UAM FUNDS INC
497, 2000-03-07
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                                   UAM Funds
                                 PO Box 419081
                          Kansas City, MO  64141-6081
                     (Toll free) 1-877-UAM-LINK (826-5465)




                      Acadian Emerging Markets Portfolio
                          Institutional Class Shares


                        Statement of Additional Information

                               February 28, 2000

This statement of additional information (SAI) is not a prospectus. However, you
should read it in conjunction with the prospectus of the portfolio dated
February 28, 2000, as supplemented from time to time. You may obtain a
prospectus for the portfolio by contacting the UAM Funds at the address listed
above.
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Table Of Contents

<TABLE>
<S>                                                                          <C>
Description of Permitted Investments.......................................... 1
  What Investment Strategies May the Portfolio Use?........................... 1
  Debt Securities............................................................. 1
  Derivatives................................................................. 8
  Equity Securities...........................................................16
  Foreign Securities..........................................................18
  Investment Companies........................................................22
  Repurchase Agreements.......................................................22
  Restricted Securities.......................................................22
  Securities Lending..........................................................23
  When Issued Transactions....................................................23
Investment Policies of the Portfolio..........................................24
  Fundamental Policies........................................................24
  Non-Fundamental Policies....................................................24
Management Of The Fund........................................................25
Principal Shareholders........................................................27
Investment Advisory and Other Services........................................27
  Investment Adviser..........................................................27
  Distributor.................................................................29
  Shareholder Servicing Arrangements..........................................29
  Administrative Services.....................................................30
  Custodian...................................................................31
  Independent Accountants.....................................................31
Brokerage Allocation and Other Practices......................................31
  Selection of Brokers........................................................31
  Simultaneous Transactions...................................................32
  Brokerage Commissions.......................................................32
Capital Stock and Other Securities............................................33
  Description Of Shares And Voting Rights.....................................33
Purchase, Redemption and Pricing of Shares....................................34
  Net Asset Value Per Share...................................................34
  Purchase of Shares..........................................................35
  Redemption of Shares........................................................36
  Exchange Privilege..........................................................38
  Transfer Of Shares..........................................................38
Performance Calculations......................................................38
  Total Return................................................................38
  Yield.......................................................................39
  Comparisons.................................................................39
Financial Statements..........................................................40
Glossary......................................................................40
Bond Ratings..................................................................41
  Moody's Investors Service, Inc..............................................41
  Standard & Poor's Ratings Services..........................................43
  Duff & Phelps Credit Rating Co..............................................46
  Fitch IBCA Ratings..........................................................47
Comparative Benchmarks........................................................48
</TABLE>
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Description of Permitted Investments

WHAT INVESTMENT STRATEGIES MAY THE PORTFOLIO USE?
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     The portfolio currently intends to use the securities and investment
     strategies listed below in seeking its objectives; however, it may at any
     time invest in any of the investment strategies described in this SAI. This
     SAI describes each of these investments/strategies and their risks. The
     portfolio may not notify shareholders before employing new strategies,
     unless it expects such strategies to become principal strategies. The
     investments that are italicized are principal strategies and you can find
     more information on these techniques in the prospectus of the portfolio.
     You can find more information concerning the limits on the ability of the
     portfolio to use these investments in "What Are the Investment Strategies
     of the Portfolio?"

     .    Foreign securities.

     .    Equity securities.

     .    Short-term investments.

     .    Futures.

     .    Options.

     .    Swaps.

     .    Forward currency exchange contracts.

     .    Investment companies.

     .    Repurchase agreements.

     .    Restricted securities.

     .    Securities lending.

     .    When issued securities.

DEBT SECURITIES
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     Corporations and governments use debt securities 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.

     Types of Debt Securities

     U.S. Government Securities

     U.S. government securities are securities that the U.S. Treasury has issued
     (treasury securities) and securities that a federal agency or a government-
     sponsored entity has issued (agency securities). Treasury securities
     include treasury notes, which have initial maturities of one to ten years
     and treasury bonds, which have initial maturities of at least ten years and
     certain types of mortgage-backed securities that are described under
     "Mortgage-Backed Securities" and "Other Asset-Backed Securities." This SAI
     discusses mortgage-backed treasury and agency securities in detail in the
     section called "Mortgage-Backed Securities" and "Other Asset-Backed
     Securities."

     The full faith and credit of the U.S. government supports treasury
     securities. Unlike treasury securities, the full faith and credit of the
     U.S. government generally do not back agency securities. Agency securities
     are typically supported in one of three ways:

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 .    by the right of the issuer to borrow from the U.S. Treasury;

 .    by the discretionary authority of the U.S. government to buy the
     obligations of the agency; or

 .    by the credit of the sponsoring agency.

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

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.

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. Unlike most debt securities, which pay
interest periodically and repay principal at maturity or on specified call
dates, mortgage-backed securities make monthly payments that consist of both
interest and principal payments. In effect, these payments are a "pass-through"
of the monthly payments made by the individual borrowers on their mortgage
loans, net of any fees paid to the issuer or guarantor of such securities. Since
homeowners usually have the option of paying either part or all of the loan
balance before maturity, the effective maturity of a mortgage-backed security is
often shorter than is stated.

Governmental entities, private insurers and the mortgage poolers may insure or
guarantee 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. 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 is the principal governmental guarantor of mortgage-related securities.
GNMA is a wholly owned corporation of the U.S. government and it falls within
the Department of Housing and Urban Development. Securities issued by GNMA are
treasury securities, which means the full faith and credit of the U.S.
government backs them. GNMA 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, the 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)

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FNMA is a government-sponsored corporation owned entirely by private
stockholders. FNMA is regulated by the Secretary of Housing and Urban
development. FNMA purchases conventional mortgages from a list of approved
sellers and service providers, including state and federally-chartered savings
and loan associations, mutual savings banks, commercial banks and credit unions
and mortgage bankers. Securities issued by FNMA are agency securities, which
means FNMA, but not the U.S. government, guarantees their timely payment of
principal and interest.


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. 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.


Risks of Mortgage-Backed Securities

Yield characteristics of mortgage-backed securities differ from those of
traditional debt securities in a variety of ways, the most significant
differences are mortgage-backed securities:

 .    payments of interest and principal are more frequent (usually monthly); and

 .    falling interest rates generally cause individual borrowers to pay off
     their mortgage earlier than expected forcing the portfolio to reinvest the
     money at a lower interest rate.

In addition to risks associated with changes in interest rates described in
"Factors Affecting the Value of Debt Securities," a variety of economic,
geographic, social and other factors, such as the sale of the underlying
property, refinancing or foreclosure, can cause investors to repay the loans
underlying a mortgage-backed security sooner than expected. If the prepayment
rates increase, the portfolio may have to reinvest its principal at a rate of
interest that is lower than the rate on existing mortgage-backed securities.

Other Asset-Backed Securities

These securities are interests in pools of a broad range of assets other than
mortgages, such as automobile loans, computer leases and credit card
receivables. Like mortgage-backed securities, these securities are pass-through.
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

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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 related asset-backed securities. Due to
the quantity of vehicles involved and requirements under state laws, 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 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.

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 prepay principal
monthly. While whole mortgage loans may collateralize CMOs, 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.

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 securities listed below, U.S. government securities and
investment-grade corporate debt securities. Unless otherwise specified, a short-
term debt security has a maturity of one year or less.

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

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 .    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 is a short-term obligation with a maturity ranging from 1 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 "Bond Ratings" for a description of commercial
paper ratings.

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 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".

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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. The 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 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
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," the portfolio can record its beneficial ownership of the coupon or
corpus directly in the book-entry record-keeping system.

Terms to Understand

Maturity

Every debt security has a stated maturity date when the issuer must repay the
amount it borrowed (principal) from investors. Some debt securities, however,
are callable, meaning the issuer can repay the principal earlier, on or after
specified dates (call dates). Debt securities are most likely to be called when
interest rates are falling because the issuer can refinance at a lower rate,
similar to a homeowner refinancing a mortgage. The effective maturity of a debt
security is usually its nearest call date.

The portfolio that invests in debt securities has no real maturity. Instead, it
calculates its weighted average maturity. This number is an average of the
stated maturity of each debt security held by the portfolio, with the maturity
of each security weighted by the percentage of the assets of the portfolio it
represents.

Duration

Duration is a calculation that seeks to measure the price sensitivity of a debt
security, or the portfolio that invests in debt securities, to changes in
interest rates. It measures sensitivity more accurately than maturity because it
takes into account the time value of cash flows generated over the life of a
debt security. Future interest payments and principal payments are discounted to
reflect their present value and then are multiplied by the number of years they
will be

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     received to produce a value expressed in years -- the duration. Effective
     duration takes into account call features and sinking fund prepayments that
     may shorten the life of a debt security.

     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.

Factors Affecting the Value of Debt 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).

     Prepayment Risk

     This risk effects mainly mortgage-backed securities. Unlike other debt
     securities, falling interest rates can hurt mortgage-backed securities,
     which may cause your share price to fall. Lower rates motivate people to
     pay off mortgage-backed and asset-backed securities earlier than expected.
     The portfolio may then have to reinvest the proceeds from such prepayments
     at lower interest rates, which can reduce its yield. 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. If left unattended, drifts in the average maturity of the
     portfolio can have the unintended effect of increasing or reducing the
     effective duration of the portfolio, which may adversely affect the
     expected performance of the portfolio.

     Extension Risk

     The other side of prepayment risk occurs when interest rates are rising.
     Rising interest rates can cause the portfolio's average maturity to
     lengthen unexpectedly due to a drop in mortgage prepayments. This would
     increase the sensitivity of the portfolio to rising rates and its potential
     for price declines. 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.

     Credit Rating

     Coupon interest is offered to investors of debt securities as compensation
     for assuming risk, although short-term Treasury securities, such as 3-month
     treasury bills, are considered "risk free." Corporate securities offer
     higher yields than Treasury securities 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 Treasuries securities.

     Changes in investor confidence regarding the certainty of interest and
     principal payments of a corporate debt security will result in an
     adjustment to this "risk premium." Since an issuer's outstanding debt
     carries a fixed coupon,
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     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.

     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 the 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.

     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 use ratings compiled by Moody's Investor
     Services ("Moody's"), Standard and Poor's Ratings Services ("S&P"), Duff &
     Phelps Rating Co. and Fitch IBCA. Credit ratings are only an agency's
     opinion, not an absolute standard of quality, and they do not reflect an
     evaluation of market risk. The section "Bond Ratings" 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 the 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. The portfolio is not obligated
     to dispose of securities whose issuers subsequently are in default or which
     are downgraded below the above-stated ratings.

DERIVATIVES
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     Derivatives are financial instruments whose value is based on an underlying
     asset, such as a stock or a bond, an underlying economic factor, such as an
     interest rate or a market benchmark, such as an index. Investors can use
     derivatives to gain exposure to various markets in a cost efficient manner,
     to reduce transaction costs or to remain fully invested. They may also
     invest in derivatives to protect it 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.

Types of Derivatives

Futures

     A futures contract is an agreement between two parties whereby one party
     sells and the other party agrees to buy a specified amount of a financial
     instrument at an agreed upon price and time. The financial instrument
     underlying the contract may be a stock, stock index, bond, bond index,
     interest rate, foreign exchange rate or other similar instrument. Agreeing
     to buy the underlying financial information is called buying a futures
     contract or taking a long position in the
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contract. Likewise, agreeing to sell the underlying financial instrument is
called selling a futures contract or taking a short position in the contract.

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.

Unlike other securities, the parties to a futures contract do not have to pay
for or deliver the underlying financial instrument until some future date (the
delivery date). 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. This process is known as "marking to
the market."

Although the actual terms of a futures contract calls for the actual delivery of
and payment for the underlying security, in many cases the parties may close the
contract early by taking an opposite position in an identical contract. If the
sale price upon closing out the contract is less than the original purchase
price, the person closing out the contract will realize a loss. If the sale
price upon closing out the contract is more that the original purchase price,
the person closing out the contract will realize a gain. The opposite is also
true. If the purchase price upon closing out the contract is more than the
original sale price, the person closing out the contract will realize a loss. If
the purchase price upon closing out the contract is less than the original sale
price, the person closing out the contract will realize a gain.

The portfolio will incur commission expenses in either opening, closing or
possibly opening and closing futures positions.

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 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

                                       9
<PAGE>


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
     and segregating cash or liquid securities in an amount equal to the
     difference between the exercise prices;

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<PAGE>


 .    Cash or liquid securities equal to at least the market value of the
     optioned securities, interest rate, foreign currency or futures contract;
     or

 .    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;

 .    Purchasing a put option on the same security, index, interest rate, foreign
     currency or futures contract with a lesser exercise price and segregating
     cash or liquid securities in an amount equal to the difference between the
     exercise prices; or

 .    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 the 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.

                                      11
<PAGE>




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.

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).

 .  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 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 the 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. The 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.

The portfolio may 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. The 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 the 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.

                                      12
<PAGE>

The 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 the 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, the 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, the 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.

Swaps, Caps, Collars and Floors

Swap Agreements

A swap is a financial instrument that typically involves the exchange of cash
flows between two parties on specified dates (settlement dates), where the cash
flows are based on agreed-upon prices, rates, indices, etc. The nominal amount
on which the cash flows are calculated is called the notional amount. Swaps are
individually negotiated and structured to include exposure to a variety of
different types of investments or market factors, such as interest rates,
foreign currency rates, mortgage securities, corporate borrowing rates, security
prices or inflation rates.

Swap agreements may increase or decrease the overall volatility of the
investments of the portfolio and its share price. The performance of swap
agreements may be affected by a change in the specific interest rate, currency,
or other factors that determine the amounts of payments due to and from the
portfolio. If a swap agreement calls for payments by the portfolio, the
portfolio must be prepared to make such payments when due. In addition, if the
counter-party's creditworthiness declined, the value of a swap agreement would
be likely to decline, potentially resulting in losses.

Generally, swap agreements have a fixed maturity date that will be agreed upon
by the parties. The agreement can be terminated before the maturity date only
under limited circumstances, such as default by one of the parties or
insolvency, among others, and can be transferred by a party only with the prior
written consent of the other party. The portfolio may be able to eliminate its
exposure under a swap agreement either by assignment or by other disposition, or
by entering into an offsetting swap agreement with the same party or a similarly
creditworthy party. If the counter-party is unable to meet its obligations under
the contract, declares bankruptcy, defaults or becomes insolvent, the portfolio
may not be able to recover the money it expected to receive under the contract.

A swap agreement can be a form of leverage, which can magnify a portfolio's
gains or losses. In order to reduce the risk associated with leveraging, a
portfolio will cover its current obligations under swap agreements according to
guidelines established by the SEC. If the portfolio enters into a swap agreement
on a net basis, it will segregate assets with a daily value at least equal to
the excess, if any, of the portfolio's accrued obligations under the swap
agreement over the accrued amount the portfolio is entitled to receive under the
agreement. If the portfolio enters into a swap agreement on other than a net
basis, it will segregate assets with a value equal to the full amount of the
portfolio's accrued obligations under the agreement.

Equity Swaps -- In a typical equity index swap, one party agrees to pay another
party the return on a stock, stock index or basket of stocks in return for a
specified interest rate. By entering into an equity index swap, for example, the
index receiver can gain exposure to stocks making up the index of securities
without actually purchasing those stocks. Equity index swaps involve not only
the risk associated with investment in the securities represented in the index,
but also the risk that the performance of such securities, including dividends,
will not exceed the return on the interest rate that the portfolio will be
committed to pay.

                                      13
<PAGE>


     Interest Rate Swaps -- Interest rate swaps are financial instruments that
     involve the exchange on one type of interest rate for another type of
     interest rate cash flow on specified dates in the future. Some of the
     different types of interest rate swaps are "fixed-for floating rate swaps,"
     "termed basis swaps" and "index amortizing swaps." Fixed-for floating rate
     swap involve the exchange of fixed interest rate cash flows for floating
     rate cash flows. Termed basis swaps entail cash flows to both parties based
     on floating interest rates, where the interest rate indices are different.
     Index amortizing swaps are typically fixed-for floating swaps where the
     notional amount changes if certain conditions are met.

     Like a traditional investment in a debt security, a portfolio could lose
     money by investing in an interest rate swap if interest rates change
     adversely. For example, if the portfolio enters into a swap where it agrees
     to exchange a floating rate of interest for a fixed rate of interest, the
     portfolio may have to pay more money than it receives. Similarly, if the
     portfolio enters into a swap where it agrees to exchange a fixed rate of
     interest for a floating rate of interest, the portfolio may receive less
     money than it has agreed to pay.

     Currency Swaps -- A currency swap is an agreement between two parties in
     which one party agrees to make interest rate payments in one currency and
     the other promises to make interest rate payments in another currency. A
     portfolio may enter into a currency swap when it has one currency and
     desires a different currency. Typically the interest rates that determine
     the currency swap payments are fixed, although occasionally one or both
     parties may pay a floating rate of interest. Unlike an interest rate swap,
     however, the principal amounts are exchanged at the beginning of the
     contract and returned at the end of the contract. Changes in foreign
     exchange rates and changes in interest rates, as described above may
     negatively affect currency swaps.

Caps, Collars and Floors

     Caps and floors have an effect similar to buying or writing options. In a
     typical cap or floor agreement, one party agrees to make payments only
     under specified circumstances, usually in return for payment of a fee by
     the other party. For example, the buyer of an interest rate cap obtains the
     right to receive payments to the extent that a specified interest rate
     exceeds an agreed-upon level. The seller of an interest rate floor is
     obligated to make payments to the extent that a specified interest rate
     falls below an agreed-upon level. An interest rate collar combines elements
     of buying a cap and selling a floor.

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.

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 expected.

                                      14
<PAGE>


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; and

 .  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.
Moreover, a portfolio may close out a futures contract only on the exchange the
contract was initially traded. Although a portfolio intends to purchase options
and futures only where there appears to be an active market, there is no
guarantee that such a liquid market will exist. If there is no secondary market
for the contract, or the market is illiquid, the portfolio may not be able to
close out its position. In an illiquid market, the portfolio may:

 .  have to sell securities to meet its daily margin requirements at a time
   when it is disadvantageous to do so;

 .  have to purchase or sell the instrument underlying the contract;

 .  not be able to hedge its investments; and

 .  not be able realize profits or limit 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:

 .  an exchange may suspend or limit trading in a particular derivative
   instrument, an entire category of derivatives or all derivatives, which
   sometimes occurs because of increased market volatility;

 .  unusual or unforeseen circumstances may interrupt normal operations of an
   exchange;

 .  the facilities of the exchange may not be adequate to handle current
   trading volume;

 .  equipment failures, government intervention, insolvency of a brokerage firm
   or clearing house or other occurrences may disrupt normal trading activity;
   or

                                      15
<PAGE>


 .  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.

     Volatility and Lev  erage

     The prices of derivatives are volatile (i.e., they may change rapidly,
     substantially and unpredictably) and are influenced by a variety of
     factors, including:

     .  actual and anticipated changes in interest rates;

     .  fiscal and monetary policies; and

     .  national and international political events.

     Most exchanges limit the amount by which the price of a derivative can
     change during a single trading day. Daily trading limits establish the
     maximum amount that the price of a derivative may vary from the settlement
     price of that derivative at the end of trading on the previous day. Once
     the price of a derivative reaches this value, a portfolio may not trade
     that derivative at a price beyond that limit. The daily limit governs only
     price movements during a given day and does not limit potential gains or
     losses. Derivative prices have occasionally moved to the daily limit for
     several consecutive trading days, preventing prompt liquidation of the
     derivative.

     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-dealer with whom it has an open futures
     contract or related option becomes insolvent or declares bankruptcy.

EQUITY SECURITIES
- --------------------------------------------------------------------------------

Types of Equity Securities

     Common Stocks

     Common stocks represent units of ownership in a company. Common stocks
     usually carry voting rights and earn dividends. Unlike preferred stocks,
     which are described below, dividends on common stocks are not fixed but are
     declared at the discretion of the company's board of directors.

                                      16
<PAGE>

Preferred Stocks

     Preferred stocks are also units of ownership in a company. Preferred stocks
     normally have preference over common stock in the payment of dividends and
     the liquidation of the company. However, in all other respects, preferred
     stocks are subordinated to the liabilities of the issuer. Unlike common
     stocks, preferred stocks are generally not entitled to vote on corporate
     matters. Types of preferred stocks include adjustable-rate preferred stock,
     fixed dividend preferred stock, perpetual preferred stock, and sinking fund
     preferred stock. Generally, the market values of preferred stock with a
     fixed dividend rate and no conversion element varies inversely with
     interest rates and perceived credit risk.

Convertible Securities

     Convertible securities are debt securities and preferred stocks that are
     convertible into common stock at a specified price or conversion ratio. 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. Their market price tends to go up if the stock price moves up.

     Convertible securities are subject to the same risks as similar securities
     without the convertible feature. The price of a convertible security is
     more volatile during times of steady interest rates than other types of
     debt securities.

Rights and Warrants

     A right is a privilege granted to existing shareholders of a corporation to
     subscribe to shares of a new issue of common stock before it is issued.
     Rights normally have a short life, usually two to four weeks, are freely
     transferable and entitle the holder to buy the new common stock at a lower
     price than the public offering price. Warrants are securities that are
     usually issued together with a debt security or preferred stock and that
     give the holder the right to buy proportionate amount of common stock at a
     specified price. Warrants are freely transferable and are traded on major
     exchanges. Unlike rights, warrants normally have a life that is measured in
     years and entitles the holder to buy common stock of a company at a price
     that is usually higher than the market price at the time the warrant is
     issued. Corporations often issue warrants to make the accompanying debt
     security more attractive.

     An investment in warrants and rights may entail greater risks than certain
     other types of investments. Generally, rights and warrants do not carry 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. In addition, their value does not necessarily change with
     the value of the underlying securities, and they cease to have value if
     they are not exercised on or before their expiration date. Investing in
     rights and warrants increases the potential profit or loss to be realized
     from the investment as compared with investing the same amount in the
     underlying securities.

Risks of Investing in Equity Securities

     General Risks of Investing in Stocks

     While investing in stocks allows investors to participate in the benefits
     of owning a company, such investors 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.

     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; and

                                      17
<PAGE>


     .  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.

     Because preferred stock is generally 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.

     Small and Medium-Sized Companies

     Investors in small and medium-sized companies typically take on greater
     risk and price volatility than they would by investing in larger, more
     established companies. This increased risk may be due to the greater
     business risks of their small or medium size, limited markets and financial
     resources, narrow product lines and frequent lack of management depth. The
     securities of small and medium companies are often traded in the over-the-
     counter market and might not be traded in volumes typical of securities
     traded on a national securities exchange. Thus, the securities of small and
     medium capitalization companies are likely to be less liquid, and subject
     to more abrupt or erratic market movements, than securities of larger, more
     established companies.

     Technology Companies

     Stocks of technology companies have tended to be subject to greater
     volatility than securities of companies that are not dependent upon or
     associated with technological issues. Technology companies operate in
     various industries. Since these industries frequently share common
     characteristics, an event or issue affecting one industry may significantly
     influence other, related industries. For example, technology companies may
     be strongly affected by worldwide scientific or technological developments
     and their products and services may be subject to governmental regulation
     or adversely affected by governmental policies.

FOREIGN SECURITIES
- --------------------------------------------------------------------------------
Types of Foreign Securities

     Foreign securities are debt and equity securities that are traded in
     markets outside of the United States. The markets in which these securities
     are located can be developed or emerging. People can invest in foreign
     securities in a number of ways:

     .  They can invest directly in foreign securities denominated in a foreign
        currency;

     .  They can invest in American Depositary Receipts, European Depositary
        Receipts and other similar global instruments; and

     .  They can invest in 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. EDRs are
     similar to ADRs, except that they are typically issued by European Banks or
     trust companies.

                                      18
<PAGE>


     Emerging Markets

     An "emerging country" is generally a country that 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 currently 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.

     Investment Funds

     Some emerging countries currently prohibit direct foreign investment in the
     securities of their companies. Certain emerging countries, however, permit
     indirect foreign investment in the securities of companies listed and
     traded on their stock exchanges through investment funds that they have
     specifically authorized. Investments in these investment funds are subject
     to the provisions of the 1940 Act. Shareholders of a UAM Fund that invests
     in such investment funds will bear not only their proportionate share of
     the expenses of the UAM Fund (including operating expenses and the fees of
     the adviser), but also will bear indirectly bear similar expenses of the
     underlying investment funds. In addition, these investment funds may trade
     at a premium over their net asset value.

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.

     Political and Economic Factors

     Local political, economic, regulatory, or social instability, military
     action or unrest, or adverse diplomatic developments may affect the value
     of foreign investments. Listed below are some of the more important
     political and economic factors that could negatively affect an investment
     in foreign securities:

     .  The economies of foreign countries may differ from the economy of the
        United States in such areas as growth of gross national product, rate of
        inflation, capital reinvestment, resource self-sufficiency, budget
        deficits and national debt;

     .  Foreign governments sometimes participate to a significant degree,
        through ownership interests or regulation, in their respective
        economies. Actions by these governments could significantly influence
        the market prices of securities and payment of dividends;

     .  The economies of many foreign countries are dependent on international
        trade and their trading partners and they could be severely affected if
        their trading partners were to enact protective trade barriers and
        economic conditions;

     .  The internal policies of a particular foreign country may be less stable
        than in the United States. Other countries face significant external
        political risks, such as possible claims of sovereignty by other
        countries or tense and sometimes hostile border clashes; and

     .  A foreign government may act adversely to the interests of U.S.
        investors, including expropriation or nationalization of assets,
        confiscatory taxation and other restrictions on U.S. investment. A
        country may restrict or control foreign investments in its securities
        markets. These restrictions could limit the portfolio's ability to
        invest in a particular country or make it very expensive for the
        portfolio to invest in that country. Some countries require prior
        governmental approval, limit the types or amount of securities or
        companies in which a foreigner can invest. Other countries may restrict
        the ability of foreign investors to repatriate their investment income
        and capital gains.


                                      19
<PAGE>


Information and Supervision

There is generally less publicly available information about foreign companies
than companies based in the United States. For example, there are often no
reports and ratings published about foreign companies comparable to the ones
written about United States companies. Foreign companies are typically not
subject to uniform accounting, auditing and financial reporting standards,
practices and requirements comparable to those applicable to United States
companies. The lack of comparable information makes investment decisions
concerning foreign countries more difficult and less reliable than domestic
companies.

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 the markets in the United
States. Foreign stocks markets tend to differ from those in the United States in
a number of ways:

 .  They are generally not as developed or efficient as, and more volatile, than
   those in the United States;

 .  They have substantially less volume;

 .  Their securities tend to be less liquid and to experience rapid and erratic
   price movements;

 .  Commissions on foreign stocks are generally higher and subject to set minimum
   rates, as opposed to negotiated rates;

 .  Foreign security trading, settlement and custodial practices are often less
   developed than those in U.S. markets; and

 .  They may have different settlement practices, which may cause delays and
   increase the potential for failed settlements.

Foreign Currency Risk

While the UAM Funds denominate their net asset value in United States dollars,
the securities of foreign companies are frequently denominated in foreign
currencies. Thus, a change in the value of a foreign currency against the United
States dollar will result in a corresponding change in value of securities
denominated in that currency. Some of the factors that may impair the
investments denominated in a foreign currency are:

 .  It may be expensive to convert foreign currencies into United States dollars
   and vice versa;

 .  Complex political and economic factors may significantly affect the values of
   various currencies, including United States dollars, and their 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 may be no systematic reporting of last sale information for foreign
   currencies or 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; and

                                      20
<PAGE>

 .  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.

Taxes

Certain foreign governments levy withholding taxes on dividend and interest
income. Although in some countries it is possible for the portfolio to recover a
portion of these taxes, the portion that cannot be recovered 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.

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 relatively unstable governments;

 .  Present greater risks of nationalization of businesses, restrictions on
   foreign ownership and prohibitions on the repatriation of assets;

 .  Offer less protection of property rights than more developed countries; and

 .  Have economies that are 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.

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 began 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 became denominations of the
Euro at fixed rates according to practices prescribed by the European Monetary
Institute and the Euro became available as a book-entry currency. On or about
that date, member states began conducting financial market transactions in Euros
and redenominating many investments, currency balances and transfer mechanisms
into Euros. The portfolio also anticipates pricing, trading, settling and
valuing investments whose nominal values remain in their existing domestic
currencies in Euros. Accordingly, the portfolio expects the conversion to the
Euro to impact investments in countries that 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?

                                      21
<PAGE>

     .  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?


INVESTMENT COMPANIES
- --------------------------------------------------------------------------------
     The portfolio may buy and sell shares of other investment companies. Such
     investment companies may pay management and other fees that are similar to
     the fees currently paid by the portfolio. Like other shareholders, the
     portfolio would pay its proportionate share of those fees. Consequently,
     shareholders of the portfolio would pay not only the management fees of the
     portfolio, but also the management fees of the investment company in which
     the portfolio invests. The portfolio may invest up to 10% of its total
     assets in the securities of other investment companies, but may not invest
     more than 5% of its total assets in the securities of any one investment
     company or acquire more than 3% of the outstanding securities of any one
     investment company.

     The SEC has granted an order that allows the portfolio to invest the
     greater of 5% of its total assets or $2.5 million in the UAM DSI Money
     Market Portfolio, provided that the investment is:

     .  For cash management purposes;

     .  Consistent with the portfolio's investment policies and restrictions;
        and

     .  The adviser to the investing portfolio waives any fees it earns on the
        assets of the portfolio that are invested in the UAM DSI Money Market
        Portfolio.

     The 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, an investor agrees to buy a security (underlying
     security) from a securities dealer or bank that is a member of the Federal
     Reserve System (counter-party). At the time, the counter-party agrees to
     repurchase the underlying security for the same price, plus interest.
     Repurchase agreements are generally for a relatively short period (usually
     not more than 7 days). The portfolio normally uses repurchase agreements to
     earn income on assets that are not invested.

     When the portfolio enters into a repurchase agreement it will:

     .  Pay for the underlying securities only upon physically receiving them or
        upon evidence of their receipt in book-entry form; and

     .  Require the counter party to add to the collateral whenever the price of
        the repurchase agreement rises above the value of the underlying
        security (i.e., it will require the borrower to "mark 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.

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
                                      22
<PAGE>


     supervision of the 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 the
     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.

SECURITIES LENDING
- --------------------------------------------------------------------------------

     The portfolio may lend a portion of its total assets to broker- dealers or
     other financial institutions. It may then reinvest the collateral it
     receives in short-term securities and money market funds. When the
     portfolio lends its securities, it will follow the following guidelines:

     .    The borrower must provide collateral at least equal to the market
          value of the securities loaned;

     .    The collateral 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 must add to the collateral whenever the price of the
          securities loaned rises (i.e., the borrower "marks to the market" on a
          daily basis);

     .    It must be able to terminate the loan at any time;

     .    It must receive reasonable interest on the loan (which may include the
          portfolio investing any cash collateral in interest bearing short-term
          investments); and

     .    It must determine that the borrower is an acceptable credit risk.

These risks are similar to the ones involved with repurchase agreements. When
the portfolio lends securities, there is a risk that the borrower will become
financially unable to honor its contractual obligations. If this happens, the
portfolio could:

     .    Lose its rights in the collateral and not be able to retrieve the
          securities it lent to the borrower; and

     .    Experience delays in recovering its securities.

WHEN ISSUED 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 deliver 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

                                      23
<PAGE>

     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.

     The portfolio will segregate cash and liquid securities equal in value to
     commitments for the when-issued, delayed-delivery or forward delivery
     transaction. The portfolio will segregate additional liquid assets daily so
     that the value of such assets is equal to the amount of its commitments.

Investment Policies of the Portfolio

     The portfolio will determine investment limitation percentages (with the
     exception of a limitation relating to borrowing) immediately after and as a
     result of its acquisition of such security or other asset. Accordingly, the
     portfolio will not consider changes in values, net assets or other
     circumstances when determining whether the investment complies with its
     investment limitations.

