio below its cost basis is
taxable as described in the prospectus of the portfolios, although from an
investment standpoint, it is a return of capital. If you buy shares of a
portfolio on or before the "record date" -- the date that establishes which
shareholders will receive an upcoming distribution -- for a distribution, you
will receive some of the money you invested as a taxable distribution.
Unless the shareholder elects otherwise in writing, all dividend and capital
gains distributions are automatically received in additional shares of a
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 will be treated as a separate entity (and hence as a separate
"regulated investment company") for federal tax purposes. Each portfolio will
distribute its net capital gains to its investors, but will not offset (for
federal income tax purposes) such gains against any net capital losses of
another portfolio.
PURCHASE REDEMPTION AND PRICING OF SHARES
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
Service Agents may enter confirmed purchase orders on behalf of their
customers. If shares of a portfolio are purchased in this manner, the Service
Agent must receive your investment order before the close of trading on the
New York Stock Exchange ("NYSE") and transmit it to UAMSSC before the close of
its business day to receive that day's share price. UAMSSC must receive proper
payment for the order by the time the portfolio is priced on the following
business day. Service Agents are responsible to their customers and the Fund
for timely transmission of all subscription and redemption requests,
investment information, documentation and money.
Purchases of shares of a Portfolio will be made in full and fractional shares
of the Portfolio calculated to three decimal places. Certificates for
fractional shares will not be issued. Certificates for whole shares will not
be issued except at the written request of the shareholder.
The Fund reserves the right in its sole discretion 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.
IN-KIND PURCHASES
If accepted by the Fund, shareholders may purchase shares of a portfolio in
exchange for securities that are eligible for acquisition by the portfolio.
Securities to be exchanged that are accepted by the Fund will be valued as
described under "VALUATION OF SHARES" at the next determination of net asset
value after 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 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:
. At the time of exchange, such securities are eligible to be included in the
portfolio (current market quotations must be readily available for such
securities).
. The investor represents and agrees that all securities offered to be
exchanged are liquid securities and not subject to any restrictions upon
their sale by the Portfolio under the Securities Act of 1933, or otherwise.
24
<PAGE>
. The value of any such securities (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.
Investors who are subject to Federal taxation upon exchange may realize a gain
or loss for Federal income tax purposes depending upon the cost of securities
or local currency exchanged. Investors interested in such exchanges should
contact the adviser.
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
When you redeem, your shares may be worth more or less than the price you paid
for them depending on the market value of the investments held by the
portfolio.
BY MAIL
Requests to redeem shares must include:
. Share certificates, if issued.
. A letter of instruction or an 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.
. Any required signature guarantees (see "SIGNATURE GUARANTEES").
. Any other necessary legal documents, if required, in the case of estates,
trusts, guardianships, custodianships, corporations, pension and profit
sharing plans and other organizations.
BY TELEPHONE
The following tasks cannot be accomplished by telephone:
. Changing the name of the commercial bank or the account designated to
receive redemption proceeds (this can be accomplished only by a written
request signed by each shareholder, with each signature guaranteed).
. Redemption of certificated shares by telephone.
The Fund and its Sub-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, as well as 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. The Fund or Sub-Transfer Agent may
be liable for any losses due to unauthorized or fraudulent telephone
instructions if the Fund or the Sub-Transfer Agent does not employ the
procedures described above. Neither the Fund nor the Sub-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.
REDEMPTIONS-IN-KIND
If the governing board determines that it would be detrimental to the best
interests of remaining shareholders of the Fund to make payment wholly or
partly in cash, the Fund may pay redemption proceeds in whole or in part by a
distribution in-kind of liquid securities held by a Portfolio in lieu of cash
in conformity with applicable rules of the SEC. Investors may incur brokerage
charges on the sale of portfolio securities received in payment of
redemptions.
However, the Fund has made an election with the SEC 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 SEC. 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 governing board believes 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 under "Valuation of Shares". A redeeming shareholder
would normally incur brokerage expenses if these securities were converted to
cash.
25
<PAGE>
SIGNATURE GUARANTEES
To protect your account, the Fund and its sub-transfer agent 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
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 that 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.
OTHER REDEMPTION INFORMATION
Normally, the Fund will pay for all shares redeemed under proper procedures
within one business day of and no more than seven days after the receipt of
the request, or earlier if required under applicable law. 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 determined by
the SEC.
The Fund may suspend redemption privileges or postpone the date of payment
. During any period that both the NYSE and custodian bank are closed, or
trading on the NYSE is restricted as determined by the Commission.
. 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.
. For such other periods as the Commission may permit.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
The exchange privilege is only available with respect to portfolios that are
qualified for sale in the shareholder's state of residence. Exchanges are
based on the respective net asset values of the shares involved. The
Institutional Class and Institutional Service Class Shares of The UAM Funds do
not charge a sales commission or charge of any kind.
Neither the Fund nor any of its service providers will be responsible for the
authenticity of the exchange instructions received by telephone. The governing
board of the Fund may restrict the exchange privilege at any time. Such
instructions may include limiting the amount or frequency of exchanges and may
be for the purpose of assuring such exchanges do not disadvantage the Fund and
its shareholders.
TRANSFER OF SHARES
- --------------------------------------------------------------------------------
Shareholders may transfer shares of each portfolio to another person by making
a written request to the Fund. Your request should clearly identify the account
and number of shares you wish to transfer. All registered owners should sign
the request 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 "Signature
Guarantees". As in the case of redemptions, the written request must be
received in good order before any transfer can be made.
VALUATION OF SHARES
- --------------------------------------------------------------------------------
The Fund does not price its shares on those days when the New York Stock
Exchange is closed, which are currently: New Year's Day; Dr. Martin Luther
King, Jr. Day; Presidents' Day; Good Friday; Memorial Day; Independence Day;
Labor Day; Thanksgiving Day; and Christmas Day.
EQUITY SECURITIES
Equity securities listed on a securities exchange for which market quotations
are readily available are valued at the last quoted sale price of the day.
Price information on listed securities is taken from the exchange where the
security is primarily traded.
26
<PAGE>
Unlisted equity securities and listed securities not traded on the valuation
date for which market quotations are readily available are valued neither
exceeding the asked prices nor less than the bid prices. Quotations of foreign
securities in a foreign currency are converted to U.S. dollar equivalents. The
converted value is based upon the bid price of the foreign currency against
U.S. dollars quoted by any major bank or by a broker.
DEBT SECURITIES
Debt securities are valued according to the broadest and most representative
market, which will ordinarily be the over-the-counter market. Debt securities
may be valued based on prices provided by a pricing service when such prices
are believed to reflect the fair market value of such securities. Securities
purchased with remaining maturities of 60 days or less are valued at amortized
cost when the governing board determines that amortized cost reflects fair
value.
OTHER ASSETS
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 Directors.
PERFORMANCE CALCULATIONS
The portfolios measure performance by calculating yield and total return. Both
yield and total return figures are based on historical earnings and are not
intended to indicate future performance. Performance quotations by investment
companies are subject to rules adopted by the SEC, 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 SEC.
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 SEC. An explanation of the method used to compute or express
performance follows.
Performance is calculated separately for Institutional Class and Service Class
Shares. Dividends paid by a Portfolio with respect to Institutional Class and
Service Class Shares, to the extent any dividends are paid, will be calculated
in the same manner at the same time on the same day and will be in the same
amount, except that service fees, distribution charges and any incremental
transfer agency costs relating to Service Class Shares will be borne
exclusively by that class.
TOTAL RETURN
- --------------------------------------------------------------------------------
Total return is the change in value of an investment in a portfolio over a
given period, assuming reinvestment of any dividends and capital gains. A
cumulative or aggregate total return reflects actual performance over a stated
period of time. An average annual total return is a hypothetical rate of
return that, if achieved annually, would have produced the same cumulative
total return if performance had been constant over the entire period.
The average annual total return of a 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 one, five and ten-year period and the deduction of
all applicable Fund expenses on an annual basis. Since Institutional Service
Class Shares bear additional service and distribution expenses, their average
annual total return will generally be lower than that of the Institutional
Class Shares.
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).
27
<PAGE>
The average annual total rates of return of the Institutional Class Shares of
the Portfolios are as follows:
<TABLE>
<CAPTION>
One Year Ended Five Years Ended Since Inception Inception Date
October 31, 1998 October 31, 1998 Through Year Ended
October 31, 1998
<S> <C> <C> <C> <C>
Sterling Partners' Balanced Portfolio 3/15/91
Institutional Class Shares
- ----------------------------------------------------------------------------------------------------------------------------------
Sterling Partners' Equity Portfolio 5/15/91
Institutional Class Shares
- ----------------------------------------------------------------------------------------------------------------------------------
Sterling Partners' Small Cap Value Portfolio 1/2/97
Institutional Class Shares
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
YIELD
- --------------------------------------------------------------------------------
Yield refers to the income generated by an investment in a portfolio over a
given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all funds. As this
differs from other accounting methods, the quoted yield may not equal the
income actually paid to shareholders.
The 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. Since Institutional Service Class Shares bear additional service
and distribution expenses, their yield will generally be lower than that of
the Institutional Class Shares.
Yield is obtained using the following formula:
Yield = 2((a-b)/(cd)+1)/6/-1
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
- --------------------------------------------------------------------------------
The Portfolios' performance may be compared to data prepared by independent
services which monitor the performance of investment companies, data reported
in financial and industry publications, and various indices as further
described in the Portfolios' SAI. This information may also be included in
sales literature and advertising.
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. Please see APPENDIX B for publications, indices and averages that
may be used.
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 each portfolio, 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 each
portfolio to calculate its performance. In addition, there can be no assurance
that each portfolio will continue this performance as compared to such other
averages.
TAXES
In order for a portfolio to continue to qualify for federal income tax
treatment as a regulated investment company under the Internal Revenue Code of
1986, as amended, 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, as applicable.
28
<PAGE>
Each portfolio will distribute to shareholders annually any net capital gains
that have been recognized for federal income tax purposes. Shareholders will
be advised on the nature of the payments.
If for any taxable year a portfolio does not qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code, all of
the portfolio's taxable income would be subject to tax at regular corporate
rates without any deduction for distributions to shareholders. In this event,
a portfolio's distributions to shareholders would be taxable as ordinary
income to the extent of the current and accumulated earnings and profits of
the particular portfolio, and would be eligible for the dividends received
deduction in the case of corporate shareholders. The portfolios intend to
qualify as a "regulated investment company" each year.
Dividends and interest received by each portfolio may give rise to withholding
and other taxes imposed by foreign countries. These taxes may reduce each
portfolio's dividends but are included in the taxable income reported on your
tax statement if each portfolio qualifies for this tax treatment and elects to
pass it through to you. Consult a tax adviser for more information regarding
deductions and credits for foreign taxes.
EXPENSES
<TABLE>
<CAPTION>
Investment Investment Sub-
Advisory Fees Advisory Fees Administrator Administrator Brokerage
Paid Waived Fee (UAMFSI) Fee (CGFSC) Commissions
<S> <C> <C> <C> <C> <C>
Sterling Partners' Balanced Portfolio
1998
- ----------------------------------------------------------------------------------------------------------------------------------
1997 $542,796 -0- $43,421 $81,424 $110,763
- ----------------------------------------------------------------------------------------------------------------------------------
1996 $462,951 -0- $19,899 $79,502 $103,597
- ----------------------------------------------------------------------------------------------------------------------------------
Sterling Partners' Equity Portfolio
1998
- ----------------------------------------------------------------------------------------------------------------------------------
1997 $266,244 $70,708 $26,971 $76,637 $ 87,354
- ----------------------------------------------------------------------------------------------------------------------------------
1996 $184,081 $72,415 $11,405 $76,476 $ 91,721
- ----------------------------------------------------------------------------------------------------------------------------------
Sterling Partners' Small Cap Value Portfolio
1998
- ----------------------------------------------------------------------------------------------------------------------------------
1997 $ 77,649 $11,374 $ 3,106 $27,344 $ 54,402
- ----------------------------------------------------------------------------------------------------------------------------------
Distribution and Service Plan Expenses Paid During Fiscal Year Ended October 31, 1998
Sterling Partners' Balanced Portfolio
- ----------------------------------------------------------------------------------------------------------------------------------
Sterling Partners' Equity Portfolio
- ----------------------------------------------------------------------------------------------------------------------------------
Sterling Partners' Small Cap Value Portfolio
</TABLE>
FINANCIAL STATEMENTS
The Financial Statements for each portfolio for the fiscal year ended October
31, 1998, the Financial Highlights for the respective periods presented, and
the report thereon by PricewaterhouseCoopers LLP, the Fund's independent
accountant, which appear in portfolio's 1998 Annual Report, are incorporated
by reference into this Statement of Additional Information. No other parts
are incorporated by reference herein. Copies of the 1998 Annual Report may be
obtained free of charge by telephoning the UAM Funds at the telephone number
appearing on the front page of this Statement of Additional Information.
29
<PAGE>
UAM FUNDS
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
The TS&W Portfolios
TS&W Equity Portfolio
TS&W International Equity Portfolio
TS&W Fixed Income Portfolio
TS&W Balanced Portfolio
Institutional Class Shares
Statement of Additional Information
__________, 1999
This statement of additional information (SAI) is not a prospectus. However,
you should read it in conjunction with the Prospectus of The TS&W Portfolios'
Institutional Class Shares dated ______________, 1999. You may obtain a
Prospectus for The TS&W Portfolios by contacting the UAM Funds at the address
listed above.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
DEFINITIONS................................................................................................... 1
THE FUND...................................................................................................... 1
DESCRIPTION OF PORTFOLIOS AND THEIR INVESTMENTS AND RISKS..................................................... 1
Equity Securities (All Portfolios except TS&W Fixed Income Portfolio)....................................... 1
Debt Securities (All Portfolios except TS&W Equity Portfolio)............................................... 2
Derivatives (TS&W International Equity Portfolio)............................................................ 6
Foreign Securities...........................................................................................10
Investment Companies.........................................................................................13
Repurchase Agreements........................................................................................13
Securities Lending...........................................................................................14
Short-Term Investments.......................................................................................14
When-Issued, Forward Commitment and Delayed Delivery Transactions............................................15
Restricted Securities........................................................................................15
INVESTMENT POLICIES...........................................................................................16
Fundamental Investment Policies (All Portfolios except TS&W Balanced Portfolio)..............................16
Non-Fundamental Policies (All Portfolios except TS&W Balanced Portfolio).....................................16
Fundamental Investment Policies (TS&W Balanced Portfolio)...................................................17
Non-Fundamental Policies (TS&W Balanced Portfolio)...........................................................17
MANAGEMENT OF THE PORTFOLIOS..................................................................................17
CODE OF ETHICS................................................................................................19
PRINCIPAL HOLDERS OF SECURITIES...............................................................................19
INVESTMENT ADVISORY AND OTHER SERVICES........................................................................19
Investment adviser...........................................................................................19
Distributor..................................................................................................21
Administrative Services......................................................................................21
Custodian....................................................................................................23
Independent Public Accountant................................................................................23
BROKERAGE ALLOCATION AND OTHER PRACTICES......................................................................23
Selection of Brokers.........................................................................................23
Simultaneous Transactions....................................................................................23
Brokerage Commissions........................................................................................23
CAPITAL STOCK AND OTHER SECURITIES............................................................................24
Description Of Shares And Voting Rights......................................................................24
Dividends and Capital Gains Distributions....................................................................24
PURCHASE REDEMPTION AND PRICING OF SHARES.....................................................................25
Purchase of Shares...........................................................................................25
Redemption of Shares.........................................................................................25
Exchange Privilege...........................................................................................27
Transfer Of Shares...........................................................................................27
Valuation of Shares..........................................................................................27
PERFORMANCE CALCULATIONS......................................................................................27
Total Return.................................................................................................28
Yield........................................................................................................28
Comparisons..................................................................................................29
TAXES.........................................................................................................29
EXPENSES......................................................................................................30
FINANCIAL STATEMENTS..........................................................................................30
</TABLE>
1
<PAGE>
DEFINITIONS
The "Fund" is UAM Funds, Inc.
The term "adviser" means Thompson, Siegel & Walmsley, Inc., the Fund's
investment adviser.
UAM is United Asset Management Corporation.
UAMFSI is UAM Fund Services, Inc., the Fund's administrator.
UAMFDI is UAM Fund Distributors, Inc., the Fund's distributor.
UAMSSC is UAM Fund Shareholder Servicing Center, the Fund's sub-shareholder-
servicing agent.
CGFSC is Chase Global Funds Service Company, the Fund's sub-administrator.
UAM Funds Complex includes UAM Funds, Inc., UAM Funds Trust, UAM Funds Trust
II and all of their portfolios.