FUNDAMENTAL POLICIES
- --------------------------------------------------------------------------------

     The following investment limitations are fundamental, which means the
     portfolio cannot change them without approval by the vote of a majority of
     the outstanding voting securities of the portfolio, as defined by the 1940
     Act. 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 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, 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 1940 Act 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.

NON-FUNDAMENTAL POLICIES
- --------------------------------------------------------------------------------

     The following limitations are non-fundamental, which means the portfolio
     may change them without shareholder approval. 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.

                                      24
<PAGE>

     .    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
          on futures.

     .    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. Swap
          transactions may be considered illiquid securities.

     .    Invest, not inconsistent with the aforementioned limit, more than 25%
          of its total assets in non-publically traded securities, including
          securities that are not registered under the Securities Act of 1933
          but that can be offered and sold to qualified institutional buyers
          under Rule 144A under such Act.

     .    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 more than 10% of its total assets, measured at the time of
          investment, in lower quality debt securities, otherwise known as "junk
          bonds".

     .    Purchase or sell OTC options or OTC options on futures contracts, if,
          as a result of such transaction, the aggregate sum of the market value
          of the OTC option, the market value of the underlying securities
          covered by OTC call options currently outstanding, and margin deposits
          on the existing OTC options exceed 15% of the net assets of the
          portfolio, taken at market value, together with all other assets of
          the portfolio which are illiquid or are not otherwise readily
          marketable. However, OTC options sold by the portfolio to a primary
          U.S. government securities dealer recognized by the Federal Reserve
          Bank of New York and the Portfolio has the unconditional contractual
          right to purchase such OTC option from the dealer at the predetermined
          price, than the portfolio will treat as illiquid such amount of the
          underlying securities as is equal to the repurchase price less the
          amount by which the option is "in-the-money". The repurchase price
          with the primary dealer is typically a formula price which is
          generally based on a multiple of the premium received for the option,
          plus the amount by which the option is "in-the-money".

     .    Purchase on margin or sell short, except as permitted herein.

Management Of The Fund

     The governing board manages the business of the Fund. The governing board
     elects officers to manage the day-to-day operations of the Fund and to
     execute policies the board has formulated. 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 and a $2,000 meeting
     fee. In addition, the Fund reimburses each independent board member 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 board members that are affiliated with
     the fund for their services as board members. UAM, its affiliates or SEI
     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. The UAM Funds Complex is currently comprised of 51
     portfolios. Those people with an asterisk (*) beside their name are
     "interested persons" of the Fund as

                                      25
<PAGE>


that term is defined in the 1940 Act. Mr. English does have an investment
advisory relationship with Investment Counselors of Maryland, an investment
adviser to one of the portfolios in the UAM Funds Complex. However, the Fund
does not believe that the relationship is a material business relationship, and,
therefore, does not consider him to be an "interested person" of the Fund. If
these circumstances change, the Board will determine whether any action is
required to change the composition of the Board.

<TABLE>
<CAPTION>
                                                                                                                     Aggregate
                                                                                                    Aggregate      Compensation
                                                                                                   Compensation    From the Fund
                                                                                                  From the Fund    Complex as of
Name, Address,               Position     Principal Occupations During the                        as of October     October 31,
DOB                          with Fund    Past 5 years                                               31, 1999           1999
- --------------------------------------------------------------------------------------------------------------------------------
<S>                          <C>          <C>                                                     <C>              <C>
John T. Bennett, Jr.         Board        President of Squam Investment Management                    $7,137          $10,625
College Road -- RFD 3        Member       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                Board        Financial Officer of World Wildlife Fund since              $7,137          $10,625
1250 24/th/ St., NW          Member       January 1999; Vice President for Finance and
Washington, DC 20037                      Administration and Treasurer of Radcliffe College
8/14/51                                   from 1991 to 1999.
- --------------------------------------------------------------------------------------------------------------------------------
William A. Humenuk           Board        Executive Vice President and Chief Administrative           $7,137          $10,625
100 King Street West         Member       Officer of Philip Services Corp.; Formerly, a Partner
P.O. Box 2440, LCD-1                      in the Philadelphia office of the law firm Dechert
Hamilton Ontario,                         Price & Rhoads and a Director of Hofler Corp.
Canada L8N-4J6
4/21/42
- --------------------------------------------------------------------------------------------------------------------------------
Philip D. English            Board        President and Chief Executive Officer of                    $7,137          $10,625
16 West Madison Street       Member       Broventure Company, Inc.; Chairman of the Board
Baltimore, MD 21201                       of Chektec Corporation and Cyber Scientific, Inc.
8/5/48
- --------------------------------------------------------------------------------------------------------------------------------
James P. Pappas*             Board        President of UAM Investment Services, Inc. since               0                0
211 Congress Street          Member       March 1999; Vice President UAM Trust Company
Boston, MA  02110                         since January 1996; Principal of UAM Fund
2/24/53                                   Distributors, Inc. since December 1995; Vice
                                          President of UAM Investment Services, Inc. from
                                          January 1996 to March 1999 and a Director and
                                          Chief Operating Officer of CSFirst Boston
                                          Investment Management from 1993-1995.
- --------------------------------------------------------------------------------------------------------------------------------
Norton H. Reamer*            Board        Chairman, Chief Executive Officer and a Director               0                0
One International Place      Member;      of United Asset Management Corporation;
Boston, MA 02110             President    Director, Partner or Trustee of each of the
3/21/35                      and          Investment Companies of the Eaton Vance Group
                             Chairman     of Mutual Funds.
- --------------------------------------------------------------------------------------------------------------------------------
Peter M. Whitman, Jr.*       Board        President and Chief Investment Officer of Dewey                0                0
One Financial Center         Member       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         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; Treasurer of                   0                0
211 Congress Street                       the Fidelity Group of Mutual Funds from 1991
Boston, MA 02110                          to 1995; held various other offices with Fidelity
7/4/51                                    Investments from November 1990 to March 1995.
- --------------------------------------------------------------------------------------------------------------------------------
Robert R. Flaherty           Assistant    Vice President of UAMFSI; Manager of Fund                      0                0
211 Congress Street          Treasurer    Administration and Compliance of Chase Global
Boston, MA 02110                          Fund Services Company from 1995 to 1996; Senior
9/18/63                                   Manager of Deloitte & Touche LLP from 1985 to 1995,
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      26
<PAGE>


<TABLE>
<CAPTION>
                                                                                                                     Aggregate
                                                                                                    Aggregate      Compensation
                                                                                                   Compensation    From the Fund
                                                                                                  From the Fund    Complex as of
Name, Address,               Position     Principal Occupations During the                        as of October     October 31,
DOB                          with Fund    Past 5 years                                               31, 1999           1999
- --------------------------------------------------------------------------------------------------------------------------------
<S>                          <C>          <C>                                                     <C>              <C>
Robert J. DellaCroce         Assistant    Director, Mutual Fund Operations - SEI                         0                0
SEI Investments              Treasurer    Investments; Senior Manager at Arthur Andersen
One Freedom Valley Rd.                    prior to 1994.
Oaks, PA 19456
12/17/63
</TABLE>

Principal Shareholders

As of February 1, 2000, the following persons or organizations held of record or
beneficially 5% or more of the shares of a portfolio:

<TABLE>
<CAPTION>
                                                            Percentage of Shares
          Name and Address of Shareholder                           Owned
- --------------------------------------------------------------------------------
<S>                                                         <C>
Stanford Management Company                                         27.79%
2770 Sandhill Road
Menlo Park, CA 94025-7070
- --------------------------------------------------------------------------------
RJR Reynolds Tobacco CO                                             29.09%
Defined Benefit Master Trust
4 Chase Metrotech Center #18
Brooklyn, NY 11245-0005
- --------------------------------------------------------------------------------
Charles Schwab & CO INC                                             17.55%
Reinvest Account
Attn:  Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4323
- --------------------------------------------------------------------------------
University of Guelph                                                 6.70%
FBO Dale Lockie
Pension Investments
University Centre LVL 5
Guelph, Ontario
Canada, NIG 2WI
- --------------------------------------------------------------------------------
Nabisco Inc.                                                         6.49%
Defined Benefit Master Trust
4 Chase Metrotech Center #18
Brooklyn, NY 11245-0005
</TABLE>

Any shareholder 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. Shareholders controlling the portfolio 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. As of February 1, 2000,
the directors and officers of the Fund owned less than 1% of the outstanding
shares of the portfolio.

Investment Advisory and Other Services

INVESTMENT ADVISER



                                      27
<PAGE>


Acadian Asset Management, Inc., a Massachusetts corporation located at Two
International Place, Boston, Massachusetts 02110, 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 and profit-sharing plans, 401(k) and thrift plans, trusts,
estates and other institutions and individuals since 1986.

The adviser is a subsidiary of UAM. 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 more than 50 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

This section summarizes some of the important provisions of the Investment
Advisory Agreement. The Fund has filed the Investment Advisory Agreement with
the SEC as part of its registration statement on Form N-1A.

Service Performed by Adviser

The adviser:

 .    Manages the investment and reinvestment of the portfolio's assets;

 .    Continuously reviews, supervises and administers the investment program of
     the portfolio; and

 .    Determines what portion of the portfolio's assets will be invested in
     securities and what portion will consist of cash.

Limitation of Liability

In the absence of (1) willful misfeasance, bad faith, or gross negligence on the
part of the adviser in the performance of its obligations and duties under the
Investment Advisory Agreement, (2) reckless disregard by the adviser of its
obligations and duties under the Investment 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 Investment Advisory Agreement.

Continuing an Investment Advisory Agreement

The Investment Advisory Agreement continues in effect for periods of one year so
long as such continuance is specifically approved at least annually by a:

                                      28
<PAGE>


 .    Majority of those Board Members who are not parties to the Investment
     Advisory Agreement or interested persons of any such party; and

 .    (2) (a) majority of the Members or (b) a majority of the shareholders of
     the portfolio.

Terminating an Investment Advisory Agreement

The Fund may terminate an Investment Advisory Agreement at any time, without
the payment of any penalty if:

 .    A majority of the portfolio's shareholders vote to do so or a majority of
     Board Members vote to do so; and

 .    It gives the adviser 60 days' written notice.

The adviser may terminate the Investment Advisory Agreement at any time, without
the payment of any penalty, upon 90 days' written notice to the Fund.

An Investment Advisory Agreement will automatically and immediately terminate
if it is assigned.


Advisory Fees

For its services, the portfolio pays its adviser a fee equal to of the average
daily net assets of the portfolio. Due to the effect of fee waivers by the
adviser, the actual percentage of average net assets that the portfolio pays in
any given year may be different from the rate set forth in its contract with the
adviser. For the last three fiscal years, the portfolio paid the following in
management fees to the adviser:

                                                   Investment Advisory Fees Paid
- --------------------------------------------------------------------------------
Acadian Emerging Markets Portfolio                          $1,274,940
     1999
- --------------------------------------------------------------------------------
     1998                                                   $  812,228
- --------------------------------------------------------------------------------
     1997                                                   $  862,391


DISTRIBUTOR

UAMFDI is 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.

SHAREHOLDER SERVICING ARRANGEMENTS

UAM and each 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 or the 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.

                                      29
<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 Board Members 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.

     The Fund Administration Agreement continues in effect from year to year if
     the Board specifically approves such continuance every year. 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 automatically terminates upon its assignment by UAMFSI without
     the prior written consent of the Fund.

     UAMFSI will from time to time employ other people to assist it in
     performing its duties under the Fund Administration Agreement. Such people
     may be officers and employees who are employed by both UAMFSI and the Fund.
     UAMFSI will pay such people for such employment. The Fund will not incur
     any obligations with respect to such people.




                                      30
<PAGE>


Administration and Transfer Agency Services Fees

     The portfolio pays a four-part fee to UAMFSI as follows:

     1.   In exchange for administrative services, the portfolio pays a fee to
          UAMFSI calculated at the annual rate of:

          .    $19,500 for the first operational class; plus

          .    $3,750 for each additional class; plus

          .    A fee calculated from the aggregate net assets of each portfolio
               at the following rates:

                                                                  Annual Rate
               -----------------------------------------------------------------
               Acadian Emerging Markets Portfolio                     0.063%

     2.   The portfolio also pays a fee to UAMFSI for sub-administration and
          other services provided by SEI. The fee, which UAMFSI pays to SEI, is
          calculated at the annual rate of:

          .    Not more than $35,000 for the first operational class; plus

          .    $5,000 for each additional operational class; plus

          .    0.03% of their pro rata share of the combined assets of the UAM
               Funds Complex.

     3.   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.

     4.   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.

For the last three fiscal years the portfolio paid the following in
administration and sub-administration fees:

<TABLE>
<CAPTION>
                                             Administrators Fee  Sub-Administrators Fee  Total Administration Fee
- -----------------------------------------------------------------------------------------------------------------
<S>                                          <C>                 <C>                     <C>
Acadian Emerging Markets Portfolio                      $89,112                $102,354                  $191,466
  1999
- -----------------------------------------------------------------------------------------------------------------
  1998                                                  $31,634                $ 82,333                  $113,967
- -----------------------------------------------------------------------------------------------------------------
  1997                                                  $51,734                $ 89,053                  $140,787
</TABLE>

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 ACCOUNTANTS
- --------------------------------------------------------------------------------

     PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts
     02110, serves as independent accountant for the Fund.


Brokerage Allocation and Other Practices

SELECTION OF BROKERS
- --------------------------------------------------------------------------------

     The Investment Advisory Agreement authorizes the adviser to select the
     brokers or dealers that will execute the purchases and sales of investment
     securities for the portfolio. The Investment Agreement also directs the
     adviser to use
                                      31
<PAGE>


     its best efforts to obtain the best execution with respect to all
     transactions for the 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
     Investment 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.

     It is not the practice of the Fund to allocate brokerage or effect
     principal transactions with dealers based on sales of shares that a broker-
     dealer firm makes. However, the Fund may place trades with qualified
     broker-dealers who recommend the Fund or who act as agents in the purchase
     of Fund shares for their clients.

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.

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 portfolio
     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 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.

Commissions Paid

     For the last three fiscal years, the portfolio paid the following in
     brokerage commissions:

                                                        Brokerage Commissions
     --------------------------------------------------------------------------
     Acadian Emerging Markets Portfolio                               $574,983
       1999
     --------------------------------------------------------------------------
       1998                                                           $298,630
     --------------------------------------------------------------------------
       1997                                                           $184,776


                                      32
<PAGE>

Capital Stock and Other Securities

The Fund

     The Fund was organized under the name "The ICM Fund, Inc." as a Maryland
     corporation on October 11, 1988. On January 18, 1989, the Fund changed its
     name 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 211 Congress Street, Boston, MA 02110; however, shareholders should
     direct all correspondence to the address listed on the cover of this SAI.
     The Fund is an open-end management company.

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 1940
     Act or other applicable law.

Dividend and Distribution Options

     There are three ways for shareholders to receive dividends and capital
     gains:

     .    Income dividends and capital gains distributions are reinvested in
          additional shares at net asset value;

                                      33
<PAGE>


     .    Income dividends are paid in cash and capital gains distributions are
          reinvested in additional shares at NAV; and

     . Income dividends and capital gains distributions are paid in cash.

     Unless the shareholder elects otherwise in writing, the fund will
     automatically reinvest all dividends in additional shares of the portfolio
     at NAV (as of the business day following the record date). Shareholders may
     change their dividend and distributions option by writing to the fund at
     least three days before the record date for income dividend or capital gain
     distribution.

     The fund sends account statements to shareholders whenever it pays an
     income dividend or capital gains distribution.



FEDERAL TAXES

     The portfolio intends to qualify as a regulated investment company under
     Subchapter M of the Internal Revenue Code, and to distribute out its income
     to shareholders each year so that the portfolio itself generally will be
     relieved of federal income and excise taxes. If the portfolio were to fail
     to so qualify: (1) it would be taxed at regular corporate rates without any
     deduction for distributions to shareholder; and (2) its shareholders would
     be taxed as if they received ordinary dividends, although corporate
     shareholders could be eligible for the dividends received deduction.

     The portfolio's dividends that are paid to its corporate shareholders and
     are attributable to qualifying dividends it received from U.S. domestic
     corporations may be eligible, in the hands of such shareholders, for the
     corporate dividends received deduction, subject to certain holding period
     requirements and debt financing limitations.

Purchase, Redemption and Pricing of Shares


NET ASSET VALUE PER SHARE
- --------------------------------------------------------------------------------

Calculating NAV

     The purchase and redemption price of the shares of a portfolio is equal to
     the NAV of the portfolio. The Fund calculates the NAV of a portfolio by
     subtracting its liabilities from its total assets and dividing the result
     by the total number of shares outstanding. For purposes of this
     calculation:

     .    Liabilities include accrued expenses and dividends payable; and

     .    Total assets include the market value of the securities held by the
          portfolio, plus cash and other assets plus income accrued but not yet
          received.

     Each portfolio normally calculates its NAV as of the close of trading on
     the NYSE every day the NYSE is open for trading. The NYSE usually closes at
     4:00 p.m. The NYSE is closed on the following days: 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.

                                      34
<PAGE>


How the Fund Values it Assets

     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 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 governing board.

PURCHASE OF SHARES
- --------------------------------------------------------------------------------

     Service Agents may enter confirmed purchase orders on behalf of their
     customers. To do so, the Service Agent must receive your investment order
     before the close of trading on the NYSE and must transmit it to the fund
     before the close of its business day to receive that day's share price. The
     fund must receive proper payment for the order by the time the portfolio
     calculates its NAV 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.

     Shareholders can buy full and fractional (calculated to three decimal
     places) shares of a portfolio. The fund will not issue certificates for
     fractional shares and will only issue certificates for whole shares upon
     the written request of a shareholder.

     The Fund may 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


     At its discretion, the Fund may permit shareholders to purchase shares of
     the portfolio with securities, instead of cash. If the Fund allows a
     shareholder to make an in-kind purchase, it will value such securities
     according to the policies described under "How the Fund Values it Assets"
     at the next determination of net asset value after acceptance. The Fund
     will issue shares of the portfolio at the NAV of the portfolio determined
     as of the same time.

     The Fund will only acquire securities through an in-kind purchase for
     investment and not for immediate resale. The Fund will only accept in-kind
     purchases if the transaction meets the following conditions:

                                      35
<PAGE>


     .    The securities are eligible investments for the portfolio;

     .    The securities have readily available market quotations;

     .    The investor represents and agrees that the securities are liquid and
          that there are no restrictions on their resale imposed by the 1933 Act
          or otherwise;

     .    All dividends, interest, subscription, or other rights pertaining to
          such securities become the property of the portfolio and are delivered
          to the fund by the investor upon receipt from the issuer; and

     .    Immediately after the transaction is complete, the value of all
          securities of the same issuer held by the portfolio cannot exceed 5%
          of the net assets of the portfolio. This condition does not apply to
          U.S. government securities.

     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 the shareholder wishes to redeem signed by all
          registered owners of the shares in the exact names in which they are
          registered;

     .    Any required signature guarantees (see "Signature Guarantees"); and

     .    Any other necessary legal documents for estates, trusts,
          guardianships, custodianships, corporations, pension and profit
          sharing plans and other organizations.

By Telephone

     Shareholders may not do the following by telephone:

     .    Change the name of the commercial bank or the account designated to
          receive redemption proceeds. To change an account in this manner, you
          must submit a written request signed by each shareholder, with each
          signature guaranteed.

     .    Redeem shares represented by a certificate.

     The Fund and UAMSSC will employ reasonable procedures to confirm that
     instructions communicated by telephone are genuine, and they may be liable
     for any losses if they fail to do so. These procedures include requiring
     the investor to provide certain personal identification at the time an
     account is opened and before 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 UAMSSC may be liable
     for any losses due to unauthorized or fraudulent telephone instructions if
     the Fund or the UAMSSC does not employ the procedures described above.
     Neither the Fund nor the UAMSSC will be responsible for any loss,
     liability, cost or expense for following instructions received by telephone
     that it reasonably believes to be genuine

                                      36
<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 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.

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 Board 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

The Fund requires signature guarantees for certain types of documents,
including:

 .    Written requests for redemption;

 .    Separate instruments for assignment ("stock power"), which should specify
     the total number of shares to be redeemed; and

 .    On all stock certificates tendered for redemption.

The purpose of signature guarantees is to verify the identity of the person who
has authorized a redemption from your account and to protect your account, the
Fund and its sub-transfer agent from fraud.

The Fund will accept signature guarantees from any eligible guarantor
institution, as defined by the Securities Exchange Act of 1934 that participates
in a signature guarantee program. Eligible guarantor institutions include banks,
brokers, dealers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations. You can get
a complete definition of eligible guarantor institutions by calling 1-877-826-
5465. 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.


Other Redemption Information

Normally, the Fund will pay for all shares redeemed under proper procedures
within seven days after it received your request. However, the Fund will pay
your redemption proceeds earlier as applicable law so requires.

When the Fund may suspend redemption privileges or postpone the date of payment:

 .    when the NYSE and custodian bank are closed;

 .    when trading on the NYSE is restricted;

 .    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; or

                                      37
<PAGE>


 .    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 for exchanges.

     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.




Performance Calculations

     The portfolio measures its performance by calculating its yield and total
     return. Yield and total return figures are based on historical earnings and
     are not intended to indicate future performance. The portfolio calculates
     its current yield and average annual total return information according to
     the methods required by the SEC.

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. 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 fund calculates the average annual total return of the portfolio by
     finding the average annual compounded rates of return over one, five and
     ten-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.

     The fund calculates these figures according to the following formula:

     P (1 + T)/n/ = ERV

                                      38
<PAGE>

     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).

     Set forth in the table below are the portfolio's average annual returns for
               the one-year period and the five-year period ended October 31,
               1999 and the shorter of the ten-year period ended October 30,
               1999 or the period from the portfolio's inception date through
               October 31, 1999.

<TABLE>
<CAPTION>
                                                                            Shorter of
                                                                         10 Years or Since
                                               One Year     Five Years       Inception        Inception Date
     ---------------------------------------------------------------------------------------------------------
     <S>                                       <C>          <C>          <C>                  <C>
     Acadian Emerging Markets Portfolio         41.49%       - 5.73%           0.72%              6/17/93
     </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 mutual 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 this SAI. This information may also be included in
     sales literature and advertising.

                                      39
<PAGE>


     To help investors better evaluate how an investment in the portfolio 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 "Comparative Benchmarks" 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 indices and 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; and

     .    that shareholders cannot invest directly in such indices or averages.

     In addition, there can be no assurance that the portfolio will continue
     this performance as compared to such other averages.

Financial Statements


     The following documents are included in the portfolio's  October 31, 1999
     Annual Report:

     .    Financial statements for the fiscal year ended October 31, 1999.

     .    Financial highlights for the respective periods presented

     .    The report of PricewaterhouseCoopers LLP.

     Each of the above-referenced documents is incorporated by reference into
     this SAI. However, no other parts of the portfolio's Annual Reports are
     incorporated by reference herein. Shareholders may get copies of the
     portfolio's Annual Reports free of charge by calling the UAM Funds at the
     telephone number appearing on the front page of this SAI.

Glossary

     All terms that this SAI does not otherwise define, have the same meaning in
     the SAI as they do in the prospectus(es) of the portfolios.

     1933 Act means the Securities Act of 1933, as amended.

     1934 Act means the Securities Exchange Act of 1934, as amended.

     1940 Act means the Investment Company Act of 1940, as amended.

     Adviser means the investment adviser of the portfolio.

     Board Member refers to a single member of the Fund's Board.

     Board refers to the Fund's Board of Trustees as a group.

     SEI is SEI Investments Mutual Funds Services, the Fund's
     sub-administrator.

     Fund refers to UAM Funds, Inc.

     Governing Board, see Board.

                                      40
<PAGE>


     NAV is the net asset value per share of a portfolio.

     NYSE is the New York Stock Exchange. Also known as "The Exchange" or "The
     Big Board," the NYSE is located on Wall Street and is the largest exchange
     in the United States.

     SEC is the Securities and Exchange Commission. The SEC is the federal
     agency that administers most of the federal securities laws in the United
     States. In particular, the SEC administers the 1933 Act, the 1940 Act and
     the 1934 Act.

     UAM Funds Complex includes UAM Funds, Inc., UAM Funds Trust, UAM Funds Inc.
     II and all of their portfolios.

     UAM is United Asset Management Corporation.

     UAMFDI is UAM Fund Distributors, Inc., the Fund's distributor.

     UAMFSI is UAM Fund Services, Inc., the Fund's administrator.

     UAMSSC is UAM Fund Shareholder Servicing Center, the Fund's
     sub-shareholder-servicing agent.

Bond 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 stocks.

     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 that 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 period 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.

                                      41
<PAGE>

plus (+) or   Moody's applies numerical modifiers 1, 2, and 3 in each rating
minus (-)     classification: the modifier 1 indicates that the security ranks
              in the higher end of its generic rating catefory; 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.

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-grade
              obligations. Factors giving security to principal and interest are
              considered adequate, but elements may be present which suggest a
              susceptibility to impairment sometime in the future.

Baa           Bonds which are rated Baa are 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.

Con. (...)    (This rating applies only to U.S. Tax-Exempt Municipals) Bonds for
              which the security depends upon the completion of some act or the
              fulfillment of some condition are rated conditionally. These are
              bonds secured by (a) earnings of projects under construction, (b)
              earnings of projects unseasoned in operating experience, (c)
              rentals that begin when facilities are completed, or (d) payments
              to which some other limiting condition attaches. Parenthetical
              rating denotes probable credit stature upon completion of
              construction or elimination of basis of condition.

                                      42
<PAGE>

     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.

     Moody's employs the following three designations, all judged to be
     investment grade, to indicate the relative repayment ability of rated
     issuers:


               Issuers rated Prime-1 (or supporting institution) have a
     Prime-1   superior ability for repayment of senior short-term debt
               obligations. Prime-1 repayment ability will often be evidenced by
               many of the following characteristics:

               .    Leading market positions in well-established industries.

               .    Conservative capitalization structure with moderate reliance
                    on debt and ample asset protection.

               .    Broad 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
- --------------------------------------------------------------------------------




     Long-Term Issue Credit Ratings

     Issue credit ratings are based, in varying degrees, on the following
     considerations:

     1.   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;

     2.   Nature of and provisions of the obligation;

     3.   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.

                                      43
<PAGE>


     The issue rating definitions are expressed in terms of default risk. As
     such, they pertain to senior obligations of an entity. Junior obligations
     are typically rated lower than senior obligations, to reflect the lower
     priority in bankruptcy, as noted above. Accordingly, in the case of junior
     debt, the rating may not conform exactly with the category definition.


     AAA       An obligation rated 'AAA' has 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 obligor 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.

     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         A subordinated debt or preferred stock obligation rated 'C' is
               CURENTLY HIGHLY VULNERABLE to non-payment. The 'C' rating may be
               used to cover a situation where a bankruptcy petition has been
               filed or similar action taken, but payments on this obligation
               are being continued. A 'C' will also be assigned to a preferred
               stock issue in arrears on dividends or sinking fund payments, but
               that is currently paying.

     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.
<PAGE>

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.

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 obligation as a matter of policy.

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.

Short-Term Issue Credit 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
     obligations in higher rating categories. However, the obligor's capacity to
     meet its financial commitment on the obligation is satisfactory.

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.


Local Currency and Foreign Currency Risks

Country risks considerations are a standard part of Standard & Poor's analysis
for credit ratings on any issuer or issue.  Currency of repayment is a key
factor in this analysis.  An obligor's capacity to repay foreign currency
obligations may be lower than its capacity to repay obligations in its local
currency due to the sovereign government's own relatively lower capacity to
repay external versus domestic debt.  These sovereign risk considerations are
incorporated in the debt ratings assigned to specific issues.  Foreign currency
issuer ratings are also distinguished from local currency issuer ratings to
identity those instances where sovereign risks make them different for the same
issuer.

                                      45
<PAGE>

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
   AA-       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/   Below investment grade but deemed likely to meet obligations when
   BB-       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 met 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.

   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.

                                         46

<PAGE>

   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 of 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         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.

   BBB       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.

                                      47
<PAGE>


     DDD,DD,D  Default. The ratings of obligations in this category are based on
               their prospects for achieving partial or full recovery in a
               reorganization or liquidation of the obligor. While expected
               recovery values are highly speculative and cannot be estimated
               with any precision, the following serve as general guidelines.
               "DDD" obligations have the highest potential for recovery, around
               90%-100% of outstanding amounts and accrued interest. "D"
               indicates potential recoveries in the range of 50%-90%, and "D"
               the lowest recovery potential, i.e., below 50%.

               Entities rated in this category have defaulted on some or all of
               their obligations. Entities rated "DDD" have the highest prospect
               for resumption of performance or continued operation with or
               without a formal reorganization process. Entities rated "DD" and
               "D" are generally undergoing a formal reorganization or
               liquidation process; those rated "DD" are likely to satisfy a
               higher portion of their outstanding obligations, while entities
               rated "D" have a poor prospect for repaying all obligations.

International Short-Term Credit Ratings

     F1        Highest credit quality. Indicates the Best 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.


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.


Comparative Benchmarks

(alphabetically)

                                      48
<PAGE>

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.

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.

Donoghue's Money Fund Average -- is an average of all major money market fund
yields, published weekly for 7 and 30-day yields.

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.

Financial publications: Business Week, Changing Times, Financial World, Forbes,
Fortune, Money, Barron's, Consumer's Digest, Financial Times, Global Investor,
Investor's Daily, Lipper, Inc., Morningstar, Inc., The New York Times, Personal
Investor, The Wall Street Journal and Weisenberger Investment Companies
Service -- publications that rate fund performance over specified time periods.


Historical data supplied by the research departments of First Boston
Corporation, J.P. Morgan & Co, Inc., Salomon Smith Barney, Merrill Lynch & Co.,
Inc., Lehman Brothers, Inc. and Bloomberg L.P.

IBC's Money Fund Average/All Taxable Index - an average of all major money
market fund yields, published weekly for 7- and 30-day yields.

IFC Investable Composite Index - an unmanaged market capitalization-weighted
index maintained by the International Finance Corporation. This index consists
of over 890 companies in 26 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.

Lehman Brothers Indices:
- ------------------------

Lehman Brothers Aggregate Bond Index - an unmanaged fixed income market value-
weighted index that combines the Lehman Government/Corporate Index and the
Lehman Mortgage-Backed Securities Index, and includes treasury issues, agency
issues, corporate bond issues and mortgage backed securities. It includes fixed
rate issuers of investment grade (BBB) or higher, with maturities of at least
one year and outstanding par values of at least $100 million for U.S. government
issues and $25 million for others.

Lehman Brothers Corporate Bond Index - an unmanaged index of all publicly
issued, fixed-rate, nonconvertible investment grade domestic corporate debt.
Also included are yankee bonds, which are dollar-denominated SEC registered
public, noncovertible debt issued or guaranteed by foreign sovereign
governments, municipalities, or governmental agencies, or international
agencies.

Lehman Brothers Government Bond Index -an unmanaged treasury bond index
including all public obligations of the U.S. Treasury, excluding flower bonds
and foreign-targeted issues, and the Agency Bond Index (all publicly issued debt
of U.S. government agencies and quasi-federal corporations, and corporate debt
guaranteed by the U.S. government). In addition to the aggregate index, sub-
indices cover intermediate and long term issues.

Lehman Brothers Government/Corporate Bond Index -- an unmanaged fixed income
market value-weighted index that combines the Government and Corporate Bond
Indices, including U.S. government treasury securities, corporate and yankee
bonds. All issues are investment grade (BBB) or higher, with maturities of at
least one year and outstanding par value of at least $100 million of U.S.
government issues and $25 million for others. Any security downgraded during


                                      49
<PAGE>


the month is held in the index until month end and then removed. All returns are
market value weighted inclusive of accrued income.

Lehman Brothers High Yield Bond Index - an unmanaged index of fixed rate, non-
investment grade debt. All bonds included in the index are dollar denominated,
noncovertible, have at least one year remaining to maturity and an outstanding
par value of at least $100 million.

Lehman Brothers Intermediate Government/Corporate Index - an unmanaged fixed
income, market value-weighted index that combines the Lehman Brothers Government
Bond Index (intermediate-term sub-index) and four corporate bond sectors.