The term "portfolios" is used to refer to The TS&W Portfolios as a group,
while "portfolio" refers to a single TS&W Portfolio.
The terms "board" and "governing board" refers to the Fund's Board of
Directors as a group, while "board member" refers to a single member of the
board.
All other defined terms, which are not otherwise defined in this SAI, have the
same meaning in the SAI as they do in the prospectuses of The TS&W Portfolios.
THE FUND
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 Fund changed its
name to "UAM Funds, Inc." The Fund's principal executive office is located at
One International Place, Boston, MA 02110; shareholders should direct all
correspondence to the address listed on the cover of this SAI.
The Fund is an open-end, management investment company under the Investment
Company Act of 1940. The TS&W Portfolios are diversified series of the Fund.
This means that with respect to 75% of its total assets, the portfolio may not
invest more than 5% of its total assets in the securities of any one issuer
(except U.S. government securities). The remaining 25% of its total assets
are not subject to this restriction. To the extent the portfolio invests a
significant portion of its assets in the securities of a particular issuer, it
will be subject to an increased risk of loss if the market value of such
issuer's securities declines.
DESCRIPTION OF PORTFOLIOS AND THEIR INVESTMENTS AND RISKS
EQUITY SECURITIES (ALL PORTFOLIOS EXCEPT TS&W FIXED INCOME PORTFOLIO)
- --------------------------------------------------------------------------------
Some of the portfolios may invest in equity securities such as common and
preferred stocks. While investing in stocks allows a portfolio to participate
in the benefits of owning a company, a portfolio must accept the risks of
ownership. Unlike bondholders, who have preference to a company's earnings
and cash flow, preferred stockholders followed by common stockholders in order
of priority, are entitled only to the residual amount after a company meets
its other obligations. For this reason, the value of a company's stock will
usually react more strongly to actual or perceived changes in the company's
financial condition or prospects than its debt obligations. Stockholders of a
company that fares poorly can lose money.
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 values 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. Types of preferred stocks
1
<PAGE>
include adjustable-rate preferred stock, fixed dividend preferred stock,
perpetual preferred stock, and sinking fund preferred stock.
STOCK MARKET RISK
Stock markets tend to move in cycles with short or extended periods of rising
and falling stock prices. The value of a company's stock may fall because of:
. Factors that directly relate to that company, such as decisions made by its
management or lower demand for the company's products or services.
. Factors affecting an entire industry, such as increases in production costs.
. Changes in financial market conditions that are relatively unrelated to the
company or its industry, such as changes in interest rates, currency
exchange rates or inflation rates.
RIGHTS AND WARRANTS
A portfolio may purchase warrants and rights, which are securities permitting,
but not obligating, their holder to purchase the underlying securities at a
predetermined price. Generally, warrants and stock purchase rights do not
carry with them the right to receive dividends or exercise voting rights with
respect to the underlying securities, and they do not represent any rights in
the assets of the issuer. Therefore, an investment in warrants and rights may
entail greater risk than certain other types of investments. In addition, the
value of warrants and rights does not necessarily change with the value of the
underlying securities, and they cease to have value if they are not exercised
on or prior to their expiration date. Investment in warrants and rights
increases the potential profit or loss to be realized from the investment of a
given amount of a portfolio's assets as compared with investing the same
amount in the underlying stock.
CONVERTIBLE SECURITIES (ALL PORTFOLIOS)
A portfolio may purchase corporate bonds, debentures and preferred stock that
are convertible into common stock. In exchange for the conversion feature,
many corporations will pay a lower rate of interest on convertible securities
than debt securities of the same corporation.
Convertible corporate bonds, debentures and preferred stock are subject to the
same risks as similar securities without the convertible feature. In
addition, their market price tends to go up if the stock price moves up. For
this reason, convertible securities are more volatile in price during times of
steady interest rates than other types of fixed income securities.
DEBT SECURITIES (ALL PORTFOLIOS EXCEPT TS&W EQUITY PORTFOLIO)
- --------------------------------------------------------------------------------
Debt securities are used by corporations and governments to borrow money from
investors. Most debt securities promise a variable or fixed rate of return and
repayment of the amount borrowed at maturity. Some debt securities, such as
zero-coupon bonds, do not pay current interest and are purchased at a discount
from their face value. Debt securities may include, among other things, all
types of bills, notes, bonds, mortgage-backed securities or asset-backed
securities.
The total return of a debt instrument is composed of two elements: the
percentage change in the security's price and interest income earned. The
YIELD TO MATURITY of a debt security estimates its total return only if the
price of the debt security remains unchanged during the holding period and
coupon interest is reinvested at the same yield to maturity. The total return
of a debt instrument, therefore, will be determined not only by how much
interest is earned, but also by how much the price of the security and
interest rates change.
INTEREST RATES
The price of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up, the value of the bond will go
down, and vice versa). One can estimate the anticipated change in the price of
a fixed rate security for each 1% shift in interest rates by using a risk
measure known as EFFECTIVE DURATION. An effective duration of 4 years, for
example, would suggest that for each 1% reduction in interest rates at all
maturity levels, the price of a security is estimated to increase by 4%. An
increase in rates by the same magnitude is estimated to reduce the price of
the security by 4%. By knowing the yield and the effective duration of a debt
security, one can estimate total return based on an expectation of how much
interest rates, in general, will change.
While serving as a good estimator of prospective returns, effective duration
is an imperfect measure. While lower interest rates generally improve the
value of a fixed income portfolio, lower interest rates may also introduce
certain risks which may independently cause the share price of the portfolio
to fall. Lower rates motivate people to pay off mortgage-backed and asset-
2
<PAGE>
backed securities earlier than expected, which introduces REINVESTMENT RISK.
Reinvesting portfolio assets at lower rates may reduce the yield of the
portfolio. The unexpected timing of mortgage and asset-backed prepayments
caused by the variations in interest rates may also shorten or lengthen the
AVERAGE MATURITY of the portfolio. Neglecting this drift in average maturity
may have the unintended effect of increasing or reducing the effective
duration of the portfolio which may in turn adversely affect the expected
performance of the portfolio.
CREDIT RATING
Coupon interest is offered to investors of fixed income securities as
compensation for assuming risk, although short-term U.S. treasury securities,
such as 3 month treasury bills, are considered "risk free." Corporate
securities offer higher yields than U.S. treasuries because their payment of
interest and complete repayment of principal is less certain. The credit
rating or financial condition of an issuer may affect the value of a debt
security. Generally, the lower the quality rating of a security, the greater
the risks that the issuer will fail to pay interest and return principal. To
compensate investors for taking on increased risk, issuers with lower credit
ratings usually offer their investors a higher "risk premium" in the form of
higher interest rates above comparable U.S. treasuries.
Changes in investor confidence regarding the certainty of interest and
principal payments of a fixed income corporate security will result in an
adjustment to this "risk premium." Since an issuer's outstanding debt carries
a fixed coupon, adjustments to the risk premium must occur in the price, which
effects the yield to maturity of the bond. If an issuer defaults or becomes
unable to honor its financial obligations, the bond may lose some or all of
its value
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade. The adviser may retain securities that are downgraded, if
it believes that keeping those securities is warranted.
Rating agencies are organizations that assign ratings to securities based
primarily on the rating agency's assessment of the issuer's financial
strength. The portfolios currently use ratings compiled by Standard and
Poor's Ratings Services, Duff & Phelps Rating Co., Fitch IBCA, Inc. and,
Moody's Investor Services. Credit ratings are only an agency's opinion, not an
absolute standard of quality, and they do not reflect an evaluation of market
risk. APPENDIX A contains further information concerning the ratings of
certain rating agencies and their significance.
The adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time a portfolio buys it. A rating
agency may change its credit ratings at any time. The adviser monitors the
rating of the security and will take appropriate actions if a rating agency
reduces the security's rating. A portfolio is not obligated to dispose of
securities whose issuers subsequently are in default or which are downgraded
below the above-stated ratings
INVESTMENT-GRADE FIXED-INCOME SECURITIES
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade.
JUNK BONDS
Debt securities rated below investment-grade (junk bonds) are highly
speculative securities that are usually issued by smaller, less credit worthy
and/or highly leveraged (indebted) companies. A corporation may issue a junk
bond because of a corporate restructuring or other similar event. Compared
with investment-grade bonds, junk bonds carry a greater degree of risk and are
less likely to make payments of interest and principal. Market developments
and the financial and business condition of the corporation issuing these
securities influences their price and liquidity more than changes in interest
rates, when compared to investment-grade debt securities. Insufficient
liquidity in the junk bond market may make it more difficult to dispose of
junk bonds and may cause a portfolio to experience sudden and substantial
price declines. A lack of reliable, objective data or market quotations may
make it more difficult to value junk bonds accurately.
U.S. GOVERNMENT SECURITIES
For a discussion of these securities see "SHORT-TERM INVESTMENTS - GOVERNMENT
SECURITIES," below.
3
<PAGE>
CORPORATE BONDS
For a discussion of these securities see "SHORT-TERM INVESTMENTS - CORPORATE
BONDS," below.
MORTGAGE-BACKED SECURITIES AND MORTGAGE PASS-THROUGH SECURITIES
Mortgage-backed securities are interests in pools of mortgage loans that
various governmental, government-related and private organizations assemble as
securities for sale to investors. Mortgage-backed securities differ from other
forms of debt securities because they make monthly payments that consist of
both interest and principal payments. (Other debt securities normally provide
for periodic payment of interest in fixed amounts with principal payments at
maturity or specified call dates.) In effect, these payments are a "pass-
through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of such
securities.
Governmental entities, private insurers and the mortgage poolers may insure or
guaranty the timely payment of interest and principal of these pools through
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance and letters of credit issue the insurance and
guarantees. The adviser will consider such insurance and guarantees and the
creditworthiness of the issuers thereof in determining whether a mortgage-
related security meets its investment quality standards. It is possible that
the private insurers or guarantors will not meet their obligations under the
insurance policies or guarantee arrangements.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA)
GNMA, a wholly owned U.S. government corporation within the Department of
Housing and Urban Development, is the principal governmental guarantor of
mortgage-related securities. GNMA, which is backed by the faith and credit of
the U.S. government, guarantees the timely payment of principal and interest
on securities issued by institutions approved by GNMA and backed by pools of
FHA-insured or VA-guaranteed mortgages. GNMA does not guarantee the market
value or yield of mortgage-backed securities or the value of portfolio shares.
To buy GNMA securities, a portfolio may have to pay a premium over the
maturity value of the underlying mortgages, which the portfolio may lose if
prepayment occurs.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)
FNMA is a government-sponsored corporation owned entirely by private
stockholders. FNMA, which is regulated by the Secretary of Housing and Urban
development, purchases conventional mortgages from a list of approved
seller/servicers, including 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, but are not backed by the
full faith and credit of the U.S. government.
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC)
FHLMC is a corporate instrumentality of the U.S. government whose stock is
owned by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970
to increase the availability of mortgage credit for residential housing. FHLMC
issues Participation Certificates (PCs) which represent interests in
conventional mortgages from its national portfolio. Like FNMA, FHLMC
guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the U.S.
government.
COMMERCIAL BANKS, SAVINGS AND LOAN INSTITUTIONS, PRIVATE MORTGAGE INSURANCE
COMPANIES, MORTGAGE BANKERS AND OTHER SECONDARY MARKET ISSUERS
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. In addition to
guaranteeing the mortgage-related security, such issuers may service and/or
have originated the underlying mortgage loans. Pools created by these issuers
generally offer a higher rate of interest than pools created by GNMA, FNMA &
FHLMC because they are not guaranteed by a government agency.
RISK OF INVESTING IN MORTGAGE-BACKED SECURITIES
Yield characteristics of mortgage-backed securities differ from those of
traditional fixed income securities. The major differences include interest
and principal payments that are more frequent (usually monthly), adjustable
interest rates, and the possibility
4
<PAGE>
that prepayments of principal may be made substantially earlier than their
final distribution dates so that the price of the security will generally
decline when interest rates rise.
The portfolio may fail to recover fully its investment in mortgage-backed
securities notwithstanding any direct or indirect governmental, agency or
other guarantee because the counter-party failed to meet its commitments.
Changes in interest rates and a variety of economic, geographic, social and
other factors, such as the sale of the underlying property, refinancing or
foreclosure, can cause the loans underlying a mortgage-backed security to be
repaid sooner than expected. If the prepayment rates increase, a portfolio may
have to reinvest its principal at a rate of interest that is lower than the
rate on existing mortgage-backed securities. Conversely, when interest rates
are rising many mortgage-backed securities will see a decline in the
prepayment rate, extending their average life. Extending the average life of a
mortgage-backed security increases the risk of depreciation due to future
increases in market interest rates. For these reasons, mortgage-backed
securities may be less effective than other types of U.S. government
securities as a means of "locking in" interest rates.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)
CMOs are hybrids between mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, CMOs usually pay interest and prepaid principal
semiannually. While whole mortgage loans may collateralize CMOs, portfolios of
mortgage-backed securities guaranteed by GNMA, FHLMC, or FNMA, and their
income streams more typically collateralize them.
A REMIC is a CMO that qualifies for special tax treatment under the Internal
Revenue Code of 1986, as amended, and invests in certain mortgages primarily
secured by interests in real property and other permitted investments.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC certificate, often referred to as a
"tranche," is issued at a specific interest rate and must be fully retired by
its final distribution date. Generally, all classes of CMOs or REMIC
certificates pay or accrue interest monthly. Investing in the lowest tranche
of CMOs and REMIC certificates involves risks similar to those associated with
investing in equity securities.
OTHER ASSET-BACKED SECURITIES
A broad range of assets, including automobile loans, computer leases and
credit card receivables, are being securitized in pass-through structures
similar to the mortgage pass-through or CMO structures described above. In
general, the collateral supporting these securities is of shorter maturity
than mortgage loans and is less likely to experience substantial prepayments
with interest rate fluctuations.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the
benefit of any security interest in the related assets, which raises the
possibility that recoveries on repossessed collateral may not be available to
support payments on these securities. For example, credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which allow debtors
to reduce their balances by offsetting certain amounts owed on the credit
cards. Most issuers of asset-backed securities backed by automobile
receivables permit the servicers of such receivables to retain possession of
the underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the rated asset-backed securities. Because
of the large number of vehicles involved and technical requirements under
state laws, the trustee for the holders of asset-backed securities backed by
automobile receivables may not have a proper security interest in all of the
obligations backing such receivables.
To lessen the effect of failures by obligors on underlying assets to make
payments, the entity administering the pool of assets may agree to ensure the
receipt of payments on the underlying pool occurs in a timely fashion
("liquidity protection"). In addition, asset-backed securities may obtain
insurance, such as guarantees, policies or letters of credit obtained by the
issuer or sponsor from third parties, for some or all of the assets in the
pool ("credit support"). Delinquency or loss more than that anticipated or
failure of the credit support could adversely affect the return on an
investment in such a security.
A portfolio may also invest in residual interests in asset-backed securities,
which is the excess cash flow remaining after making required payments on the
securities and paying related administrative expenses. The amount of residual
cash flow resulting from a particular issue of asset-backed securities depends
in part on the characteristics of the underlying assets, the coupon rates on
the securities, prevailing interest rates, the amount of administrative
expenses and the actual prepayment experience on the underlying assets.
STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities are derivative multiple-class mortgage-
backed securities. Stripped mortgage-backed securities usually have two
classes that receive different proportions of interest and principal
distributions on a pool of mortgage assets. Typically, one class will receive
some of the interest and most of the principal, while the other class will
receive most of
5
<PAGE>
the interest and the remaining principal. In extreme cases, one class will
receive all of the interest ("interest only" or "IO" class) while the other
class will receive the entire principal (the "principal only" or "PO" class).
The cash flows and yields on IOs and POs are extremely sensitive to the rate
of principal payments (including prepayments) on the underlying mortgage loans
or mortgage-backed securities. A rapid rate of principal payments may
adversely affect the yield to maturity of IOs. Slower than anticipated
prepayments of principal may adversely affect the yield to maturity of a PO.
The yields and market risk of interest only and principal only stripped
mortgage-backed securities, respectively, may be more volatile than those of
other fixed income securities, including traditional mortgage-backed
securities.
ZERO COUPON BONDS
These securities make no periodic payments of interest, but instead are sold
at a discount from their face value. When held to maturity, their entire
income, which consists of accretion of discount, comes from the difference
between the issue price and their value at maturity. The amount of the
discount rate varies depending on factors including the time remaining until
maturity, prevailing interest rates, the security's liquidity and the issuer's
credit quality. The market value of zero coupon securities may exhibit greater
price volatility than ordinary debt securities because a stripped security
will have a longer duration than an ordinary debt security with the same
maturity. A portfolio's investments in pay-in-kind, delayed and zero coupon
bonds may require it to sell certain of its portfolio securities to generate
sufficient cash to satisfy certain income distribution requirements.
These securities may include U.S. Treasury securities that have had their
interest payments ("coupons") separated from the underlying principal
("corpus") by their holder, typically a custodian bank or investment brokerage
firm. Once the holder of the security has stripped or separated corpus and
coupons, it may sell each component separately. The principal or corpus is
then sold at a deep discount because the buyer receives only the right to
receive a future fixed payment on the security and does not receive any rights
to periodic interest (cash) payments. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold
bundled in such form. The underlying U.S. Treasury security is held in book-
entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. Under a Federal Reserve program
known as "STRIPS" or "Separate Trading of Registered Interest and Principal of
Securities," a portfolio can record its beneficial ownership of the coupon or
corpus directly in the book-entry record-keeping system.
DERIVATIVES (TS&W INTERNATIONAL EQUITY PORTFOLIO)
- --------------------------------------------------------------------------------
Derivatives are financial instruments whose value is based on an underlying
asset, such as a stock or a bond, or an underlying economic factor, such as an
interest rate or an index. A portfolio tries to minimize its loss by investing
in derivatives to protect them from broad fluctuations in market prices,
interest rates or foreign currency exchange rates. Investing in derivatives
for these purposes is known as "hedging." When hedging is successful, the
portfolio will have offset any depreciation in the value of its portfolio
securities by the appreciation in the value of the derivative position.
Although techniques other than the sale and purchase of derivatives could be
used to control the exposure of the portfolio to market fluctuations, the use
of derivatives may be a more effective means of hedging this exposure.
FUTURES
A futures contract is an agreement between two parties whereby one party is
obligated to buy and the other is obligated to sell a financial instrument at
an agreed upon price and time. The parties to a futures contract do not have
to pay for or deliver the underlying financial instrument until the delivery
date. The parties to a futures contract can hold the contract until its
delivery date, although in many cases they close the contract early by taking
an opposite position in an identical contract. The financial instrument
underlying the contract may be a stock, stock index, bond, bond index,
interest rate, foreign exchange rate or other similar instrument. A portfolio
will incur commission expenses in both opening and closing futures positions.
Futures contracts are traded in the United States on commodity exchanges or
boards of trade -- known as "contract markets" -- approved for such trading
and regulated by the Commodity Futures Trading Commission, a federal agency.
These contract markets standardize the terms, including the maturity date and
underlying financial instrument, of all futures contracts. Contract markets
require both the purchaser and seller to deposit "initial margin" with a
futures broker, known as a futures commission merchant, when they enter into
the contract. Initial margin deposits are typically equal to a percentage of
the contract's value. After they open a futures contract, the parties to the
transaction must compare the purchase price of the contract to its daily
market value. If the value of the futures contract changes in such a way that
a party's position declines, that
6
<PAGE>
party must make additional "variation margin" payments so that the margin
payment is adequate. On the other hand, the value of the contract may change
in such a way that there is excess margin on deposit, possibly entitling the
party that has a gain to receive all or a portion of this amount.
A portfolio may take a "short position" by selling futures contracts on
securities it owns or on securities with characteristics similar to those of
securities it owns. For example, when a portfolio expects interest rates to
rise or securities prices to fall, it can seek to offset a decline in the
value of its holdings by selling futures contracts so that a portfolio is
obligated to sell the securities at a future lower price. When a portfolio's
short hedging position is successful, the appreciation in the value of the
futures position will offset substantially any depreciation in the value of
the holdings of the portfolio. On the other hand, a decline in the value of
the futures position would offset any unanticipated appreciation in the value
of the holdings of the portfolio.
On other occasions, a portfolio may take a "long" position by purchasing
futures contracts. For example, when a portfolio expects interest rates to
fall or securities' prices to rise, it can seek to secure a better rate or
price than might later be available by purchasing a futures contract. A
portfolio may also buy futures contracts as a substitute for transactions in
securities, to alter the investment characteristics of portfolio securities or
to gain or increase its exposure to a particular securities market.
OPTIONS
An option is a contract between two parties for the purchase and sale of a
financial instrument for a specified price (known as the "strike price" or
"exercise price") at any time during the option period. Unlike a futures
contract, an option grants a right (not an obligation) to buy or sell a
financial instrument. Generally, a seller of an option can grant a buyer two
kinds of rights: a "call" (the right to buy the security) or a "put" (the
right to sell the security). Options have various types of underlying
instruments, including specific securities, indices of securities prices,
foreign currencies, interest rates and futures contracts. Options may be
traded on an exchange (exchange-traded-options) or may be customized
agreements between the parties (over-the-counter or OTC options). Like
futures, a financial intermediary, known as a clearing corporation,
financially backs exchange-traded options. However, OTC options have no such
intermediary and are subject to the risk that the counter-party will not
fulfill its obligations under the contract.
PURCHASING PUT AND CALL OPTIONS
When a portfolio purchases a put option, it buys the right to sell the
instrument underlying the option at a fixed strike price. In return for this
right, the portfolio pays the current market price for the option (known as
the "option premium"). A portfolio may purchase put options to offset or hedge
against a decline in the market value of its securities ("protective puts") or
to benefit from a decline in the price of securities that it does not own.
The portfolio would ordinarily realize a gain if, during the option period,
the value of the underlying securities decreased below the exercise price
sufficiently to cover the premium and transaction costs. However, if the price
of the underlying instrument does not fall enough to offset the cost of
purchasing the option, a put buyer would lose the premium and related
transaction costs.
Call options are similar to put options, except that the portfolio obtains the
right to purchase, rather than sell, the underlying instrument at the option's
strike price. A portfolio would normally purchase call options in anticipation
of an increase in the market value of securities it owns or wants to buy. A
portfolio would ordinarily realize a gain if, during the option period, the
value of the underlying instrument exceeded the exercise price plus the
premium paid and related transaction costs. Otherwise, the portfolio would
realize either no gain or a loss on the purchase of the call option.
The purchaser of an option may terminate its position by:
. Allowing it to expire and losing its entire premium;
. Exercising the option and either selling (in the case of a put option) or
buying (in the case of a call option) the underlying instrument at the
strike price; or
. Closing it out in the secondary market at its current price.
SELLING (WRITING) PUT AND CALL OPTIONS
When a portfolio writes a call option it assumes an obligation to sell
specified securities to the holder of the option at a specified price if the
option is exercised at any time before the expiration date. Similarly, when a
portfolio writes a put option it assumes an obligation to purchase specified
securities from the option holder at a specified price if the option is
exercised at any time before the expiration date. A portfolio may terminate
its position in an exchange-traded put option before exercise by buying an
option identical to the one it has written. Similarly, it may cancel an over-
the-counter option by entering into an offsetting transaction with the
counter-party to the option.
7
<PAGE>
A portfolio could try to hedge against an increase in the value of securities
it would like to acquire by writing a put option on those securities. If
security prices rise, the portfolio would expect the put option to expire and
the premium it received to offset the increase in the security's value. If
security prices remain the same over time, the portfolio would hope to profit
by closing out the put option at a lower price. If security prices fall, the
portfolio may lose an amount of money equal to the difference between the
value of the security and the premium it received. Writing covered put options
may deprive a portfolio of the opportunity to profit from a decrease in the
market price of the securities it would like to acquire.
The characteristics of writing call options are similar to those of writing
put options, except that call writers expect to profit if prices remain the
same or fall. A portfolio could try to hedge against a decline in the value
of securities it already owns by writing a call option. If the price of that
security falls as expected, the portfolio would expect the option to expire
and the premium it received to offset the decline of the security's value.
However, the portfolio must be prepared to deliver the underlying instrument
in return for the strike price, which may deprive it of the opportunity to
profit from an increase in the market price of the securities it holds.
A portfolio is permitted only to write covered options. A portfolio can cover
a call option by owning, at the time of selling the option:
. The underlying security (or securities convertible into the underlying
security without additional consideration), index, interest rate, foreign
currency or futures contract.
. A call option on the same security or index with the same or lesser
exercise price.
. A call option on the same security or index with a greater exercise price,
with the difference between the exercise prices maintained as a segregated
account containing cash, U.S. government securities or other liquid high-
grade debt securities.
. Cash, U.S. government securities or other liquid high-grade debt or equity
securities equal to at least the market value of the optioned securities,
interest rate, foreign currency or futures contract.
. In the case of an index, a portfolio of securities that corresponds to the
index.
A portfolio can cover a put option by, at the time of selling the option:
. Entering into a short position in the underlying security.
. Purchasing a put option on the same security, index, interest rate, foreign
currency or futures contract with the same or greater exercise price.
. Purchasing a put option on the same security, index, interest rate, foreign
currency or futures contract with a lesser exercise price, with the
difference between the exercise prices maintained as a segregated account
containing cash, U.S. government securities or other liquid high-grade debt
securities.
. Maintaining the entire exercise price in liquid high-grade debt securities.
OPTIONS ON SECURITIES INDICES
Options on securities indices are similar to options on securities, except
that the exercise of securities index options requires cash settlement
payments and does not involve the actual purchase or sale of securities. In
addition, securities index options are designed to reflect price fluctuations
in a group of securities or segment of the securities market rather than price
fluctuations in a single security.
OPTIONS ON FUTURES
An option on a futures contract provides the holder with the right to buy a
futures contract (in the case of a call option) or sell a futures contract (in
the case of a put option) at a fixed time and price. Upon exercise of the
option by the holder, the contract market clearing house establishes a
corresponding short position for the writer of the option (in the case of a
call option) or a corresponding long position (in the case of a put option).
If the option is exercised, the parties will be subject to the futures
contracts. In addition, the writer of an option on a futures contract is
subject to initial and variation margin requirements on the option position.
Options on futures contracts are traded on the same contract market as the
underlying futures contract.
The buyer or seller of an option on a futures contract may terminate the
option early by purchasing or selling an option of the same series (i.e., the
same exercise price and expiration date) as the option previously purchased or
sold. The difference between the premiums paid and received represents the
trader's profit or loss on the transaction.
8
<PAGE>
A portfolio may purchase put and call options on futures contracts instead of
selling or buying futures contracts. A portfolio may buy a put option on a
futures contract for the same reasons it would sell a futures contract. It
also may purchase such put options in order to hedge a long position in the
underlying futures contract. A portfolio may buy call options on futures
contracts for the same purpose as the actual purchase of the futures
contracts, such as in anticipation of favorable market conditions.
A portfolio may write a call option on a futures contract to hedge against a
decline in the prices of the instrument underlying the futures contracts. If
the price of the futures contract at expiration were below the exercise price,
the portfolio would retain the option premium, which would offset, in part,
any decline in the value of its portfolio securities.
The writing of a put option on a futures contract is similar to the purchase
of the futures contracts, except that, if market price declines, the portfolio
would pay more than the market price for the underlying instrument. The
premium received on the sale of the put option, less any transaction costs,
would reduce the net cost to the portfolio.
COMBINED POSITIONS
A portfolio may purchase and write options in combination with each other, or
in combination with futures or forward contracts, to adjust the risk and
return characteristics of the overall position. For example, a portfolio could
construct a combined position whose risk and return characteristics are
similar to selling a futures contract by purchasing a put option and writing a
call option on the same underlying instrument. Alternatively, a portfolio
could write a call option at one strike price and buy a call option at a lower
price to reduce the risk of the written call option in the event of a
substantial price increase. Because combined options positions involve
multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.
ADDITIONAL RISKS OF DERIVATIVES
While transactions in derivatives may reduce certain risks, these transactions
themselves entail certain other risks. For example, unanticipated changes in
interest rates, securities prices or currency exchange rates may result in a
poorer overall performance of the portfolio than if it had not entered into
any derivatives transactions. Derivatives may magnify a portfolio's gains or
losses, causing it to make or lose substantially more than it invested.
When used for hedging purposes, increases in the value of the securities a
portfolio holds or intends to acquire should offset any losses incurred with a
derivative. Purchasing derivatives for purposes other than hedging could
expose the portfolio to greater risks.
CORRELATION OF PRICES
The portfolio's ability to hedge its securities through derivatives depends on
the degree to which price movements in the underlying index or instrument
correlate with price movements in the relevant securities. In the case of poor
correlation, the price of the securities a portfolio is hedging may not move
in the same amount, or even in the same direction as the hedging instrument.
The adviser will try to minimize this risk by investing only in those
contracts whose behavior it expects to resemble the portfolio securities it is
trying to hedge. However, if the portfolio's prediction of interest and
currency rates, market value, volatility or other economic factors is
incorrect, the portfolio may lose money, or may not make as much money as it
could have.
Derivative prices can diverge from the prices of their underlying instruments,
even if the characteristics of the underlying instruments are very similar to
the derivative. Listed below are some of the factors that may cause such a
divergence.
. Current and anticipated short-term interest rates, changes in volatility of
the underlying instrument, and the time remaining until expiration of the
contract.
. A difference between the derivatives and securities markets, including
different levels of demand, how the instruments are traded, the imposition
of daily price fluctuation limits or trading of an instrument stops.
. Differences between the derivatives, such as different margin requirements,
different liquidity of such markets and the participation of speculators in
such markets.
Derivatives based upon a narrower index of securities, such as those of a
particular industry group, may present greater risk than derivatives based on
a broad market index. Since narrower indices are made up of a smaller number
of securities, they are more susceptible to rapid and extreme price
fluctuations because of changes in the value of those securities.
While currency futures and options values are expected to correlate with
exchange rates, they may not reflect other factors that affect the value of
the investments of a portfolio. A currency hedge, for example, should protect
a Yen-denominated security from a decline in the Yen, but will not protect a
portfolio against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of a portfolio's foreign-denominated
investments changes in response to many factors other
9
<PAGE>
than exchange rates, it may not be possible to match the amount of currency
options and futures to the value of the portfolio's investments precisely over
time.
Lack of Liquidity
Before a futures contract or option is exercised or expires, a portfolio can
terminate it only by entering into a closing purchase or sale transaction.
This requires a secondary market for such instruments on the exchange where
the portfolio originally entered into the transaction. If there is no
secondary market for the contract, or the market is illiquid, a portfolio may
have to purchase or sell the instrument underlying the contract, make or
receive a cash settlement or meet ongoing variation margin requirements. The
inability to close out derivative positions could have an adverse impact on
the ability of the portfolio to hedge its investments and may prevent a
portfolio from realizing profits or limiting its losses.
Derivatives may become illiquid (i.e., difficult to sell at a desired time and
price) under a variety of market conditions. For example:
. During periods of market volatility, a commodity exchange may suspend or
limit trading in a particular derivative instrument, an entire category of
derivatives or all derivatives.
. A portfolio may have difficulty liquidating its existing positions or
recovering excess variation margin payments because of exchange or clearing
house equipment failures, government intervention, insolvency of a
brokerage firm or clearing house or other disruptions of normal trading
activity.
. Investors may lose interest in a particular derivative or category of
derivatives.
Management Risk
If the adviser incorrectly predicts stock market and interest rate trends, a
portfolio may lose money by investing in derivatives. For example, if a
portfolio were to write a call option based on its adviser's expectation that
the price of the underlying security would fall, but the price were to rise
instead, the portfolio could be required to sell the security upon exercise at
a price below the current market price. Similarly, if a portfolio were to
write a put option based on the adviser's expectation that the price of the
underlying security would rise, but the price were to fall instead, the
portfolio could be required to purchase the security upon exercise at a price
higher than the current market price.
Margin
Because of the low margin deposits required upon the opening of a derivative
position, such transactions involve an extremely high degree of leverage.
Consequently, a relatively small price movement in a derivative may result in
an immediate and substantial loss (as well as gain) to the portfolio and it
may lose more than it originally invested in the derivative.
If the price of a futures contract changes adversely, a portfolio may have to
sell securities at a time when it is disadvantageous to do so to meet its
minimum daily margin requirement. A portfolio may lose its margin deposits if
a broker with whom it has an open futures contract or related option becomes
insolvent or declares bankruptcy.
FOREIGN SECURITIES
- --------------------------------------------------------------------------------
Risks of Foreign Securities
Foreign securities, foreign currencies, and securities issued by U.S. entities
with substantial foreign operations may involve significant risks in addition
to the risks inherent in U.S. investments.
Local political, economic, regulatory, or social instability, military action
or unrest, or adverse diplomatic developments may affect the value of foreign
investments. A foreign government may take actions adverse to the interests
of U.S. investors, including expropriation or nationalization of assets,
confiscatory taxation and other restrictions on U.S. investment.
Foreign Currency Risk
The securities of foreign companies are frequently denominated in foreign
currencies. A portfolios' net asset value is denominated in U.S. dollars.