Lehman Brothers Mortgage-Backed Securities Index - an unmanaged index of all
fixed-rate securities backed by mortgage pools of Government National Mortgage
Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC), and Federal
National Mortgage Associateion (FNMA).

Lipper, Inc./Lipper Indices/Lipper Averages
- -------------------------------------------

The Lipper Indices are equally weighted indices for typically the 30 largest
mutual funds within their respective portfolio investment objectives. The
indices are currently grouped in six categories: U.S. Diversified Equity with 12
indices; Equity with 27 indices, Taxable Fixed-Income with 20 indices, Tax-
Exempt Fixed-Income with 28 indices, Closed-End Funds with 16 indices, and
Variable Annuity Funds with 18 indices.

In September, 1999, Lipper, Inc. introduced its new portfolio-based mutual fund
classification method in which peer comparisons are based upon characteristics
of the specific stocks in the underlying funds, rather than upon a broader
investment objective stated in a prospectus. Certain of Lipper, Inc.'s
classifications for general equity funds' investment objectives were changed
while other equity objectives remain unchanged. Changing investment objectives
include Capital Appreciation Funds, Growth Funds, Mid-Cap Funds, Small-Cap
Funds, Micro-Cap Funds, Growth & Income Funds, and Equity Income Funds.
Unchanged investment objectives include Sector Equity Funds, World Equity Funds,
Mixed Equity Funds, and certain other funds including all Fixed Income Funds and
S&P(R) Index Funds.

Criteria for the Lipper Indices are: 1) component funds are largest in group; 2)
number of component funds remains the same (30); 3) component funds are defined
annually; 4) can be linked historically; and 5) are used as a benchmark for fund
performance.

Criteria for the Lipper Averages are: 1) includes all funds in the group in
existence for the period; 2) number of component funds always changes; 3)
universes are dynamic due to revisions for new funds, mergers, liquidations,
etc.; and 4) will be inaccurate if historical averages are linked.

Certain Lipper, Inc. indices/averages used by the UAM Funds may include, but are
not limited to, the following:

Lipper Short-Intermediate Investment Grade Debt Funds Average -- is an average
of 100 funds that invest at least 65% of assets in investment grade debt issues
(BBB or higher) with dollar-weighted average maturities of one to five years or
less. (Taxable Fixed-Income category)

Lipper Balanced Fund Index - an unmanaged index of open-end equity funds whose
primary objective is to conserve principal by maintaining at all times a
balanced portfolio of both stocks and bonds. Typically, the stock/bond ratio
ranges around 60%/40%. (Equity category)

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. (Equity category)

Lipper Equity Mid Cap Fund Index - an unmanaged index of funds that by
prospectus or portfolio practice invest primarily in companies with market
capitalizations less than $5 billion at the time of purchase. (Equity category)

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. (Equity category)

                                      50
<PAGE>


Lipper Growth Fund Index - an unmanaged index composed of the 30 largest funds
by asset size which invest in companies with long-term earnings expected to grow
significantly faster than the earnings of the stocks represented in the major
unmanaged stock indices. (Equity category)

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.

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 (BBB or higher).

Merrill Lynch 1-3 Year Treasury Index - an unmanaged index composed of U.S.
treasury securities with maturities from 1 to 3 years.

Morgan Stanley Capital International EAFE Index -- 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.

Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price, yield,
risk and total return for equity funds.

NASDAQ Composite Index -- is a market capitalization, price only, unmanaged
index that tracks the performance of domestic common stocks traded on the
regular NASDAQ market as well as national market System traded foreign common
stocks and ADRs.

Nekkei Stock Average - a price weighted index of 225 selected leading stocks
listed on the First Section of the Tokyo Stock Exchange.

New York Stock Exchange composite or component indices -- capitalization-
weighted unmanaged indices of all industrial, utilities, transportation and
finance stocks listed on the New York Stock Exchange.

Russell U.S. Equity Indexes:
- ----------------------------

Russell 3000(R) Index - measures the performance of the 3,000 largest U.S.
companies based on total market capitalization, which represents approximately
98% of the investable U.S. equity market.

Russell 1000(R) Index - an unmanaged index which measures the performance of the
1,000 largest companies in the Russell 3000 Index, which represents
approximately 92% of the total market capitalization of the Russell 3000 Index.

Russell 2000(R) Index -- an unmanaged index which measures the performance of
the 2,000 smallest companies in the Russell 3000 Index, which represents
approximately 8% of the total market capitalization of the Russell 3000 Index.

Russell Top 200(TM) Index - measures the performance of the 200 largest
companies in the Russell 1000 Index, which represents approximately 74% of the
total market capitalization of the Russell 1000 Index.

Russell Mid-Cap(TM) Index -- measures the performance of the 800 smallest
companies in the Russell 1000 Index, which represents approximately 26% of the
total market capitalization of the Russell 1000 Index.

Russell 2500(TM) Index - an unmanaged index which measures the performance of
the 2,5000 smallest companies in the Russell 3000 Index, which represents
approximately 17% of the total market capitalization of the Russell 3000 Index.


                                      51
<PAGE>


Russell 3000(R) Growth Index - measures the performance of those Russell 3000
Index companies with higher price-to-book ratios and higher forecasted growth
values. The stocks in this index are also members of either the Russell 1000
Growth or the Russell 2000 Growth indexes.

Russell 3000(R) Value Index - measures the performance of those Russell 3000
Index companies with lower price-to-book ratios and lower forecasted growth
values. The stocks in this index are also members of either the Russell 1000
Value or the Russell 2000 Value indexes.

Russell 1000(R) Growth Index - measures the performance of those Russell 1000
companies with higher price-to-book ratios and higher forecasted growth values.

Russell 1000(R) Value Index - measures the performance of those Russell 1000
with lower price-to-book ratios and lower forecasted growth values.

Russell 2000(R) Growth Index - measures the performance of those Russell 2000
companies with higher price-to-book ratios and higher forecasted growth values.

Russell 2000(R) Value Index - measures the performance of those Russell 2000
companies with lower price-to-book ratios and lower forecasted growth values.

Russell Top 200(TM) Growth Index - measures the performance of those Russell Top
200 companies with higher price-to-book ratios and higher forecasted growth
values. The stocks re also members of the Russell 1000 Growth index.

Russell Top 200(TM) Value Index - measures the performance of those Russell Top
200 companies with lower price-to-book ratios and lower forecasted growth
values. The stocks are also members of the Russell 1000 Value index.

Russell Midcap(TM) Growth Index - measures the performance of those Russell
Midcap companies with higher price-to-book ratios and higher forecasted growth
values. The stocks are also members of the Russell 1000 Growth index.

Russell Midcap(TM) Value Index - measures the performance of those Russell
Midcap companies with lower price-to-book ratios and lower forecasted growth
values. The stocks are also members of the Russell 1000 Value index.

Russell 2500(TM) Growth Index - measures the performance of those Russell 2500
companies with higher price-to-book ratios and higher forecasted growth values.

Russell 2500(TM) Value Index - measures the performance of those Russell 2500
companies with lower price-to-book ratios and lower forecasted growth values.

Ryan Labs 5 Year GIC Master Index - an arithmetic mean of market rates of $1
million GIC contracts held for five years. The market rates are representative
of a diversified, investment grade portfolio of contracts issued by credit
worthy insurance companies. The index is unmanaged and does not reflect any
transaction costs. Direct investment in the index is not possible.

Standard & Poor's U.S. Indices:
- -------------------------------

In October, 1999, Standard & Poor's and Morgan Stanley Capital International
launched a new global industry classification standard consisting of 10 economic
sectors aggregated from 23 industry groups, 59 industries, and 123 sub-
industries covering almost 6,000 companies globally. The new classification
standard will be used with all of their respective indices. Features of the new
classification include 10 economic sectors, rather than the 11 S&P currently
uses. Sector and industry gradations are less severe. Rather than jumping from
11 sectors to 115 industries under the former S&P system, the new system
progresses from 10 sectors through 23 industry groups, 50 industries and 123
sub-industries.

S&P 500 Index - an unmanaged index composed of 400 industrial stocks, 40
financial stocks, 40 utilities stocks and 20 transportation stocks. Widely
regarded as the standard for measuring large-cap U.S. stock market performance.
It is used by 97% of U.S. money managers and pension plan sponsors. More than $1
trillion is indexed to the S&P 500.

S&P MidCap 400 Index -- consists of 400 domestic stocks chosen for market size,
liquidity, and industry group representation. It is a market-value weighted
index with each stock affecting the index in proportion to its market value.


                                      52
<PAGE>


It is used by over 95% of U.S. managers and pension plan sponsors. More than $25
billion is indexed to the S&P Midcap400.

S&P Small Cap 600 Index - an unmanaged index comprised of 600 domestic stocks
chosen for market size, liquidity, and industry group representation. The index
is comprised of stocks from the industrial, utility, financial, and
transportation sectors. It is gaining wide acceptance as the preferred benchmark
for both active and passive management due to its low turnover and greater
liquidity. Approximately $8 billion is indexed to the S&P SmallCap 600.

S&P SuperComposite 1500 - combines the S&P 500, MidCap 400, and SmallCap 600
indices, representing 87% of the total U.S. equity market capitalization.

S&P 100 Index - known by its ticker symbol OEX, this index measures large
company U.S. stock market performance. This market capitalization-weighted index
is made up of 100 major, blue chip stocks across diverse industry groups.

S&P/BARRA Growth and Value Indices - are constructed by dividing the securities
in the S&P 500 Index according to price-to-book ratio. The Value index contains
the companies with the lower price-to-book ratios; while the companies with the
higher price-to-book ratios are contained in the Growth index.

S&P REIT Composite Index - launched in 1997, this benchmark tracks the market
performance of U.S. Real Estate Investment Trusts, known as REITS. The REIT
Composite consists of 100 REITs chosen for their liquidity and importance in
representing a diversified real estate portfolio. The Index covers over 80% of
the securitized U.S. real estate market.

S&P Utilities Stock Price Index - a market capitalization weighted index
representing three utility groups and, with the three groups, 43 of the largest
utility companies listed on the New York Stock Exchange, including 23 electric
power companies, 12 natural gas distributors and 8 telephone companies.

Standard & Poor's CANADA Indices:
- ---------------------------------

S&P/TSE Canadian MidCap Index - measures the performance of the mid-size company
segment of the Canadian equity market.

S&P/TSE Canadian SmallCap Index - Measures the small company segment of the
Canadian equity market.

Standard & Poor's Global Indices:
- ---------------------------------

S&P Global 1200 Index - aims to provide investors with an investable portfolio.
This index, which covers 29 countries and consists of seven regional components,
offers global investors an easily accessible, tradable set of stocks and
particularly suits the new generation of index products, such as exchange-traded
funds (ETFs).

S&P Euro and S&P Euro Plus Indices - the S&P Euro Index covers the Eurobloc
countries; the Euro Plus Index includes the Euro markets as well as Denmark,
Norway, Sweden and Switzerland. The S&P Euro Plus Index contains 200
constituents, and the S&P Euro Index, a subset of Euro Plus, contains 160
constituents. Both indices provide geographic and economic diversity over 11
industry sectors.

S&P/TSE 60 Index - developed with the Toronto Stock Exchange, is designed as the
new Canadian large cap benchmark and will ultimately replace the Toronto 35 and
the TSE 100.

S&P/TOPIX 150 - includes 150 highly liquid securities selected from each major
sector of the Tokyo market. It is designed specifically to give portfolio
managers and derivative traders an index that is broad enough to provide
representation of the market, but narrow enough to ensure liquidity.

S&P Asia Pacific 100 Index - includes highly liquid securities from each major
economic sector of major Asia-Pacific equity markets. Seven countries --
Australia, Hong Kong, Korea, Malaysia, New Zealand, Singapore, and Taiwan --are
represented in the new index.

S&P Latin America 40 Index - part of the S&P Global 1200 Index, includes highly
liquid securities from major economic sectors of Mexican and South American
equity markets. Companies from Mexico, Brazil, Argentina, and Chile are
represented in the new index.

                                      53
<PAGE>


S&P United Kingdom 150 Index - includes 150 highly liquid securities selected
from each of the new S&P sectors. The S&P UK 150 is designed to be broad enough
to provide representation of the market, but narrow enough to ensure liquidity.


Salomon Smith Barney Global excluding U.S. Equity Index - an unmanaged index
comprised of the smallest stocks (less than $1 billion market capitalization) of
the Extended Market Index, of both developed and emerging markets.

Salomon Smith Barney One to Three Year Treasury Index - an unmanaged index
comprised of U.S. treasury notes and bonds with maturities of one year or
greater, but less than three years.

Salomon Smith Barney Three-Month T-Bill Average -- the average for all treasury
bills for the previous three-month period.

Salomon Smith Barney Three-Month U.S. Treasury Bill Index - a return equivalent
yield average based on the last three 3-month Treasury bill issues.

Savings and Loan Historical Interest Rates -- as published by the U.S. Savings
and Loan League Fact Book.

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.

Target Large Company Value Index - an index comprised of large companies with
market capitalizations currently extending down to approximately $1.9 billion
that are monitored using a variety of relative value criteria in order to
capture the most attractive value opportunities available. A high quality
profile is required and companies undergoing adverse financial pressures are
eliminated.

U.S. Three-Month Treasury Bill Average - the average return for all treasury
bills for the previous three month period.

Value Line Composite Index -- composed of over 1,600 stocks in the Value Line
Investment Survey.

Wilshire Real Estate Securities Index - a market capitalization-weighted index
of publicly traded real estate securities, including real estate investment
trusts, real estate operating companies and partnerships. The index is used by
the institutional investment community as a broad measure of the performance of
public real estate equity for asset allocation and performance comparison.

Wilshire REIT Index - includes 112 real estate investment trusts (REITs) but
excludes seven real estate operating companies that are included in the Wilshire
Real Estate Securities Index.

Note: With respect to the comparative measures of performance for equity
securities described herein, comparisons of performance assume reinvestment of
dividends, except as otherwise stated.

                                      54
<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
                               February 28, 2000



This statement of additional information (SAI) is not a prospectus. However, you
should read it in conjunction with the prospectus of the portfolios dated
February 28, 2000, as supplemented from time to time. You may obtain a
prospectus for the portfolios by contacting the UAM Funds at the address listed
above.
<PAGE>

<TABLE>
<CAPTION>
                               Table Of Contents
<S>                                                                          <C>
Description of Permitted Investments......................................    1
  What Investment Strategies May the Portfolios Use?......................    1
  Debt Securities.........................................................    2
  Derivatives.............................................................    9
  Equity Securities.......................................................   17
  Foreign Securities......................................................   18
  Investment Companies....................................................   22
  Repurchase Agreements....................................................  22
  Restricted Securities....................................................  23
  Securities Lending.......................................................  23
  When Issued Transactions.................................................  23
Investment Policies of the Portfolios......................................  24
  Fundamental Policies.....................................................  24
Management Of The Fund.....................................................  25
Principal Shareholders.....................................................  27
Investment Advisory and Other Services.....................................  28
  Investment Adviser.......................................................  28
  Distributor..............................................................  30
  Shareholder Servicing Arrangements.......................................  30
  Administrative Services..................................................  30
  Custodian................................................................  32
  Independent Accountants..................................................  32
Brokerage Allocation and Other Practices...................................  32
  Selection of Brokers.....................................................  32
  Simultaneous Transactions................................................  33
  Brokerage Commissions....................................................  33
Capital Stock and Other Securities.........................................  34
  Description Of Shares And Voting Rights..................................  34
Purchase, Redemption and Pricing of Shares.................................  35
  Net Asset Value Per Share................................................  35
  Purchase of Shares.......................................................  36
  Redemption of Shares.....................................................  37
  Exchange Privilege.......................................................  39
  Transfer Of Shares.......................................................  39
Performance Calculations...................................................  39
  Total Return.............................................................  39
  Yield....................................................................  40
  Comparisons..............................................................  40
Financial Statements.......................................................  41
Glossary...................................................................  41
Bond Ratings...............................................................  42
  Moody's Investors Service, Inc...........................................  42
  Standard & Poor's Ratings Services.......................................  44
  Duff & Phelps Credit Rating Co...........................................  47
  Fitch IBCA Ratings.......................................................  48
Comparative Benchmarks.....................................................  50
</TABLE>
<PAGE>

Description of Permitted Investments


WHAT INVESTMENT STRATEGIES MAY THE PORTFOLIOS USE?
- --------------------------------------------------------------------------------
   The portfolios currently intend to use the securities and investment
   strategies listed below in seeking their objectives; however, they may at any
   time invest in any of the investment strategies described in this SAI. This
   SAI describes each of these investments/strategies and their risks. A
   portfolio may not notify shareholders before employing new strategies, unless
   it expects such strategies to become principal strategies. The investments
   that are italicized are principal strategies and you can find more
   information on these techniques in the prospectus of the portfolio. You can
   find more information concerning the limits on the ability of the portfolios
   to use these investments in "What Are the Investment Policies of the
   Portfolios?"

Balanced Portfolio
   .  Equity securities.

   .  Debt securities.

   .  Futures.

   .  Options.

   .  Investment companies.

   .  Repurchase agreements.

   .  Restricted securities.

   .  Securities lending.

   .  When issued securities.

Equity Portfolio
   .  Equity securities.

   .  Short-term investments.

   .  Futures.

   .  Options.

   .  Investment companies.

   .  Repurchase agreements.

   .  Restricted securities.

   .  Securities lending.

   .  When issued securities.

Mid Cap Equity Portfolio
   .  Equity securities.

   .  Short-term investments.

   .  Futures.

   .  Options.

                                       1
<PAGE>

   .    Investment companies.

   .    Repurchase agreements.

   .    Restricted securities.

   .    Securities lending.

   .    When issued securities.

Equity Portfolio For Taxable Investors
   .    Equity securities.

   .    Short-term investments.

   .    Futures.

   .    Options.

   .    Investment companies.

   .    Repurchase agreements.

   .    Restricted securities.

   .    Securities lending.

   .    When issued securities.


DEBT SECURITIES
- --------------------------------------------------------------------------------
   Corporations and governments use debt securities 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.

Types of Debt Securities

   U.S. Government Securities
   U.S. government securities are securities that the U.S. Treasury has issued
   (treasury securities) and securities that a federal agency or a government-
   sponsored entity has issued (agency securities). Treasury securities include
   treasury notes, which have initial maturities of one to ten years and
   treasury bonds, which have initial maturities of at least ten years and
   certain types of mortgage-backed securities that are described under
   "Mortgage-Backed Securities" and "Other Asset-Backed Securities." This SAI
   discusses mortgage-backed treasury and agency securities in detail in the
   section called "Mortgage-Backed Securities" and "Other Asset-Backed
   Securities."

   The full faith and credit of the U.S. government supports treasury
   securities. Unlike treasury securities, the full faith and credit of the U.S.
   government generally do not back agency securities. Agency securities are
   typically supported in one of three ways:

   .  by the right of the issuer to borrow from the U.S. Treasury;

   .  by the discretionary authority of the U.S. government to buy the
      obligations of the agency; or

   .  by the credit of the sponsoring agency.

   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.

                                       2
<PAGE>


Corporate Bonds
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.


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. Unlike most debt securities, which pay
interest periodically and repay principal at maturity or on specified call
dates, mortgage-backed securities make monthly payments that consist of both
interest and principal payments. In effect, these payments are a "pass-through"
of the monthly payments made by the individual borrowers on their mortgage
loans, net of any fees paid to the issuer or guarantor of such securities. Since
homeowners usually have the option of paying either part or all of the loan
balance before maturity, the effective maturity of a mortgage-backed security is
often shorter than is stated.

Governmental entities, private insurers and the mortgage poolers may insure or
guarantee 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. 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 is the principal governmental guarantor of mortgage-related securities.
GNMA is a wholly owned corporation of the U.S. government and it falls within
the Department of Housing and Urban Development. Securities issued by GNMA are
treasury securities, which means the full faith and credit of the U.S.
government backs them. GNMA 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 a
portfolio's 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 is regulated by the Secretary of Housing and Urban
development. FNMA purchases conventional mortgages from a list of approved
sellers and service providers, including state and federally-chartered savings
and loan associations, mutual savings banks, commercial banks and credit unions
and mortgage bankers. Securities issued by FNMA are agency securities, which
means FNMA, but not the U.S. government, guarantees their timely payment of
principal and interest

Federal Home Loan Mortgage Corporation (FHLMC)

                                       3
<PAGE>


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. 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.

Risks of Mortgage-Backed Securities

Yield characteristics of mortgage-backed securities differ from those of
traditional debt securities in a variety of ways, the most significant
differences are mortgage-backed securities:

 .  payments of interest and principal are more frequent (usually monthly); and

 .  falling interest rates generally cause individual borrowers to pay off their
   mortgage earlier than expected forcing a portfolio to reinvest the money at a
   lower interest rate.

In addition to risks associated with changes in interest rates described in
"Factors Affecting the Value of Debt Securities," a variety of economic,
geographic, social and other factors, such as the sale of the underlying
property, refinancing or foreclosure, can cause investors to repay the loans
underlying a mortgage-backed security 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.

Other Asset-Backed Securities

These securities are interests in pools of a broad range of assets other than
mortgages, such as automobile loans, computer leases and credit card
receivables. Like mortgage-backed securities, these securities are pass-through.
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
related asset-backed securities. Due to the quantity of vehicles involved and
requirements under state laws, 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

                                       4
<PAGE>

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.


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 prepay principal
monthly. While whole mortgage loans may collateralize CMOs, 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.

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 securities listed below, U.S. government securities and
investment-grade corporate debt securities. Unless otherwise specified, a short-
term debt security has a maturity of one year or less.

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 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. 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.

                                       5
<PAGE>


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 a short-term obligation with a maturity ranging from 1 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 "Bond Ratings" for a description of
commercial paper ratings.

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 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 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
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.

                                       6
<PAGE>

   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.


Terms to Understand

   Maturity
   Every debt security has a stated maturity date when the issuer must repay the
   amount it borrowed (principal) from investors. Some debt securities, however,
   are callable, meaning the issuer can repay the principal earlier, on or after
   specified dates (call dates). Debt securities are most likely to be called
   when interest rates are falling because the issuer can refinance at a lower
   rate, similar to a homeowner refinancing a mortgage. The effective maturity
   of a debt security is usually its nearest call date.

   A portfolio that invests in debt securities has no real maturity. Instead, it
   calculates its weighted average maturity. This number is an average of the
   stated maturity of each debt security held by a portfolio, with the maturity
   of each security weighted by the percentage of the assets of the portfolio it
   represents.

   Duration
   Duration is a calculation that seeks to measure the price sensitivity of a
   debt security, or a portfolio that invests in debt securities, to changes in
   interest rates. It measures sensitivity more accurately than maturity because
   it takes into account the time value of cash flows generated over the life of
   a debt security. Future interest payments and principal payments are
   discounted to reflect their present value and then are multiplied by the
   number of years they will be received to produce a value expressed in years
   the duration. Effective duration takes into account call features and sinking
   fund prepayments that may shorten the life of a debt security.

   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.

Factors Affecting the Value of Debt 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).

   Prepayment Risk
   This risk effects mainly mortgage-backed securities. Unlike other debt
   securities, falling interest rates can hurt mortgage-backed securities, which
   may cause your share price to fall. Lower rates motivate people to pay off
   mortgage-backed and asset-backed securities earlier than expected. A
   portfolio may then have to reinvest the proceeds from such

                                       7
<PAGE>

   prepayments at lower interest rates, which can reduce its yield. 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 a portfolio. If left unattended, drifts in the average maturity
   of a portfolio can have the unintended effect of increasing or reducing the
   effective duration of the portfolio, which may adversely affect the expected
   performance of the portfolio.

   Extension Risk
   The other side of prepayment risk occurs when interest rates are rising.
   Rising interest rates can cause a portfolio's average maturity to lengthen
   unexpectedly due to a drop in mortgage prepayments. This would increase the
   sensitivity of a portfolio to rising rates and its potential for price
   declines. 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.

   Credit Rating
   Coupon interest is offered to investors of debt securities as compensation
   for assuming risk, although short-term Treasury securities, such as 3-month
   treasury bills, are considered "risk free." Corporate securities offer higher
   yields than Treasury securities 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 Treasury securities.

   Changes in investor confidence regarding the certainty of interest and
   principal payments of a corporate debt 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.

   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.

   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 Moody's Investor
   Services ("Moody's"), Standard and Poor's Ratings Services ("S&P"), Duff &
   Phelps Rating Co. and Fitch IBCA. Credit ratings are only an agency's
   opinion, not an absolute standard of quality, and they do not reflect an
   evaluation of market risk. The section "Bond Ratings" 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
                                       8
<PAGE>


   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.

DERIVATIVES
- --------------------------------------------------------------------------------
   Derivatives are financial instruments whose value is based on an underlying
   asset, such as a stock or a bond, an underlying economic factor, such as an
   interest rate or a market benchmark, such as an index. Investors can use
   derivatives to gain exposure to various markets in a cost efficient manner,
   to reduce transaction costs or to remain fully invested. They may also invest
   in derivatives to protect it 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.

Types of Derivatives

   Futures

   A futures contract is an agreement between two parties whereby one party
   sells and the other party agrees to buy a specified amount of a financial
   instrument at an agreed upon price and time. The financial instrument
   underlying the contract may be a stock, stock index, bond, bond index,
   interest rate, foreign exchange rate or other similar instrument. Agreeing to
   buy the underlying financial information is called buying a futures contract
   or taking a long position in the contract. Likewise, agreeing to sell the
   underlying financial instrument is called selling a futures contract or
   taking a short position in the contract.

   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.

   Unlike other securities, the parties to a futures contract do not have to pay
   for or deliver the underlying financial instrument until some future date
   (the delivery date). 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. This
   process is known as "marking to the market."

   Although the actual terms of a futures contract calls for the actual delivery
   of and payment for the underlying security, in many cases the parties may
   close the contract early by taking an opposite position in an identical
   contract. If the sale price upon closing out the contract is less than the
   original purchase price, the person closing out the contract will realize a
   loss. If the sale price upon closing out the contract is more that the
   original purchase price, the person closing out the contract will realize a
   gain. The opposite is also true. If the purchase price upon closing out the
   contract is more than the original sale price, the person closing out the
   contract will realize a loss. If the purchase price upon closing out the
   contract is less than the original sale price, the person closing out the
   contract will realize a gain.

   The portfolio will incur commission expenses in either opening, closing or
   possibly opening and closing futures positions.

                                       9
<PAGE>

   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
   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

                                      10
<PAGE>


   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
      and segregating cash or liquid securities in an amount equal to the
      difference between the exercise prices;

   .  Cash or liquid securities equal to at least the market value of the
      optioned securities, interest rate, foreign currency or futures contract;
      or

   .  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;

   .  Purchasing a put option on the same security, index, interest rate,
      foreign currency or futures contract with a lesser exercise price and
      segregating cash or liquid securities in an amount equal to the difference
      between the exercise prices; or

   .  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.

                                      11
<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.


   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 the 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.

   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).

   .  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 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 the
   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.

                                      12
<PAGE>

   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. The
   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.

   The portfolio may 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. The 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 the 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.

   The 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 the 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, the 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,
   the 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.

   Swaps, Caps, Collars and Floors


   Swap Agreements
   A swap is a financial instrument that typically involves the exchange of cash
   flows between two parties on specified dates (settlement dates), where the
   cash flows are based on agreed-upon prices, rates, indices, etc. The nominal
   amount on which the cash flows are calculated is called the notional amount.
   Swaps are individually negotiated and structured to include exposure to a
   variety of different types of investments or market factors, such as interest
   rates, foreign currency rates, mortgage securities, corporate borrowing
   rates, security prices or inflation rates.

   Swap agreements may increase or decrease the overall volatility of the
   investments of the portfolio and its share price. The performance of swap
   agreements may be affected by a change in the specific interest rate,
   currency, or other factors that determine the amounts of payments due to and
   from the portfolio. If a swap agreement calls for payments by the portfolio,
   the portfolio must be prepared to make such payments when due. In addition,
   if the counter-party's creditworthiness declined, the value of a swap
   agreement would be likely to decline, potentially resulting in losses.

    Generally, swap agreements have a fixed maturity date that will be agreed
    upon by the parties. The agreement can be terminated before the maturity
    date only under limited circumstances, such as default by one of the parties
    or insolvency, among others, and can be transferred by a party only with the
    prior written consent of the other party. The portfolio may be able to
    eliminate its exposure under a swap agreement either by assignment or by
    other disposition, or by entering into an offsetting swap agreement with the
    same party or a similarly creditworthy party. If the counter-party is unable
    to
                                      15
<PAGE>

   meet its obligations under the contract, declares bankruptcy, defaults or
   becomes insolvent, the portfolio may not be able to recover the money it
   expected to receive under the contract.

   A swap agreement can be a form of leverage, which can magnify a portfolio's
   gains or losses. In order to reduce the risk associated with leveraging, a
   portfolio will cover its current obligations under swap agreements according
   to guidelines established by the SEC. If the portfolio enters into a swap
   agreement on a net basis, it will segregate assets with a daily value at
   least equal to the excess, if any, of the portfolio's accrued obligations
   under the swap agreement over the accrued amount the portfolio is entitled to
   receive under the agreement. If the portfolio enters into a swap agreement on
   other than a net basis, it will segregate assets with a value equal to the
   full amount of the portfolio's accrued obligations under the agreement.

   Equity Swaps -- In a typical equity index swap, one party agrees to pay
   another party the return on a stock, stock index or basket of stocks in
   return for a specified interest rate. By entering into an equity index swap,
   for example, the index receiver can gain exposure to stocks making up the
   index of securities without actually purchasing those stocks. Equity index
   swaps involve not only the risk associated with investment in the securities
   represented in the index, but also the risk that the performance of such
   securities, including dividends, will not exceed the return on the interest
   rate that the portfolio will be committed to pay.

   Interest Rate Swaps -- Interest rate swaps are financial instruments that
   involve the exchange on one type of interest rate for another type of
   interest rate cash flow on specified dates in the future. Some of the
   different types of interest rate swaps are "fixed-for floating rate swaps,"
   "termed basis swaps" and "index amortizing swaps." Fixed-for floating rate
   swap involve the exchange of fixed interest rate cash flows for floating rate
   cash flows. Termed basis swaps entail cash flows to both parties based on
   floating interest rates, where the interest rate indices are different. Index
   amortizing swaps are typically fixed-for floating swaps where the notional
   amount changes if certain conditions are met.

   Like a traditional investment in a debt security, a portfolio could lose
   money by investing in an interest rate swap if interest rates change
   adversely. For example, if the portfolio enters into a swap where it agrees
   to exchange a floating rate of interest for a fixed rate of interest, the
   portfolio may have to pay more money than it receives. Similarly, if the
   portfolio enters into a swap where it agrees to exchange a fixed rate of
   interest for a floating rate of interest, the portfolio may receive less
   money than it has agreed to pay.

   Currency Swaps -- A currency swap is an agreement between two parties in
   which one party agrees to make interest rate payments in one currency and the
   other promises to make interest rate payments in another currency. A
   portfolio may enter into a currency swap when it has one currency and desires
   a different currency. Typically the interest rates that determine the
   currency swap payments are fixed, although occasionally one or both parties
   may pay a floating rate of interest. Unlike an interest rate swap, however,
   the principal amounts are exchanged at the beginning of the contract and
   returned at the end of the contract. Changes in foreign exchange rates and
   changes in interest rates, as described above may negatively affect currency
   swaps.

   Caps, Collars and Floors

   Caps and floors have an effect similar to buying or writing options. In a
   typical cap or floor agreement, one party agrees to make payments only under
   specified circumstances, usually in return for payment of a fee by the other
   party. For example, the buyer of an interest rate cap obtains the right to
   receive payments to the extent that a specified interest rate exceeds an
   agreed-upon level. The seller of an interest rate floor is obligated to make
   payments to the extent that a specified interest rate falls below an agreed-
   upon level. An interest rate collar combines elements of buying a cap and
   selling a floor.

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.

                                      14
<PAGE>


   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.


   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 expected.