Thus, changes in foreign currency rates and in exchange control regulations
may positively or negatively affect the value of the securities of a
portfolio. A portfolio also may incur costs to convert foreign currencies
into U.S. dollars and vice versa. In addition:
10
<PAGE>
. Foreign currency exchange rates reflect relative values of two currencies,
usually the U.S. dollar and the foreign currency in question.
. Complex political and economic factors applicable to the issuing country
may affect the value U.S. dollars and foreign currencies.
. The actions of U.S. and foreign governments may affect significantly the
currency exchange rates.
. government intervention may increase risks involved in purchasing or
selling foreign currency options, forward contracts and futures contracts,
since exchange rates may not be free to fluctuate in response to other
market forces.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
round-lot transactions in the inter-bank market and thus may not reflect
exchange rates for smaller odd-lot transactions (less than $1 million) where
rates may be less favorable. The inter-bank market in foreign currencies is a
global, around-the-clock market. To the extent that a market is closed while
the markets for the underlying currencies remain open, certain markets may not
always reflect significant price and rate movements.
The Euro
The single currency for the European Economic and Monetary Union (EMU), the
Euro, is scheduled to replace the national currencies for participating member
countries over a period that begins on January 1, 1999, and ends in July 2002.
At the end of that period, use of the Euro will be compulsory and countries in
the EMU will no longer maintain separate currencies in any form. Until then,
however, each country and issuers within each country are free to choose
whether to use the Euro.
On January 1, 1999, existing national currencies will become denominations of
the Euro at fixed rates according to practices prescribed by the European
Monetary Institute and the Euro will become available as a book-entry
currency. Beginning on or about that date, the portfolio expects member
states to begin conducting financial market transactions in Euro and
redenominating many investments, currency balances and transfer mechanisms
into Euro. The portfolios also anticipate pricing, trading, settling and
valuing investments whose nominal values remain in their existing domestic
currencies in Euro. Accordingly, the portfolios expect the conversion to the
Euro to impact investments in countries that will adopt the Euro in all
aspects of the investment process including, trading, foreign exchange,
payments, settlements, cash accounts, custody and accounting will be impacted.
Some of the uncertainties surrounding the conversion to the Euro, include
. Will the payment and operational systems of banks and other financial
institutions be ready by the scheduled launch date?
. Will the conversion to the Euro have legal consequences on outstanding
financial contracts that refer to existing currencies rather than Euro?
. How will existing currencies be exchanged into Euro?
. Will suitable clearing and settlement payment systems for the new currency
be created?
Forward Foreign Currency Exchange Contracts (TS&W International Equity
Portfolio)
A forward foreign currency contract involves an obligation to purchase or sell
a specific amount of currency at a future date or date range at a specific
price. In the case of a cancelable forward contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
Forward foreign currency exchange contracts differ from foreign currency
futures contracts in certain respects. Unlike futures contracts, forward
contracts
. do not have standard maturity dates or amounts (i.e., the parties to the
contract may fix the maturity date and the amount).
. are traded in the inter-bank markets conducted directly between currency
traders (usually large commercial banks) and their customers, as opposed to
futures contracts which are traded in only on exchanges regulated by the
CFTC.
. do not require an initial margin deposit.
. may be closed by entering into a closing transaction with the currency
trader who is a party to the original forward contract, as opposed to a
commodities exchange.
Foreign Currency Hedging Strategies (TS&W International Equity Portfolio)
A "settlement hedge" or "transaction hedge" is designed to protect a portfolio
against an adverse change in foreign currency values between the date a
security is purchased or sold and the date on which payment is made or
received. Entering into a
11
<PAGE>
forward contract for the purchase or sale of the amount of foreign currency
involved in an underlying security transaction for a fixed amount of U.S.
dollars "locks in" the U.S. dollar price of the security. A portfolio may also
use forward contracts to purchase or sell a foreign currency when it
anticipates purchasing or selling securities denominated in foreign currency,
even if it has not yet selected the specific investments.
A portfolio may also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. Such a hedge,
sometimes referred to as a "position hedge," would tend to offset both
positive and negative currency fluctuations, but would not offset changes in
security values caused by other factors. A portfolio could also hedge the
position by selling another currency expected to perform similarly to the
currency in which the portfolio's investment is denominated. This type of
hedge, sometimes referred to as a "proxy hedge," could offer advantages in
terms of cost, yield, or efficiency, but generally would not hedge currency
exposure as effectively as a direct hedge into U.S. dollars. Proxy hedges may
result in losses if the currency used to hedge does not perform similarly to
the currency in which the hedged securities are denominated.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities that a portfolio owns or intends to
purchase or sell. They simply establish a rate of exchange that one can
achieve at some future point in time. Additionally, these techniques tend to
minimize the risk of loss due to a decline in the value of the hedged currency
and to limit any potential gain that might result from the increase in value
of such currency.
A portfolio may enter into forward contracts to shift its investment exposure
from one currency into another. Such transactions may call for the delivery of
one foreign currency in exchange for another foreign currency, including
currencies in which its securities are not then denominated. This may include
shifting exposure from U.S. dollars to a foreign currency, or from one foreign
currency to another foreign currency. This type of strategy, sometimes known
as a "cross-hedge," will tend to reduce or eliminate exposure to the currency
that is sold, and increase exposure to the currency that is purchased. Cross-
hedges protect against losses resulting from a decline in the hedged currency,
but will cause a portfolio to assume the risk of fluctuations in the value of
the currency it purchases. Cross hedging transactions also involve the risk of
imperfect correlation between changes in the values of the currencies
involved.
It is difficult to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward or futures contract.
Accordingly, a portfolio may have to purchase additional foreign currency on
the spot market if the market value of a security it is hedging is less than
the amount of foreign currency it is obligated to deliver. Conversely, a
portfolio may have to sell on the spot market some of the foreign currency it
received upon the sale of a security if the market value of such security
exceeds the amount of foreign currency it is obligated to deliver.
Stock Exchange and Market Risk
The adviser anticipates that in most cases an exchange or over-the-counter
(OTC) market located outside of the United States will be the best available
market for foreign securities. Foreign stock markets, while growing in volume
and sophistication, are generally not as developed as those in the United
States, and securities of some foreign issuers may be less liquid and more
volatile than securities of comparable U.S. issuers. Foreign security trading,
settlement and custodial practices are often less developed than those in U.S.
markets. This may lead to increased risk or substantial delays in case of a
failed trade or the insolvency of, or breach of duty by, a foreign broker-
dealer, securities depository or foreign sub-custodian. In addition, the costs
associated with foreign investments, including withholding taxes, brokerage
commissions and custodial costs, are generally higher than with U.S.
investments.
Legal System and Regulation Risks
Foreign countries have different legal systems and different regulations
concerning financial disclosure, accounting, and auditing standards.
Corporate financial information that would be disclosed under U.S. law may not
be available. Foreign accounting and auditing standards may render a foreign
corporate balance sheet more difficult to understand and interpret than one
subject to U.S. law and standards. Foreign markets may offer less protection
to investors than U.S. markets:
. Foreign accounting, auditing, and financial reporting requirements may
render a foreign corporate balance sheet more difficult to understand and
interpret than one subject to U.S. law and standards.
. Adequate public information on foreign issuers may not be available, and it
may be difficult to secure dividends and information regarding corporate
actions on a timely basis.
. In general, there is less overall governmental supervision and regulation
of securities exchanges, brokers, and listed companies than in the United
States.
. OTC markets tend to be less regulated than stock exchange markets and, in
certain countries, may be totally unregulated.
12
<PAGE>
. Economic or political concerns may influence regulatory enforcement and
may make it difficult for investors to enforce their legal rights.
. Restrictions on transferring securities within the United States or to U.S.
persons may make a particular security less liquid than foreign securities
of the same class that are not subject to such restrictions.
Emerging Markets
Investing in emerging markets may magnify the risks of foreign investing.
Security prices in emerging markets can be significantly more volatile than
those in more developed markets, reflecting the greater uncertainties of
investing in less established markets and economies. In particular, countries
with emerging markets may have (1) relatively unstable governments, (2) may
present the risks of nationalization of businesses, restrictions on foreign
ownership and prohibitions on the repatriation of assets, and (3) may have
less protection of property rights than more developed countries. The
economies of countries with emerging markets may be based on only a few
industries, may be highly vulnerable to changes in local or global trade
conditions, and may suffer from extreme and volatile debt burdens or inflation
rates. Local securities markets may trade a small number of securities and may
be unable to respond effectively to increases in trading volume, potentially
making prompt liquidation of holdings difficult or impossible at times.
Certain foreign governments levy withholding taxes on dividend and interest
income. Although in some countries a portfolio may recover a portion of these
taxes, the portion they cannot recover will reduce the income the portfolio
receives from its investments. The portfolios do not expect such foreign
withholding taxes to have a significant impact on performance.
American Depositary Receipts (ADRs)
American Depositary Receipts (ADRs) are certificates evidencing ownership of
shares of a foreign issuer. These certificates are issued by depository banks
and generally trade on an established market in the United States or
elsewhere. A custodian bank or similar financial institution in the issuer's
home country holds the underlying shares in trust. The depository bank may not
have physical custody of the underlying securities at all times and may charge
fees for various services, including forwarding dividends and interest and
corporate actions. ADRs are alternatives to directly purchasing the underlying
foreign securities in their national markets and currencies. However, ADRs
continue to be subject to many of the risks associated with investing directly
in foreign securities.
INVESTMENT COMPANIES
- --------------------------------------------------------------------------------
The portfolios reserve the right to invest up to 10% of their total assets,
calculated at the time of investment, in the securities of other open-ended 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 advisor fee paid by the portfolio.
The Fund has received permission from the SEC to allow each of its portfolios
to invest, for cash management purposes, the greater of 5% of its total assets
or $2.5 million in the UAM DSI Money Market Portfolio provided that the
investment is consistent with the portfolio's investment policies and
restrictions. Based upon the portfolio's assets invested in the UAM 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 UAM DSI Money Market Portfolio. The investing portfolio will bear
expenses of the UAM DSI Money Market Portfolio on the same basis as all of its
other shareholders.
REPURCHASE AGREEMENTS
- --------------------------------------------------------------------------------
In a repurchase agreement, a portfolio buys a security for a relatively short
period (usually not more than 7 days) and simultaneously agrees to sell it
back at a specified date and price. A portfolio normally uses repurchase
agreements to earn income on assets that are not invested. A portfolio will
require the counter-party to the agreement to deliver securities serving as
collateral for each repurchase agreement to its custodian either physically or
in book-entry form. The counter party must add to the collateral whenever the
price of the repurchase agreement rises (i.e., the borrower "marks to the
market" on a daily basis).
If the seller of the security declares bankruptcy or otherwise becomes
financially unable to buy back the security, the portfolio's right to sell the
security may be restricted. In addition, the value of the security might
decline before the portfolio can sell it and the portfolio might incur
expenses in enforcing its rights.
13
<PAGE>
SECURITIES LENDING
- --------------------------------------------------------------------------------
To earn additional income, the portfolios may lend up to one-third of their
total assets (including the value of the collateral for the loans) at fair
market value to broker- dealers or other financial institutions. A portfolio
may reinvest any cash collateral in short-term securities and money market
funds. A portfolio will only lend its securities if
. The borrower provides collateral at least equal to the market value of the
securities loaned.
. The collateral pledged and maintained by the borrower must consist of cash,
an irrevocable letter of credit issued by a domestic U.S. bank or
securities issued or guaranteed by the U.S. government.
. The borrower adds to the collateral whenever the price of the securities
loaned rises (i.e., the borrower "marks to the market" on a daily basis).
. The portfolio can terminate the loan at any time; and
. The portfolio receives reasonable interest on the loan (which may include
the Portfolio investing any cash collateral in interest bearing short-term
investments).
These risks are similar to the ones involved with repurchase agreements. When
a portfolio lends securities, there is a risk that it will lose money because
the borrower fails to return the securities involved in the transaction. In
addition, the borrower may become financially unable to honor its contractual
obligations, which may delay or prevent the portfolio from liquidating the
collateral.
SHORT-TERM INVESTMENTS
- --------------------------------------------------------------------------------
To earn a return on uninvested assets, meet anticipated redemptions, or for
temporary defensive purposes, each portfolio may invest a portion of its
assets in the short-term investments described below.
Bank Obligations
A portfolio will only invest in a security issued by a commercial bank if the
bank:
. Has total assets of at least $1 billion, or the equivalent in other
currencies;
. Is a U.S. bank and a member of the Federal Deposit Insurance Corporation;
and
. Is a foreign branch of a U.S. bank and the adviser believes the security is
of an investment quality comparable with other debt securities that a
portfolio may purchase.
Time Deposits
Time deposits are non-negotiable deposits, such as savings accounts or
certificates of deposit, held by a financial institution for a fixed term with
the understanding that the depositor can withdraw its money only by giving
notice to the institution. However, there may be early withdrawal penalties
depending upon market conditions and the remaining maturity of the obligation.
A portfolio may only purchase time deposits maturing from two business days
through seven calendar days.
Certificates of Deposit
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or savings and loan association for a definite
period of time and earning a specified return.
Banker's Acceptance
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).
Commercial Paper
Commercial paper constitutes short-term obligations with maturities ranging
from 2 to 270 days issued by banks, corporations and other borrowers. Such
investments are unsecured and usually discounted. A portfolio may invest in
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. See APPENDIX A for a description
of commercial paper ratings.
14
<PAGE>
U.S. Government Securities
A portfolio may buy debt securities that are issued or guaranteed by the
U.S. Treasury or by an agency or instrumentality of the U.S. government. Some
U.S. government securities, such as Treasury bills, notes and bonds are
supported by the full faith and credit of the U.S. government. Others,
however, are supported only by the right of the instrumentality to borrow from
the U.S. government.
While U.S. government securities are guaranteed as to principal and interest,
their market value is not guaranteed. U.S. government securities are subject
to the same interest rate and credit risks as other fixed income securities.
However, since U.S. government securities are of the highest quality, the
credit risk is minimal. The U.S. government does not guarantee the net asset
value of the assets of a portfolio.
Corporate Bonds
A portfolio may buy corporate bonds and notes that are considered investment
grade securities. Investment grade securities have received one of the four
highest grades assigned by a rating agency, or determined to be of comparable
quality by the adviser. Corporations issue bonds and notes to raise money for
working capital or for capital expenditures such as plant construction,
equipment purchases and expansion. In return for the money loaned to the
corporation by investors, the corporation promises to pay investors interest,
and repay the principal amount of the bond or note.
Like other debt securities, corporate debt securities involve a risk that the
corporate issuer will not make timely payment of either interest or principal,
or may default entirely. In addition, the market price of corporate debt
securities may go down because of changes in interest rates.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED DELIVERY TRANSACTIONS
- --------------------------------------------------------------------------------
A when-issued security is one whose terms are available and for which a market
exists, but which have not been issued. In a forward delivery transaction, a
portfolio contracts to purchase securities for a fixed price at a future date
beyond customary settlement time. "Delayed delivery" refers to securities
transactions on the secondary market where settlement occurs in the future. In
each of these transactions, the parties fix the payment obligation and the
interest rate that they will receive on the securities at the time the parties
enter the commitment; however, they do not pay money or delivery securities
until a later date. Typically, no income accrues on securities a portfolio has
committed to purchase before the securities are delivered, although the
portfolio may earn income on securities it has in a segregated account. A
portfolio will only enter into these types of transactions with the intention
of actually acquiring the securities, but may sell them before the settlement
date.
A portfolio uses when-issued, delayed-delivery and forward delivery
transactions to secure what it considers being an advantageous price and yield
at the time of purchase. When a portfolio engages in when-issued, delayed-
delivery and forward delivery transactions, it relies on the other party to
consummate the sale. If the other party fails to complete the sale, the
portfolio may miss the opportunity to obtain the security at a favorable price
or yield.
When purchasing a security on a when-issued, delayed delivery, or forward
delivery basis, the portfolio assumes the rights and risks of ownership of the
security, including the risk of price and yield changes. At the time of
settlement, the market value of the security may be more or less than the
purchase price. The yield available in the market when the delivery takes
place also may be higher than those obtained in the transaction itself.
Because a portfolio does not pay for the security until the delivery date,
these risks are in addition to the risks associated with its other
investments.
RESTRICTED SECURITIES
- --------------------------------------------------------------------------------
Each portfolio may purchase restricted securities that are not registered for
sale to the general public but which are eligible for resale to qualified
institutional investors under Rule 144A of the Securities Act of 1933. Under
the supervision of the Fund's boar, the adviser determines the liquidity of
such investments by considering all relevant factors. Provided that a dealer
or institutional trading market in such securities exists, these restricted
securities are not treated as illiquid securities for purposes of a
portfolio's investment limitations. The priced realized from the sales of
these securities could be more or less than those originally paid by the
portfolio or less than what may be considered the fair value of such
securities.