   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; and

   .   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.
Moreover, a portfolio may close out a futures contract only on the exchange the
contract was initially traded.  Although a portfolio intends to purchase options
and futures only where there appears to be an active market, there is no
guarantee that such a liquid market will exist.  If there is no secondary market
for the contract, or the market is illiquid, the portfolio may not be able to
close out its position.  In an illiquid market, the portfolio may:

   .   have to sell securities to meet its daily margin requirements at a time
       when it is disadvantageous to do so;

                                      17
<PAGE>


   .   have to purchase or sell the instrument underlying the contract;

   .   not be able to hedge its investments; and

   .   not be able realize profits or limit 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:

   .   an exchange may suspend or limit trading in a particular derivative
       instrument, an entire category of derivatives or all derivatives, which
       sometimes occurs because of increased market volatility;

   .   unusual or unforeseen circumstances may interrupt normal operations of an
       exchange;

   .   the facilities of the exchange may not be adequate to handle current
       trading volume;

   .   equipment failures, government intervention, insolvency of a brokerage
       firm or clearing house or other occurrences may disrupt normal trading
       activity; or

   .   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.

   Volatility and Leverage
   The prices of derivatives are volatile (i.e., they may change rapidly,
   substantially and unpredictably) and are influenced by a variety of factors,
   including:

   .   actual and anticipated changes in interest rates;

   .   fiscal and monetary policies; and

   .   national and international political events.

   Most exchanges limit the amount by which the price of a derivative can change
   during a single trading day. Daily trading limits establish the maximum
   amount that the price of a derivative may vary from the settlement price of
   that derivative at the end of trading on the previous day. Once the price of
   a derivative reaches this value, a portfolio may not trade that derivative at
   a price beyond that limit. The daily limit governs only price movements
   during a given day and does not limit potential gains or losses. Derivative
   prices have occasionally moved to the daily limit for several consecutive
   trading days, preventing prompt liquidation of the derivative.

   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.

                                      16
<PAGE>


   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-dealer with whom it has an open futures contract or related
   option becomes insolvent or declares bankruptcy.

EQUITY SECURITIES
- --------------------------------------------------------------------------------

Types of Equity Securities

   Common Stocks
   Common stocks represent units of ownership in a company. Common stocks
   usually carry voting rights and earn dividends. Unlike preferred stocks,
   which are described below, dividends on common stocks are not fixed but are
   declared at the discretion of the company's board of directors.

   Preferred Stocks
   Preferred stocks are also units of ownership in a company. Preferred stocks
   normally have preference over common stock in the payment of dividends and
   the liquidation of the company. However, in all other respects, preferred
   stocks are subordinated to the liabilities of the issuer. Unlike common
   stocks, preferred stocks are generally not entitled to vote on corporate
   matters. Types of preferred stocks include adjustable-rate preferred stock,
   fixed dividend preferred stock, perpetual preferred stock, and sinking fund
   preferred stock. Generally, the market values of preferred stock with a fixed
   dividend rate and no conversion element varies inversely with interest rates
   and perceived credit risk.

   Convertible Securities
   Convertible securities are debt securities and preferred stocks that are
   convertible into common stock at a specified price or conversion ratio. 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. Their market price tends to go up if the stock price moves up.

   Convertible securities are subject to the same risks as similar securities
   without the convertible feature. The price of a convertible security is more
   volatile during times of steady interest rates than other types of debt
   securities.

   Rights and Warrants
   A right is a privilege granted to existing shareholders of a corporation to
   subscribe to shares of a new issue of common stock before it is issued.
   Rights normally have a short life, usually two to four weeks, are freely
   transferable and entitle the holder to buy the new common stock at a lower
   price than the public offering price. Warrants are securities that are
   usually issued together with a debt security or preferred stock and that give
   the holder the right to buy proportionate amount of common stock at a
   specified price. Warrants are freely transferable and are traded on major
   exchanges. Unlike rights, warrants normally have a life that is measured in
   years and entitles the holder to buy common stock of a company at a price
   that is usually higher than the market price at the time the warrant is
   issued. Corporations often issue warrants to make the accompanying debt
   security more attractive.

   An investment in warrants and rights may entail greater risks than certain
   other types of investments. Generally, rights and warrants do not carry 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. In addition, their value does not necessarily change with the
   value of the underlying securities, and they cease to have value if they are
   not exercised on or before their expiration date. Investing in rights and
   warrants increases the potential profit or loss to be realized from the
   investment as compared with investing the same amount in the underlying
   securities.

                                      17
<PAGE>

Risks of Investing in Equity Securities

   General Risks of Investing in Stocks
   While investing in stocks allows investors to participate in the benefits of
   owning a company, such investors 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.

   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; and

   .   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.

   Because preferred stock is generally 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.

   Small and Medium-Sized Companies
   Investors in small and medium-sized companies typically take on greater risk
   and price volatility than they would by investing in larger, more established
   companies. This increased risk may be due to the greater business risks of
   their small or medium size, limited markets and financial resources, narrow
   product lines and frequent lack of management depth. The securities of small
   and medium companies are often traded in the over-the-counter market and
   might not be traded in volumes typical of securities traded on a national
   securities exchange. Thus, the securities of small and medium capitalization
   companies are likely to be less liquid, and subject to more abrupt or erratic
   market movements, than securities of larger, more established companies.

   Technology Companies
   Stocks of technology companies have tended to be subject to greater
   volatility than securities of companies that are not dependent upon or
   associated with technological issues. Technology companies operate in various
   industries. Since these industries frequently share common characteristics,
   an event or issue affecting one industry may significantly influence other,
   related industries. For example, technology companies may be strongly
   affected by worldwide scientific or technological developments and their
   products and services may be subject to governmental regulation or adversely
   affected by governmental policies.

FOREIGN SECURITIES
- --------------------------------------------------------------------------------

Types of Foreign Securities

   Foreign securities are debt and equity securities that are traded in markets
   outside of the United States. The markets in which these securities are
   located can be developed or emerging. People can invest in foreign securities
   in a number of ways:

   .   They can invest directly in foreign securities denominated in a foreign
       currency;

   .   They can invest in American Depositary Receipts, European Depositary
       Receipts and other similar global instruments; and

                                      20
<PAGE>


  .  They can invest in 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. EDRs are similar to ADRs, except that they are
  typically issued by European Banks or trust companies.

  Emerging Markets

  An "emerging country" is generally a country that 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 currently 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.

  Investment Funds

  Some emerging countries currently prohibit direct foreign investment in the
  securities of their companies. Certain emerging countries, however, permit
  indirect foreign investment in the securities of companies listed and traded
  on their stock exchanges through investment funds that they have specifically
  authorized. Investments in these investment funds are subject to the
  provisions of the 1940 Act. Shareholders of a UAM Fund that invests in such
  investment funds will bear not only their proportionate share of the expenses
  of the UAM Fund (including operating expenses and the fees of the adviser),
  but also will bear indirectly bear similar expenses of the underlying
  investment funds. In addition, these investment funds may trade at a premium
  over their net asset value.


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.


  Political and Economic Factors

  Local political, economic, regulatory, or social instability, military action
  or unrest, or adverse diplomatic developments may affect the value of foreign
  investments. Listed below are some of the more important political and
  economic factors that could negatively affect an investment in foreign
  securities:

  .  The economies of foreign countries may differ from the economy of the
     United States in such areas as growth of gross national product, rate of
     inflation, capital reinvestment, resource self-sufficiency, budget deficits
     and national debt;

  .  Foreign governments sometimes participate to a significant degree, through
     ownership interests or regulation, in their respective economies. Actions
     by these governments could significantly influence the market prices of
     securities and payment of dividends;


                                      19
<PAGE>


 .  The economies of many foreign countries are dependent on international trade
   and their trading partners and they could be severely affected if their
   trading partners were to enact protective trade barriers and economic
   conditions;

 .  The internal policies of a particular foreign country may be less stable than
   in the United States. Other countries face significant external political
   risks, such as possible claims of sovereignty by other countries or tense and
   sometimes hostile border clashes; and

 .  A foreign government may act adversely to the interests of U.S. investors,
   including expropriation or nationalization of assets, confiscatory taxation
   and other restrictions on U.S. investment. A country may restrict or control
   foreign investments in its securities markets. These restrictions could limit
   the portfolio's ability to invest in a particular country or make it very
   expensive for the portfolio to invest in that country. Some countries require
   prior governmental approval, limit the types or amount of securities or
   companies in which a foreigner can invest. Other countries may restrict the
   ability of foreign investors to repatriate their investment income and
   capital gains.

Information and Supervision

There is generally less publicly available information about foreign companies
than companies based in the United States. For example, there are often no
reports and ratings published about foreign companies comparable to the ones
written about United States companies. Foreign companies are typically not
subject to uniform accounting, auditing and financial reporting standards,
practices and requirements comparable to those applicable to United States
companies. The lack of comparable information makes investment decisions
concerning foreign countries more difficult and less reliable than domestic
companies.

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 the markets in the United
States. Foreign stocks markets tend to differ from those in the United States
in a number of ways:

 .   They are generally not as developed or efficient as, and more volatile,
    than those in the United States;

 .   They have substantially less volume;

 .   Their securities tend to be less liquid and to experience rapid and erratic
    price movements;

 .   Commissions on foreign stocks are generally higher and subject to set
    minimum rates, as opposed to negotiated rates;

 .   Foreign security trading, settlement and custodial practices are often less
    developed than those in U.S. markets; and

 .   They may have different settlement practices, which may cause delays and
    increase the potential for failed settlements.


Foreign Currency Risk

While the UAM Funds denominate their net asset value in United States dollars,
the securities of foreign companies are frequently denominated in foreign
currencies. Thus, a change in the value of a foreign currency against the United
States dollar will result in a corresponding change in value of securities
denominated in that currency. Some of the factors that may impair the
investments denominated in a foreign currency are:

 .  It may be expensive to convert foreign currencies into United States
   dollars and vice versa;

 .  Complex political and economic factors may significantly affect the values
   of various currencies, including United States dollars, and their exchange
   rates;


                                      20
<PAGE>


  .  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 may be no systematic reporting of last sale information for foreign
     currencies or 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; and

  .  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.


  Taxes

  Certain foreign governments levy withholding taxes on dividend and interest
  income. Although in some countries it is possible for the portfolio to recover
  a portion of these taxes, the portion that cannot be recovered 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.

  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 relatively unstable governments;

  .  Present greater risks of nationalization of businesses, restrictions on
     foreign ownership and prohibitions on the repatriation of assets;

  .  Offer less protection of property rights than more developed countries; and

  .  Have economies that are 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.


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 began 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 became denominations of the
  Euro at fixed rates according to practices prescribed by the European Monetary
  Institute and the Euro became available as a book-entry currency. On or about
  that date, member states began conducting financial market transactions in
  Euros and redenominating many investments, currency balances and transfer
  mechanisms into Euros. The portfolio also anticipates pricing, trading,
  settling and valuing investments whose nominal values remain in their existing
  domestic currencies in Euros. Accordingly, the


                                      21
<PAGE>


  portfolio expects the conversion to the Euro to impact investments in
  countries that 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?

Investment Companies
- --------------------

  A portfolio may buy and sell shares of other investment companies. Such
  investment companies may pay management and other fees that are similar to the
  fees currently paid by a portfolio. Like other shareholders, each portfolio
  would pay its proportionate share of those fees. Consequently, shareholders of
  a portfolio would pay not only the management fees of the portfolio, but also
  the management fees of the investment company in which the portfolio invests.
  A portfolio may invest up to 10% of its total assets in the securities of
  other investment companies, but may not invest more than 5% of its total
  assets in the securities of any one investment company or acquire more than 3%
  of the outstanding securities of any one investment company.

  The SEC has granted an order that allows a portfolio to invest the greater of
  5% of its total assets or $2.5 million in the UAM DSI Money Market Portfolio,
  provided that the investment is:

  .  For cash management purposes;

  .  Consistent with a portfolio's investment policies and restrictions; and

  .  The adviser to the investing portfolio waives any fees it earns on the
     assets of the portfolio that are invested 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, an investor agrees to buy a security (underlying
  security) from a securities dealer or bank that is a member of the Federal
  Reserve System (counter-party). At the time, the counter-party agrees to
  repurchase the underlying security for the same price, plus interest.
  Repurchase agreements are generally for a relatively short period (usually not
  more than 7 days). The portfolios normally use repurchase agreements to earn
  income on assets that are not invested.

  When a portfolio enters into a repurchase agreement it will:

  .  Pay for the underlying securities only upon physically receiving them or
     upon evidence of their receipt in book-entry form; and

  .  Require the counter party to add to the collateral whenever the price of
     the repurchase agreement rises above the value of the underlying security
     (i.e., it will require the borrower to "mark 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.

                                      22
<PAGE>


Restricted Securities
- ---------------------

  The portfolios 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 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 the
  portfolio's investment limitations. The price realized from the sales of these
  securities could be more or less than those originally paid by a portfolio or
  less than what may be considered the fair value of such securities.

Securities Lending
- ------------------

  A portfolio may lend a portion of its total assets to broker- dealers or other
  financial institutions. It may then reinvest the collateral it receives in
  short-term securities and money market funds. When a portfolio lends its
  securities, it will follow the following guidelines:

  .  The borrower must provide collateral at least equal to the market value of
     the securities loaned;

  .  The collateral 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 must add to the collateral whenever the price of the
     securities loaned rises (i.e., the borrower "marks to the market" on a
     daily basis);

  .  It must be able to terminate the loan at any time;

  .  It must receive reasonable interest on the loan (which may include the
     portfolio investing any cash collateral in interest bearing short-term
     investments); and

  .  It must determine that the borrower is an acceptable credit risk.

  These risks are similar to the ones involved with repurchase agreements. When
  the portfolio lends securities, there is a risk that the borrower will become
  financially unable to honor its contractual obligations. If this happens, the
  portfolio could:

  .  Lose its rights in the collateral and not be able to retrieve the
     securities it lent to the borrower; and

  .  Experience delays in recovering its securities.


When Issued 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 deliver 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 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, a
  portfolio may miss the opportunity to obtain the security at a favorable price
  or yield.

                                      23
<PAGE>

  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.

  A portfolio will segregate cash and liquid securities equal in value to
  commitments for the when-issued, delayed-delivery or forward delivery
  transaction. A portfolio will segregate additional liquid assets daily so that
  the value of such assets is equal to the amount of its commitments.

Investment Policies of the Portfolios

  A portfolio will determine investment limitation percentages (with the
  exception of a limitation relating to borrowing) immediately after and as a
  result of its acquisition of such security or other asset. Accordingly, a
  portfolio will not consider changes in values, net assets or other
  circumstances when determining whether the investment complies with its
  investment limitations.

Fundamental Policies
- --------------------
  The following investment limitations are fundamental, which means a portfolio
  cannot change them without approval by the vote of a majority of the
  outstanding voting securities of the portfolio, as defined by the 1940 Act.

  Each of 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 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 (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 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 in stock or bond futures and/or options on futures unless not more
     than 20% of the portfolio's assets are invested in stock or bond futures
     and options.

  .  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 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 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

                                      24
<PAGE>

     financial institutions so long as such loans are in compliance 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 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 specified above.

  .  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 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.

  .  Write or acquire options or interests in oil, gas or other mineral
     exploration or development programs.

Management Of The Fund

  The governing board manages the business of the Fund. The governing board
  elects officers to manage the day-to-day operations of the Fund and to execute
  policies the board has formulated. 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 and a $2,000 meeting fee. In
  addition, the Fund reimburses each independent board member 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 board members that are affiliated with the fund for their
  services as board members. UAM, its affiliates or SEI 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. The UAM Funds Complex is currently comprised of 51
  portfolios. Those people with an asterisk (*) beside their name are
  "interested persons" of the Fund as that term is defined in the 1940 Act. Mr.
  English does have an investment advisory relationship with Investment
  Counselors of Maryland, an investment adviser to one of the portfolios in the
  UAM Funds Complex. However, the Fund does not believe that the relationship is
  a material business relationship, and, therefore, does not consider him to be
  an "interested person" of the Fund. If these circumstances change, the Board
  will determine whether any action is required to change the composition of the
  Board.


                                      25
<PAGE>

<TABLE>
<CAPTION>
                                                                                  Aggregate Compensation    Aggregate Compensation
                                                       Principal Occupations        From the Fund as of      From the Fund Complex
  Name, Address, DOB         Position with Fund        During the Past 5 years        October 31, 1999       as of October 31, 1999
- -----------------------------------------------------------------------------------------------------------------------------------
<S>                          <C>                      <C>                         <C>                       <C>
John T. Bennett, Jr.         Board Member             President of Squam                     $7,137                   $10,625
College Road -- RFD 3                                 Investment Management
Meredith, NH 03253                                    Company, Inc. and Great
1/26/29                                               Island Investment
                                                      Company, Inc.; President
                                                      of Bennett Management
                                                      Company from 1988 to 1993.
- -----------------------------------------------------------------------------------------------------------------------------------
Nancy J. Dunn                Board Member             Financial Officer of                   $7,137                   $10,625
1250 24/th/ St., NW                                   World Wildlife Fund since
Washington, DC  20037                                 January 1999; Vice
8/14/51                                               President for Finance and
                                                      Administration and
                                                      Treasurer of Radcliffe
                                                      College from 1991 to 1999.
- -----------------------------------------------------------------------------------------------------------------------------------
William A. Humenuk           Board Member             Executive Vice President               $7,137                   $10,625
100 King Street West                                  and Chief Administrative
P.O. Box 2440, LCD-1                                  Officer of Philip
Hamilton  Ontario,                                    Services Corp.; Formerly,
Canada L8N-4J6                                        a Partner in the
4/21/42                                               Philadelphia office of
                                                      the law firm Dechert
                                                      Price & Rhoads and a
                                                      Director of Hofler Corp.
- ----------------------------------------------------------------------------------------------------------------------------------
Philip D. English            Board Member             President and Chief                    $7,137                   $10,625
16 West Madison Street                                Executive Officer of
Baltimore, MD 21201                                   Broventure Company, Inc.;
8/5/48                                                Chairman of the Board of
                                                      Chektec Corporation and
                                                      Cyber Scientific, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
James P. Pappas*             Board Member             President of UAM                           0                         0
211 Congress Street                                   Investment Services, Inc.
Boston, MA  02110                                     since March 1999; Vice
2/24/53                                               President UAM Trust
                                                      Company since January
                                                      1996; Principal of UAM
                                                      Fund Distributors, Inc.
                                                      since December 1995; Vice
                                                      President of UAM
                                                      Investment Services, Inc.
                                                      from January 1996 to
                                                      March 1999 and a Director
                                                      and Chief Operating
                                                      Officer of CS First
                                                      Boston Investment
                                                      Management from 1993-1995.
- ----------------------------------------------------------------------------------------------------------------------------------
Norton H. Reamer*            Board Member; President  Chairman, Chief Executive                  0                         0
One International Place      and Chairman             Officer and a Director of
Boston, MA 02110                                      United Asset Management
3/21/35                                               Corporation; Director,
                                                      Partner or Trustee of
                                                      each of the Investment
                                                      Companies of the Eaton
                                                      Vance Group of Mutual
                                                      Funds.
- ----------------------------------------------------------------------------------------------------------------------------------
Peter M. Whitman, Jr.*       Board Member             President and Chief                        0                         0
One Financial Center                                  Investment Officer of
Boston, MA 02111                                      Dewey Square Investors
7/1/43                                                Corporation since 1988;
                                                      Director and Chief
                                                      Executive Officer of H.T.
                                                      Investors, Inc., formerly
                                                      a subsidiary of Dewey
                                                      Square.
- ----------------------------------------------------------------------------------------------------------------------------------
William H. Park              Vice President           Executive Vice President                   0                         0
One International Place                               and Chief Financial
Boston, MA 02110                                      Officer of United Asset
9/19/47                                               Management Corporation.
- ----------------------------------------------------------------------------------------------------------------------------------
Gary L. French               Treasurer                President of UAMFSI and                    0                         0
211 Congress Street                                   UAMFDI; Treasurer of the
Boston, MA 02110                                      Fidelity Group of Mutual
7/4/51                                                Funds from 1991 to 1995;
                                                      held various other
                                                      offices with Fidelity
                                                      Investments from November
                                                      1990 to March 1995.
- -----------------------------------------------------------------------------------------------------------------------------------
Robert R. Flaherty           Assistant Treasurer      Vice President of UAMFSI;                  0                         0
211 Congress Street                                   Manager of Fund
Boston, MA 02110                                      Administration and
9/18/63                                               Compliance of Chase
                                                      Global Fund Services
                                                      Company from 1995 to
                                                      1996; Senior Manager of
                                                      Deloitte & Touche LLP
                                                      from 1985 to 1995,
- -----------------------------------------------------------------------------------------------------------------------------------
Robert J. DellaCroce         Assistant Treasurer      Director, Mutual Fund                      0                         0
SEI Investments                                       Operations - SEI
One Freedom Valley Rd.                                Investments; Senior
Oaks, PA  19456                                       Manager at Arthur
12/17/63                                              Andersen prior to 1994.
</TABLE>

                                      26
<PAGE>

Principal Shareholders


  As of February 1, 2000, the following persons or organizations held of record
  or beneficially 5% or more of the shares of a portfolio:

<TABLE>
<CAPTION>

                                           Percentage of Shares
  Name and Address of Shareholder               Owned                   Portfolio                             Class
  ----------------------------------------------------------------------------------------------------------------------------
  <S>                                      <C>                    <C>                               <C>
  First Union National Bank                     65.02%            C&B Balanced Portfolio            Institutional Class Shares
  FBO UFCW Local 56 & Food Industry
  525 West WT Harris Blvd CMG NC 1151
  Charlotte, NC 28262-8522
  ----------------------------------------------------------------------------------------------------------------------------
  St. Andrews Church                            11.73%            C&B Balanced Portfolio            Institutional Class Shares
  Memorial Endowment Fund
  PO Box 1287
  Edgartown, MA 02539-1287
  ----------------------------------------------------------------------------------------------------------------------------
  First Union National Bank                     34.82%            C&B Balanced Portfolio            Institutional Class Shares
  FBO AAA Inc Traffic Safety
  525 West WT Harris Blvd CMG NC 1151
  Charlotte, NC 28262-8522
  -----------------------------------------------------------------------------------------------------------------------------
  NFSC FEBO                                      14.47%             C&B Equity Portfolio             Institutional Class Shares
  Firstar - Reinvest 401K
  PO Box 1787
  Mutual Funds, 9/th/ FL
  Milwaukee, WI 53201-1787
  -----------------------------------------------------------------------------------------------------------------------------
  Ironworkers Local 397 Pension Fund             10.08%             C&B Equity Portfolio             Institutional Class Shares
  c/o Administrative Services Inc.
  Attn:  Fund Accounting
  PO Box 83900
  Miami, FL 332839000
  -----------------------------------------------------------------------------------------------------------------------------
  Bruce J. Oliveira                               8.88%             C&B Equity Portfolio             Institutional Class Shares
  Administrator/TTEE
  FBO IBEW Local 223 Pension Trst Fnd
  PO Box 1238
  Lakeville, MA 02347-7238
  -----------------------------------------------------------------------------------------------------------------------------
  Central New York Community                      8.86%             C&B Equity Portfolio             Institutional Class Shares
  Foundation Inc.
  500 S. Salina St.  Ste 428
  Syracuse, NY 13202-3314
  -----------------------------------------------------------------------------------------------------------------------------
  A. Cirillo, D. Faicco, R. Samuels               5.23%             C&B Equity Portfolio             Institutional Class Shares
  Joseph Guerrera & David Smith TR
  Fulton Fish Market PFA 7 DEC TR
  PART Fulton Fish Market Pension
  140 Beekman Street
  New York, NY 10038-02010
  -----------------------------------------------------------------------------------------------------------------------------
  Patricia Schlitt                               29.88%             C&B Equity Portfolio for         Institutional Class Shares
  S. Sanford Schlitt                                                   Taxable Investors
  Subject to DST TOD Rules
  491 Meadow Lark Drive
  Sarasota, FL 34236-1901
  -----------------------------------------------------------------------------------------------------------------------------
  John Musselman TR                              15.90%             C&B Equity Portfolio for         Institutional Class Shares
  John Musselman Revocable Trust                                       Taxable Investors
  22 Kent Street
  Windham, NH 03087-1645
  -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      27
<PAGE>

<TABLE>
<CAPTION>

                                            Percentage of Shares
   Name and Address of Shareholder               Owned                          Portfolio                    Class
   --------------------------------------------------------------------------------------------------------------------------------
   <S>                                      <C>                         <C>                             <C>
   Ann Hauptman & Cynthia Jacobs                11.20%                  C&B Equity Portfolio for        Institutional Class Shares
   TR  FBO Gunther A. Hauptman TR                                       Taxable Investors
   4 Briga Ln
   White Plains,  NY  10605-4647
   --------------------------------------------------------------------------------------------------------------------------------
   Charles Schwab & Co., Inc.                    9.32%                  C&B Equity Portfolio for        Institutional Class Shares
   Reinvest Account                                                       Taxable Investors
   Attn:  Mutual Funds
   101 Montgomery Street
   San Francisco,  CA  94104-4122
   ---------------------------------------------------------------------------------------------------------------------------------
   Bruce A. Boulware & Lizabeth A.               8.38%                  C&B Equity Portfolio for        Institutional Class Shares
   Boulware TWROS                                                         Taxable Investors
   1 Central Park West Apt 28E
   New York, NY 10023-7703 10023
   ---------------------------------------------------------------------------------------------------------------------------------
   Ray Hatcher &                                 5.54%                  C&B Equity Portfolio for        Institutional Class Shares
   Kathleen S. Hatcher TWROS                                              Taxable Investors
   2504 W. 98th Street
   Cleveland, OH 44102-4608
   ---------------------------------------------------------------------------------------------------------------------------------
   Vanguard Fiduciary Trust Co.                 76.51%                  C&B Mid Cap Equity              Institutional Class Shares
    FBO UAM Corp  Profit Sharing                                             Portfolio
    401K Plan, Vanguard Fiduciary
    Trust Group Sp. Servies
   PO Box 2600  VM 421
   Valley Forge,  PA  19482-2600
   ------------------------------------------------------------------------------------------------------------------------------
   UAM Trust Co CUST                             6.96%                  C&B Mid Cap Equity              Institutional Class Shares
   FBO John J. Medveckis R/O IRA                                            Portfolio
   C/O Cooke & Bieler Inc.
   1700 Market Street, Suite 3222
   Philadelphia, PA 19103-3912
   ------------------------------------------------------------------------------------------------------------------------------
</TABLE>

  Any shareholder 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. Shareholders controlling the portfolio 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. As of February 1,
  2000, the directors and officers of the Fund owned less than 1% of the
  outstanding shares of the portfolios.


Investment Advisory and Other Services

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 is a subsidiary of UAM. 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 more than 50 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.


                                      28
<PAGE>

Investment Advisory Agreement

   This section summarizes some of the important provisions the Investment
   Advisory Agreements. The Fund has filed each agreement with the SEC as part
   of its registration statement on Form N-1A.

   Service Performed by Adviser

   Each adviser:

   . Manages the investment and reinvestment of a portfolio's assets;

   . Continuously reviews, supervises and administers the investment program of
     a portfolio; and

   . Determines what portion of a portfolio's assets will be invested in
     securities and what portion will consist of cash.


   Limitation of Liability

   In the absence of (1) willful misfeasance, bad faith, or gross negligence on
   the part of the adviser in the performance of its obligations and duties
   under the Investment Advisory Agreement, (2) reckless disregard by the
   adviser of its obligations and duties under the Investment 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 Investment Advisory Agreement.

   Continuing an Investment Advisory Agreement

   An Investment Advisory Agreement continues in effect for periods of one year
   so long as such continuance is specifically approved at least annually by a:

   . Majority of those Board Members who are not parties to the Investment
     Advisory Agreement or interested persons of any such party; and

   . (2) (a) majority of the Board Members or (b) a majority of the shareholders
     of the portfolio.



   Terminating an Investment Advisory Agreement
   The Fund may terminate an Investment Advisory Agreement at any time, without
   the payment of any penalty if:

   . A majority of the portfolio's shareholders vote to do so or a majority of
     Board Members vote to do so; and

   . It gives the adviser 60 days' written notice.

   The adviser may terminate the Investment Advisory Agreement at any time,
   without the payment of any penalty, upon 90 days' written notice to the Fund.

   An Investment Advisory Agreement will automatically and immediately
   terminate if it is assigned.


                                      29
<PAGE>


Advisory Fees

   For its services, each portfolio pays its adviser the following annual fees,
   which are expressed as a percentage of the average daily net assets of the
   portfolio. Due to the effect of fee waivers by the adviser, the actual
   percentage of average net assets that a portfolio pays in any given year may
   be different from the rate set forth in its contract with the adviser. For
   the last three fiscal years, the portfolios paid the following in management
   fees to the adviser:

<TABLE>
<CAPTION>
                                        Investment Advisory              Investment Advisory       Total Investment
                                           Fees Paid  Investment             Fees Waived              Advisory Fees
   ---------------------------------------------------------------------------------------------------------------------
   <S>                                  <C>                              <C>                       <C>
   Balanced Portfolio                          $105,758                         $102,289                  $  3,469
        1999
   ---------------------------------------------------------------------------------------------------------------------
        1998                                   $ 70,255                         $ 67,927                  $  2,328
   ---------------------------------------------------------------------------------------------------------------------
        1997                                   $ 89,715                         $ 54,862                  $ 34,853
   ---------------------------------------------------------------------------------------------------------------------
   Equity Portfolio                            $677,029                         $      0                  $677,029
        1999
   ---------------------------------------------------------------------------------------------------------------------
        1998                                   $966,726                         $      0                  $966,726
   ---------------------------------------------------------------------------------------------------------------------
        1997                                   $882,890                         $      0                  $882,890
   ---------------------------------------------------------------------------------------------------------------------
   Mid Cap Equity Portfolio                    $      0                         $  8,217                  $      0
        1999
   ---------------------------------------------------------------------------------------------------------------------
        1998                                   $      0                         $  3,589                  $      0
   ---------------------------------------------------------------------------------------------------------------------
        1997                                     N/A                            N/A                         N/A
   ---------------------------------------------------------------------------------------------------------------------
   Equity Portfolio For Taxable Investors      $      0                         $ 23,723                  $      0
        1999
   ---------------------------------------------------------------------------------------------------------------------
        1998                                   $      0                         $ 16,532                  $      0
   ---------------------------------------------------------------------------------------------------------------------
        1997                                   $      0                         $  3,003                  $      0
</TABLE>

Distributor
- -----------
  UAMFDI is 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.

Shareholder Servicing Arrangements
- ----------------------------------

  UAM and each 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 or the 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.


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.

                                      30
<PAGE>

   .  Salaries and fees of officers and Board Members 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.


   The Fund Administration Agreement continues in effect from year to year if
   the Board specifically approves such continuance every year. 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 automatically terminates upon its assignment by UAMFSI without the
   prior written consent of the Fund.

   UAMFSI will from time to time employ other people to assist it in performing
   its duties under the Fund Administration Agreement. Such people may be
   officers and employees who are employed by both UAMFSI and the Fund. UAMFSI
   will pay such people for such employment. The Fund will not incur any
   obligations with respect to such people.

Administration and Transfer Agency Services Fees

   Each portfolio pays a four-part fee to UAMFSI as follows:

   1  In exchange for administrative services, a portfolio pays a fee to UAMFSI
      calculated at the annual rate of:

      . $19,500 for the first operational class; plus

      . $3,750 for each additional class; plus

      . A fee calculated from the aggregate net assets of each portfolio at the
        following rates:

                                                Annual Rate
        ---------------------------------------------------
        Balanced Portfolio                           0.063%
        ---------------------------------------------------
        Equity Portfolio                             0.043%
        ---------------------------------------------------
        Mid Cap Equity Portfolio                     0.043%
        ---------------------------------------------------
        Equity Portfolio For Taxable Investors       0.043%

   2  Each portfolio also pays a fee to UAMFSI for sub-administration and other
      services provided by SEI. The fee, which UAMFSI pays to SEI, is calculated
      at the annual rate of:

      . Not more than $35,000 for the first operational class; plus

                                      31
<PAGE>


      . $5,000 for each additional operational class; plus

      . 0.03% of their pro rata share of the combined assets of the UAM Funds
        Complex.