15
<PAGE>
Investment Policies
Whenever an investment limitation sets forth a percentage limitation on
investment or utilization of assets, such limitation shall (with the exception
of a limitation relating to borrowing) be determined immediately after and as
a result of a portfolio's acquisition of such security or other asset.
Accordingly, any later increase or decrease resulting from a change in values,
net assets or other circumstances will not be considered when determining
whether the investment complies with the investment limitations of the
portfolio.
FUNDAMENTAL INVESTMENT POLICIES (ALL PORTFOLIOS EXCEPT TS&W BALANCED PORTFOLIO)
- --------------------------------------------------------------------------------
The following investment limitations are fundamental, which means a portfolio
cannot change them without shareholder approval. Each portfolio will not:
. with respect to 75% of its assets, invest more than 5% of its total assets
at the time of purchase in securities of any single issuer (other than
obligations issued or guaranteed as to principal and interest by the U.S.
government or any of its agencies or instrumentalities );
. with respect to 75% of its assets, purchase more than 10% of any class of
the outstanding voting securities of any issuer;
. borrow money, except (1) 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;
. invest more than 25% of its assets in companies within a single industry;
however, there are no limitations on investments made in instruments issued
or guaranteed by the U.S. government and its agencies when the portfolio
adopts a temporary defensive position;
. 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;
. issue senior securities, as defined in the Investment Company Act of 1940,
as amended, except that this restriction shall not be deemed to prohibit a
portfolio from (1) making any permitted borrowings, mortgages or pledges,
or (2) entering into options and futures (for the TS&W International Equity
Portfolio) or repurchase transactions;
. make loans except (1) 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, or (2) by lending its
portfolio securities to banks, brokers, dealers and other financial
institutions so long as such loans are not inconsistent with the Investment
Company Act of 1940, as amended, and the Rules and Regulations or
interpretations of the SEC;
. pledge, mortgage, or hypothecate any of its assets to an extent greater
than 10% of its assets at fair market value; and
. purchase additional securities when borrowings exceed 5% of total gross
assets.
NON-FUNDAMENTAL POLICIES (ALL PORTFOLIOS EXCEPT TS&W BALANCED PORTFOLIO)
- --------------------------------------------------------------------------------
In addition to the policies described above, the following limitations are
non-fundamental (i.e., the portfolio may change them without shareholder
approval) policies of the portfolios. Each portfolio will not:
. invest for the purpose of exercising control over management of any
company;
. invest in commodities except that the TS&W International Equity Portfolio
may invest in futures contracts and options to the extent that not more
than 5% of the portfolio's assets is required as deposit to secure
obligations under futures contracts and the entry into forward foreign
currency exchange contracts is not and shall not be deemed to involve
investing in commodities;
. purchase on margin or sell short except as specified above;
. underwrite the securities of other issuers or invest more than an aggregate
of 10% (15% for The TS&W Balanced Portfolio) of the net 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.
16
<PAGE>
FUNDAMENTAL INVESTMENT POLICIES (TS&W BALANCED PORTFOLIO)
- --------------------------------------------------------------------------------
The following investment limitations are fundamental, which means a
portfolio cannot change them without shareholder approval. The portfolio
will not:
. with respect to 75% of its assets, invest more than 5% of its total
assets at the time of purchase in securities of any single issuer
(other than obligations issued or guaranteed as to principal and
interest by the U.S. government or any of its agencies or
instrumentalities );
. with respect to 75% of its assets, purchase more than 10% of any class
of the outstanding voting securities of any issuer;
. borrow money, except from banks and as a temporary measure for
extraordinary or emergency purposes and then, in no event, in excess
of 33 1/3% of the portfolio's gross assets valued at the lower of
market or cost;
. invest more than 25% of its assets in companies within a single
industry; however, there are no limitations on investments made in
instruments issued or guaranteed by the U.S. government and its
agencies when the portfolio adopts a temporary defensive position;
. 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;
. issue senior securities, as defined in the Investment Company Act of
1940, except that this restriction shall not be deemed to prohibit a
portfolio from (1) making any permitted borrowings, mortgages or
pledges, or (2) entering into repurchase transactions;
. make loans except (1) 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 15% of the portfolio's total assets, or
(2) 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 SEC;
. pledge, mortgage, or hypothecate any of its assets to an extent
greater than 33 1/3% of its assets at fair market value; and
. purchase additional securities when borrowings exceed 5% of total
gross assets.
NON-FUNDAMENTAL POLICIES (TS&W BALANCED PORTFOLIO)
- --------------------------------------------------------------------------------
In addition to the policies described above, the following limitations are
non-fundamental (i.e., the portfolio may change them without shareholder
approval) policies of the portfolio. The portfolio will not:
. invest for the purpose of exercising control over management of any
company;
. invest in commodities;
. purchase on margin or sell short except as specified above;
. underwrite the securities of other issuers or invest more than an
aggregate of 15% of the net 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.
MANAGEMENT OF THE PORTFOLIOS
The business of the Fund is managed by its governing board, which, in turn,
elects officers who are responsible for the day-to-day operations of the
Fund and who execute policies formulated by the board. The Fund pays each
board member who is not also an officer or affiliated person (independent
board member) a $150 quarterly retainer fee per active portfolio per
quarter and a $2,000 meeting fee. In addition, each independent board
member is reimbursed for travel and other expenses incurred while attending
board meetings. The $2,000 meeting fee and expense reimbursements are
aggregated for all of the board members and allocated proportionately among
the portfolios of the UAM Funds complex. The Fund does not pay the
remaining board members , each of whom are affiliated with the Fund, for
their services as board members. UAM or its affiliates or CGFSC pay the
Fund's officers.
17
<PAGE>
The following table lists the board members and officers of the Fund and
provides information regarding their present positions, date of birth, address,
principal occupations during the past five years, aggregate compensation
received from the Fund and total compensation received from the UAM Funds
complex.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Total
Aggregate Compensation
Position Compensation from From UAM Funds
UAM Registrant as of Complex as of
Name, Address, DOB Funds, INC. Principal Occupations During the Past 5 years october 31, 1998 october 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John T. Bennett, Jr. Director President of Squam Investment Management Company,
College Road -- RFD 3 Inc. and Great Island Investment Company, Inc.;
Meredith, NH 03253 President of Bennett Management Company from 1988
1/26/29 to 1993.
- -----------------------------------------------------------------------------------------------------------------------------------
Nancy J. Dunn Director Vice President for Finance and Administration and
10 Garden Street Treasurer of Radcliffe College since 1991.
Cambridge, MA 02138
8/14/51
- -----------------------------------------------------------------------------------------------------------------------------------
William A. Humenuk Director Executive Vice President and Chief Administrative
100 King Street West Officer of Philip Services Corp.; Director, Hofler
P.O. Box 2440, LCD-1, Corp.; Formerly, a Partner in the Philadelphia office
Hamilton Ontario, of the law firm Dechert Price & Rhoads.
Canada L8N-4J6
4/21/42
- -----------------------------------------------------------------------------------------------------------------------------------
Philip D. English Director President and Chief Executive Officer of Broventure
16 West Madison Street Company, Inc.; Chairman of the Board of Chektec
Baltimore, MD 21201 Corporation and Cyber Scientific, Inc
8/5/48
- -----------------------------------------------------------------------------------------------------------------------------------
Norton H. Reamer* Director, President, Chief Executive Officer and a Director 0 0
One International Place of United President and Asset Management Corporation;
Boston, MA 02110 Director, Partneror Trustee Chairman of each of the
3/21/35 Investment Companies ofthe Eaton Vance Group of Mutual Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Peter M. Whitman, Jr.* Director Chairman and Chief Investment Officer of Dewey Square 0 0
One Financial Center Investors Corporation since 1988; Director and Chief
Boston, MA 02111 Executive Officer of H.T. Investors, Inc., formerly a
7/1/43 subsidiary of Dewey Square.
- -----------------------------------------------------------------------------------------------------------------------------------
William H. Park Vice Executive Vice President and Chief Financial Officer of 0 0
One International Place President United Asset Management Corporation.
Boston, MA 02110
9/19/47
- -----------------------------------------------------------------------------------------------------------------------------------
Gary L. French Treasurer President of UAMFSI and UAMFDI, formerly Vice President of 0 0
211 Congress Street Operations, Development and Control of Fidelity Investments
Boston, MA 02110 in 1995; Treasurer of the Fidelity Group of Mutual Funds
7/4/51 from 1991 to 1995.
- -----------------------------------------------------------------------------------------------------------------------------------
Michael E. DeFao Secretary Vice President and General Counsel of UAMFSI and UAMFDI; 0 0
211 Congress Street Associate Attorney of Ropes & Gray (a law firm) from
Boston, MA 02110 1993 to 1995.
2/28/68
- -----------------------------------------------------------------------------------------------------------------------------------
Robert R. Flaherty Assistant Vice President of UAMFSI; formerly Manager of Fund 0 0
211 Congress Street Treasurer Administration and Compliance of CGFSC from 1995 to 1996;
Boston, MA 02110 Deloitte & Touche LLP from 1985 to 1995, Senior Manager.
9/18/63
- -----------------------------------------------------------------------------------------------------------------------------------
Michael J. Leary Assistant Vice President of Chase Global Funds Services Company since 0 0
73 Tremont Street Treasurer 1993. Manager of Audit at Ernst & Young from 1988 to 1993.
Boston, MA 02108
11/23/65
- -----------------------------------------------------------------------------------------------------------------------------------
Michelle Azrialy Assistant Assistant Treasurer of Chase Global Funds Services Company 0 0
73 Tremont Street Secretary since 1996. Senior Public Accountant with Price Waterhouse
Boston, MA 02108 LLP from 1991 to 1994.
4/12/69
</TABLE>
_______
* These board members are "interested persons" of the Fund as that term is
defined in the 1940 Act.
18
<PAGE>
CODE OF ETHICS
The Fund has adopted a Code of Ethics that restricts to a certain extent
personal transactions by access persons of the Fund and imposes certain
disclosure and reporting obligations.
PRINCIPAL HOLDERS OF SECURITIES
As of ____________, 1998, the members of the governing board and officers of
the Fund as a group owned less than 1% of the Fund's outstanding shares.
As of ____________, 1998, the following persons or organizations held of
record or beneficially 5% or more of the shares of a portfolio:
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME AND ADDRESS OF SHAREHOLDER SHARES OWNED PORTFOLIO CLASS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
Any persons or organizations listed above as owning 25% or more of the
outstanding shares of a portfolio may be presumed to "control" (as that term
is defined in the 1940 Act) the 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 the
portfolio.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
CONTROL OF ADVISER
The adviser is located at 5000 Monument Avenue, Richmond, VA 23230. The
adviser is a wholly-owned subsidiary and has provided investment management
services to corporations, pension and profit-sharing plans, 401(k) and thrift
plans, trusts, estates and other institutions and individuals since 1970.
UAM is 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 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. Several UAM
Affiliated Firms also act as investment advisers to separate series or
portfolios of the UAM Funds complex.
INVESTMENT ADVISORY AGREEMENT
SERVICE PERFORMED BY ADVISER
Pursuant to each Investment Advisory Agreement (Advisory Agreements) between
the Fund, on behalf of each portfolio, and the adviser, the adviser has agreed
to:
. Manage the investment and reinvestment of the assets of the portfolios.
. Continuously review, supervise and administer the investment program of the
portfolios.
. Determine in its discretion the securities a portfolio will buy or sell and
the portion of its assets such portfolio will hold uninvested.
19
<PAGE>
LIMITATION OF LIABILITY
In the absence of (1) willful misfeasance, bad faith, or gross negligence of
the part of the adviser in the performance of its obligations and duties under
the Advisory Agreements, (2) reckless disregard by the adviser of its
obligations and duties under the Advisory Agreements, or (3) a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation
for services, the adviser shall not be subject to any liability whatsoever to
the Fund, for any error of judgment, mistake of law or any other act or
omission in the course of, or connected with, rendering services under the
Advisory Agreements.
CONTINUING AN ADVISORY AGREEMENT
Unless sooner terminated, an Advisory Agreement shall continue for periods of
one year so long as such continuance is specifically approved at least
annually (a) by a majority of those members of the governing board of the Fund
who are not parties to the Advisory Agreement or interested persons of any
such party and (b) by a majority of the governing board of the Fund or a
majority of the shareholders of the portfolio. An Advisory Agreement may be
terminated at any time by the Fund, without the payment of any penalty, by
vote of a majority of the portfolios' shareholders on 60 days' written notice
to the adviser. The adviser may terminate the Advisory Agreements at any time,
without the payment of any penalty, upon 90 days' written notice to the Fund.
An Advisory Agreement will automatically and immediately terminate if it is
assigned.
INVESTMENT ADVISORY FEE
For its services, the adviser receives an advisory fee calculated by applying
the annual percentage rates listed below to the average daily net assets of
the portfolio for the month. The adviser's fee is paid in monthly
installments.
<TABLE>
<CAPTION>
- --------------------------------------------------------------
ANNUAL PERCENTAGE RATE
- --------------------------------------------------------------
<S> <C>
TS&W Balanced Portfolio 0.65%
- --------------------------------------------------------------
TS&W Equity Portfolio 0.75%
- --------------------------------------------------------------
TS&W International Equity Portfolio 1.00%
- --------------------------------------------------------------
TW&W Fixed Income Portfolio 0.45%
</TABLE>
EXPENSE LIMITATION
The adviser may voluntarily agree to limit the expenses of the portfolios.
The adviser may further reduce its compensation to the extent that the
expenses of a portfolio exceed such lower expense limitation as the adviser
may, by notice to the portfolio, declare to be appropriate. The expenses
subject to this limitation are exclusive of brokerage commissions, interest,
taxes, deferred organizational and extraordinary expenses and, if the Fund has
a distribution plan, payments required under such plan. The prospectus
describes the terms of any expense limitation that are in effect from time to
time.
PHILOSOPHY AND STYLE
The adviser's investment professionals work as a team in the development of
equity investment strategy. The stock selection process combines an economic
top-down approach with fundamental valuation analysis and market structure
analysis. Through economic analysis, the adviser attempts to assess which
areas of the economy are expected to exhibit relative strength and studies
broad economic and political trends and monitors the movement of interest
rates and corporate earnings. Input for economic analysis is derived from a
detailed analysis of the economy and from an analysis of historical corporate
earnings trends, both prepared internally. Through fundamental valuation
analysis, the adviser attempts to seek out sectors, industries and companies
in the market which represent areas of undervaluation and attempts to identify
and evaluate pricing anomalies across national markets and within industry
sectors. Tools and measures utilized include a dividend discount model and
relative value screens as well as other traditional and fundamental measures
of value including price/earnings ratios, price to book ratios and dividend
yields. Fundamental analysis is performed on industries and companies in
order to verify their potential attractiveness for investment. The adviser
attempts to purchase stocks of companies which should benefit from economic
trends and which are attractively valued relative to their fundamentals and
other companies in the market.
The adviser's investment professionals work as a team in the development of
fixed income investment strategy. The decision making consists of an
interactive economic top-down approach, valuation analysis, market structure
analysis, and fundamental credit analysis. Economic analysis begins with an
examination of monetary policy, fiscal policy, and gross domestic product. An
internally generated outlook for the direction of interest rates is
formulated, and the maturities duration of portfolios will be established to
reflect the adviser's outlook. Under normal market conditions, the maturity
or duration will average within a plus or minus range of 20% to the benchmark,
which is the Lehman Brothers government/Corporate Index. Generally, duration
is gradually adjusted as the outlook for interest rates changes. Valuation
analysis examines market fundamentals and the relative pricing of maturities,
sectors, and individual issues. Market structure analysis compares the
present cycle of interest rates to historical cycles in terms of interest
rates, supply and demand trends, and investor sentiment. Extreme variance
from the norm which creates excessive risk or opportunity is often highlighted
by this work, and portfolios are adjusted accordingly.
20
<PAGE>
The adviser's investment professionals work as a team in the development of
international equity investment strategy. The stock selection process
combines an economic top-down approach with fundamental valuation analysis and
market structure analysis. Through economic analysis, the adviser attempts to
assess which areas of various national economies are expected to exhibit
relative strength. Broad economic and political trends are monitored as well
as the movement of interest rates and corporate earnings. Through fundamental
valuation analysis, the adviser attempts to seek out countries, sectors,
industries, and companies in foreign markets which represent areas of
undervaluation and attempts to identify and evaluate pricing anomalies across
national markets and within industry sectors. Tools and measures utilized
include traditional and fundamental measures of value including price/earnings
ratios, price to cash ratios, price to book ratios and dividend yields.
Fundamental analysis is performed in order to verify their potential
attractiveness for investment. The adviser attempts to purchase stocks of
companies which would benefit from economic trends and which are attractively
valued relative to their fundamentals and to other companies.