   3  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.

   4  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.

   For the last three fiscal years the portfolios paid the following in
   administration and sub-administration fees:

<TABLE>
<CAPTION>
                                          Administrators Fee  Sub-Administrators Fee  Total Administration Fee
   --------------------------------------------------------------------------------------------------------------
   <S>                                    <C>                 <C>                     <C>
   Balanced Portfolio                            $18,964                $ 58,849                  $ 77,813
      1999
   --------------------------------------------------------------------------------------------------------------
      1998                                       $16,107                $ 79,810                  $ 95,917
   --------------------------------------------------------------------------------------------------------------
      1997                                       $13,866                $ 76,870                  $ 90,736
   --------------------------------------------------------------------------------------------------------------
   Equity Portfolio                              $54,969                $ 94,088                  $149,057
      1999
   --------------------------------------------------------------------------------------------------------------
      1998                                       $31,273                $145,022                  $176,295
   --------------------------------------------------------------------------------------------------------------
      1997                                       $56,505                $137,773                  $194,278
   --------------------------------------------------------------------------------------------------------------
   Mid Cap Equity Portfolio                      $ 8,500                $ 40,291                  $ 48,791
      1999
   --------------------------------------------------------------------------------------------------------------
      1998                                       $ 1,690                $ 23,821                  $ 25,511
   --------------------------------------------------------------------------------------------------------------
      1997                                         N/A                     N/A                       N/A
   --------------------------------------------------------------------------------------------------------------
   Equity Portfolio For Taxable Investors        $ 6,592                $ 57,574                  $ 64,166
      1999
   --------------------------------------------------------------------------------------------------------------
      1998                                       $ 3,684                $ 61,533                  $ 65,217
   --------------------------------------------------------------------------------------------------------------
      1997                                       $   191                $ 23,521                  $ 23,712
</TABLE>


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 Accountants
- -----------------------
   PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110,
   serves as independent accountant for the Fund.

Brokerage Allocation and Other Practices

Selection of Brokers

   Each Investment Advisory Agreement authorizes the adviser to select the
   brokers or dealers that will execute the purchases and sales of investment
   securities for each portfolio. The Investment Agreement also directs the
   adviser to use its best efforts to obtain the best execution with respect to
   all transactions for the 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
   Investment 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.


                                      32
<PAGE>

   It is not the practice of the Fund to allocate brokerage or effect principal
   transactions with dealers based on sales of shares that a broker-dealer firm
   makes. However, the Fund may place trades with qualified broker-dealers who
   recommend the Fund or who act as agents in the purchase of Fund shares for
   their clients.

Simultaneous Transactions
- -------------------------

   The adviser makes investment decisions for each 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.


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, a portfolio 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.


Commissions Paid
   For the last three fiscal years, the portfolios paid the following in
   brokerage commissions:

                                          Brokerage Commissions
   ------------------------------------------------------------
      Balanced Portfolio                          $ 13,851
      1999
   ------------------------------------------------------------
      1998                                        $ 14,854
   ------------------------------------------------------------
      1997                                        $ 14,006
   ------------------------------------------------------------
   Equity Portfolio                               $201,243
      1999
   ------------------------------------------------------------
      1998                                        $144,662
   ------------------------------------------------------------
      1997                                        $137,773
   ------------------------------------------------------------
   Mid Cap Equity Portfolio                       $  4,754
      1999
   ------------------------------------------------------------
      1998                                        $  2,184
   ------------------------------------------------------------
      1997                                           N/A
   ------------------------------------------------------------
   Equity Portfolio For Taxable Investors         $  2,287
      1999
   ------------------------------------------------------------
      1998                                        $  5,124
   ------------------------------------------------------------
      1997                                        $  1,054

                                      33
<PAGE>

Capital Stock and Other Securities


The Fund
   The Fund was organized under the name "The ICM Fund, Inc." as a Maryland
   corporation on October 11, 1988. On January 18, 1989, the Fund changed its
   name 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 211
   Congress Street, Boston, MA 02110; however, shareholders should direct all
   correspondence to the address listed on the cover of this SAI. The Fund is an
   open-end management company.


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 1940
   Act or other applicable law.


Dividend and Distribution Options
   There are three ways for shareholders to receive dividends and capital gains:


                                      34
<PAGE>


   .  Income dividends and capital gains distributions are reinvested in
      additional shares at net asset value;

   .  Income dividends are paid in cash and capital gains distributions are
      reinvested in additional shares at NAV; and

   .  Income dividends and capital gains distributions are paid in cash.

   Unless the shareholder elects otherwise in writing, the fund will
   automatically reinvest all dividends in additional shares of the portfolio at
   NAV (as of the business day following the record date). Shareholders may
   change their dividend and distributions option by writing to the fund at
   least three days before the record date for income dividend or capital gain
   distribution.

   The fund sends account statements to shareholders whenever it pays an income
   dividend or capital gains distribution.



FEDERAL TAXES

   Each portfolio intends to qualify as a regulated investment company under
   Subchapter M of the Internal Revenue Code, and to distribute out its income
   to shareholders each year so that the portfolio itself generally will be
   relieved of federal income and excise taxes. If a portfolio were to fail to
   so qualify: (1) it would be taxed at regular corporate rates without any
   deduction for distributions to shareholder; and (2) its shareholders would be
   taxed as if they received ordinary dividends, although corporate shareholders
   could be eligible for the dividends received deduction.

   A portfolios' dividends that are paid to their corporate shareholders and are
   attributable to qualifying dividends it received from U.S. domestic
   corporations may be eligible, in the hands of such shareholders, for the
   corporate dividends received deduction, subject to certain holding period
   requirements and debt financing limitations.


Purchase, Redemption and Pricing of Shares


Net Asset Value Per Share
- -------------------------
Calculating NAV

   The purchase and redemption price of the shares of a portfolio is equal to
   the NAV of the portfolio. The Fund calculates the NAV of a portfolio by
   subtracting its liabilities from its total assets and dividing the result by
   the total number of shares outstanding. For purposes of this calculation:

   .  Liabilities include accrued expenses and dividends payable; and

   .  Total assets include the market value of the securities held by the
      portfolio, plus cash and other assets plus income accrued but not yet
      received.

   Each portfolio normally calculates its NAV as of the close of trading on the
   NYSE every day the NYSE is open for trading. The NYSE usually closes at 4:00
   p.m. The NYSE is closed on the following days: 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.


                                      36
<PAGE>


How the Fund Values it Assets

   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 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 governing board.


Purchase of Shares
- ------------------

   Service Agents may enter confirmed purchase orders on behalf of their
   customers. To do so, the Service Agent must receive your investment order
   before the close of trading on the NYSE and must transmit it to the fund
   before the close of its business day to receive that day's share price. The
   fund must receive proper payment for the order by the time the portfolio
   calculates its NAV 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.

   Shareholders can buy full and fractional (calculated to three decimal places)
   shares of a portfolio. The fund will not issue certificates for fractional
   shares and will only issue certificates for whole shares upon the written
   request of a shareholder.

   The Fund may 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

   At its discretion, the Fund may permit shareholders to purchase shares of the
   portfolio with securities, instead of cash. If the Fund allows a shareholder
   to make an in-kind purchase, it will value such securities according to the
   policies described under "How the Fund Values it Assets" at the next
   determination of net asset value after acceptance. The Fund will issue shares
   of the portfolio at the NAV of the portfolio determined as of the same time.

   The Fund will only acquire securities through an in-kind purchase for
   investment and not for immediate resale. The Fund will only accept in-kind
   purchases if the transaction meets the following conditions:

   .  The securities are eligible investments for the portfolio;


                                      36
<PAGE>


   .  The securities have readily available market quotations;

   .  The investor represents and agrees that the securities are liquid and that
      there are no restrictions on their resale imposed by the 1933 Act or
      otherwise;

   .  All dividends, interest, subscription, or other rights pertaining to such
      securities become the property of the portfolio and are delivered to the
      fund by the investor upon receipt from the issuer; and

   .  Immediately after the transaction is complete, the value of all securities
      of the same issuer held by the portfolio cannot exceed 5% of the net
      assets of the portfolio. This condition does not apply to U.S. government
      securities.


   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 the shareholder wishes to redeem signed by all registered
      owners of the shares in the exact names in which they are registered;

   .  Any required signature guarantees (see "Signature Guarantees"); and

   .  Any other necessary legal documents for estates, trusts, guardianships,
      custodianships, corporations, pension and profit sharing plans and other
      organizations.

By Telephone

   Shareholders may not do the following by telephone:

   .  Change the name of the commercial bank or the account designated to
      receive redemption proceeds. To change an account in this manner, you must
      submit a written request signed by each shareholder, with each signature
      guaranteed.

   .  Redeem shares represented by a certificate.

   The Fund and UAMSSC will employ reasonable procedures to confirm that
   instructions communicated by telephone are genuine, and they may be liable
   for any losses if they fail to do so. These procedures include requiring the
   investor to provide certain personal identification at the time an account is
   opened and before 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 UAMSSC may be liable for any losses due to
   unauthorized or fraudulent telephone instructions if the Fund or the UAMSSC
   does not employ the procedures described above. Neither the Fund nor the
   UAMSSC will be responsible for any loss, liability, cost or expense for
   following instructions received by telephone that it reasonably believes to
   be genuine.


                                      37
<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 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.


   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 Board 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

   The Fund requires signature guarantees for certain types of documents,
   including:

   .  Written requests for redemption;

   .  Separate instruments for assignment ("stock power"), which should specify
      the total number of shares to be redeemed; and

   .  On all stock certificates tendered for redemption.

   The purpose of signature guarantees is to verify the identity of the person
   who has authorized a redemption from your account and to protect your
   account, the Fund and its sub-transfer agent from fraud.

   The Fund will accept signature guarantees from any eligible guarantor
   institution, as defined by the Securities Exchange Act of 1934 that
   participates in a signature guarantee program. Eligible guarantor
   institutions include banks, brokers, dealers, credit unions, national
   securities exchanges, registered securities associations, clearing agencies
   and savings associations. You can get a complete definition of eligible
   guarantor institutions by calling 1-877-826-5465. 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.


Other Redemption Information

   Normally, the Fund will pay for all shares redeemed under proper procedures
   within seven days after it received your request. However, the Fund will pay
   your redemption proceeds earlier as applicable law so requires.

   When the Fund may suspend redemption privileges or postpone the date of
   payment:

   .  when the NYSE and custodian bank are closed;

   .  when trading on the NYSE is restricted;

   .  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; or

   .  for such other periods as the Commission may permit.


                                      38
<PAGE>

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 for exchanges.

     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.



Performance Calculations


     Each portfolio measures its performance by calculating its yield and total
     return. Yield and total return figures are based on historical earnings and
     are not intended to indicate future performance. The portfolio calculates
     its current yield and average annual total return information according to
     the methods required by the SEC. The performance is calculated separately
     for each portfolio.



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. 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 fund calculates the average annual total return of a portfolio by
     finding the average annual compounded rates of return over one, five and
     ten-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.



     The fund calculates these figures according to the following formula:

          P (1 + T)/n/ = ERV

                                      39
<PAGE>

          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).



     Set forth in the table below are the portfolios' average annual returns for
     the one-year period and the five-year period ended October 31, 1999 and the
     shorter of the ten-year period ended October 30, 1999 or the period from a
     portfolio's inception date through October 31, 1999.

<TABLE>
<CAPTION>
                                                                            Shorter of
                                                                            10 Years or
                                                 One Year   Five Years    Since Inception     Inception Date
     --------------------------------------------------------------------------------------------------------
     <S>                                         <C>        <C>          <C>                  <C>
     Balanced Portfolio                            3.10%      12.74%           10.87%           12/29/89
     --------------------------------------------------------------------------------------------------------
     Equity Portfolio                              7.73%      17.43%           13.84%            5/15/90
     --------------------------------------------------------------------------------------------------------
     Mid Cap Equity Portfolio                      2.19%        N/A             0.34%            2/18/98
     --------------------------------------------------------------------------------------------------------
     Equity Portfolio For Taxable Investors        6.23%        N/A            10.99%            2/12/97
</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 mutual 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
- --------------------------------------------------------------------------------

     A 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 this SAI. This information may also be included in
     sales literature and advertising.

                                      40
<PAGE>



     To help investors better evaluate how an investment in a portfolio 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 "Comparative Benchmarks" 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 a
          portfolio;

     .    that the indices and averages are generally unmanaged; and

     .    that the items included in the calculations of such averages may not
          be identical to the formula used by a portfolio to calculate its
          performance; and

     .    that shareholders cannot invest directly in such indices or averages.

     In addition, there can be no assurance that a portfolio will continue this
     performance as compared to such other averages.

Financial Statements

     The following documents are included in the portfolios' October 31, 1999
     Annual Report:

     .    Financial statements for the fiscal year ended October 31, 1999.

     .    Financial highlights for the respective periods presented

     .    The report of PricewaterhouseCoopers LLP.

     Each of the above-referenced documents is incorporated by reference into
     this SAI. However, no other parts of the portfolios' Annual Reports are
     incorporated by reference herein. Shareholders may get copies of the
     portfolios' Annual Reports free of charge by calling the UAM Funds at the
     telephone number appearing on the front page of this SAI.

Glossary

     All terms that this SAI does not otherwise define, have the same meaning in
     the SAI as they do in the prospectus(es) of the portfolios.

     1933 Act means the Securities Act of 1933, as amended.

     1934 Act means the Securities Exchange Act of 1934, as amended.

     1940 Act means the Investment Company Act of 1940, as amended.

     Adviser means the investment adviser to each portfolio.

     Board Member refers to a single member of the Fund's Board.

     Board refers to the Fund's Board of Trustees as a group.

     SEI is SEI Investments Mutual Funds Services, the Fund's sub-administrator.

     Fund refers to UAM Funds, Inc.

                                      41
<PAGE>


     Governing Board, see Board.

     NAV is the net asset value per share of a portfolio.

     NYSE is the New York Stock Exchange. Also known as "The Exchange" or "The
     Big Board," the NYSE is located on Wall Street and is the largest exchange
     in the United States.

     Portfolio refers to a single series of the Fund, while portfolios refer to
     all of the series of the Fund.

     SEC is the Securities and Exchange Commission. The SEC is the federal
     agency that administers most of the federal securities laws in the United
     States. In particular, the SEC administers the 1933 Act, the 1940 Act and
     the 1934 Act.

     UAM Funds Complex includes UAM Funds, Inc., UAM Funds Trust, UAM Funds Inc.
     II and all of their portfolios.

     UAM is United Asset Management Corporation.

     UAMFDI is UAM Fund Distributors, Inc., the Fund's distributor.

     UAMFSI is UAM Fund Services, Inc., the Fund's administrator.

     UAMSSC is UAM Fund Shareholder Servicing Center, the Fund's
     sub-shareholder-servicing agent.

Bond 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 stocks.

     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 that 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 period 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.

                                      42
<PAGE>

     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.

     plus (+) or    Moody's applies numerical modifiers 1, 2, and 3 in each
     minus (-)      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.

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-grade
                    obligations. Factors giving security to principal and
                    interest are considered adequate, but elements may be
                    present which suggest a susceptibility to impairment
                    sometime in the future.

     Baa            Bonds which are rated Baa are 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.

                                      43
<PAGE>


     Con. (...)     (This rating applies only to U.S. Tax-Exempt Municipals)
                    Bonds for which the security depends upon the completion of
                    some act or the fulfillment of some condition are rated
                    conditionally. These are bonds secured by (a) earnings of
                    projects under construction, (b) earnings of projects
                    unseasoned in operating experience, (c) rentals that begin
                    when facilities are completed, or (d) payments to which some
                    other limiting condition attaches. Parenthetical rating
                    denotes probable credit stature upon completion of
                    construction or elimination of basis of condition.

     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.

     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:

                         .    Leading market positions in well-established
                              industries.

                         .    Conservative capitalization structure with
                              moderate reliance on debt and ample asset
                              protection.

                         .    Broad 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
- --------------------------------------------------------------------------------


                                      44
<PAGE>

Long-Term Issue Credit Ratings

     Issue credit ratings are based, in varying degrees, on the following
     considerations:

     1.   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;

     2.   Nature of and provisions of the obligation;

     3.   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.





          The issue rating definitions are expressed in terms of default risk.
          As such, they pertain to senior obligations of an entity. Junior
          obligations are typically rated lower than senior obligations, to
          reflect the lower priority in bankruptcy, as noted above. Accordingly,
          in the case of junior debt, the rating may not conform exactly with
          the category definition.


     AAA       An obligation rated 'AAA' has 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 obligor 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.

     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.

                                      45
<PAGE>


     C         A subordinated debt or preferred stock obligation rated 'C' is
               CURRENTLY HIGHLY VULNERABLE to non-payment. The 'C' rating may be
               used to cover a situation where a bankruptcy petition has been
               filed or similar action taken, but payments on this obligation
               are being continued. A 'C' will also be assigned to a preferred
               stock issue in arrears on dividends or sinking fund payments, but
               that is currently paying.



     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.

     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.


     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 obligation as a
               matter of policy.

     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.

Short-Term Issue Credit 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 obligations in higher rating categories. However,
               the obligor's capacity to meet its financial commitment on the
               obligation is satisfactory.

     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.

                                      46
<PAGE>


     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.

Local Currency and Foreign Currency Risks

     Country risks considerations are a standard part of Standard & Poor's
     analysis for credit ratings on any issuer or issue. Currency of repayment
     is a key factor in this analysis. An obligor's capacity to repay foreign
     currency obligations may be lower than its capacity to repay obligations in
     its local currency due to the sovereign government's own relatively lower
     capacity to repay external versus domestic debt. These sovereign risk
     considerations are incorporated in the debt ratings assigned to specific
     issues. Foreign currency issuer ratings are also distinguished from local
     currency issuer ratings to identity those instances where sovereign risks
     make them different for the same issuer.



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
     AA-       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/   Below investment grade but deemed likely to meet obligations when
     BB-       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 met 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.

     DP        Preferred stock with dividend arrearages.

                                      47
<PAGE>

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 of 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         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.

     BBB       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.

                                      48
<PAGE>

     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. The ratings of obligations in this category
                         are based on their prospects for achieving partial or
                         full recovery in a reorganization or liquidation of the
                         obligor. While expected recovery values are highly
                         speculative and cannot be estimated with any precision,
                         the following serve as general guidelines. "DDD"
                         obligations have the highest potential for recovery,
                         around 90%-100% of outstanding amounts and accrued
                         interest. "D" indicates potential recoveries in the
                         range of 50%-90%, and "D" the lowest recovery
                         potential, i.e., below 50%.

                              Entities rated in this category have defaulted on
                         some or all of their obligations. Entities rated "DDD"
                         have the highest prospect for resumption of performance
                         or continued operation with or without a formal
                         reorganization process. Entities rated "DD" and "D" are
                         generally undergoing a formal reorganization or
                         liquidation process; those rated "DD" are likely to
                         satisfy a higher portion of their outstanding
                         obligations, while entities rated "D" have a poor
                         prospect for repaying all obligations.


International Short-Term Credit Ratings
     F1                  Highest credit quality. Indicates the Best 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.

     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.

                                      49
<PAGE>

     '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.



Comparative Benchmarks

     (alphabetically)

     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.

     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.

     Donoghue's Money Fund Average -- is an average of all major money market
     fund yields, published weekly for 7 and 30-day yields.

     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.



     Financial publications: Business Week, Changing Times, Financial World,
     Forbes, Fortune, Money, Barron's, Consumer's Digest, Financial Times,
     Global Investor, Investor's Daily, Lipper, Inc., Morningstar, Inc., The New
     York Times, Personal Investor, The Wall Street Journal and Weisenberger
     Investment Companies Service-- publications that rate fund performance over
     specified time periods.



     Historical data supplied by the research departments of First Boston
     Corporation, J.P. Morgan & Co, Inc., Salomon Smith Barney, Merrill Lynch &
     Co., Inc., Lehman Brothers, Inc. and Bloomberg L.P.



     IBC's Money Fund Average/All Taxable Index - an average of all major money
     market fund yields, published weekly for 7- and 30-day yields.

     IFC Investable Composite Index - an unmanaged market capitalization-
     weighted index maintained by the International Finance Corporation. This
     index consists of over 890 companies in 26 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.

     Lehman Brothers Indices:
     -----------------------

     Lehman Brothers Aggregate Bond Index - an unmanaged fixed income market
     value-weighted index that combines the Lehman Government/Corporate Index
     and the Lehman Mortgage-Backed Securities Index, and includes treasury
     issues, agency issues, corporate bond issues and mortgage backed
     securities. It includes fixed rate issuers of investment grade

                                      50
<PAGE>

     (BBB) or higher, with maturities of at least one year and outstanding par
     values of at least $100 million for U.S. government issues and $25 million
     for others.

     Lehman Brothers Corporate Bond Index - an unmanaged index of all publicly
     issued, fixed-rate, nonconvertible investment grade domestic corporate
     debt. Also included are yankee bonds, which are dollar-denominated SEC
     registered public, noncovertible debt issued or guaranteed by foreign
     sovereign governments, municipalities, or governmental agencies, or
     international agencies.

     Lehman Brothers Government Bond Index -an unmanaged treasury bond index
     including all public obligations of the U.S. Treasury, excluding flower
     bonds and foreign-targeted issues, and the Agency Bond Index (all publicly
     issued debt of U.S. government agencies and quasi-federal corporations, and
     corporate debt guaranteed by the U.S. government). In addition to the
     aggregate index, sub-indices cover intermediate and long term issues.

     Lehman Brothers Government/Corporate Bond Index -- an unmanaged fixed
     income market value-weighted index that combines the Government and
     Corporate Bond Indices, including U.S. government treasury securities,
     corporate and yankee bonds. All issues are investment grade (BBB) or
     higher, with maturities of at least one year and outstanding par value of
     at least $100 million of 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.

     Lehman Brothers High Yield Bond Index - an unmanaged index of fixed rate,
     non-investment grade debt. All bonds included in the index are dollar
     denominated, noncovertible, have at least one year remaining to maturity
     and an outstanding par value of at least $100 million.

     Lehman Brothers Intermediate Government/Corporate Index - an unmanaged
     fixed income, market value-weighted index that combines the Lehman Brothers
     Government Bond Index (intermediate-term sub-index) and four corporate bond
     sectors.

     Lehman Brothers Mortgage-Backed Securities Index - an unmanaged index of
     all fixed-rate securities backed by mortgage pools of Government National
     Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation
     (FHLMC), and Federal National Mortgage Association (FNMA).

     Lipper, Inc./Lipper Indices/Lipper Averages
     -------------------------------------------

     The Lipper Indices are equally weighted indices for typically the 30
     largest mutual funds within their respective portfolio investment
     objectives. The indices are currently grouped in six categories: U.S.
     Diversified Equity with 12 indices; Equity with 27 indices, Taxable Fixed-
     Income with 20 indices, Tax-Exempt Fixed-Income with 28 indices, Closed-End
     Funds with 16 indices, and Variable Annuity Funds with 18 indices.

     In September, 1999, Lipper, Inc. introduced its new portfolio-based mutual
     fund classification method in which peer comparisons are based upon
     characteristics of the specific stocks in the underlying funds, rather than
     upon a broader investment objective stated in a prospectus. Certain of
     Lipper, Inc.'s classifications for general equity funds' investment
     objectives were changed while other equity objectives remain unchanged.
     Changing investment objectives include Capital Appreciation Funds, Growth
     Funds, Mid-Cap Funds, Small-Cap Funds, Micro-Cap Funds, Growth & Income
     Funds, and Equity Income Funds. Unchanged investment objectives include
     Sector Equity Funds, World Equity Funds, Mixed Equity Funds, and certain
     other funds including all Fixed Income Funds and S&P(R) Index Funds.

     Criteria for the Lipper Indices are: 1) component funds are largest in
     group; 2) number of component funds remains the same (30); 3) component
     funds are defined annually; 4) can be linked historically; and 5) are used
     as a benchmark for fund performance.

     Criteria for the Lipper Averages are: 1) includes all funds in the group in
     existence for the period; 2) number of component funds always changes; 3)
     universes are dynamic due to revisions for new funds, mergers,
     liquidations, etc.; and 4) will be inaccurate if historical averages are
     linked.

     Certain Lipper, Inc. indices/averages used by the UAM Funds may include,
     but are not limited to, the following:

                                      51
<PAGE>


     Lipper Short-Intermediate Investment Grade Debt Funds Average -- is an
     average of 100 funds that invest at least 65% of assets in investment grade
     debt issues (BBB or higher) with dollar-weighted average maturities of one
     to five years or less. (Taxable Fixed-Income category)

     Lipper Balanced Fund Index - an unmanaged index of open-end equity funds
     whose primary objective is to conserve principal by maintaining at all
     times a balanced portfolio of both stocks and bonds. Typically, the
     stock/bond ratio ranges around 60%/40%. (Equity category)

     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. (Equity category)

     Lipper Equity Mid Cap Fund Index - an unmanaged index of funds that by
     prospectus or portfolio practice invest primarily in companies with market
     capitalizations less than $5 billion at the time of purchase. (Equity
     category)

     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. (Equity
     category)

     Lipper Growth Fund Index - an unmanaged index composed of the 30 largest
     funds by asset size which invest in companies with long-term earnings
     expected to grow significantly faster than the earnings of the stocks
     represented in the major unmanaged stock indices. (Equity category)

     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.



     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 (BBB
     or higher).



     Merrill Lynch 1-3 Year Treasury Index - an unmanaged index composed of U.S.
     treasury securities with maturities from 1 to 3 years.



     Morgan Stanley Capital International EAFE Index -- 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.

     Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
     yield, risk and total return for equity funds.

     NASDAQ Composite Index -- is a market capitalization, price only, unmanaged
     index that tracks the performance of domestic common stocks traded on the
     regular NASDAQ market as well as national market System traded foreign
     common stocks and ADRs.



     Nekkei Stock Average - a price weighted index of 225 selected leading
     stocks listed on the First Section of the Tokyo Stock Exchange.



     New York Stock Exchange composite or component indices -- capitalization-
     weighted unmanaged indices of all industrial, utilities, transportation and
     finance stocks listed on the New York Stock Exchange.



     Russell U.S. Equity Indexes:
     ---------------------------

     Russell 3000(R) Index - measures the performance of the 3,000 largest U.S.
     companies based on total market capitalization, which represents
     approximately 98% of the investable U.S. equity market.

                                      52
<PAGE>

Russell 1000(R) Index - an unmanaged index which measures the performance of the
1,000 largest companies in the Russell 3000 Index, which represents
approximately 92% of the total market capitalization of the Russell 3000 Index.

Russell 2000(R) Index -- an unmanaged index which measures the performance of
the 2,000 smallest companies in the Russell 3000 Index, which represents
approximately 8% of the total market capitalization of the Russell 3000 Index.

Russell Top 200(TM) Index - measures the performance of the 200 largest
companies in the Russell 1000 Index, which represents approximately 74% of the
total market capitalization of the Russell 1000 Index.

Russell Mid-Cap(TM) Index -- measures the performance of the 800 smallest
companies in the Russell 1000 Index, which represents approximately 26% of the
total market capitalization of the Russell 1000 Index.

Russell 2500(TM) Index - an unmanaged index which measures the performance of
the 2,5000 smallest companies in the Russell 3000 Index, which represents
approximately 17% of the total market capitalization of the Russell 3000 Index.

Russell 3000(R) Growth Index  - measures the performance of those Russell 3000
Index companies with higher price-to-book ratios and higher forecasted growth
values.  The stocks in this index are also members of either the Russell 1000
Growth or the Russell 2000 Growth indexes.

Russell 3000(R) Value Index - measures the performance of those Russell 3000
Index companies with lower price-to-book ratios and lower forecasted growth
values.  The stocks in this index are also members of either the Russell 1000
Value or the Russell 2000 Value indexes.

Russell 1000(R) Growth Index - measures the performance of those Russell 1000
companies with higher price-to-book ratios and higher forecasted growth values.

Russell 1000(R) Value Index - measures the performance of those Russell 1000
with lower price-to-book ratios and lower forecasted growth values.

Russell 2000(R) Growth Index - measures the performance of  those Russell 2000
companies with higher price-to-book ratios and higher forecasted growth values.

Russell 2000(R) Value Index - measures the performance of those Russell 2000
companies with lower price-to-book ratios and lower forecasted growth values.

Russell Top 200(TM) Growth Index - measures the performance of those Russell Top
200 companies with higher price-to-book ratios and higher forecasted growth
values. The stocks re also members of the Russell 1000 Growth index.

Russell Top 200(TM) Value Index - measures the performance of those Russell Top
200 companies with lower price-to-book ratios and lower forecasted growth
values. The stocks are also members of the Russell 1000 Value index.

Russell Midcap(TM) Growth Index - measures the performance of those Russell
Midcap companies with higher price-to-book ratios and higher forecasted growth
values. The stocks are also members of the Russell 1000 Growth index.

Russell Midcap(TM) Value Index - measures the performance of those Russell
Midcap companies with lower price-to-book ratios and lower forecasted growth
values. The stocks are also members of the Russell 1000 Value index.

Russell 2500(TM) Growth Index - measures the performance of those Russell 2500
companies with higher price-to-book ratios and higher forecasted growth values.

Russell 2500(TM) Value Index - measures the performance of those Russell 2500
companies with lower price-to-book ratios and lower forecasted growth values.

Ryan Labs 5 Year GIC Master Index  - an arithmetic mean of market rates of $1
million GIC contracts held for five years.  The market rates are representative
of a diversified, investment grade portfolio of contracts issued by credit
worthy insurance companies.  The index is unmanaged and does not reflect any
transaction costs.  Direct investment in the index is not possible.

Standard & Poor's U.S. Indices:
- ------------------------------

                                      53
<PAGE>

In October, 1999,  Standard & Poor's and Morgan Stanley Capital International
launched a new global industry classification standard consisting of 10 economic
sectors aggregated from 23 industry groups, 59 industries, and 123 sub-
industries covering almost 6,000 companies globally.  The new classification
standard will be used with all of their respective indices.  Features of the new
classification include 10 economic sectors, rather than the 11 S&P currently
uses.  Sector and industry gradations are less severe.  Rather than jumping from
11 sectors to 115 industries under the former S&P system, the new system
progresses from 10 sectors through 23 industry groups, 50 industries and 123
sub-industries.

S&P 500 Index - an unmanaged index composed of 400 industrial stocks, 40
financial stocks, 40 utilities stocks and 20 transportation stocks. Widely
regarded as the standard for  measuring large-cap U.S. stock market performance.
It is used by 97% of U.S. money managers and pension plan sponsors. More than $1
trillion is indexed to the S&P 500.

S&P MidCap 400 Index -- consists of 400 domestic stocks chosen for market size,
liquidity, and industry group representation.  It is a market-value weighted
index with each stock affecting the index in proportion to its market value. It
is used by over 95% of U.S. managers and pension plan sponsors. More than $25
billion is indexed to the S&P Midcap400.

S&P Small Cap 600 Index - an unmanaged index comprised of 600 domestic stocks
chosen for market size, liquidity, and industry group representation.  The index
is comprised of stocks from the industrial, utility, financial, and
transportation sectors.  It is gaining wide acceptance as the preferred
benchmark for both active and passive management due to its low turnover and
greater liquidity.  Approximately $8 billion is indexed to the S&P SmallCap 600.

S&P SuperComposite 1500 - combines the S&P 500, MidCap 400, and SmallCap 600
indices, representing 87% of the total U.S. equity market capitalization.

S&P 100 Index - known by its ticker symbol OEX, this index measures large
company U.S. stock market performance.  This market capitalization-weighted
index is made up of 100 major, blue chip stocks across diverse industry groups.

S&P/BARRA Growth and Value Indices - are constructed by dividing the securities
in the S&P 500 Index according to price-to-book ratio.  The Value index contains
the companies with the lower price-to-book ratios; while the companies with the
higher price-to-book ratios are contained in the Growth index.

S&P REIT Composite Index - launched in 1997, this benchmark tracks the market
performance of U.S. Real Estate Investment Trusts, known as REITS.  The REIT
Composite consists of 100 REITs chosen for their liquidity and importance in
representing a diversified real estate portfolio.  The Index covers over 80% of
the securitized U.S. real estate market.

S&P Utilities Stock Price Index - a market capitalization weighted index
representing three utility groups and, with the three groups, 43 of the largest
utility companies listed on the New York Stock Exchange, including 23 electric
power companies, 12 natural gas distributors and 8 telephone companies.

Standard & Poor's CANADA Indices:
- --------------------------------

S&P/TSE Canadian MidCap Index - measures the performance of the mid-size company
segment of the Canadian equity market.

S&P/TSE Canadian SmallCap Index - Measures the small company segment of the
Canadian equity market.

Standard & Poor's Global Indices:
- --------------------------------

S&P Global 1200 Index - aims to provide investors with an investable portfolio.
This index, which covers 29 countries and consists of seven regional components,
offers global investors an easily accessible, tradable set of stocks and
particularly suits the new generation of index products, such as exchange-traded
funds (ETFs).

S&P Euro  and S&P Euro Plus Indices - the S&P Euro Index covers the Eurobloc
countries; the Euro Plus Index includes the Euro markets as well as Denmark,
Norway, Sweden and Switzerland.  The S&P Euro Plus Index contains 200
constituents, and the S&P Euro Index, a subset of Euro Plus, contains 160
constituents.  Both indices provide geographic and economic diversity over 11
industry sectors.

                                      54
<PAGE>


S&P/TSE 60 Index  - developed with the Toronto Stock Exchange, is designed as
the new Canadian large cap benchmark and will ultimately replace the Toronto 35
and the TSE 100.

S&P/TOPIX 150 -  includes 150 highly liquid securities selected from each major
sector of the Tokyo market. It  is designed specifically to give portfolio
managers and derivative traders an index that is broad enough to provide
representation of the market, but narrow enough to ensure liquidity.

S&P Asia Pacific 100 Index - includes highly liquid securities from each major
economic sector of major Asia-Pacific equity markets. Seven countries --
Australia, Hong Kong, Korea, Malaysia, New Zealand, Singapore, and Taiwan -- are
represented in the new index.

S&P Latin America 40 Index -part of the S&P Global 1200 Index, includes highly
liquid securities from major economic sectors of Mexican and South American
equity markets. Companies from Mexico, Brazil, Argentina, and Chile are
represented in the new index.

S&P United Kingdom 150 Index - includes 150 highly liquid securities selected
from each of the new S&P sectors. The S&P UK 150 is designed to be broad enough
to provide representation of the market, but narrow enough to ensure liquidity.


Salomon Smith Barney Global excluding U.S. Equity Index - an unmanaged index
comprised of the smallest stocks (less than $1 billion market capitalization) of
the Extended Market Index, of both developed and emerging markets.

Salomon Smith Barney One to Three Year Treasury Index - an unmanaged index
comprised of U.S. treasury notes and bonds with maturities of one year or
greater, but less than three years.

Salomon Smith Barney Three-Month T-Bill Average -- the average for all treasury
bills for the previous three-month period.

Salomon Smith Barney Three-Month U.S. Treasury Bill Index - a return equivalent
yield average based on the last three 3-month Treasury bill issues.

Savings and Loan Historical Interest Rates -- as published by the U.S. Savings
and Loan League Fact Book.

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.


Target Large Company Value Index - an index comprised of large companies with
market capitalizations currently extending down to approximately $1.9 billion
that are monitored using a variety of relative value criteria in order to
capture the most attractive value opportunities available.  A high quality
profile is required and companies undergoing adverse financial pressures are
eliminated.


U.S. Three-Month Treasury Bill Average - the average return for all treasury
bills for the previous three month period.


Value Line Composite Index -- composed of over 1,600 stocks in the Value Line
Investment Survey.


Wilshire Real Estate Securities Index - a market capitalization-weighted index
of publicly traded real estate securities, including real estate investment
trusts, real estate operating companies and partnerships.  The index is used by
the institutional investment community as a broad measure of the performance of
public real estate equity for asset allocation and performance comparison.

Wilshire REIT Index - includes 112 real estate investment trusts (REITs) but
excludes seven real estate operating companies that are included in the Wilshire
Real Estate Securities Index.

                                      55
<PAGE>

Note:  With respect to the comparative measures of performance for equity
securities described herein, comparisons of performance assume reinvestment of
dividends, except as otherwise stated.

                                      56
<PAGE>

                                 PO UAM Funds
                                  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
                               February 28, 2000







This statement of additional information (SAI) is not a prospectus. However, you
should read it in conjunction with the prospectuses of the portfolios dated
February 28, 2000, as supplemented from time to time. You may obtain a
prospectus for the portfolios by contacting the UAM Funds at the address listed
above.
<PAGE>

Table Of Contents
<TABLE>
<S>                                                                                                                          <C>
Description of Permitted Investments.....................................................................................     1
   What Investment Strategies May the Portfolios Use?....................................................................     1
   Debt Securities.......................................................................................................     2
   Derivatives...........................................................................................................     9
   Equity Securities.....................................................................................................    18
   Foreign Securities....................................................................................................    19
   Investment Companies..................................................................................................    23
   Repurchase Agreements.................................................................................................    23
   Restricted Securities.................................................................................................    24
   Securities Lending....................................................................................................    24
   When Issued Transactions..............................................................................................    24
Investment Policies of the Portfolios....................................................................................    25
   Fundamental Policies..................................................................................................    25
   Non-Fundamental Policies..............................................................................................    27
Management Of The Fund...................................................................................................    28
Principal Shareholders...................................................................................................    30
Investment Advisory and Other Services...................................................................................    31
   Investment Adviser....................................................................................................    31
   Distributor...........................................................................................................    35
   Service And Distribution Plans........................................................................................    35
   Administrative Services...............................................................................................    38
   Custodian.............................................................................................................    40
   Independent Accountants...............................................................................................    40
Brokerage Allocation and Other Practices.................................................................................    40
   Selection of Brokers..................................................................................................    40
   Simultaneous Transactions.............................................................................................    40
   Brokerage Commissions.................................................................................................    41
Capital Stock and Other Securities.......................................................................................    41
   Description Of Shares And Voting Rights...............................................................................    42
Purchase, Redemption and Pricing of Shares...............................................................................    43
   Net Asset Value Per Share.............................................................................................    43
   Purchase of Shares....................................................................................................    44
   Redemption of Shares..................................................................................................    45
   Exchange Privilege....................................................................................................    46
   Transfer Of Shares....................................................................................................    47
Performance Calculations.................................................................................................    47
   Total Return..........................................................................................................    47
   Yield.................................................................................................................    48
   Comparisons...........................................................................................................    49
Financial Statements.....................................................................................................    49
Glossary.................................................................................................................    49
Bond Ratings.............................................................................................................    50
   Moody's Investors Service, Inc........................................................................................    50
   Standard & Poor's Ratings Services....................................................................................    53
   Duff & Phelps Credit Rating Co........................................................................................    55
   Fitch IBCA Ratings....................................................................................................    56
Comparative Benchmarks...................................................................................................    58
</TABLE>
<PAGE>

DESCRIPTION OF PERMITTED INVESTMENTS

WHAT INVESTMENT STRATEGIES MAY THE PORTFOLIOS USE?
- --------------------------------------------------------------------------------

     The portfolios currently intend to use the securities and investment
     strategies listed below in seeking their objectives; however, they may at
     any time invest in any of the investment strategies described in this SAI.
     This SAI describes each of these investments/strategies and their risks. A
     portfolio may not notify shareholders before employing new strategies,
     unless it expects such strategies to become principal strategies. The
     investments that are italicized are principal strategies and you can find
     more information on these techniques in the prospectus of the portfolio.
     You can find more information concerning the limits on the ability of the
     portfolios to use these investments in "What Are the Investment Policies of
     the Portfolios?"


Small Cap Value Portfolio

     .    Foreign securities.

     .    Equity securities.

     .    Short-term investments.

     .    Futures.

     .    Options.

     .    Investment companies.

     .    Repurchase agreements.

     .    Restricted securities.

     .    Securities lending.

     .    When issued securities.


Disciplined Value Portfolio

     .    Foreign securities.

     .    Equity securities.

     .    Short-term investments.

     .    Futures.

     .    Options.

     .    Investment companies.

     .    Repurchase agreements.

     .    Restricted securities.

     .    Securities lending.

     .    When issued securities.


Balanced Portfolio

     .    Foreign securities.

                                       1
<PAGE>

     .    Equity securities.

     .    Debt securities.

     .    Futures.

     .    Options.

     .    Forward currency exchange contracts.

     .    Investment companies.

     .    Repurchase agreements.

     .    Restricted securities.

     .    Securities lending.

     .    When issued securities.


Limited Maturity Bond Portfolio

     .    Foreign securities.

     .    Debt securities.

     .    Futures.

     .    Options.

     .    Forward currency exchange contracts.

     .    Investment companies.

     .    Repurchase agreements.

     .    Restricted securities.

     .    Securities lending.

     .    When issued securities.


Money Market Portfolio

     .    Debt securities.

     .    Investment companies.

     .    Repurchase agreements.

     .    Restricted securities.

     .    Securities lending.

     .    When issued securities.


DEBT SECURITIES
- --------------------------------------------------------------------------------

     Corporations and governments use debt securities 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.

                                       2
<PAGE>


Types of Debt Securities


     U.S. Government Securities

     U.S. government securities are securities that the U.S. Treasury has issued
     (treasury securities) and securities that a federal agency or a
     government-sponsored entity has issued (agency securities). Treasury
     securities include treasury notes, which have initial maturities of one to
     ten years and treasury bonds, which have initial maturities of at least ten
     years and certain types of mortgage-backed securities that are described
     under "Mortgage-Backed Securities" and "Other Asset-Backed Securities."
     This SAI discusses mortgage-backed treasury and agency securities in detail
     in the section called "Mortgage-Backed Securities" and "Other Asset-Backed
     Securities."

     The full faith and credit of the U.S. government supports treasury
     securities. Unlike treasury securities, the full faith and credit of the
     U.S. government generally do not back agency securities. Agency securities
     are typically supported in one of three ways:

     .    by the right of the issuer to borrow from the U.S. Treasury;

     .    by the discretionary authority of the U.S. government to buy the
          obligations of the agency; or

     .    by the credit of the sponsoring agency.

     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

     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.

     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. Unlike most debt securities, which pay
     interest periodically and repay principal at maturity or on specified call
     dates, mortgage-backed securities make monthly payments that consist of
     both interest and principal payments. In effect, these payments are a
     "pass-through" of the monthly payments made by the individual borrowers on
     their mortgage loans, net of any fees paid to the issuer or guarantor of
     such securities. Since homeowners usually have the option of paying either
     part or all of the loan balance before maturity, the effective maturity of
     a mortgage-backed security is often shorter than is stated.

     Governmental entities, private insurers and the mortgage poolers may insure
     or guarantee 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. 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.

                                       3
<PAGE>

     Government National Mortgage Association (GNMA)


     GNMA is the principal governmental guarantor of mortgage-related
     securities. GNMA is a wholly owned corporation of the U.S. government and
     it falls within the Department of Housing and Urban Development. Securities
     issued by GNMA are treasury securities, which means the full faith and
     credit of the U.S. government backs them. GNMA 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 a portfolio's 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 is regulated by the Secretary of Housing and Urban
     development. FNMA purchases conventional mortgages from a list of approved
     sellers and service providers, including state and federally-chartered
     savings and loan associations, mutual savings banks, commercial banks and
     credit unions and mortgage bankers. Securities issued by FNMA are agency
     securities, which means FNMA, but not the U.S. government, guarantees their
     timely payment of principal and interest.


     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. 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.


     Risks of Mortgage-Backed Securities

     Yield characteristics of mortgage-backed securities differ from those of
     traditional debt securities in a variety of ways, the most significant
     differences are mortgage-backed securities:

     .    payments of interest and principal are more frequent (usually
          monthly); and

     .    falling interest rates generally cause individual borrowers to pay off
          their mortgage earlier than expected forcing a portfolio to reinvest
          the money at a lower interest rate.

                                       4
<PAGE>


     In addition to risks associated with changes in interest rates described in
     "Factors Affecting the Value of Debt Securities," a variety of economic,
     geographic, social and other factors, such as the sale of the underlying
     property, refinancing or foreclosure, can cause investors to repay the
     loans underlying a mortgage-backed security 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.

     Other Asset-Backed Securities

     These securities are interests in pools of a broad range of assets other
     than mortgages, such as automobile loans, computer leases and credit card
     receivables. Like mortgage-backed securities, these securities are
     pass-through. 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 related
     asset-backed securities. Due to the quantity of vehicles involved and
     requirements under state laws, 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.


     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 prepay
     principal monthly. While whole mortgage loans may collateralize CMOs,
     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

                                       5
<PAGE>

     lowest tranche of CMOs and REMIC certificates involves risks similar to
     those associated with investing in equity securities.

     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 securities listed below, U.S. government
     securities and investment-grade corporate debt securities. Unless otherwise
     specified, a short-term debt security has a maturity of one year or less.

     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 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. 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 is a short-term obligation with a maturity ranging from 1
     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 "Bond Ratings" for a
     description of commercial paper ratings.

     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 sensitive to the rate of principal payments (including
     prepayments) on the underlying mortgage loans or mortgage-backed
     securities. A rapid

                                       6
<PAGE>


     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 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 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.


Terms to Understand

     Maturity

     Every debt security has a stated maturity date when the issuer must repay
     the amount it borrowed (principal) from investors. Some debt securities,
     however, are callable, meaning the issuer can repay the principal earlier,
     on or after specified dates (call dates). Debt securities are most likely
     to be called when interest rates are falling because the issuer

                                       7
<PAGE>

     can refinance at a lower rate, similar to a homeowner refinancing a
     mortgage. The effective maturity of a debt security is usually its nearest
     call date.

     A portfolio that invests in debt securities has no real maturity. Instead,
     it calculates its weighted average maturity. This number is an average of
     the stated maturity of each debt security held by a portfolio, with the
     maturity of each security weighted by the percentage of the assets of the
     portfolio it represents.

     Duration

     Duration is a calculation that seeks to measure the price sensitivity of a
     debt security, or a portfolio that invests in debt securities, to changes
     in interest rates. It measures sensitivity more accurately than maturity
     because it takes into account the time value of cash flows generated over
     the life of a debt security. Future interest payments and principal
     payments are discounted to reflect their present value and then are
     multiplied by the number of years they will be received to produce a value
     expressed in years -- the duration. Effective duration takes into account
     call features and sinking fund prepayments that may shorten the life of a
     debt security.

     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.

Factors Affecting the Value of Debt 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).

     Prepayment Risk

     This risk effects mainly mortgage-backed securities. Unlike other debt
     securities, falling interest rates can hurt mortgage-backed securities,
     which may cause your share price to fall. Lower rates motivate people to
     pay off mortgage-backed and asset-backed securities earlier than expected.
     A portfolio may then have to reinvest the proceeds from such prepayments at
     lower interest rates, which can reduce its yield. 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 a portfolio. If
     left unattended, drifts in the average maturity of a portfolio can have the
     unintended effect of increasing or reducing the effective duration of the
     portfolio, which may adversely affect the expected performance of the
     portfolio.

     Extension Risk

     The other side of prepayment risk occurs when interest rates are rising.
     Rising interest rates can cause a portfolio's average maturity to lengthen
     unexpectedly due to a drop in mortgage prepayments. This would increase the
     sensitivity of a portfolio to rising rates and its potential for price
     declines. 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.

                                       8
<PAGE>

     Credit Rating

     Coupon interest is offered to investors of debt securities as compensation
     for assuming risk, although short-term Treasury securities, such as 3-month
     treasury bills, are considered "risk free." Corporate securities offer
     higher yields than Treasury securities 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 Treasury securities.

     Changes in investor confidence regarding the certainty of interest and
     principal payments of a corporate debt 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.

     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.

     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 Moody's Investor
     Services ("Moody's"), Standard and Poor's Ratings Services ("S&P"), Duff &
     Phelps Rating Co. and Fitch IBCA. Credit ratings are only an agency's
     opinion, not an absolute standard of quality, and they do not reflect an
     evaluation of market risk. The section "Bond Ratings" 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.


DERIVATIVES
- --------------------------------------------------------------------------------

     Derivatives are financial instruments whose value is based on an underlying
     asset, such as a stock or a bond, an underlying economic factor, such as an
     interest rate or a market benchmark, such as an index. Investors can use
     derivatives to gain exposure to various markets in a cost efficient manner,
     to reduce transaction costs or to remain fully invested. They may also
     invest in derivatives to protect it 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.

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Types of Derivatives

     Futures


     A futures contract is an agreement between two parties whereby one party
     sells and the other party agrees to buy a specified amount of a financial
     instrument at an agreed upon price and time. The financial instrument
     underlying the contract may be a stock, stock index, bond, bond index,
     interest rate, foreign exchange rate or other similar instrument. Agreeing
     to buy the underlying financial information is called buying a futures
     contract or taking a long position in the contract. Likewise, agreeing to
     sell the underlying financial instrument is called selling a futures
     contract or taking a short position in the contract.

     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.

     Unlike other securities, the parties to a futures contract do not have to
     pay for or deliver the underlying financial instrument until some future
     date (the delivery date). 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. This process is known as "marking to the market."

     Although the actual terms of a futures contract calls for the actual
     delivery of and payment for the underlying security, in many cases the
     parties may close the contract early by taking an opposite position in an
     identical contract. If the sale price upon closing out the contract is less
     than the original purchase price, the person closing out the contract will
     realize a loss. If the sale price upon closing out the contract is more
     that the original purchase price, the person closing out the contract will
     realize a gain. The opposite is also true. If the purchase price upon
     closing out the contract is more than the original sale price, the person
     closing out the contract will realize a loss. If the purchase price upon
     closing out the contract is less than the original sale price, the person
     closing out the contract will realize a gain.

     The portfolio will incur commission expenses in either opening, closing or
     possibly opening and closing futures positions.


     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.

                                      10
<PAGE>




     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 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.

                                      11
<PAGE>


     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 and segregating cash or liquid securities in an amount equal to
          the difference between the exercise prices;

     .    Cash or liquid securities equal to at least the market value of the
          optioned securities, interest rate, foreign currency or futures
          contract; or

     .    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;

     .    Purchasing a put option on the same security, index, interest rate,
          foreign currency or futures contract with a lesser exercise price and
          segregating cash or liquid securities in an amount equal to the
          difference between the exercise prices; or

     .    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.

                                      12
<PAGE>


     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 the 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.


     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).

     .    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 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 the
     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. The 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.

     The portfolio may 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. The 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

                                      13
<PAGE>

     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 the 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.

     The 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 the
     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, the 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,
     the 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.

     Swaps, Caps, Collars and Floors

     Swap Agreements

     A swap is a financial instrument that typically involves the exchange of
     cash flows between two parties on specified dates (settlement dates), where
     the cash flows are based on agreed-upon prices, rates, indices, etc. The
     nominal amount on which the cash flows are calculated is called the
     notional amount. Swaps are individually negotiated and structured to
     include exposure to a variety of different types of investments or market
     factors, such as interest rates, foreign currency rates, mortgage
     securities, corporate borrowing rates, security prices or inflation rates.

     Swap agreements may increase or decrease the overall volatility of the
     investments of the portfolio and its share price. The performance of swap
     agreements may be affected by a change in the specific interest rate,
     currency, or other factors that determine the amounts of payments due to
     and from the portfolio. If a swap agreement calls for payments by the
     portfolio, the portfolio must be prepared to make such payments when due.
     In addition, if the counter-party's creditworthiness declined, the value of
     a swap agreement would be likely to decline, potentially resulting in
     losses.

     Generally, swap agreements have a fixed maturity date that will be agreed
     upon by the parties. The agreement can be terminated before the maturity
     date only under limited circumstances, such as default by one of the
     parties or insolvency, among others, and can be transferred by a party only
     with the prior written consent of the other party. The portfolio may be
     able to eliminate its exposure under a swap agreement either by assignment
     or by other disposition, or by entering into an offsetting swap agreement
     with the same party or a similarly creditworthy party. If the counter-party
     is unable to meet its obligations under the contract, declares bankruptcy,
     defaults or becomes insolvent, the portfolio may not be able to recover the
     money it expected to receive under the contract.

     A swap agreement can be a form of leverage, which can magnify a portfolio's
     gains or losses. In order to reduce the risk associated with leveraging, a
     portfolio will cover its current obligations under swap agreements
     according to guidelines established by the SEC. If the portfolio enters
     into a swap agreement on a net basis, it will segregate assets with a daily
     value at least equal to the excess, if any, of the portfolio's accrued
     obligations under the swap agreement over the accrued amount the portfolio
     is entitled to receive under the agreement. If the portfolio enters into a
     swap agreement on other than a net basis, it will segregate assets with a
     value equal to the full amount of the portfolio's accrued obligations under
     the agreement.

                                      14
<PAGE>


     Equity Swaps -- In a typical equity index swap, one party agrees to pay
     another party the return on a stock, stock index or basket of stocks in
     return for a specified interest rate. By entering into an equity index
     swap, for example, the index receiver can gain exposure to stocks making up
     the index of securities without actually purchasing those stocks. Equity
     index swaps involve not only the risk associated with investment in the
     securities represented in the index, but also the risk that the performance
     of such securities, including dividends, will not exceed the return on the
     interest rate that the portfolio will be committed to pay.

     Interest Rate Swaps -- Interest rate swaps are financial instruments that
     involve the exchange on one type of interest rate for another type of
     interest rate cash flow on specified dates in the future. Some of the
     different types of interest rate swaps are "fixed-for floating rate swaps,"
     "termed basis swaps" and "index amortizing swaps." Fixed-for floating rate
     swap involve the exchange of fixed interest rate cash flows for floating
     rate cash flows. Termed basis swaps entail cash flows to both parties based
     on floating interest rates, where the interest rate indices are different.
     Index amortizing swaps are typically fixed-for floating swaps where the
     notional amount changes if certain conditions are met.

     Like a traditional investment in a debt security, a portfolio could lose
     money by investing in an interest rate swap if interest rates change
     adversely. For example, if the portfolio enters into a swap where it agrees
     to exchange a floating rate of interest for a fixed rate of interest, the
     portfolio may have to pay more money than it receives. Similarly, if the
     portfolio enters into a swap where it agrees to exchange a fixed rate of
     interest for a floating rate of interest, the portfolio may receive less
     money than it has agreed to pay.

     Currency Swaps -- A currency swap is an agreement between two parties in
     which one party agrees to make interest rate payments in one currency and
     the other promises to make interest rate payments in another currency. A
     portfolio may enter into a currency swap when it has one currency and
     desires a different currency. Typically the interest rates that determine
     the currency swap payments are fixed, although occasionally one or both
     parties may pay a floating rate of interest. Unlike an interest rate swap,
     however, the principal amounts are exchanged at the beginning of the
     contract and returned at the end of the contract. Changes in foreign
     exchange rates and changes in interest rates, as described above may
     negatively affect currency swaps.

     Caps, Collars and Floors

     Caps and floors have an effect similar to buying or writing options. In a
     typical cap or floor agreement, one party agrees to make payments only
     under specified circumstances, usually in return for payment of a fee by
     the other party. For example, the buyer of an interest rate cap obtains the
     right to receive payments to the extent that a specified interest rate
     exceeds an agreed-upon level. The seller of an interest rate floor is
     obligated to make payments to the extent that a specified interest rate
     falls below an agreed-upon level. An interest rate collar combines elements
     of buying a cap and selling a floor.


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.


     Correlation of Prices



                                      15
<PAGE>


     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 expected.

     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; and

     .   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. Moreover, a portfolio may close out a futures contract only on
     the exchange the contract was initially traded. Although a portfolio
     intends to purchase options and futures only where there appears to be an
     active market, there is no guarantee that such a liquid market will exist.
     If there is no secondary market for the contract, or the market is
     illiquid, the portfolio may not be able to close out its position. In an
     illiquid market, the portfolio may:

     .   have to sell securities to meet its daily margin requirements at a time
         when it is disadvantageous to do so;

     .   have to purchase or sell the instrument underlying the contract;

     .   not be able to hedge its investments; and

     .   not be able realize profits or limit 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:

                                      16
<PAGE>


     .   an exchange may suspend or limit trading in a particular derivative
         instrument, an entire category of derivatives or all derivatives, which
         sometimes occurs because of increased market volatility;

     .   unusual or unforeseen circumstances may interrupt normal operations of
         an exchange;

     .   the facilities of the exchange may not be adequate to handle current
         trading volume;

     .   equipment failures, government intervention, insolvency of a brokerage
         firm or clearing house or other occurrences may disrupt normal trading
         activity; or

     .   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.


     Volatility and Leverage

     The prices of derivatives are volatile (i.e., they may change rapidly,
     substantially and unpredictably) and are influenced by a variety of
     factors, including:

     .   actual and anticipated changes in interest rates;

     .   fiscal and monetary policies; and

     .   national and international political events.

     Most exchanges limit the amount by which the price of a derivative can
     change during a single trading day. Daily trading limits establish the
     maximum amount that the price of a derivative may vary from the settlement
     price of that derivative at the end of trading on the previous day. Once
     the price of a derivative reaches this value, a portfolio may not trade
     that derivative at a price beyond that limit. The daily limit governs only
     price movements during a given day and does not limit potential gains or
     losses. Derivative prices have occasionally moved to the daily limit for
     several consecutive trading days, preventing prompt liquidation of the
     derivative.

     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-dealer with whom it has an open futures
     contract or related option becomes insolvent or declares bankruptcy.

                                      17
<PAGE>

EQUITY SECURITIES
- --------------------------------------------------------------------------------

Types of Equity Securities


     Common Stocks

     Common stocks represent units of ownership in a company. Common stocks
     usually carry voting rights and earn dividends. Unlike preferred stocks,
     which are described below, dividends on common stocks are not fixed but are
     declared at the discretion of the company's board of directors.


     Preferred Stocks

     Preferred stocks are also units of ownership in a company. Preferred stocks
     normally have preference over common stock in the payment of dividends and
     the liquidation of the company. However, in all other respects, preferred
     stocks are subordinated to the liabilities of the issuer. Unlike common
     stocks, preferred stocks are generally not entitled to vote on corporate
     matters. Types of preferred stocks include adjustable-rate preferred stock,
     fixed dividend preferred stock, perpetual preferred stock, and sinking fund
     preferred stock. Generally, the market values of preferred stock with a
     fixed dividend rate and no conversion element varies inversely with
     interest rates and perceived credit risk.


     Convertible Securities

     Convertible securities are debt securities and preferred stocks that are
     convertible into common stock at a specified price or conversion ratio. 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. Their market price tends to go up if the stock price moves up.

     Convertible securities are subject to the same risks as similar securities
     without the convertible feature. The price of a convertible security is
     more volatile during times of steady interest rates than other types of
     debt securities.


     Rights and Warrants

     A right is a privilege granted to existing shareholders of a corporation to
     subscribe to shares of a new issue of common stock before it is issued.
     Rights normally have a short life, usually two to four weeks, are freely
     transferable and entitle the holder to buy the new common stock at a lower
     price than the public offering price. Warrants are securities that are
     usually issued together with a debt security or preferred stock and that
     give the holder the right to buy proportionate amount of common stock at a
     specified price. Warrants are freely transferable and are traded on major
     exchanges. Unlike rights, warrants normally have a life that is measured in
     years and entitles the holder to buy common stock of a company at a price
     that is usually higher than the market price at the time the warrant is
     issued. Corporations often issue warrants to make the accompanying debt
     security more attractive.

     An investment in warrants and rights may entail greater risks than certain
     other types of investments. Generally, rights and warrants do not carry 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. In addition, their value does not necessarily change with
     the value of the underlying securities, and they cease to have value if
     they are not exercised on or before their expiration date. Investing in
     rights and warrants increases the potential profit or loss to be realized
     from the investment as compared with investing the same amount in the
     underlying securities.

                                      18
<PAGE>

Risks of Investing in Equity Securities


     General Risks of Investing in Stocks

     While investing in stocks allows investors to participate in the benefits
     of owning a company, such investors 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.

     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.

     Because preferred stock is generally 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.


     Small and Medium-Sized Companies

     Investors in small and medium-sized companies typically take on greater
     risk and price volatility than they would by investing in larger, more
     established companies. This increased risk may be due to the greater
     business risks of their small or medium size, limited markets and financial
     resources, narrow product lines and frequent lack of management depth. The
     securities of small and medium companies are often traded in the
     over-the-counter market and might not be traded in volumes typical of
     securities traded on a national securities exchange. Thus, the securities
     of small and medium capitalization companies are likely to be less liquid,
     and subject to more abrupt or erratic market movements, than securities of
     larger, more established companies.


     Technology Companies

     Stocks of technology companies have tended to be subject to greater
     volatility than securities of companies that are not dependent upon or
     associated with technological issues. Technology companies operate in
     various industries. Since these industries frequently share common
     characteristics, an event or issue affecting one industry may significantly
     influence other, related industries. For example, technology companies may
     be strongly affected by worldwide scientific or technological developments
     and their products and services may be subject to governmental regulation
     or adversely affected by governmental policies.


FOREIGN SECURITIES
- --------------------------------------------------------------------------------

Types of Foreign Securities

     Foreign securities are debt and equity securities that are traded in
     markets outside of the United States. The markets in which these securities
     are located can be developed or emerging. People can invest in foreign
     securities in a number of ways:

     .   They can invest directly in foreign securities denominated in a foreign
         currency;

                                      19
<PAGE>


     .   They can invest in American Depositary Receipts, European Depositary
         Receipts and other similar global instruments; and

     .   They can invest in 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. EDRs are
     similar to ADRs, except that they are typically issued by European Banks or
     trust companies.


     Emerging Markets

     An "emerging country" is generally a country that 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 currently 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.

     Investment Funds

     Some emerging countries currently prohibit direct foreign investment in the
     securities of their companies. Certain emerging countries, however, permit
     indirect foreign investment in the securities of companies listed and
     traded on their stock exchanges through investment funds that they have
     specifically authorized. Investments in these investment funds are subject
     to the provisions of the 1940 Act. Shareholders of a UAM Fund that invests
     in such investment funds will bear not only their proportionate share of
     the expenses of the UAM Fund (including operating expenses and the fees of
     the adviser), but also will bear indirectly bear similar expenses of the
     underlying investment funds. In addition, these investment funds may trade
     at a premium over their net asset value.


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.


     Political and Economic Factors

     Local political, economic, regulatory, or social instability, military
     action or unrest, or adverse diplomatic developments may affect the value
     of foreign investments. Listed below are some of the more important
     political and economic factors that could negatively affect an investment
     in foreign securities:

     .   The economies of foreign countries may differ from the economy of the
         United States in such areas as growth of gross national product, rate
         of inflation, capital reinvestment, resource self-sufficiency, budget
         deficits and national debt;

                                      20
<PAGE>


     .   Foreign governments sometimes participate to a significant degree,
         through ownership interests or regulation, in their respective
         economies. Actions by these governments could significantly influence
         the market prices of securities and payment of dividends;

     .   The economies of many foreign countries are dependent on international
         trade and their trading partners and they could be severely affected if
         their trading partners were to enact protective trade barriers and
         economic conditions;

     .   The internal policies of a particular foreign country may be less
         stable than in the United States. Other countries face significant
         external political risks, such as possible claims of sovereignty by
         other countries or tense and sometimes hostile border clashes; and

     .   A foreign government may act adversely to the interests of U.S.
         investors, including expropriation or nationalization of assets,
         confiscatory taxation and other restrictions on U.S. investment. A
         country may restrict or control foreign investments in its securities
         markets. These restrictions could limit the portfolio's ability to
         invest in a particular country or make it very expensive for the
         portfolio to invest in that country. Some countries require prior
         governmental approval, limit the types or amount of securities or
         companies in which a foreigner can invest. Other countries may restrict
         the ability of foreign investors to repatriate their investment income
         and capital gains.