REPRESENTATIVE INSTITUTIONAL CLIENTS
As of the date of this SAI, the adviser's representative institutional clients
included Ames Company, Cooper Tire & Rubber Company, City of Charlottesville,
Smithfield Foods, Inc., Butterick Company, Inc., and Kaman Corporation.
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.
DISTRIBUTOR
- --------------------------------------------------------------------------------
UAMFDI serves as the Fund's distributor. The Fund offers its shares
continuously. While UAMFDI will use its best efforts to sell shares of the
Fund, it is not obligated to sell any particular amount of shares. UAMFDI
receives no compensation for its services, and any amounts it may receive
under a Service and Distribution Plan are passed through in their entirety to
third parties. UAMFDI, an affiliate of UAM, is located at 211 Congress Street,
Boston, Massachusetts 02110.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
ADMINISTRATOR
Pursuant to a Fund Administration Agreement with the Fund, UAMFSI manages,
administers and conducts the general business activities of the Fund. As a
part of its responsibilities, UAMFSI provides and oversees the provision by
various third parties of administrative, fund accounting, dividend disbursing
and transfer agent services for the Fund. UAMFSI, an affiliate of UAM, has its
principal office at 211 Congress Street, Boston, Massachusetts 02110.
UAMFSI will bear all expenses in connection with the performance of its
services under the Fund Administration Agreement. Other expenses to be
incurred in the operation of the Fund will be borne by the Fund or other
parties, including
. Taxes, interest, brokerage fees and commissions.
. Salaries and fees of officers and members of the Board who are not
officers, directors, shareholders or employees of an affiliate of UAM,
including UAMFSI, UAMFDI or the adviser.
. SEC fees and states Blue-Sky fees.
. EDGAR filing fees.
. Processing services and related fees.
. Advisory and administration fees.
. Charges and expenses of pricing and data services, independent public
accountants and custodians.
. Insurance premiums including fidelity bond premiums.
. Outside legal expenses.
. Costs of maintenance of corporate existence.
. Typesetting and printing of prospectuses for regulatory purposes and for
distribution to current shareholders of the Fund.
. Printing and production costs of shareholders' reports and corporate
meetings.
21
<PAGE>
. Cost and expenses of Fund stationery and forms.
. Costs of special telephone and data lines and devices.
. Trade association dues and expenses.
. Any extraordinary expenses and other customary Fund expenses.
Unless sooner terminated, the Fund Administration Agreement shall continue in
effect from year to year provided the board specifically approves such
continuance at least annually. The Board or UAMFSI may terminate the Fund
Administration Agreement, without penalty, on not less than ninety (90) days'
written notice. The Fund Administration Agreement shall automatically
terminate upon its assignment by UAMFSI without the prior written consent of
the Fund.
UAMFSI will from time to time employ or associate with such person or persons
as may be fit to assist them in the performance of the Fund Administration
Agreement. Such person or persons may be officers and employees who are
employed by both UAMFSI and the Fund. UAMFSI will pay such person or persons
for such employment. The Fund will not incur any obligations with respect to
such persons.
SUB-ADMINISTRATOR
UAMFSI has subcontracted some of the its administrative and fund accounting
services to CGFSC, an affiliate of The Chase Manhattan Bank, by a Mutual Funds
Service Agreement dated April 15, 1996. CGFSC is located at 73 Tremont Street,
Boston, Massachusetts 02108.
SUB-TRANSFER AGENT AND SUB-SHAREHOLDER SERVICING AGENT
UAMFSI has subcontracted its transfer agent and dividend-disbursing agent
services to DST Systems, Inc. under an Agency Agreement between UAMFSI and DST
Systems Inc. DST Systems, Inc., is located at P.O. Box 419534, Kansas City,
Missouri 64141-6534.
UAMSSC serves as sub-shareholder servicing agent for the Fund under an
agreement between UAMSSC and UAMFSI. The principal place of business of UAMSSC
is 825 Duportail Road, Wayne, Pennsylvania 19087.
ADMINISTRATIVE FEES
In exchange for administrative services, each portfolio pays a four-part fee
to UAMFSI as follows:
A. A portfolio specific fee to UAMFSI calculated from the aggregate net
assets of each portfolio at the following rates:
<TABLE>
<CAPTION>
ANNUAL RATE
<S> <C>
TS&W Balanced Portfolio 0.06%
------------------------------------------------------------------------------
TS&W Equity Portfolio 0.06%
------------------------------------------------------------------------------
TS&W International Equity Portfolio 0.06%
------------------------------------------------------------------------------
TS&W Fixed Income Portfolio 0.04%
</TABLE>
B. An annual base fee that UAMFSI pays to CGFSC for its $52,500 for the first
operational class; sub-administration and other services calculated at
$7,500 for each additional operational class; the annual rate of and 0.04%
of their pro rata share of the combined assets of the UAM Funds.
C. An annual base fee that UAMFSI pays to DST Systems, Inc. for its services
as transfer agent and dividend-disbursing agent equal to $10,500 for the
first operational class and $10,500 for each additional class.
D. An annual base fee that UAMFSI pays to UAMSSC for its services as sub-
shareholder-servicing agent equal to $7,500 for the first operational class
and $2,500 for each additional class.
Each portfolio also pays certain account and transaction fees and out-of-
pocket expenses that may be based on the number of open and closed accounts,
the type of account or the services provided to the account.
SHAREHOLDER SERVICING ARRANGEMENTS
UAM and any of its 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. The adviser may also compensate its affiliated
companies for referring investors to the portfolios.
22
<PAGE>
CUSTODIAN
- --------------------------------------------------------------------------------
The Chase Manhattan Bank, 3 Chase MetroTech Center, Brooklyn, New York 11245,
provides for the custody of the Fund's assets pursuant to the terms of a
custodian agreement with the Fund.
INDEPENDENT PUBLIC ACCOUNTANT
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as independent accountants for the Fund.
BROKERAGE ALLOCATION AND OTHER PRACTICES
SELECTION OF BROKERS
- --------------------------------------------------------------------------------
The Advisory Agreements authorize the adviser to select the brokers or dealers
that will execute the purchases and sales of investment securities for a
portfolio. The Advisory Agreement also directs the adviser to use its best
efforts to obtain the best execution with respect to all transactions for a
portfolio. The adviser may select brokers based on research, statistical and
pricing services they provide to the adviser. Information and research
provided by a broker will be in addition to, and not instead of, the services
the adviser is required to perform under the Advisory Agreement. In so doing,
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. The adviser may place portfolio orders with
qualified broker-dealers who refer clients to the adviser.
SIMULTANEOUS TRANSACTIONS
- --------------------------------------------------------------------------------
The adviser makes investment decisions for a portfolio independently of
decisions made for its other clients. When a security is suitable for the
investment objective of more than one client, it may be prudent for the
adviser to engage in a simultaneous transaction, that is, buy or sell the same
security for more than one client. The adviser strives to allocate such
transactions among its clients, including the portfolios, in a fair and
reasonable manner. Although there is no specified formula for allocating such
transactions, the Fund's governing board periodically reviews the various
allocation methods used by the adviser, and the results of such allocations.
BROKERAGE COMMISSIONS
- --------------------------------------------------------------------------------
EQUITY SECURITIES
Generally, equity securities are bought and sold through brokerage
transactions for which commissions are payable. Purchases from underwriters
will include the underwriting commission or concession, and purchases from
dealers serving as market makers will include a dealer's mark-up or reflect a
dealer's mark-down.
DEBT SECURITIES
Debt securities are usually bought and sold directly from the issuer or an
underwriter or market maker for the securities. Generally, each Fund will not
pay brokerage commissions for such purchases. When a debt security is bought
from an underwriter, the purchase price will usually include an underwriting
commission or concession. The purchase price for securities bought from
dealers serving as market makers will similarly include the dealer's mark up
or reflect a dealer's mark down. When a portfolio executes transactions in
the over-the-counter market, it will deal with primary market makers unless
prices that are more favorable are otherwise obtainable.
23
<PAGE>
CAPITAL STOCK AND OTHER SECURITIES
DESCRIPTION OF SHARES AND VOTING RIGHTS
- --------------------------------------------------------------------------------
The Fund's Articles of Incorporation, as amended, permit its governing board
to issue three billion shares of common stock, with a $.001 par value. The
governing board has the power to create and designate one or more series
(portfolios) or classes of shares of common stock and to classify or
reclassify any unissued shares at any time and without shareholder approval.
When issued and paid for, the shares of each series and class of the Fund are
fully paid and nonassessable, and have no pre-emptive rights or preference as
to conversion, exchange, dividends, retirement or other features.
The shares of each series and class have non-cumulative voting rights, which
means that the holders of more than 50% of the shares voting for the election
of members of the governing board can elect all of the members if they choose
to do so. On each matter submitted to a vote of the shareholders, 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. Shares of all classes will vote together as a single class except
when otherwise required by law or as determined by the members of the Fund's
governing board.
If the Fund is liquidated, the shareholders of each portfolio or any class
thereof are entitled to receive the net assets belonging to that portfolio, or
in the case of a class, belonging to that portfolio and allocable to that
class. The Fund will distribute is net assets to its shareholders in
proportion to the number of shares of that portfolio or class thereof held by
them and recorded on the books of the Fund. The liquidation of any portfolio
or class thereof may be authorized at any time by vote of a majority of the
members of the governing board.
The governing board has authorized three classes of shares, Institutional,
Institutional Service and Adviser. The three classes represent interests in
the same assets of a portfolio and, except as discussed below, are identical
in all respects. Unlike Institutional and Adviser Class Shares, Institutional
Service Class Shares bear certain expenses related to shareholder servicing
and the distribution of such shares and have exclusive voting rights with
respect to matters relating to such distribution expenditures. The Adviser
Class Shares impose a sales load on purchases. The classes also have
different exchange privileges. The net income attributable to Institutional
Service Class Shares and the dividends payable on Institutional Service Class
Shares will be reduced by the amount of the shareholder servicing and
distribution fees; accordingly, the net asset value of the Institutional
Service Class Shares will be reduced by such amount to the extent a portfolio
has undistributed net income.
The Fund will not hold annual meetings except when required to by the
Investment Company Act of 1940, as amended, or other applicable law.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund tries to distribute substantially all of the net investment income of
a portfolio and net realized capital gains so as to avoid income taxes on its
dividends and distributions and the imposition of the federal excise tax on
undistributed income and capital gains. However, the Fund cannot predict the
time or amount of any such dividends or distributions.
Distributions by a portfolio reduce its net asset value ("NAV"). A
distribution that reduces the NAV of a portfolio below its cost basis is
taxable as described in the prospectus of the portfolios, although from an
investment standpoint, it is a return of capital. If you buy shares of a
portfolio on or before the "record date" -- the date that establishes which
shareholders will receive an upcoming distribution -- for a distribution, you
will receive some of the money you invested as a taxable distribution.
Unless the shareholder elects otherwise in writing, all dividend and capital
gains distributions are automatically received in additional shares of a
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 will be treated as a separate entity (and hence as a separate
"regulated investment company") for federal tax purposes. Each portfolio will
distribute its net capital gains to its investors, but will not offset (for
federal income tax purposes) such gains against any net capital losses of
another portfolio.
24
<PAGE>
PURCHASE REDEMPTION AND PRICING OF SHARES
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
Service Agents may enter confirmed purchase orders on behalf of their
customers. If shares of a Portfolio are purchased in this manner, the Service
Agent must receive your investment order before the close of trading on the
New York Stock Exchange ("NYSE") and transmit it to UAMSSC before the close of
its business day to receive that day's share price. UAMSSC must receive proper
payment for the order by the time the portfolio is priced on the following
business day. Service Agents are responsible to their customers and the Fund
for timely transmission of all subscription and redemption requests,
investment information, documentation and money.
Purchases of shares of a Portfolio will be made in full and fractional shares
of the Portfolio calculated to three decimal places. Certificates for
fractional shares will not be issued. Certificates for whole shares will not
be issued except at the written request of the shareholder.
The Fund reserves the right in its sole discretion 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.
IN-KIND PURCHASES
If accepted by the Fund, shareholders may purchase shares of a portfolio in
exchange for securities that are eligible for acquisition by the portfolio.
Securities to be exchanged that are accepted by the Fund will be valued as
described under "VALUATION OF SHARES" at the next determination of net asset
value after 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 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:
. At the time of exchange, such securities are eligible to be included in the
portfolio (current market quotations must be readily available for such
securities).
. The investor represents and agrees that all securities offered to be
exchanged are liquid securities and not subject to any restrictions upon
their sale by the Portfolio under the Securities Act of 1933, or otherwise.
. The value of any such securities (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.
Investors who are subject to Federal taxation upon exchange may realize a gain
or loss for Federal income tax purposes depending upon the cost of securities
or local currency exchanged. Investors interested in such exchanges should
contact the adviser.
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
When you redeem, your shares may be worth more or less than the price you paid
for them depending on the market value of the investments held by the
portfolio.
BY MAIL
Requests to redeem shares must include:
. Share certificates, if issued.
. A letter of instruction or an 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.
. Any required signature guarantees (see "SIGNATURE GUARANTEES").
. Any other necessary legal documents, if required, in the case of estates,
trusts, guardianships, custodianships, corporations, pension and profit
sharing plans and other organizations.
25
<PAGE>
BY TELEPHONE
The following tasks cannot be accomplished by telephone:
. Changing the name of the commercial bank or the account designated to
receive redemption proceeds (this can be accomplished only by a written
request signed by each shareholder, with each signature guaranteed).
. Redemption of certificated shares by telephone.
The Fund and its Sub-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, as well as 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. The Fund or Sub-Transfer Agent may
be liable for any losses due to unauthorized or fraudulent telephone
instructions if the Fund or the Sub-Transfer Agent does not employ the
procedures described above. Neither the Fund nor the Sub-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.
REDEMPTIONS-IN-KIND
If the governing board determines that it would be detrimental to the best
interests of remaining shareholders of the Fund to make payment wholly or
partly in cash, the Fund may pay redemption proceeds in whole or in part by a
distribution in-kind of liquid securities held by a Portfolio in lieu of cash
in conformity with applicable rules of the SEC. Investors may incur brokerage
charges on the sale of portfolio securities received in payment of
redemptions.
However, the Fund has made an election with the SEC 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 SEC. 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 governing board believes 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 under "Valuation of Shares'. A redeeming shareholder
would normally incur brokerage expenses if these securities were converted to
cash.
SIGNATURE GUARANTEES
To protect your account, the Fund and its sub-transfer agent 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
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 that 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.
OTHER REDEMPTION INFORMATION
Normally, the Fund will pay for all shares redeemed under proper procedures
within one business day of and no more than seven days after the receipt of
the request, or earlier if required under applicable law. 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 determined by
the SEC.
The Fund may suspend redemption privileges or postpone the date of payment
. During any period that both the NYSE and custodian bank are closed, or
trading on the NYSE is restricted as determined by the Commission.
26
<PAGE>
. 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.
. For such other periods as the Commission may permit.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
The exchange privilege is only available with respect to portfolios that are
qualified for sale in the shareholder's state of residence. Exchanges are
based on the respective net asset values of the shares involved. The
Institutional Class and Institutional Service Class Shares of UAM Funds do not
charge a sales commission or charge of any kind.
Neither the Fund nor any of its service providers will be responsible for the
authenticity of the exchange instructions received by telephone. The governing
board of the Fund may restrict the exchange privilege at any time. Such
instructions may include limiting the amount or frequency of exchanges and may
be for the purpose of assuring such exchanges do not disadvantage the Fund and
its shareholders.
TRANSFER OF SHARES
- --------------------------------------------------------------------------------
Shareholders may transfer shares of each portfolio to another person by making
a written request to the Fund. Your request should clearly identify the
account and number of shares you wish to transfer. All registered owners
should sign the request 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
"Signature Guarantees". As in the case of redemptions, the written request
must be received in good order before any transfer can be made.
VALUATION OF SHARES
- --------------------------------------------------------------------------------
The Fund does not price its shares on those days when the New York Stock
Exchange is closed, which are currently: New Year's Day; Dr. Martin Luther
King, Jr. Day; Presidents' Day; Good Friday; Memorial Day; Independence Day;
Labor Day; Thanksgiving Day; and Christmas Day.
EQUITY SECURITIES
Equity securities listed on a securities exchange for which market quotations
are readily available are valued at the last quoted sale price of the day.
Price information on listed securities is taken from the exchange where the
security is primarily traded. Unlisted equity securities and listed
securities not traded on the valuation date for which market quotations are
readily available are valued neither exceeding the asked prices nor less than
the bid prices. Quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents. The converted value is based upon the
bid price of the foreign currency against U.S. dollars quoted by any major
bank or by a broker.