     Information and Supervision

     There is generally less publicly available information about foreign
     companies than companies based in the United States. For example, there are
     often no reports and ratings published about foreign companies comparable
     to the ones written about United States companies. Foreign companies are
     typically not subject to uniform accounting, auditing and financial
     reporting standards, practices and requirements comparable to those
     applicable to United States companies. The lack of comparable information
     makes investment decisions concerning foreign countries more difficult and
     less reliable than domestic companies.

     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 the
     markets in the United States. Foreign stocks markets tend to differ from
     those in the United States in a number of ways:

     .   They are generally not as developed or efficient as, and more volatile,
         than those in the United States;

     .   They have substantially less volume;

     .   Their securities tend to be less liquid and to experience rapid and
         erratic price movements;

     .   Commissions on foreign stocks are generally higher and subject to set
         minimum rates, as opposed to negotiated rates;

     .   Foreign security trading, settlement and custodial practices are often
         less developed than those in U.S. markets; and

     .   They may have different settlement practices, which may cause delays
         and increase the potential for failed settlements.


     Foreign Currency Risk


     While the UAM Funds denominate their net asset value in United States
     dollars, the securities of foreign companies are frequently denominated in
     foreign currencies. Thus, a change in the value of a foreign currency
     against the United States dollar will result in a corresponding change in
     value of securities denominated in that currency. Some of the factors that
     may impair the investments denominated in a foreign currency are:
<PAGE>


     .   It may be expensive to convert foreign currencies into United States
         dollars and vice versa;

     .   Complex political and economic factors may significantly affect the
         values of various currencies, including United States dollars, and
         their 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 may be no systematic reporting of last sale information for
         foreign currencies or 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; and

     .   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.


     Taxes

     Certain foreign governments levy withholding taxes on dividend and interest
     income. Although in some countries it is possible for the portfolio to
     recover a portion of these taxes, the portion that cannot be recovered 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.


     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 relatively unstable governments;

     .   Present greater risks of nationalization of businesses, restrictions on
         foreign ownership and prohibitions on the repatriation of assets;

     .   Offer less protection of property rights than more developed countries;
         and

     .   Have economies that are 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.


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 began 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

                                      22
<PAGE>


     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 became denominations of
     the Euro at fixed rates according to practices prescribed by the European
     Monetary Institute and the Euro became available as a book-entry currency.
     On or about that date, member states began conducting financial market
     transactions in Euros and redenominating many investments, currency
     balances and transfer mechanisms into Euros. The portfolio also anticipates
     pricing, trading, settling and valuing investments whose nominal values
     remain in their existing domestic currencies in Euros. Accordingly, the
     portfolio expects the conversion to the Euro to impact investments in
     countries that 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?


INVESTMENT COMPANIES
- --------------------------------------------------------------------------------

     A portfolio may buy and sell shares of other investment companies. Such
     investment companies may pay management and other fees that are similar to
     the fees currently paid by a portfolio. Like other shareholders, each
     portfolio would pay its proportionate share of those fees. Consequently,
     shareholders of a portfolio would pay not only the management fees of the
     portfolio, but also the management fees of the investment company in which
     the portfolio invests. A portfolio may invest up to 10% of its total assets
     in the securities of other investment companies, but may not invest more
     than 5% of its total assets in the securities of any one investment company
     or acquire more than 3% of the outstanding securities of any one investment
     company.

     The SEC has granted an order that allows a portfolio to invest the greater
     of 5% of its total assets or $2.5 million in the UAM DSI Money Market
     Portfolio, provided that the investment is:

     .   For cash management purposes;

     .   Consistent with a portfolio's investment policies and restrictions; and

     .   The adviser to the investing portfolio waives any fees it earns on the
         assets of the portfolio that are invested 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, an investor agrees to buy a security (underlying
     security) from a securities dealer or bank that is a member of the Federal
     Reserve System (counter-party). At the time, the counter-party agrees to
     repurchase the underlying security for the same price, plus interest.
     Repurchase agreements are generally for a relatively short period (usually
     not more than 7 days). The portfolios normally use repurchase agreements to
     earn income on assets that are not invested.

     When a portfolio enters into a repurchase agreement it will:

                                      23
<PAGE>


     .   Pay for the underlying securities only upon physically receiving them
         or upon evidence of their receipt in book-entry form; and

     .   Require the counter party to add to the collateral whenever the price
         of the repurchase agreement rises above the value of the underlying
         security (i.e., it will require the borrower to "mark 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.


RESTRICTED SECURITIES
- --------------------------------------------------------------------------------
     The portfolios 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 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 the portfolio's investment limitations. The price realized from
     the sales of these securities could be more or less than those originally
     paid by a portfolio or less than what may be considered the fair value of
     such securities.

SECURITIES LENDING
- --------------------------------------------------------------------------------

     A portfolio may lend a portion of its total assets to broker- dealers or
     other financial institutions. It may then reinvest the collateral it
     receives in short-term securities and money market funds. When a portfolio
     lends its securities, it will follow the following guidelines:

     .   The borrower must provide collateral at least equal to the market value
         of the securities loaned;

     .   The collateral 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 must add to the collateral whenever the price of the
         securities loaned rises (i.e., the borrower "marks to the market" on a
         daily basis);

     .   It must be able to terminate the loan at any time;

     .   It must receive reasonable interest on the loan (which may include the
         portfolio investing any cash collateral in interest bearing short-term
         investments); and

     .   It must determine that the borrower is an acceptable credit risk.

     These risks are similar to the ones involved with repurchase agreements.
     When the portfolio lends securities, there is a risk that the borrower will
     become financially unable to honor its contractual obligations. If this
     happens, the portfolio could:

     .   Lose its rights in the collateral and not be able to retrieve the
         securities it lent to the borrower; and

     .   Experience delays in recovering its securities.


WHEN ISSUED 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

                                      24
<PAGE>

     deliver 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 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, a 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.

     A portfolio will segregate cash and liquid securities equal in value to
     commitments for the when-issued, delayed-delivery or forward delivery
     transaction. A portfolio will segregate additional liquid assets daily so
     that the value of such assets is equal to the amount of its commitments.

INVESTMENT POLICIES OF THE PORTFOLIOS

     A portfolio will determine investment limitation percentages (with the
     exception of a limitation relating to borrowing) immediately after and as a
     result of its acquisition of such security or other asset. Accordingly, a
     portfolio will not consider changes in values, net assets or other
     circumstances when determining whether the investment complies with its
     investment limitations.


FUNDAMENTAL POLICIES
- --------------------------------------------------------------------------------

     The following investment limitations are fundamental, which means a
     portfolio cannot change them without approval by the vote of a majority of
     the outstanding voting securities of the portfolio, as defined by the 1940
     Act.


Disciplined Value, Limited Maturity Bond and Money Market Portfolios

     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 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.

                                      25
<PAGE>

     .    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 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 options and futures (except DSI Money Market Portfolio),or
          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 1940 Act 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 or retain securities of an issuer if those officers and Board
          members of the Fund or its investment adviser owning more than 1/2of
          1% of such securities together own more than 5% of such securities.

     .    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.

     .    Write or acquire options or interests in oil, gas or other mineral
          exploration or development programs.

DSI Balanced Portfolio

     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

                                      26
<PAGE>

          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.

DSI Small Cap Value Portfolio

     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 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
          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 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
- --------------------------------------------------------------------------------

     The following limitations are non-fundamental, which means a portfolio may
     change them without shareholder approval.

Balanced Portfolio

     The portfolio will not:

                                      27
<PAGE>

     .    Invest in stock or bond futures and/or options on futures unless not
          more than 20% of the portfolio's assets are invested in stock or bond
          futures and options on futures.

     .    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.

Disciplined Value Portfolio

     The portfolios will not:

     .    Invest in stock or bond futures and/or options on futures unless not
          more than 20% of the portfolio's assets are invested in stock or bond
          futures and options on futures.

Limited Maturity Bond Portfolio

     The portfolios will not:

     .    Invest in stock or bond futures and/or options on futures unless not
          more than 20% of the portfolio's assets are invested in stock or bond
          futures and options on futures.

     .    Invest more than 10% of the portfolio's assets in securities rated Ba
          or B by Moody's or BB or B by S&P (or which, in the adviser's opinion
          of comparable quality or better), preferred stocks and convertible
          securities. The adviser reserves the right to retain securities which
          are downgraded below investment grade.

Small Cap Value Portfolio

     The portfolio will not:

     .    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, and (2) not more than 20% of the portfolio's assets are
          invested in stock or bond futures and options on futures.

     .    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.

     .    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.

MANAGEMENT OF THE FUND

     The governing board manages the business of the Fund. The governing board
     elects officers to manage the day-to-day operations of the Fund and to
     execute policies the board has formulated. 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 and a $2,000 meeting
     fee. In addition, the Fund reimburses each independent board member for
     travel and other expenses

                                      28
<PAGE>

     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 board members that are affiliated with the fund for their
     services as board members. UAM, its affiliates or SEI 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. The UAM Funds Complex is currently comprised of 51
     portfolios. Those people with an asterisk (*) beside their name are
     "interested persons" of the Fund as that term is defined in the 1940 Act.
     Mr. English does have an investment advisory relationship with Investment
     Counselors of Maryland, an investment adviser to one of the portfolios in
     the UAM Funds Complex. However, the Fund does not believe that the
     relationship is a material business relationship, and, therefore, does not
     consider him to be an "interested person" of the Fund. If these
     circumstances change, the Board will determine whether any action is
     required to change the composition of the Board.

<TABLE>
<CAPTION>
                                                                                                             Aggregate
                                                                                          Aggregate         Compensation
                                                                                        Compensation       From the Fund
                             Position                                                   From the Fund      Complex as of
    Name, Address,           with       Principal Occupations During the                as of October       October 31,
    DOB                      Fund       Past 5 years                                      31, 1999             1999
    ------------------------------------------------------------------------------------------------------------------------
    <S>                      <C>        <C>                                             <C>                <C>
    John T. Bennett, Jr.     Board      President of Squam Investment Management          $7,137              $10,625
    College Road-- RFD 3     Member     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            Board      Financial Officer of World Wildlife Fund          $7,137              $10,625
    1250 24th St., NW        Member     since January 1999; Vice President for
    Washington, DC 20037                Finance and Administration and Treasurer
    8/14/51                             of Radcliffe College from 1991 to 1999.
    ------------------------------------------------------------------------------------------------------------------------
    William A. Humenuk       Board      Executive Vice President and Chief                $7,137              $10,625
    100 King Street West     Member     Administrative Officer of Philip Services
    P.O. Box 2440, LCD-1                Corp.; Formerly, a Partner in the
    Hamilton  Ontario,                  Philadelphia office of the law firm
    Canada L8N-4J6                      Dechert Price & Rhoads and a Director of
    4/21/42                             Hofler Corp.
    ------------------------------------------------------------------------------------------------------------------------
    Philip D. English        Board      President and Chief Executive Officer of          $7,137              $10,625
    16 West Madison Street   Member     Broventure Company, Inc.; Chairman of the
    Baltimore, MD 21201                 Board of Chektec Corporation and Cyber
    8/5/48                              Scientific, Inc.
    ------------------------------------------------------------------------------------------------------------------------
    James P. Pappas*         Board      President of UAM Investment Services,                  0                    0
    211 Congress Street      Member     Inc. since March 1999; Vice President UAM
    Boston, MA 02110                    Trust Company since January 1996;
    2/24/53                             Principal of UAM Fund Distributors, Inc.
                                        since December 1995; Vice President of
                                        UAM Investment Services, Inc. from
                                        January 1996 to March 1999 and a Director
                                        and Chief Operating Officer of CS First
                                        Boston Investment Management from
                                        1993-1995.
    ------------------------------------------------------------------------------------------------------------------------
    Norton H. Reamer*        Board      Chairman, Chief Executive Officer and a                0                    0
    One International Place  Member;    Director of United Asset Management
    Boston, MA 02110         President  Corporation; Director, Partner or Trustee
    3/21/35                  and        of each of the Investment Companies of
                             Chairman   the Eaton Vance Group of Mutual Funds.
    ------------------------------------------------------------------------------------------------------------------------
    Peter M. Whitman, Jr.*   Board      President and Chief Investment  Officer of             0                    0
    One Financial Center     Member     Dewey Square Investors  Corporation  since
    Boston, MA 02111                    1988; Director and Chief Executive
    7/1/43                              Officer of H.T. Investors,  Inc., formerly
                                        a subsidiary of Dewey Square.
    ------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      29
<PAGE>

<TABLE>
<CAPTION>
                                                                                                              Aggregate
                                                                                           Aggregate         Compensation
                                                                                         Compensation       From the Fund
                              Position                                                   From the Fund      Complex as of
     Name, Address,           with       Principal Occupations During the                as of October       October 31,
     DOB                      Fund       Past 5 years                                      31, 1999             1999
     ------------------------------------------------------------------------------------------------------------------------
     <S>                      <C>        <C>                                             <C>                <C>
     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; Treasurer             0                   0
     211 Congress Street                 of the Fidelity Group of Mutual Funds
     Boston, MA 02110                    from 1991 to 1995; held various other
     7/4/51                              offices with Fidelity Investments from
                                         November 1990 to March 1995.
     ------------------------------------------------------------------------------------------------------------------------
     Robert R. Flaherty       Assistant  Vice President of UAMFSI; Manager of Fund             0                   0
     211 Congress Street      Treasurer  Administration and Compliance of Chase
     Boston, MA 02110                    Global Fund Services Company from 1995 to
     9/18/63                             1996; Senior Manager of Deloitte & Touche
                                         LLP from 1985 to 1995,
     ------------------------------------------------------------------------------------------------------------------------
     Robert J. DellaCroce     Assistant  Director, Mutual Fund Operations - SEI                0                   0
     SEI Investments          Treasurer  Investments; Senior Manager at Arthur
     One Freedom Valley Rd.              Andersen prior to 1994.
     Oaks, PA  19456
     12/17/63
</TABLE>

PRINCIPAL SHAREHOLDERS

     As of February 1, 2000, the following persons or organizations held of
     record or beneficially 5% or more of the shares of a portfolio:

<TABLE>
<CAPTION>
                                                                   Percentage of Shares
     Name and Address of Shareholder                                     Owned                  Portfolio        Class
     ------------------------------------------------------------------------------------------------------------------------
     <S>                                                           <C>                          <C>            <C>
     BSC As Agent For Crane & Excelsior Company Profit                    99.39%                DSI Balanced   Institutional
     Sharing Plan                                                                               Portfolio        Class
     1375 Peachtree St. Suite 300                                                                               Shares
     Atlanta, GA 30309
     ------------------------------------------------------------------------------------------------------------------------
     Jupiter & CO                                                         53.62%                   DSI        Institutional
     c/o Investors Bank & Trust CO                                                             Disciplined       Class
     PO Box 9130                                                                                  Value         Shares
     Boston, MA 02117-9130                                                                      Portfolio
     ------------------------------------------------------------------------------------------------------------------------
     Ocsar E. Churchill & Peter M. Haslam and                              8.20%                   DSI        Institutional
     William F. Kinney TR                                                                      Disciplined       Class
     FBO Union Bank Pension Trust                                                                 Value         Shares
     PO Box 667                                                                                 Portfolio
     Morrisville, VT 05661-0667
     ------------------------------------------------------------------------------------------------------------------------
     Wilmington Trust Co Tr                                                6.35%                   DSI        Institutional
     FBO Cherokee Nation 401K Plan                                                             Disciplined       Class
     c/o Mutual Funds/UAM                                                                         Value         Shares
     PO Box 8971                                                                                Portfolio
     Wilmington, DE 19899-8971
     ------------------------------------------------------------------------------------------------------------------------
     William Park & Joseph R. Ramrath TR                                   5.34%                   DSI        Institutional
     FBO DSI HT UAM PSP 401K                                                                   Disciplined       Class
     One Financial Center, 24/th/ FL                                                              Value         Shares
     Boston, MA 02111-2621                                                                      Portfolio
     ------------------------------------------------------------------------------------------------------------------------
     Union Bank of California TR                                           5.28%                   DSI        Institutional
     FBO Select Benefit Community Bank                                                         Disciplined       Class
     PO Box 85484                                                                                 Value         Shares
     San Diego,  CA 92186-5484                                                                  Portfolio
</TABLE>

                                      30
<PAGE>

<TABLE>
<CAPTION>
  Name and Address of Shareholder                           Percentage of Shares Owned     Portfolio        Class
- ----------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>                           <C>            <C>

  Wilmington Trust CO TR                                              99.20%                  DSI        Institutional
  FBO Cellular Vision of New York                                                         Disciplined      Service
  401K Plan                                                                                  Value          Class
  c/o Mutual Funds/UAM                                                                     Portfolio       Shares
  PO Box 8971
  Wilmington,  DE  19899-8971
- ----------------------------------------------------------------------------------------------------------------------
  Jupiter & CO                                                        77.01%              DSI Limited    Institutional
  c/o Investors Bank & Trust CO                                                          Maturity Bond      Class
  PO Box 9130                                                                              Portfolio       Shares
  Boston,  MA 02117-9130
- ----------------------------------------------------------------------------------------------------------------------
  Ocsar E. Churchill & Peter M. Haslam and                            5.93%               DSI Limited    Institutional
  William F. Kinney  TR                                                                  Maturity Bond      Class
  FBO Union Bank Pension Trust                                                             Portfolio       Shares
  PO Box 667
  Morrisville,  VT  05661-0667
- ----------------------------------------------------------------------------------------------------------------------
  Saturn & CO                                                         52.48%               DSI Money     Institutional
  c/o Investors Bank and Trust                                                               Market         Class
  PO Box 9130 FPG90                                                                        Portfolio       Shares
  Boston,  MA  02117-9130
- ----------------------------------------------------------------------------------------------------------------------
  UMBSC & Co                                                         11.38%                DSI Money     Institutional
  FBO Interstate Brands Conservative Growth                                                  Market         Class
  PO Box 419175                                                                            Portfolio       Shares
  Kansas City, MO  64141-6175
- ----------------------------------------------------------------------------------------------------------------------
  South Alaska Defined Contribution Pension Plan                      7.57%                DSI Money     Institutional
  Attn:  Royce R. Rock                                                                       Market         Class
  PO Box 214266                                                                            Portfolio       Shares
  Anchorage,  AK  99524-1266
- ----------------------------------------------------------------------------------------------------------------------
  Jupiter & CO                                                        85.90%             DSI Small Cap   Institutional
  c/o Investors Bank & Trust CO                                                              Value          Class
  PO Box 9130                                                                              Portfolio       Shares
  Boston,  MA 02117-9130
- ----------------------------------------------------------------------------------------------------------------------
  Fleet National Bank CUST                                            5.64%              DSI Small Cap   Institutional
  FBO Diocesan Investment Trust                                                              Value          Class
  Episcopal Diocese of RI                                                                  Portfolio       Shares
  PO Box  92800
  Rochester,  NY  14092-8900
</TABLE>

  Any shareholder 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. Shareholders controlling the portfolio 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. As of February 1,
  2000, the directors and officers of the Fund owned less than 1% of the
  outstanding shares of the portfolios.

INVESTMENT ADVISORY AND OTHER SERVICES

INVESTMENT ADVISER
- --------------------------------------------------------------------------------

  Dewey Square Investors Corporation, located at One Financial Center, Boston,
  Massachusetts 02111, is the investment adviser to 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 is a subsidiary of UAM. 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

                                      31
<PAGE>

  acquisition in August 1983, UAM has acquired or organized more than 50 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.

Portfolio Management

  Teams of the adviser's investment professionals are primarily responsible for
  the day-to-day management of the portfolios. Listed below are the members of
  each of those teams and a brief description of their business experience.


  Small Cap Value Portfolio

  Name & Title                  Experience
  ------------------------------------------------------------------------------
   Ronald L. McCullough       Mr. McCullough is the senior equity strategist
   CFA                        and is responsible for all equity investments. He
   Managing Director, Equity  has 29 years of investment experience and has been
   Investing                  a Managing Director of the adviser since before
                              1994. Prior to joining the adviser, 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,      Mr. Stephenson has 26 years of experience in the
   CPA                        investment business.  He joined the adviser in
   Senior Portfolio Manager,  1991 and has been a Portfolio Manager since
   Equity                     before 1994. 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 the adviser as a Senior
   Senior Portfolio Manager,  Portfolio Manager in 1998. Most recently, he was a
   Equity                     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.

Disciplined Value Portfolio

Name & Title                  Experience
- --------------------------------------------------------------------------------
   Ronald L. McCullough       Mr. McCullough co-manages the Disciplined Value
   CFA                        Portfolio with Mr. Stephenson.  You can Find Mr.
   Managing Director, Equity  McCullough's biography above under the Small Cap
   Investing                  Value Portfolio.

- --------------------------------------------------------------------------------
   Robert S. Stephenson,      Mr. Stephenson co-manages the Disciplined Value
   CPA                        Portfolio with Mr. McCullough.  You can Find Mr.
   Senior Portfolio Manager,  Stephenson's biography above under the Small Cap
   Equity                     Value Portfolio.

                                      32
<PAGE>

Limited Maturity Bond and Money Market Portfolios

  Name & Title                Experience
- ------------------------------------------------------------------------------
  Frederick C. Meltzer, PHD   Mr. Meltzer joined the adviser as a Senior
  Senior Portfolio Manager,   Portfolio Manager in 1995. Prior to that he was
  Fixed-Income                Managing Director of 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 the adviser in 1997 as a
  Senior Portfolio Manager,   Portfolio Manager. He was promoted to Senior
  Fixed-Income                Portfolio Manager in May 1998. Prior to joining
                              Dewey Square, Mr. 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.

Balanced Portfolio

  Name & Title                Experience
- --------------------------------------------------------------------------------
  Ronald L. McCullough        Mr. McCullough co-manages the equity portion of
  CFA                         DSI Balanced Portfolio with Ms. Dewitz. You can
  Managing Director, Equity   Find Mr. McCullough 's biography above under DSI
  Investing                   Small Cap Value Portfolio.
- --------------------------------------------------------------------------------
  Eva S. Dewitz               Ms. Dewitz is part of the team that founded the
  Senior Portfolio Manager,   adviser in 1984 and has been a Senior Portfolio
  Equity                      Manager since before 1994. Prior to the formation
                              of the adviser, 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
  Senior Portfolio Manager,   DSI Balanced Portfolio with Mr. Clancy. You can
  Fixed-Income                find Mr. Thompson's biography above under DSI
                              limited Maturity Bond and Money Market Portfolios.
  Robert P. Clancy            Mr. Clancy joined the adviser as a Senior
  Senior Portfolio Manager,   Portfolio Manager in 1994. Prior to that, he was a
  Fixed-Income                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.

                                      33
<PAGE>


 Other Members of the Adviser's Team

  Name & Title                Experience
- --------------------------------------------------------------------------------
  Peter M. Whitman, Jr.       Mr. Whitman is part of the team that founded the
  President, Chief            adviser in 1984. He was appointed President in
  Investment Officer and      1988 and was previously Managing Director of Fixed
  Managing Director Fixed     Income, a position he held for seven years. Prior
  Income                      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 the adviser as a Senior Portfolio
  Senior Portfolio Manager,   Manager in 1995 after the consolidation of HT
  Equity                      Investors with the adviser. He was 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


Investment Advisory Agreement

  This section summarizes some of the important provisions the Investment
  Advisory Agreements. The Fund has filed each agreement with the SEC as part of
  its registration statement on Form N-1A.


  Service Performed by Adviser

  Each adviser:

  .  Manages the investment and reinvestment of a portfolio's assets;

  .  Continuously reviews, supervises and administers the investment program of
     a portfolio; and

  .  Determines what portion of a portfolio's assets will be invested in
     securities and what portion will consist of cash.


  Limitation of Liability

  In the absence of (1) willful misfeasance, bad faith, or gross negligence on
  the part of the adviser in the performance of its obligations and duties under
  the Investment Advisory Agreement, (2) reckless disregard by the adviser of
  its obligations and duties under the Investment 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 Investment Advisory Agreement.


  Continuing an Investment Advisory Agreement



                                      34
<PAGE>


  An Investment Advisory Agreement continues in effect for periods of one year
  so long as such continuance is specifically approved at least annually by a:

  .  Majority of those Board Members who are not parties to the Investment
     Advisory Agreement or interested persons of any such party; and

  .  (2) (a) majority of the Board Members or (b) a majority of the shareholders
     of the portfolio.


  Terminating an Investment Advisory Agreement

  The Fund may terminate an Investment Advisory Agreement at any time, without
  the payment of any penalty if:

  .  A majority of the portfolio's shareholders vote to do so or a majority of
     Board Members vote to do so; and

  .  It gives the adviser 60 days' written notice.

  The adviser may terminate the Investment Advisory Agreement at any time,
  without the payment of any penalty, upon 90 days' written notice to the Fund.

  An Investment Advisory Agreement will automatically and immediately terminate
  if it is assigned.

Advisory Fees

  For its services, each portfolio pays its adviser the following annual fees,
  which are expressed as a percentage of the average daily net assets of the
  portfolio. Due to the effect of fee waivers by the adviser, the actual
  percentage of average net assets that a portfolio pays in any given year may
  be different from the rate set forth in its contract with the adviser. For the
  last three fiscal years, the portfolios paid the following in management fees
  to the adviser:

<TABLE>
<CAPTION>
                                Investment Advisory Fees      Investment Advisory Fees      Total Investment Advisory
                                          Paid                         Waived                         Fees
  ----------------------------------------------------------------------------------------------------------------------
  <S>                           <C>                           <C>                           <C>
  Small Cap Value Portfolio
       1999                             $121,772                       $14,326                      $107,446
  ----------------------------------------------------------------------------------------------------------------------
       1998                                N/A                           N/A                           N/A
  ----------------------------------------------------------------------------------------------------------------------
       1997                                N/A                           N/A                           N/A
  ----------------------------------------------------------------------------------------------------------------------
  Disciplined Value Portfolio
       1999                             $511,433                         $0                         $511,433
  ----------------------------------------------------------------------------------------------------------------------
       1998                             $737,133                         $0                         $737,133
  ----------------------------------------------------------------------------------------------------------------------
       1997                             $578,815                         $0                         $578,815
  ----------------------------------------------------------------------------------------------------------------------
  Balanced Portfolio
       1999                             $167,557                       $4,379                       $163,178
  ----------------------------------------------------------------------------------------------------------------------
       1998                             $102,428                       $25,681                       $76,747
  ----------------------------------------------------------------------------------------------------------------------
       1997                                N/A                           N/A                           N/A
  ----------------------------------------------------------------------------------------------------------------------
  Limited Maturity Bond Portfolio
       1999                             $132,944                         $0                         $132,944
  ----------------------------------------------------------------------------------------------------------------------
       1998                             $155,198                         $0                         $155,198
  ----------------------------------------------------------------------------------------------------------------------
       1997                             $141,248                         $0                         $141,248
  ----------------------------------------------------------------------------------------------------------------------
  Money Market Portfolio
       1999                             $466,029                      $256,316                      $209,713
  ----------------------------------------------------------------------------------------------------------------------
       1998                             $273,545                      $336,812                         $0
  ----------------------------------------------------------------------------------------------------------------------
       1997                             $333,241                      $426,538                         $0
</TABLE>

                                      35
<PAGE>

DISTRIBUTOR
- --------------------------------------------------------------------------------

  UAMFDI is 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.


SERVICE AND DISTRIBUTION PLANS
- --------------------------------------------------------------------------------

  The Fund has adopted a Distribution Plan and a Shareholder Servicing Plan (the
  "Plans") for the portfolios' Institutional Service Class Shares pursuant to
  Rule 12b-1 under the 1940 Act.


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 a portfolio's 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
  Institutional 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:

                                      36
<PAGE>

  .  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 Institutional 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.

                                              Distribution Plan Expenses
  ------------------------------------------------------------------------------
  Disciplined Value Portfolio
     1999                                               $16,087


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.

                                      37
<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 also compensate its affiliated companies
  for referring investors to a portfolio.




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 Board Members 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.

                                      38
<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.


  The Fund Administration Agreement continues in effect from year to year if the
  Board specifically approves such continuance every year. 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
  automatically terminates upon its assignment by UAMFSI without the prior
  written consent of the Fund.

  UAMFSI will from time to time employ other people to assist it in performing
  its duties under the Fund Administration Agreement. Such people may be
  officers and employees who are employed by both UAMFSI and the Fund. UAMFSI
  will pay such people for such employment. The Fund will not incur any
  obligations with respect to such people.


Administration and Transfer Agency Services Fees

  Each portfolio pays a four-part fee to UAMFSI as follows:

  1. In exchange for administrative services, a portfolio pays a fee to UAMFSI
     calculated at the annual rate of:

     .  $19,500 for the first operational class; plus

     .  $3,750 for each additional class; plus

     .  A fee calculated from the aggregate net assets of each portfolio at the
        following rates:

                                                                  Annual Rate
        ------------------------------------------------------------------------
        DSI Disciplined Value Portfolio                              0.063%
        ------------------------------------------------------------------------
        DSI Limited Maturity Bond Portfolio                          0.043%
        ------------------------------------------------------------------------
        DSI Small Cap Value Portfolio                                0.043%
        ------------------------------------------------------------------------
        DSI Money Market Portfolio                                   0.023%
        ------------------------------------------------------------------------
        DSI Balanced Portfolio                                       0.063%

  2. Each portfolio also pays a fee to UAMFSI for sub-administration and other
     services provided by SEI. The fee, which UAMFSI pays to SEI, is calculated
     at the annual rate of:

     .  Not more than $35,000 for the first operational class; plus

                                      39
<PAGE>


     .   $5,000 for each additional operational class; plus

     .   0.03% of their pro rata share of the combined assets of the UAM Funds
         Complex.

3.   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.

4.   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.

     For the last three fiscal years the portfolios paid the following in
administration and sub-administration fees:


<TABLE>
<CAPTION>

                                Administrators Fee          Sub-Administrators Fee       Total Administration Fee
- ----------------------------------------------------------------------------------------------------------------------
<S>                             <C>                        <C>                          <C>
Small Cap Value Portfolio
          1999                       $14,658                       $53,712                       $68,370
- ----------------------------------------------------------------------------------------------------------------------
          1998                          N/A                           N/A                           N/A
- ----------------------------------------------------------------------------------------------------------------------
          1997                          N/A                           N/A                           N/A
- ----------------------------------------------------------------------------------------------------------------------
Disciplined Value Portfolio
          1999                       $60,732                       $86,524                      $147,256
- ----------------------------------------------------------------------------------------------------------------------
          1998                      $164,593                      $101,756                      $266,349
- ----------------------------------------------------------------------------------------------------------------------
          1997                      $133,991                       $87,680                      $221,671
- ----------------------------------------------------------------------------------------------------------------------
Balanced Portfolio
          1999                       $33,580                       $52,054                       $85,634
- ----------------------------------------------------------------------------------------------------------------------
          1998                       $53,814                       $35,089                       $88,903
- ----------------------------------------------------------------------------------------------------------------------
          1997                          N/A                           N/A                           N/A
- ----------------------------------------------------------------------------------------------------------------------
Limited Maturity Bond Portfolio
          1999                       $31,888                       $63,875                       $95,763
- ----------------------------------------------------------------------------------------------------------------------
          1998                      $103,048                       $86,420                      $189,468
- ----------------------------------------------------------------------------------------------------------------------
          1997                       $94,275                       $82,171                      $176,446
- ----------------------------------------------------------------------------------------------------------------------
Money Market Portfolio
          1999                       $38,984                       $98,098                      $137,082
- ----------------------------------------------------------------------------------------------------------------------
          1998                      $175,739                      $140,251                      $315,990
- ----------------------------------------------------------------------------------------------------------------------
          1997                      $224,190                      $186,237                      $410,427
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

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 ACCOUNTANTS
- --------------------------------------------------------------------------------

   PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts
   02110, serves as independent accountant for the Fund.

- --------------------------------------------------------------------------------

BROKERAGE ALLOCATION AND OTHER PRACTICES

SELECTION OF BROKERS
- --------------------------------------------------------------------------------


   Each Investment Advisory Agreement authorizes the adviser to select the
   brokers or dealers that will execute the purchases and sales of investment
   securities for each portfolio. The Investment Agreement also directs the
   adviser to use its best efforts to obtain the best execution with respect to
   all transactions for the 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
   Investment Advisory Agreement. In so doing, the portfolio may pay higher
   commission rates than the lowest rate available when

                                      40
<PAGE>

   the adviser believes it is reasonable to do so in light of the value of the
   research, statistical, and pricing services provided by the broker effecting
   the transaction.