DEBT SECURITIES
Debt securities are valued according to the broadest and most representative
market, which will ordinarily be the over-the-counter market. Debt securities
may be valued based on prices provided by a pricing service when such prices
are believed to reflect the fair market value of such securities. Securities
purchased with remaining maturities of 60 days or less are valued at amortized
cost when the Board of Directors determines that amortized cost reflects fair
value.
OTHER ASSETS
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 governing board.
PERFORMANCE CALCULATIONS
The portfolios measure performance by calculating yield and total return. Both
yield and total return figures are based on historical earnings and are not
intended to indicate future performance. Performance quotations by investment
companies are subject to rules adopted by the SEC, 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 SEC.
Current yield and average annual compounded total return quotations used by
27
<PAGE>
the Fund are based on the standardized methods of computing performance
mandated by the SEC. An explanation of the method used to compute or express
performance follows.
Performance is calculated separately for Institutional Class and Service Class
Shares. Dividends paid by a Portfolio with respect to Institutional Class and
Service Class Shares, to the extent any dividends are paid, will be calculated
in the same manner at the same time on the same day and will be in the same
amount, except that service fees, distribution charges and any incremental
transfer agency costs relating to Service Class Shares will be borne
exclusively by that class.
TOTAL RETURN
- --------------------------------------------------------------------------------
Total return is the change in value of an investment in a portfolio over a
given period, assuming reinvestment of any dividends and capital gains. A
cumulative or aggregate total return reflects actual performance over a stated
period of time. An average annual total return is a hypothetical rate of
return that, if achieved annually, would have produced the same cumulative
total return if performance had been constant over the entire period.
The average annual total return of a 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 one, five and ten-year period and the deduction of
all applicable Fund expenses on an annual basis. Since Institutional Service
Class Shares bear additional service and distribution expenses, their average
annual total return will generally be lower than that of the Institutional
Class Shares.
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).
The average annual total rates of return of the Institutional Class Shares of
the Portfolios are as follows:
<TABLE>
<CAPTION>
Since Inception
One Year Ended Five Years Ended Through Year Ended
October 31, 1998 October 31, 1998 October 31, 1998 Inception Date
<S> <C> <C> <C> <C>
TS&W Equity Portfolio 7/17/92
----------------------------------------------------------------------------------------------------------------
TS&W Fixed Income Portfolio 7/17/92
----------------------------------------------------------------------------------------------------------------
TS&W International Equity Portfolio 12/18/92
----------------------------------------------------------------------------------------------------------------
</TABLE>
YIELD
- --------------------------------------------------------------------------------
Yield refers to the income generated by an investment in a portfolio over a
given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all funds. As this
differs from other accounting methods, the quoted yield may not equal the
income actually paid to shareholders.
The 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. Since Institutional Service Class Shares bear additional service
and distribution expenses, their yield will generally be lower than that of
the Institutional Class Shares.
Yield is obtained using the following formula:
Yield = 2((a-b)/(cd)+1)/6/-1
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
28
<PAGE>
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
- --------------------------------------------------------------------------------
The Portfolios' performance may be compared to data prepared by independent
services which monitor the performance of investment companies, data reported
in financial and industry publications, and various indices as further
described in the Portfolios' SAI. This information may also be included in
sales literature and advertising.
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. Please see APPENDIX B for publications, indices and averages that
may be used.
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 each portfolio, 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 each
portfolio to calculate its performance. In addition, there can be no assurance
that each portfolio will continue this performance as compared to such other
averages.
TAXES
In order for a portfolio to continue to qualify for federal income tax
treatment as a regulated investment company under the Internal Revenue Code of
1986, as amended, 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, as applicable.
Each portfolio will distribute to shareholders annually any net capital gains
that have been recognized for federal income tax purposes. Shareholders will
be advised on the nature of the payments.
If for any taxable year a portfolio does not qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code, all of
the portfolio's taxable income would be subject to tax at regular corporate
rates without any deduction for distributions to shareholders. In this event,
a portfolio's distributions to shareholders would be taxable as ordinary
income to the extent of the current and accumulated earnings and profits of
the particular portfolio, and would be eligible for the dividends received
deduction in the case of corporate shareholders. The portfolios intend to
qualify as a "regulated investment company" each year.
Dividends and interest received by each portfolio may give rise to withholding
and other taxes imposed by foreign countries. These taxes would reduce each
portfolio's dividends but are included in the taxable income reported on your
tax statement if each portfolio qualifies for this tax treatment and elects to
pass it through to you. Consult a tax adviser for more information regarding
deductions and credits for foreign taxes.
29
<PAGE>
EXPENSES
<TABLE>
<CAPTION>
Investment Investment Sub-
Advisory Fee Advisory Fees Administrator Administrator Brokerage
Paid Waived Fee (CGFSC) Fee (UAMFSI) Commissions
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TS&W Equity Portfolio
1998
-----------------------------------------------------------------------------------------------------------------
1997 $ 689,525 $146,500 $120,691 $ 96,579
-----------------------------------------------------------------------------------------------------------------
1996 $ 541,000 $106,549 $511,951 $ 76,280
-----------------------------------------------------------------------------------------------------------------
TS&W International Equity Portfolio
1998
-----------------------------------------------------------------------------------------------------------------
1997 $1,164,469 $190,553 $104,773 $359,324
-----------------------------------------------------------------------------------------------------------------
1996 $ 931,000 $139,451 $106,746 $254,122
-----------------------------------------------------------------------------------------------------------------
TS&W Fixed Income Portfolio
1998
-----------------------------------------------------------------------------------------------------------------
1997 $ 286,323 $105,390 $ 79,951
-----------------------------------------------------------------------------------------------------------------
1996 $ 243,000 $ 94,203 $ 9,168
-----------------------------------------------------------------------------------------------------------------
</TABLE>
FINANCIAL STATEMENTS
The Financial Statements for each portfolio for the fiscal year ended October
31, 1998, the Financial Highlights for the respective periods presented, and
the report thereon by PricewaterhouseCoopers LLP, the Fund's independent
accountant, which appear in portfolio's 1998 Annual Report, are incorporated
by reference into this Statement of Additional Information. No other parts
are incorporated by reference herein. Copies of the 1998 Annual Report may be
obtained free of charge by telephoning the UAM Funds at the telephone number
appearing on the front page of this Statement of Additional Information.
30
<PAGE>
PART C
UAM FUNDS, INC.
OTHER INFORMATION
ITEM 23. EXHIBITS
Exhibits previously filed by the Fund are incorporated by reference to such
filings. The following table describes the location of all exhibits. In the
table, the following references are used:
PEA# = Post-Effective Amendment (pertinent numbers for each PEA are included
after "PEA", e.g., PEA #3 means the third PEA under the Securities Act of
1933.)
<TABLE>
<CAPTION>
Exhibit No. Description Incorporated By Reference to
- -------------- ----------- Location:
-------------------------------
<S> <C> <C>
A.1. Articles of Incorporation PEA#37
A.2. Amendments PEA#37
A.3. Articles Supplementary PEA#37, PEA#41, PEA#42,PEA#44, PEA#45,
PEA#47, PEA#49; PEA#52
B. By-Laws PEA#52
C. Form of Specimen of Securities PEA#52
D. Investment Advisory Agreements RS, Pre EA, PEA #1, PEA #21, PEA#5, PEA #7,
PEA #12, PEA #13, PEA#16, PEA #19, PEA #21,
PEA #24, PEA# 25,PEA#31, PEA#33, PEA#37,
PEA#40, PEA#41, PEA#42, PEA#44,PEA#45, PEA#47,
PEA#49, PEA#51
E Distribution Agreement between PEA#49
UAM Fund
Distributors, Inc. and UAM
Funds, Inc.
F. Bonus andProfit Sharing Contracts Not Applicable
G Global Custody Agreement PEA#44
H. 1. Fund Administration Agreement
between UAM Funds, PEA#40
Inc. and UAM Fund Services, Inc.
H.2. Mutual Funds Service Agreement between PEA#49
UAM Fund
Services, Inc. and Chase Global Funds
Services Company
I. Opinion and Consent of Counsel To be filed under amendment
Other Opinions and Consents Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Incorporated By Reference to
- ----------- ----------- Location:
----------------------------------
<S> <C> <C>
K. Omitted Financial Statements Not Applicable
L. Purchase Agreement PEA#52
M.1. Distribution Plan PEA#52
M.2. Form of Selling Dealer Agreement PEA#52
M.3. Shareholder Services Plan PEA#52
M.4. Form of Service Agreement (12b-1 Plan) PEA#52
N. Financial Data Schedules To be filed under amendment
O. Amended and Restated Rule 18f-3 Multiple Class PEA#52
Plan
P. Powers of Attorney PEA#52
</TABLE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
Not applicable.
ITEM 25. INDEMNIFICATION
Reference is made to Article NINTH of the Registrant's Articles of
Incorporation, which was filed as Exhibit No. 1 to the Registrant's initial
registration statement, and as Exhibit No., 1 to PEA # 37. Insofar as
indemnification for liability arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provision, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefor, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Provisions for indemnification of UAM Fund Services, Inc. are contained in
Section 6 of its Fund Administration Agreement with the Registrant.
Provisions for indemnification of the Registrant's investment advisers are
contained in Section 7 of their respective Investment Advisory Agreements with
the Registrant.
Provisions for indemnification of Registrant's principal underwriter, UAM Fund
Distributors, Inc., are contained in its Distribution Agreement with the
Registrant.
Provisions for indemnification of Registrant's custodian, The Chase Manhattan
Bank, are contained in Section 12 of its Fund Global Custody Agreement with the
Registrant.
<PAGE>
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to the caption "Investment Adviser" in the Prospectuses
constituting Part A of this Registration Statement and "Investment Adviser" in
Part B of this Registration Statement. The information required by this Item 26
with respect to each director, officer, or partner of each other investment
adviser of the Registrant is incorporated by reference to the Forms ADV filed by
the investment advisers listed below with the Securities and Exchange Commission
pursuant to the Investment Advisers Act of 1940, as amended, under the file
numbers indicated:
Each Investment Adviser is an affiliate of United Asset Management Corporation
("UAM"), a Delaware corporation owning firms engaged primarily in institutional
investment management.
. Acadian Asset Management (File No. 801-28078)
. Cooke & Bieler, Inc (File No. 801-210)
. Dewey Square Investors Corporation (File No. 801-34179)
. Fiduciary Management Associates, Inc. (File No. 801-21271)
. Investment Counselors of Maryland, Inc. (File No. 801-8761)
. C.S. McKee & Company, Inc. (File No. 801-08545)
. NWQ Investment Management Company (File No. 801-42159)
. Rice, Hall, James & Associates (File No. 801-30441)
. Sirach Capital Management, Inc. (File No. 801-33477)
. Spectrum Asset Management, Inc. (File No. 801-30405
. Sterling Capital Management Company (File No. 801-8776)
. Thompson, Siegel & Walmsley, Inc. (File No. 801-6273)
ITEM 27. PRINCIPAL UNDERWRITERS
(a) UAM Fund Distributors, Inc. ("UAMFDI") acts as sole distributor of the
Registrant's shares, and acts as distributor UAM Funds Trust (except
ACG Capital Corporation ("ACG") acts as sole distributor of the Heitman
Real Estate Portfolio Advisor Class Shares of UAM Funds Trust).
(b) The information required with respect to each Director and officer of
UAMFDI is incorporated by reference to Schedule A of Form BD filed
pursuant to the Securities and Exchange Act of 1934 (SEC File No. 8-
41126).
The information required with respect to each Director and officer of
ACG is incorporated by reference to Schedule A of Form BD filed
pursuant to the Securities and Exchange Act of 1934 (SEC File No. 8-
47813).
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
The books, accounts and other documents required by Section 31(a) under the
Investment Company Act of 1940, as amended, and the rules promulgated thereunder
will be maintained in the physical possession of the Registrant, the
Registrant's Advisers, the Registrant's Sub-Administrative Agent (Chase Global
Funds Services Company, 73 Tremont Street, Boston, Massachusetts 02108), the
Registrant's Sub-Transfer Agent (DST Systems, Inc., 210 West 10/th/ Street,
Kansas City, MO 64105), and the Registrant's Custodian Bank (The Chase
Manhattan Bank 4 Chase MetroTech Center, Brooklyn, New York, 11245).
ITEM 29. MANAGEMENT SERVICES
Not Applicable.
ITEM 30. UNDERTAKINGS
<PAGE>
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Boston and Commonwealth of Massachusetts on the
24th day of November, 1998.
UAM FUNDS, INC.
/s/ Michael E. Defao
-----------------------
Michael E. DeFao
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the 24th day of November, 1998:
*
___________________________
Norton H. Reamer, Chairman and
President
*
___________________________
John T. Bennett, Jr., Director
*
___________________________
Nancy J. Dunn, Director
*
___________________________
Philip D. English, Director
*
___________________________
William A. Humenuk, Director
*
___________________________
Peter M. Whitman, Jr., Director
/s/ Gary L. French
- ----------------------------
Gary L. French, Treasurer
/s/ Michael E. Defao
- ----------------------------
* Michael E. DeFao
(Attorney-in-Fact)
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITIES AND RATINGS
MOODY'S INVESTORS SERVICE, INC.
-------------------------------
PREFERRED STOCK RATINGS:
aaa An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred
stock.
aa An issue which is rated "aa" is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance the
earnings and asset protection will remain relatively well maintained
in the foreseeable future.
a An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in
the "aaa" and "aa" classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
baa An issue which is rated "baa" is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings
and asset protection appear adequate at present but may be
questionable over any great length of time.
ba An issue which is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured. Earnings
and asset protection may be very moderate and not well safeguarded
during adverse periods. Uncertainty of position characterizes
preferred stocks in this class.
b An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance
of other terms of the issue over any long periods of time may be
small.
caa An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the
future status of payments.
ca An issue which is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of
eventual payments.
c This is the lowest rated class of preferred or preference stock.
Issues so rated can thus be regarded as having extremely poor
prospects of ever attaining any real investment standing.
NOTE: Moody's applies numerical modifiers 1, 2, and 3 in each rating
classification: 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.
A-1
<PAGE>
DEBT RATINGS - TAXABLE DEBT & DEPOSITS GLOBALLY:
Aaa Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt-edged." 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 the Aaa
securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium obligations.
Factors giving security to principal and interest are adequate,
but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium-grade
obligations, (i.e., 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.
NOTE: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.
SHORT-TERM PRIME RATING SYSTEM - TAXABLE DEBT & DEPOSITS GLOBALLY
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year, unless explicitly noted.
A-2
<PAGE>
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
PRIME-1 Issuers rated Prime-1 (or supporting institution) have a superior
ability for repayment of senior short-term debt obligations.
Prime-1 repayment ability will often be evidenced by many of the
following characteristics:
. High rates of return on funds employed.
. Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
. Broad leading market positions in well-established industries.
. margins in earnings coverage of fixed financial charges and high
internal cash generation.
. Well-established access to a range of financial markets and
assured sources of alternate liquidity.
PRIME-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This
will normally be evidenced by many of the characteristics cited
above but to a lesser degree. Earnings trends and coverage
ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity
is maintained.
PRIME 3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligation.
The effect of industry characteristics and market compositions
may be more pronounced. Variability in earnings and profitability
may result in changes in the level of debt protection
measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
NOT PRIME Issuers rated Not Prime do not fall within any of the Prime
rating categories.
STANDARD & POOR'S RATINGS SERVICES:
-----------------------------------
PREFERRED STOCK RATINGS:
AAA This is the highest rating that may be assigned by Standard &
Poor's to a preferred stock issue and indicates an extremely
strong capacity to pay the preferred stock obligations.
AA A preferred stock issue rated AA also qualifies as a high-
quality, fixed-income security. The capacity to pay preferred
stock obligations is very strong, although not as overwhelming as
for issues rated AAA.
A An issue rated A is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more
susceptible to the adverse effects of changes in circumstances
and economic conditions.
BBB An issue rated BBB is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to make payments for a preferred stock in this
category than for issues in the A category.
BB, B, Preferred stock rated BB, B, and CCC are regarded, on balance, as
predominantly
A-3
<PAGE>
CCC speculative with respect to the issuer's capacity to pay
preferred stock obligations. BB indicates the lowest degree of
speculation and CCC the highest. While such issues will likely
have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to
adverse conditions.
CC The rating CC is reserved for a preferred stock issue that is in
arrears on dividends or sinking fund payments, but that is
currently paying.
C A preferred stock rated C is a nonpaying issue.
D A preferred stock rated D is a nonpaying issue with the issuer in
default on debt instruments.
N.R. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that
Standard & Poor's does not rate a particular type of obligation
as a matter of policy.
PLUS (+) To provide more detailed indications of preferred stock quality,
OR ratings from AA to CCC may be modified by the addition of a PLUS
MINUS (-) or MINUS sign to show relative standing within the major rating
categories.
LONG-TERM ISSUE CREDIT RATINGS:
Issue credit ratings are based, in varying degrees, on the following
considerations:
Likelihood of payment-capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation;
Nature of and provisions of the obligation;
Protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization, or other arrangement under the laws of bankruptcy
and other laws affecting creditors' rights.
AAA An obligation rated AAA have the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
AA An obligation rated AA differs from the highest-rated obligations
only in small degree. The obligor's capacity to meet its
financial commitment on the obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher- rated categories. However, the obligor's
capacity to meet its financial commitment on the obligation is
still strong.
BBB An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity of the obligator
to meet its financial commitment on the obligation.
Obligations rated BB, B, CCC , CC and C are regarded as having significant
speculative characteristics. BB indicates the least degree of speculation and C
the highest. While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major risk
exposures to adverse conditions.
A-4
<PAGE>
BB An obligation rated BB is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing
uncertainties or exposures to adverse business, financial, or
economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B An obligation rated B is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity
to meet its financial commitment on the obligation. Adverse
business, financial, or economic conditions will likely impair
the obligor's capacity or willingness to meet its financial
commitment on the obligation.
CCC An obligation rated CCC is currently vulnerable to non-payment,
and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on
the obligation. In the event of adverse business, financial, or
economic conditions, the obligor is not likely to have the
capacity to meet its financial commitment on the obligations.
CC An obligation rated CC is currently highly vulnerable to
nonpayment.
C The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
D An obligation rated D is in payment default. The D rating
category is used when payments on an obligation are not made on
the date due even if the applicable grace period has not expired,
unless Standard & Poor's believes that such payments will be made
during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) The ratings from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
R This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligation linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk-such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
SHORT-TERM ISSUE CREDIT RATINGS:
Short-term ratings are generally assigned to those obligations considered short-
term in the relevant market. In the U.S., for example, that means obligations
with an original maturity of no more than 365 days - including commercial paper.
Short-term ratings are also used to indicate the creditworthiness of an obligor
with respect to put features on long-term obligations. The result is a dual
rating in which the short-term rating addresses the put feature, in addition to
the usual long-term rating. Medium-term notes are assigned long-term ratings.
A-1 A short-term obligation rated A-1 is rated in the highest
category by Standard & Poor's. The obligor's capacity to meet its
financial commitment on the obligation is strong. Within this
category, certain obligations are designated with a plus sign
(+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than obligation in higher rating categories. However,
the obligor's capacity to meet its financial commitment on the
obligation is satisfactory.
A-5
<PAGE>
A-3 A short-term obligation rated A-3 exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of
the obligor to meet its financial commitment on the obligation.
B A short-term obligation rated B is regarded as having significant
speculative characteristics. The obligor currently has the
capacity to meet its financial commitment on the obligation;
however, it faces major ongoing uncertainties which could lead to
the obligor's inadequate capacity to meet its financial
commitment on the obligation.
C A short-term obligation rated C is currently vulnerable to
nonpayment and is dependent upon favorable business, financial,
and economic conditions for the obligor to meet its financial
commitment on the obligation.
D A short-term obligation rated D is in payment default. The D
rating category is used when payments on an obligation are not
made on the date due even if the applicable grace period has not
expired, unless Standard & Poors' believes that such payments
will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition or the taking of a
similar action if payments on an obligation are jeopardized.
DUFF & PHELPS CREDIT RATING CO.
-------------------------------
LONG-TERM DEBT AND PREFERRED STOCK:
AAA Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
AA+/AA High credit quality. Protection factors are strong. Risk is
modest but MAY vary slightly from time to time because of
economic conditions.
A+/A/A- Protection factors are average but adequate. However, risk
factors are more variable in periods of greater economic stress.
BBB+/BBB Below-average protection factors but still considered sufficient
BBB- for prudent investment. Considerable variability in risk during
economic cycles.
BB+/BB/BB- Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors
fluctuate according to industry conditions. Overall quality may
move up or down frequently within this category.
B+/B/B- Below investment grade and possessing risk that obligation will
not be net when due. Financial protection factors will fluctuate
widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in the
rating within this category or into a higher or lower rating
grade.
CCC Well below investment-grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred
dividends. Protection factors are narrow and risk can be
substantial with unfavorable economic/industry conditions, and/or
with unfavorable company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments. Issuer failed to meet
scheduled principal and/or interest payments.
A-6
<PAGE>
DP Preferred stock with dividend arrearages.
SHORT-TERM DEBT:
HIGH GRADE
D-1+ Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-
free U.S. Treasury short-term obligations.
D-1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors.
Risk factors are minor.
D-1- High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk
factors are very small.
GOOD GRADE
D-2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets
is good. Risk factors are small.
SATISFACTORY GRADE
D-3 Satisfactory liquidity and other protection factors qualify
issues as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is
expected.
NON-INVESTMENT GRADE
D-4 Speculative investment characteristics. Liquidity is not
sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high
degree of variation.
DEFAULT
D-5 Issuer failed to meet scheduled principal and/or interest
payments.
FITCH IBCA RATINGS
INTERNATIONAL LONG-TERM CREDIT RATINGS
INVESTMENT GRADE
AAA HIGHEST CREDIT QUALITY. `AAA' ratings denote the lowest
expectation of credit risk. They are assigned only in case of
exceptionally strong capacity for timely payment for financial
commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.
AA VERY HIGH CREDIT QUALITY. `AA' ratings denote a very low
expectation of credit risk. They indicate very strong capacity
for timely payment of financial commitments. This capacity is not
significantly vulnerable to foreseeable events.
A-7
<PAGE>
A HIGH CREDIT QUALITY. `A' ratings denote a low expectation of
credit risk. The capacity for timely payment of financial
commitments is considered strong. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or
in economic conditions than is the case for higher ratings.
B GOOD CREDIT QUALITY. `BBB' ratings indicate that there is
currently a low expectation of credit risk. The capacity for
timely payment of financial commitments is considered adequate,
but adverse changes in circumstances and in economic conditions
are more likely to impair this capacity. This is the lowest
investment-grade category.
SPECULATIVE GRADE
BB SPECULATIVE. `BB' ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse
economic change over time; however, business or financial
alternatives may be available to allow financial commitments to
be met. Securities rated in this category are not investment
grade.
B HIGHLY SPECULATIVE. `B' ratings indicate that significant credit
risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity
for continued payment is contingent upon a sustained, favorable
business and economic environment.
CCC,CC,C HIGH DEFAULT RISK. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained,
favorable business or economic developments. A `CC' rating
indicates that default of some kind appears probable. `C' ratings
signal imminent default.
DDD,DD,D DEFAULT. Securities are not meeting current obligations and are
extremely speculative. `DDD' designates the highest potential for
recovery of amounts outstanding on any securities involved. For
U.S. corporates, for example, `DD' indicates expected recovery of
50% - 90% of such outstandings, and `D' the lowest recovery
potential, i.e. below 50%.
INTERNATIONAL SHORT-TERM CREDIT RATINGS
F1 HIGHEST CREDIT QUALITY. Indicates the strongest capacity for
timely payment of financial commitments; may have an added "+" to
denote any exceptionally strong credit feature.
F2 GOOD CREDIT QUALITY. A satisfactory capacity for timely payment
of financial commitments, but the margin of safety is not as
great as in the case of the higher ratings.
F3 FAIR CREDIT QUALITY. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could
result in a reduction to non-investment grade.
B SPECULATIVE. Minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in
financial and economic conditions.
C HIGH DEFAULT RISK. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon a sustained,
favorable business and economic environment.
D DEFAULT. Denotes actual or imminent payment default.
A-8
<PAGE>
NOTES:
"+" or "-" may be appended to a rating to denote relative status within major
rating categories. Such suffixes are not added to the `AAA' long-term rating
category, to categories below `CCC', or to short-term ratings other than `F1'.
`NR' indicates that Fitch IBCA does not rate the issuer or issue in question.
`Withdrawn': A rating is withdrawn when Fitch IBCA deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
RatingAlert: Ratings are placed on RatingAlert to notify investors that there is
a reasonable probability of a rating change and the likely direction of such
change. These are designated as "Positive", indicating a potential upgrade,
"Negative", for a potential downgrade, or "Evolving", if ratings may be raised,
lowered or maintained. RatingAlert is typically resolved over a relatively short
period.
A-9
<PAGE>
APPENDIX B - COMPARISONS
With respect to the comparative measures of performance for equity securities
described herein, comparisons of performance assume reinvestment of dividends,
except as otherwise stated below.
(a) Balanced Benchmark a hypothetical combination of unmanaged indices,
reflects the Portfolio's neutral mix of 60% stocks and 40% bonds (60%
Russell 2500/40% Lehman Brothers Government/Corporate Index).
(b) 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.
(c) Composite Index a hypothetical combination of unmanaged indices, reflects
the Portfolio's typical mix of 60% stock and 40% bonds. The index combines
returns from the S & P 500 Index and the Lehman Brothers
Government/Corporate Index.
(d) Composite Indices (all stocks on the NASDAQ system exclusive of those
traded on an exchange)
. 60% Standard & Poor's 500 Stock Index, 30% Lehman Brothers Long-Term
Treasury Bond and 10% U.S. Treasury Bills
. 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
. 65% Standard & Poor's 500 Stock Index and 35% Salomon Brothers High
Grade Bond Index
(e) 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.
(f) Donoghue's Money Fund Average -- is an average of all major money market
fund yields, published weekly for 7 and 30-day yields.
(g) 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.
(h) Dow Jones Industrial Average a price-weighted average of thirty blue-chip
stocks that are generally the leaders in their industry and are listed on
the New York Stock Exchange. It has been a widely followed indicator of the
stock market since October 1, 1928.
(i) 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.
(j) 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.
(k) Historical data supplied by the research departments of First Boston
Corporation, J.P. Morgan & Co, Inc., Salomon Brothers, Merrill Lynch & Co.,
Inc., Lehman Brothers, Inc. and Bloomberg L.P.
B-1
<PAGE>
(l) IBC's Money Fund Average/All Taxable an average of all major money market
fund yields, published weekly for 7- and 30-day yields.
(m) IFC Investable Index an unmanaged index maintained by the International
Finance Corporation. This index consists of 890 companies in 25 emerging
equity markets, and is designed to measure more precisely the returns
portfolio managers might receive from investment in emerging markets equity
securities, by focusing on companies and markets that are legally and
practically accessible to foreign investors.
(n) Lehman Brothers Aggregate Bond Index an unmanaged 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 value of at least $100 million for
U.S. Government issues and $25 million for others.
(o) Lehman Brothers Government/Corporate Index -- is a combination of the
Government and Corporate Bond Indices. The Government Index includes public
obligations of the U.S. Treasury, issues of the Government agencies, and
corporate debt backed by the U.S. Government. The Corporate Bond Index
includes fixed-rate nonconvertible corporate debt. Also included are Yankee
Bonds and nonconvertible debt issued by or guaranteed by foreign or
international governments and agencies. All issues are investment grade
(BBB) or higher, with maturities of one to ten years and an outstanding par
value of at least $100 million for U.S. Government issues and $25 million
for others.. Any security downgraded during the month is held in the index
until month-end and then removed. All returns are market value weighted
inclusive of accrued income.
(p) 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.
(q) 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.
(r) Lipper Balanced Fund Index an unmanaged index of open-end equity funds
whose primary objective is to conserve principal by maintaining at all time
a balanced portfolio of both stocks and bonds. Typically, the stock/bond
ratio ranges around 60%/40%.
(s) Lipper Capital Appreciation Funds Index -- a fund that aims at maximum
capital appreciation, frequently by means of 100% or more portfolio
turnover, leveraging, purchasing unregistered securities, purchasing
options, etc. the fund may take large cash positions.
(t) Lipper Equity Income Fund Index an unmanaged index of equity funds which
seek relatively high current income and growth of income through investing
60% or more of the portfolio in equities.
(u) Lipper Equity Mid Cap Fund Index an unmanaged index of funds which by
prospectus or portfolio practice invest primarily in companies with market
capitalizations less than $5 billion at the time of purchase.
(v) Lipper Equity Small Cap Fund Index an unmanaged index of funds by
prospectus or portfolio practice invest primarily in companies with market
capitalizations less than $1 billion at the time of purchase.
(w) Lipper Growth Fund Index an unmanaged index composed of the 30 largest
funds by asset size in this investment objective.
B-2
<PAGE>
(x) Lipper Small Cap Funds Index -- a fund that by prospectus or portfolio
practice invests primarily in companies with market capitalizations of less
than $1 billion at the time of purchase.
(y) Lipper 1-5 Year Short Investment Grade Debt Funds Average -- is an average
of 160 funds that invest at least 65% of assets in investment grade debt
issues (rated in top four grades with dollar-weighted average maturities of
5 years or less.
(z) Merrill Government/Corporate 1 to 5 Year Index -- is an unmanaged index
composed of U.S. Treasuries, agencies and corporates with maturities from 1
to 4.99 years. Corporates are investment grade only (rated in the top four
grades).
(aa) Merrill Lynch 1-4.99 Year Corporate/Government Bond Index -- is an
unmanaged index composed of U.S. Treasuries, agencies and corporates with
maturities from 1 to 4.99 years. Corporates are investment grade only
(rated in the top four grades).
(bb) Merrill Lynch 1-5 Year Corporate/Government Bond Index an unmanaged index
composed of U.S. Treasuries, agencies and corporates with maturities from 1
to 5 years. Corporates are investment grade only (rated in the top four
grades).
(cc) 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.
(dd) Mutual Fund Source Book, published by Morningstar, Inc. analyzes price,
yield, risk and total return for equity funds.
(ee) 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.
(ff) 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.
(gg) Russell 2000 Index -- 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.
(hh) Russell 2000 Value Index contains those Russell 2000 securities with a
less-than-average growth orientation. Securities in this index tend to
exhibit lower price-to-book and price-earnings ratios, higher dividend
yields and lower forecasted growth values than the Growth universe.
(ii) Russell 2500 Index an unmanaged index composed of the 2,5000 smallest
stocks in the Russell 3000, a market value weighted index of the 3,000
largest U.S. publicly traded companies.
(jj) Russell 2500 Growth Index contains those Russell 2500 securities with a
greater-than-average growth orientation. Securities in this index tend to
exhibit higher price-to-book and price-earnings ratios, lower dividend
yields and higher forecasted growth values than the Value universe.
(kk) Russell 2500 Value Index contains those Russell 2500 securities with a
less-than-average growth orientation. Securities in this index tend to
exhibit lower price-to-book and price-earnings ratios, higher dividend
yields and lower forecasted growth values then the Growth universe.
(ll) Russell Mid-Cap Growth Index -- is composed of the 800 smallest stocks in
the Russell 1000 Index, with an average capitalization of $1.96 billion.
B-3
<PAGE>
(mm) 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.
(nn) Salomon Brothers GNMA Index -- includes pools of mortgages originated by
private lenders and guaranteed by the mortgage pools of the Government
National Mortgage Association.
(oo) 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.
(pp) Salomon Brothers Three-Month T-Bill Average -- the average for all Treasury
bills for the previous three-month period.
(qq) Salomon Brothers Three-Month U.S. Treasury Bill Index a return equivalent
yield average based on the last three 3-month Treasury bill issues.
(rr) Savings and Loan Historical Interest Rates -- as published by the U.S.
Savings and Loan League Fact Book.
(ss) Standard & Poor's 400 Mid Cap Index -- consists of 400 domestic stocks
chosen for market size, liquidity, and industry group representation. It is
also a market-value weighted index and was the first benchmark of mid cap
stock price movement.
(tt) 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.
(uu) Standard & Poor's 600 SmallCap Index a market-weighted index that measures
the performance of the small-cap sector of the U.S. stock market where the
median market capitalization is approximately $264 million.
(vv) 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.
(ww) Value Line -- composed of over 1,600 stocks in the Value Line Investment
Survey.
(xx) 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
January __, 1999
B-4
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
Statements of Additional Information constituting parts of this Post-Effective
Amendment No. 53 to the registration statement on Form N-1A (the "Registration
Statement") of our reports dated December 11, 1997, relating to the financial
statements and financial highlights appearing in the October 31, 1997 Annual
Reports to shareholders of the thirty-four portfolios comprising UAM Funds,
Inc., which are also incorporated by reference into the Registration Statement.
We also consent to the references to us under the headings "Financial
Statements" and "Independent Accountants" in such Statements of Additional
Information and to the references to us under the headings "Financial
Highlights", "Independent Accountants" and "Reports" in such Prospectuses.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
Boston, Massachusetts
November 23, 1998