   It is not the practice of the Fund to allocate brokerage or effect
   principal transactions with dealers based on sales of shares that a
   broker-dealer firm makes. However, the Fund may place trades with qualified
   broker-dealers who recommend the Fund or who act as agents in the purchase
   of Fund shares for their clients.

SIMULTANEOUS TRANSACTIONS
- --------------------------------------------------------------------------------


   The adviser makes investment decisions for each 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.

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, a portfolio 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.


Commissions Paid

   For the last three fiscal years, the portfolios paid the following in
   brokerage commissions:


<TABLE>

<S>                                               <C>
                                                  Brokerage Commissions
- -----------------------------------------------------------------------------------------------------------------
Small Cap Value Portfolio
          1999                                          $136,808
- -----------------------------------------------------------------------------------------------------------------
          1998                                             N/A
- -----------------------------------------------------------------------------------------------------------------
          1997                                             N/A
- -----------------------------------------------------------------------------------------------------------------
Disciplined Value Portfolio
          1999                                          $164,916
- -----------------------------------------------------------------------------------------------------------------
          1998                                          $165,510
- -----------------------------------------------------------------------------------------------------------------
          1997                                          $256,031
- -----------------------------------------------------------------------------------------------------------------
Balanced Portfolio
          1999                                           $40,391
</TABLE>

                                      41
<PAGE>

<TABLE>
<S>                                                                      <C>
- -----------------------------------------------------------------------------------------------------------------
          1998                                                           $24,690
- -----------------------------------------------------------------------------------------------------------------
          1997                                                             N/A
- -----------------------------------------------------------------------------------------------------------------
Limited Maturity Bond Portfolio
          1999                                                             $0
- -----------------------------------------------------------------------------------------------------------------
          1998                                                           $1,929
- -----------------------------------------------------------------------------------------------------------------
          1997                                                             $0
- -----------------------------------------------------------------------------------------------------------------
Money Market Portfolio
          1999                                                             $0
- -----------------------------------------------------------------------------------------------------------------
          1998                                                             $0
- -----------------------------------------------------------------------------------------------------------------
          1997                                                             $0
- -----------------------------------------------------------------------------------------------------------------
</TABLE>

CAPITAL STOCK AND OTHER SECURITIES


The Fund

     The Fund was organized under the name "The ICM Fund, Inc." as a Maryland
     corporation on October 11, 1988. On January 18, 1989, the Fund changed its
     name 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 211 Congress Street, Boston, MA 02110; however, shareholders should
     direct all correspondence to the address listed on the cover of this SAI.
     The Fund is an open-end management company.


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

                                      42
<PAGE>

     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 1940
     Act or other applicable law.


Dividend and Distribution Options

     There are three ways for shareholders to receive dividends and capital
gains:

     .  Income dividends and capital gains distributions are reinvested in
        additional shares at net asset value;

     .  Income dividends are paid in cash and capital gains distributions are
        reinvested in additional shares at NAV; and

     .  Income dividends and capital gains distributions are paid in cash.

     Unless the shareholder elects otherwise in writing, the fund will
     automatically reinvest all dividends in additional shares of the portfolio
     at NAV (as of the business day following the record date). Shareholders may
     change their dividend and distributions option by writing to the fund at
     least three days before the record date for income dividend or capital gain
     distribution.

     The fund sends account statements to shareholders whenever it pays an
income dividend or capital gains distribution.



FEDERAL TAXES

     Each portfolio intends to qualify as a regulated investment company under
     Subchapter M of the Internal Revenue Code, and to distribute out its income
     to shareholders each year so that the portfolio itself generally will be
     relieved of federal income and excise taxes. If a portfolio were to fail to
     so qualify: (1) it would be taxed at regular corporate rates without any
     deduction for distributions to shareholder; and (2) its shareholders would
     be taxed as if they received ordinary dividends, although corporate
     shareholders could be eligible for the dividends received deduction.

     A portfolios' dividends that are paid to their corporate shareholders and
     are attributable to qualifying dividends it received from U.S. domestic
     corporations may be eligible, in the hands of such shareholders, for the
     corporate dividends received deduction, subject to certain holding period
     requirements and debt financing limitations.


PURCHASE, REDEMPTION AND PRICING OF SHARES


NET ASSET VALUE PER SHARE
- -------------------------------------------------------------------------------

Calculating NAV

     The purchase and redemption price of the shares of a portfolio is equal to
     the NAV of the portfolio. The Fund calculates the NAV of a portfolio by
     subtracting its liabilities from its total assets and dividing the result
     by the total number of shares outstanding. For purposes of this
     calculation:

     .   Liabilities include accrued expenses and dividends payable; and

     .   Total assets include the market value of the securities held by the
         portfolio, plus cash and other assets plus income accrued but not yet
         received.

                                      43
<PAGE>


     Each portfolio normally calculates its NAV as of the close of trading on
     the NYSE every day the NYSE is open for trading. The NYSE usually closes at
     4:00 p.m. The NYSE is closed on the following days: 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.


How the Fund Values it Assets


     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 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 governing board.


PURCHASE OF SHARES
- --------------------------------------------------------------------------------


     Service Agents may enter confirmed purchase orders on behalf of their
     customers. To do so, the Service Agent must receive your investment order
     before the close of trading on the NYSE and must transmit it to the fund
     before the close of its business day to receive that day's share price. The
     fund must receive proper payment for the order by the time the portfolio
     calculates its NAV 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.

     Shareholders can buy full and fractional (calculated to three decimal
     places) shares of a portfolio. The fund will not issue certificates for
     fractional shares and will only issue certificates for whole shares upon
     the written request of a shareholder.

     The Fund may 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



                                      44
<PAGE>


     At its discretion, the Fund may permit shareholders to purchase shares of
     the portfolio with securities, instead of cash. If the Fund allows a
     shareholder to make an in-kind purchase, it will value such securities
     according to the policies described under "How the Fund Values it Assets"
     at the next determination of net asset value after acceptance. The Fund
     will issue shares of the portfolio at the NAV of the portfolio determined
     as of the same time.

     The Fund will only acquire securities through an in-kind purchase for
     investment and not for immediate resale. The Fund will only accept in-kind
     purchases if the transaction meets the following conditions:

     .    The securities are eligible investments for the portfolio;

     .    The securities have readily available market quotations;

     .    The investor represents and agrees that the securities are liquid and
          that there are no restrictions on their resale imposed by the 1933 Act
          or otherwise;

     .    All dividends, interest, subscription, or other rights pertaining to
          such securities become the property of the portfolio and are delivered
          to the fund by the investor upon receipt from the issuer; and

     .    Immediately after the transaction is complete, the value of all
          securities of the same issuer held by the portfolio cannot exceed 5%
          of the net assets of the portfolio. This condition does not apply to
          U.S. government securities.

     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 the shareholder wishes to redeem signed by all
          registered owners of the shares in the exact names in which they are
          registered;

     .    Any required signature guarantees (see "Signature Guarantees"); and

     .    Any other necessary legal documents for estates, trusts,
          guardianships, custodianships, corporations, pension and profit
          sharing plans and other organizations.


By Telephone


     Shareholders may not do the following by telephone:

     .   Change the name of the commercial bank or the account designated to
         receive redemption proceeds. To change an account in this manner, you
         must submit a written request signed by each shareholder, with each
         signature guaranteed.

     .   Redeem shares represented by a certificate.

     The Fund and UAMSSC 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

                                      45
<PAGE>


     provide certain personal identification at the time an account is opened
     and before 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 UAMSSC may be liable for any losses due
     to unauthorized or fraudulent telephone instructions if the Fund or the
     UAMSSC does not employ the procedures described above. Neither the Fund nor
     the UAMSSC 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.



     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 Board 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


     The Fund requires signature guarantees for certain types of documents,
including:

     .    Written requests for redemption;

     .    Separate instruments for assignment ("stock power"), which should
          specify the total number of shares to be redeemed; and

     .    On all stock certificates tendered for redemption.

     The purpose of signature guarantees is to verify the identity of the person
     who has authorized a redemption from your account and to protect your
     account, the Fund and its sub-transfer agent from fraud.

     The Fund will accept signature guarantees from any eligible guarantor
     institution, as defined by the Securities Exchange Act of 1934 that
     participates in a signature guarantee program. Eligible guarantor
     institutions include banks, brokers, dealers, credit unions, national
     securities exchanges, registered securities associations, clearing agencies
     and savings associations. You can get a complete definition of eligible
     guarantor institutions by calling 1-877-826-5465. 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.


Other Redemption Information


     Normally, the Fund will pay for all shares redeemed under proper procedures
     within seven days after it received your request. However, the Fund will
     pay your redemption proceeds earlier as applicable law so requires.

                                      46
<PAGE>



     When the Fund may suspend redemption privileges or postpone the date of
payment:

     .   when the NYSE and custodian bank are closed;

     .   when trading on the NYSE is restricted;

     .   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; or

     .   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 for exchanges.

     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.




PERFORMANCE CALCULATIONS


     Each portfolio measures its performance by calculating its yield and total
     return. Yield and total return figures are based on historical earnings and
     are not intended to indicate future performance. The portfolio calculates
     its current yield and average annual total return information according to
     the methods required by the SEC. The performance is calculated separately
     for each Class of a portfolio. Dividends paid by a portfolio with respect
     to each Class 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
     Institutional 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. 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.

                                      47
<PAGE>


     The fund calculates the average annual total return of a portfolio by
     finding the average annual compounded rates of return over one, five and
     ten-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.


     The fund calculates these figures 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).


     Set forth in the table below are the portfolios' average annual returns for
     the one-year period and the five-year period ended October 31, 1999 and the
     shorter of the ten-year period ended October 30, 1999 or the period from a
     portfolio's inception date through October 31, 1999.

<TABLE>
<CAPTION>
                                                                  Shorter of 10 Years
                                             One Year    Years    or Since Inception     7-day Yield    30-day Yield    Inception
     ----------------------------------------------------------------------------------------------------------------------------
     <S>                                     <C>                  <C>                    <C>            <C>             <C>
     Small Cap Value Portfolio
     ----------------------------------------------------------------------------------------------------------------------------
          Institutional Class Shares              N/A      N/A            5.60%                N/A            N/A        12/15/98
     ----------------------------------------------------------------------------------------------------------------------------
     Disciplined Value Portfolio
     ----------------------------------------------------------------------------------------------------------------------------
          Institutional Class Shares            -3.47%   13.92%          10.91%                N/A            N/A        12/12/89
     ----------------------------------------------------------------------------------------------------------------------------
          Institutional Service Class Shares     3.86%     N/A            3.62%                N/A            N/A         5/23/97
     ----------------------------------------------------------------------------------------------------------------------------
     Balanced Portfolio
     ----------------------------------------------------------------------------------------------------------------------------
          Institutional Class Shares            -2.67%     N/A            1.65%                N/A           2.30%       12/22/97
     ----------------------------------------------------------------------------------------------------------------------------
     Limited Maturity Bond Portfolio
     ----------------------------------------------------------------------------------------------------------------------------
          Institutional Class Shares             1.04%    5.56%           6.04%                N/A           5.94%       12/18/89
     ----------------------------------------------------------------------------------------------------------------------------
     Money Market Portfolio
     ----------------------------------------------------------------------------------------------------------------------------
          Institutional Class Shares             4.77%    5.23%           4.91%               5.19%           N/A        12/28/89
</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 mutual 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.

                                      48
<PAGE>

     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
- --------------------------------------------------------------------------------

     A 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 this SAI. This information may also be included in
     sales literature and advertising.


     To help investors better evaluate how an investment in a portfolio 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 "Comparative Benchmarks" 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 a
         portfolio;

     .   that the indices and averages are generally unmanaged; and

     .   that the items included in the calculations of such averages may not be
         identical to the formula used by a portfolio to calculate its
         performance; and

     .   that shareholders cannot invest directly in such indices or averages.

     In addition, there can be no assurance that a portfolio will continue this
performance as compared to such other averages.




FINANCIAL STATEMENTS


     The following documents are included in the portfolios' October 31, 1999
Annual Report:

     .   Financial statements for the fiscal year ended October 31, 1999.

     .   Financial highlights for the respective periods presented

     .   The report of PricewaterhouseCoopers LLP.

                                      49
<PAGE>

     Each of the above-referenced documents is incorporated by reference into
     this SAI. However, no other parts of the portfolios' Annual Reports are
     incorporated by reference herein. Shareholders may get copies of the
     portfolios' Annual Reports free of charge by calling the UAM Funds at the
     telephone number appearing on the front page of this SAI.


GLOSSARY

     All terms that this SAI does not otherwise define, have the same meaning in
     the SAI as they do in the prospectus(es) of the portfolios.

     1933 Act means the Securities Act of 1933, as amended.

     1934 Act means the Securities Exchange Act of 1934, as amended.

     1940 Act means the Investment Company Act of 1940, as amended.

     Adviser means the investment adviser to each portfolio.

     Board Member refers to a single member of the Fund's Board.

     Board refers to the Fund's Board of Trustees as a group.

     SEI is SEI Investments Mutual Funds Services, the Fund's sub-administrator.

     Distribution Plan refers to the Distribution Plan the Fund has adopted for
     its Service Class Shares pursuant to Rule 12b-1 under the 1940 Act.

     Fund refers to UAM Funds, Inc. II.

     Governing Board, see Board.

     NAV is the net asset value per share of a portfolio.

     NYSE is the New York Stock Exchange. Also known as "The Exchange" or "The
     Big Board," the NYSE is located on Wall Street and is the largest exchange
     in the United States.

     Plan member refers to 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.

     Plans refers to the Distribution and Shareholder Servicing Plans the Fund
     has adopted for its Service Class Shares pursuant to Rule 12b-1 under the
     1940 Act.

     Portfolio refers to a single series of the Fund, while portfolios refer to
     all of the series of the Fund.

     SEC is the Securities and Exchange Commission. The SEC is the federal
     agency that administers most of the federal securities laws in the United
     States. In particular, the SEC administers the 1933 ACT, the 1940 ACT and
     the 1934 ACT.

     Service Plan refers to the Shareholder Servicing Plan the Fund has adopted
     for its Service Class Shares pursuant to Rule 12b-1 under the 1940 Act.

     Service Class means the Institutional Service Class shares of a portfolio.

     UAM Funds Complex includes UAM Funds, Inc., UAM Funds Trust, UAM Funds Inc.
     II and all of their portfolios.

     UAM is United Asset Management Corporation.

     UAMFDI is UAM Fund Distributors, Inc., the Fund's distributor.

     UAMFSI is UAM Fund Services, Inc., the Fund's administrator.

     UAMSSC is UAM Fund Shareholder Servicing Center, the Fund's
     sub-shareholder-servicing agent.

                                      50
<PAGE>


BOND 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 stocks.

     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 that 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 period 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.

     plus (+) or     Moody's  applies  numerical  modifiers  1, 2,  and 3 in
     minus (-)       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.

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.

                                      51
<PAGE>

     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-grade
                     obligations. Factors giving security to principal and
                     interest are considered adequate, but elements may be
                     present which suggest a susceptibility to impairment
                     sometime in the future.

     Baa             Bonds which are rated Baa are 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.

     Con. (...)
                     (This rating applies only to U.S. Tax-Exempt Municipals)
                     Bonds for which the security depends upon the completion of
                     some act or the fulfillment of some condition are rated
                     conditionally. These are bonds secured by (a) earnings of
                     projects under construction, (b) earnings of projects
                     unseasoned in operating experience, (c) rentals that begin
                     when facilities are completed, or (d) payments to which
                     some other limiting condition attaches. Parenthetical
                     rating denotes probable credit stature upon completion of
                     construction or elimination of basis of condition.


     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.

     Moody's employs the following three designations, all judged to be
     investment grade, to indicate the relative repayment ability of rated
     issuers:

                                      52
<PAGE>



     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:

                     .   Leading market positions in well-established
                         industries.

                     .   Conservative capitalization structure with
                         moderate reliance on debt and ample asset
                         protection.

                     .   Broad 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
- --------------------------------------------------------------------------------



Long-Term Issue Credit Ratings



     Issue credit ratings are based, in varying degrees, on the following
     considerations:

     1. 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;

     2.  Nature of and provisions of the obligation;

     3. 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.




        The issue rating definitions are expressed in terms of default risk. As
        such, they pertain to senior obligations of an entity. Junior
        obligations are typically rated lower than senior obligations, to
        reflect the lower priority in bankruptcy, as noted above. Accordingly,
        in the case of junior debt, the rating may not conform exactly with the
        category definition.

                                      53
<PAGE>



     AAA             An obligation rated 'AAA' has 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 obligor 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.

     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               A subordinated debt or preferred stock obligation rated 'C'
                     is CURRENTLY HIGHLY VULNERABLE to non-payment. The 'C'
                     rating may be used to cover a situation where a bankruptcy
                     petition has been filed or similar action taken, but
                     payments on this obligation are being continued. A 'C' will
                     also be assigned to a preferred stock issue in arrears on
                     dividends or sinking fund payments, but that is currently
                     paying.


     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.

    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.

                                      54
<PAGE>



    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 obligation as a matter of policy.


    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.


Short-Term Issue Credit 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 obligations in
                    higher rating categories. However, the obligor's capacity to
                    meet its financial commitment on the obligation is
                    satisfactory.

     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.

Local Currency and Foreign Currency Risks

     Country risks considerations are a standard part of Standard & Poor's
     analysis for credit ratings on any issuer or issue. Currency of repayment
     is a key factor in this analysis. An obligor's capacity to repay foreign
     currency obligations may be lower than its capacity to repay obligations in
     its local currency due to the sovereign government's own relatively lower
     capacity to repay external versus domestic debt. These sovereign risk
     considerations are incorporated in the debt ratings assigned to specific
     issues. Foreign currency issuer ratings are also distinguished from local
     currency issuer ratings to identity those instances where sovereign risks
     make them different for the same issuer.

                                      55
<PAGE>

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
     AA-             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
     BBB-            sufficient for prudent investment.  Considerable
                     variability in risk during economic cycles.

     BB+/BB/         Below investment grade but deemed likely to meet
     BB-             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 met 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.

     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.

                                      56
<PAGE>

     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 of
                     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               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.

     BBB             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.

                                      57
<PAGE>


     DDD,DD,D       Default. The ratings of obligations in this category are
                    based on their prospects for achieving partial or full
                    recovery in a reorganization or liquidation of the obligor.
                    While expected recovery values are highly speculative and
                    cannot be estimated with any precision, the following serve
                    as general guidelines. "DDD" obligations have the highest
                    potential for recovery, around 90%-100% of outstanding
                    amounts and accrued interest. "D" indicates potential
                    recoveries in the range of 50%-90%, and "D" the lowest
                    recovery potential, i.e., below 50%.

                    Entities rated in this category have defaulted on some or
                    all of their obligations. Entities rated "DDD" have the
                    highest prospect for resumption of performance or continued
                    operation with or without a formal reorganization process.
                    Entities rated "DD" and "D" are generally undergoing a
                    formal reorganization or liquidation process; those rated
                    "DD" are likely to satisfy a higher portion of their
                    outstanding obligations, while entities rated "D" have a
                    poor prospect for repaying all obligations.

International Short-Term Credit Ratings

     F1             Highest credit quality. Indicates the Best 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.


     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.




COMPARATIVE BENCHMARKS
     (alphabetically)


                                      58
<PAGE>

     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.

     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.

     Donoghue's Money Fund Average -- is an average of all major money market
     fund yields, published weekly for 7 and 30-day yields.

     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.


     Financial publications: Business Week, Changing Times, Financial World,
     Forbes, Fortune, Money, Barron's, Consumer's Digest, Financial Times,
     Global Investor, Investor's Daily, Lipper, Inc., Morningstar, Inc., The New
     York Times, Personal Investor, The Wall Street Journal and Weisenberger
     Investment Companies Service -- publications that rate fund performance
     over specified time periods.

     Historical data supplied by the research departments of First Boston
     Corporation, J.P. Morgan & Co, Inc., Salomon Smith Barney, Merrill Lynch &
     Co., Inc., Lehman Brothers, Inc. and Bloomberg L.P.


     IBC's Money Fund Average/All Taxable Index - an average of all major money
     market fund yields, published weekly for 7- and 30-day yields.

     IFC Investable Composite Index - an unmanaged market
     capitalization-weighted index maintained by the International Finance
     Corporation. This index consists of over 890 companies in 26 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.

     Lehman Brothers Indices:
     -----------------------

     Lehman Brothers Aggregate Bond Index - an unmanaged fixed income market
     value-weighted index that combines the Lehman Government/Corporate Index
     and the Lehman Mortgage-Backed Securities Index, and includes treasury
     issues, agency issues, corporate bond issues and mortgage backed
     securities. It includes fixed rate issuers of investment grade (BBB) or
     higher, with maturities of at least one year and outstanding par values of
     at least $100 million for U.S. government issues and $25 million for
     others.

     Lehman Brothers Corporate Bond Index - an unmanaged index of all publicly
     issued, fixed-rate, nonconvertible investment grade domestic corporate
     debt. Also included are yankee bonds, which are dollar-denominated SEC
     registered public, nonconvertible debt issued or guaranteed by foreign
     sovereign governments, municipalities, or governmental agencies, or
     international agencies.

     Lehman Brothers Government Bond Index -an unmanaged treasury bond index
     including all public obligations of the U.S. Treasury, excluding flower
     bonds and foreign-targeted issues, and the Agency Bond Index (all publicly
     issued debt of U.S. government agencies and quasi-federal corporations, and
     corporate debt guaranteed by the U.S. government). In addition to the
     aggregate index, sub-indices cover intermediate and long term issues.

     Lehman Brothers Government/Corporate Bond Index -- an unmanaged fixed
     income market value-weighted index that combines the Government and
     Corporate Bond Indices, including U.S. government treasury securities,
     corporate and yankee bonds. All issues are investment grade (BBB) or
     higher, with maturities of at least one year and outstanding par value of
     at least $100 million of U.S. government issues and $25 million for others.
     Any security downgraded during

                                      59
<PAGE>

     the month is held in the index until month end and then removed. All
     returns are market value weighted inclusive of accrued income.

     Lehman Brothers High Yield Bond Index - an unmanaged index of fixed rate,
     non-investment grade debt. All bonds included in the index are dollar
     denominated, nonconvertible, have at least one year remaining to maturity
     and an outstanding par value of at least $100 million.

     Lehman Brothers Intermediate Government/Corporate Index - an unmanaged
     fixed income, market value-weighted index that combines the Lehman Brothers
     Government Bond Index (intermediate-term sub-index) and four corporate bond
     sectors.

     Lehman Brothers Mortgage-Backed Securities Index - an unmanaged index of
     all fixed-rate securities backed by mortgage pools of Government National
     Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation
     (FHLMC), and Federal National Mortgage Association (FNMA).

     Lipper, Inc./Lipper Indices/Lipper Averages
     -------------------------------------------

     The Lipper Indices are equally weighted indices for typically the 30
     largest mutual funds within their respective portfolio investment
     objectives. The indices are currently grouped in six categories: U.S.
     Diversified Equity with 12 indices; Equity with 27 indices, Taxable Fixed-
     Income with 20 indices, Tax-Exempt Fixed-Income with 28 indices, Closed-End
     Funds with 16 indices, and Variable Annuity Funds with 18 indices.

     In September, 1999, Lipper, Inc. introduced its new portfolio-based mutual
     fund classification method in which peer comparisons are based upon
     characteristics of the specific stocks in the underlying funds, rather than
     upon a broader investment objective stated in a prospectus. Certain of
     Lipper, Inc.'s classifications for general equity funds' investment
     objectives were changed while other equity objectives remain unchanged.
     Changing investment objectives include Capital Appreciation Funds, Growth
     Funds, Mid-Cap Funds, Small-Cap Funds, Micro-Cap Funds, Growth & Income
     Funds, and Equity Income Funds. Unchanged investment objectives include
     Sector Equity Funds, World Equity Funds, Mixed Equity Funds, and certain
     other funds including all Fixed Income Funds and S&P(R) Index Funds.

     Criteria for the Lipper Indices are: 1) component funds are largest in
     group; 2) number of component funds remains the same (30); 3) component
     funds are defined annually; 4) can be linked historically; and 5) are used
     as a benchmark for fund performance.

     Criteria for the Lipper Averages are: 1) includes all funds in the group in
     existence for the period; 2) number of component funds always changes; 3)
     universes are dynamic due to revisions for new funds, mergers,
     liquidations, etc.; and 4) will be inaccurate if historical averages are
     linked.

     Certain Lipper, Inc. indices/averages used by the UAM Funds may include,
     but are not limited to, the following:

     Lipper Short-Intermediate Investment Grade Debt Funds Average -- is an
     average of 100 funds that invest at least 65% of assets in investment grade
     debt issues (BBB or higher) with dollar-weighted average maturities of one
     to five years or less. (Taxable Fixed-Income category)

     Lipper Balanced Fund Index - an unmanaged index of open-end equity funds
     whose primary objective is to conserve principal by maintaining at all
     times a balanced portfolio of both stocks and bonds. Typically, the
     stock/bond ratio ranges around 60%/40%. (Equity category)

     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. (Equity category)

     Lipper Equity Mid Cap Fund Index - an unmanaged index of funds that by
     prospectus or portfolio practice invest primarily in companies with market
     capitalizations less than $5 billion at the time of purchase. (Equity
     category)

     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. (Equity
     category)

                                      60
<PAGE>


     Lipper Growth Fund Index - an unmanaged index composed of the 30 largest
     funds by asset size which invest in companies with long-term earnings
     expected to grow significantly faster than the earnings of the stocks
     represented in the major unmanaged stock indices. (Equity category)

     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.

     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 (BBB
     or higher).


     Merrill Lynch 1-3 Year Treasury Index - an unmanaged index composed of U.S.
     treasury securities with maturities from 1 to 3 years.

     Morgan Stanley Capital International EAFE Index -- 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.

     Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
     yield, risk and total return for equity funds.

     NASDAQ Composite Index -- is a market capitalization, price only, unmanaged
     index that tracks the performance of domestic common stocks traded on the
     regular NASDAQ market as well as national market System traded foreign
     common stocks and ADRs.


     Nekkei Stock Average - a price weighted index of 225 selected leading
     stocks listed on the First Section of the Tokyo Stock Exchange.

     New York Stock Exchange composite or component indices -- capitalization-
     weighted unmanaged indices of all industrial, utilities, transportation and
     finance stocks listed on the New York Stock Exchange.


     Russell U.S. Equity Indexes:
     ---------------------------

     Russell 3000(R)Index - measures the performance of the 3,000 largest U.S.
     companies based on total market capitalization, which represents
     approximately 98% of the investable U.S. equity market.

     Russell 1000(R) Index - an unmanaged index which measures the performance
     of the 1,000 largest companies in the Russell 3000 Index, which represents
     approximately 92% of the total market capitalization of the Russell 3000
     Index.

     Russell 2000(R) Index -- an unmanaged index which measures the performance
     of the 2,000 smallest companies in the Russell 3000 Index, which represents
     approximately 8% of the total market capitalization of the Russell 3000
     Index.

     Russell Top 200(TM) Index - measures the performance of the 200 largest
     companies in the Russell 1000 Index, which represents approximately 74% of
     the total market capitalization of the Russell 1000 Index.

     Russell Mid-Cap(TM) Index -- measures the performance of the 800 smallest
     companies in the Russell 1000 Index, which represents approximately 26% of
     the total market capitalization of the Russell 1000 Index.

     Russell 2500(TM) Index - an unmanaged index which measures the performance
     of the 2,5000 smallest companies in the Russell 3000 Index, which
     represents approximately 17% of the total market capitalization of the
     Russell 3000 Index.

                                      61
<PAGE>

     Russell 3000(R) Growth Index - measures the performance of those Russell
     3000 Index companies with higher price-to-book ratios and higher forecasted
     growth values. The stocks in this index are also members of either the
     Russell 1000 Growth or the Russell 2000 Growth indexes.

     Russell 3000(R) Value Index - measures the performance of those Russell
     3000 Index companies with lower price-to-book ratios and lower forecasted
     growth values. The stocks in this index are also members of either the
     Russell 1000 Value or the Russell 2000 Value indexes.

     Russell 1000(R) Growth Index - measures the performance of those Russell
     1000 companies with higher price-to-book ratios and higher forecasted
     growth values.

     Russell 1000(R) Value Index - measures the performance of those Russell
     1000 with lower price-to-book ratios and lower forecasted growth values.

     Russell 2000(R) Growth Index - measures the performance of those Russell
     2000 companies with higher price-to-book ratios and higher forecasted
     growth values.

     Russell 2000(R) Value Index - measures the performance of those Russell
     2000 companies with lower price-to-book ratios and lower forecasted growth
     values.

     Russell Top 200(TM) Growth Index - measures the performance of those
     Russell Top 200 companies with higher price-to-book ratios and higher
     forecasted growth values. The stocks re also members of the Russell 1000
     Growth index.

     Russell Top 200(TM) Value Index - measures the performance of those Russell
     Top 200 companies with lower price-to-book ratios and lower forecasted
     growth values. The stocks are also members of the Russell 1000 Value index.

     Russell Midcap(TM) Growth Index - measures the performance of those Russell
     Midcap companies with higher price-to-book ratios and higher forecasted
     growth values. The stocks are also members of the Russell 1000 Growth
     index.

     Russell Midcap(TM) Value Index - measures the performance of those Russell
     Midcap companies with lower price-to-book ratios and lower forecasted
     growth values. The stocks are also members of the Russell 1000 Value index.

     Russell 2500(TM) Growth Index - measures the performance of those Russell
     2500 companies with higher price-to-book ratios and higher forecasted
     growth values.

     Russell 2500(TM) Value Index - measures the performance of those Russell
     2500 companies with lower price-to-book ratios and lower forecasted growth
     values.

     Ryan Labs 5 Year GIC Master Index - an arithmetic mean of market rates of
     $1 million GIC contracts held for five years. The market rates are
     representative of a diversified, investment grade portfolio of contracts
     issued by credit worthy insurance companies. The index is unmanaged and
     does not reflect any transaction costs. Direct investment in the index is
     not possible.

     Standard & Poor's U.S. Indices:
     ------------------------------

     In October, 1999, Standard & Poor's and Morgan Stanley Capital
     International launched a new global industry classification standard
     consisting of 10 economic sectors aggregated from 23 industry groups, 59
     industries, and 123 sub-industries covering almost 6,000 companies
     globally. The new classification standard will be used with all of their
     respective indices. Features of the new classification include 10 economic
     sectors, rather than the 11 S&P currently uses. Sector and industry
     gradations are less severe. Rather than jumping from 11 sectors to 115
     industries under the former S&P system, the new system progresses from 10
     sectors through 23 industry groups, 50 industries and 123 sub-industries.

     S&P 500 Index - an unmanaged index composed of 400 industrial stocks, 40
     financial stocks, 40 utilities stocks and 20 transportation stocks. Widely
     regarded as the standard for measuring large-cap U.S. stock market
     performance. It is used by 97% of U.S. money managers and pension plan
     sponsors. More than $1 trillion is indexed to the S&P 500.

     S&P MidCap 400 Index -- consists of 400 domestic stocks chosen for market
     size, liquidity, and industry group representation. It is a market-value
     weighted index with each stock affecting the index in proportion to its
     market value.

                                      62
<PAGE>

     It is used by over 95% of U.S. managers and pension plan sponsors. More
     than $25 billion is indexed to the S&P Midcap400.

     S&P Small Cap 600 Index - an unmanaged index comprised of 600 domestic
     stocks chosen for market size, liquidity, and industry group
     representation. The index is comprised of stocks from the industrial,
     utility, financial, and transportation sectors. It is gaining wide
     acceptance as the preferred benchmark for both active and passive
     management due to its low turnover and greater liquidity. Approximately $8
     billion is indexed to the S&P SmallCap 600.

     S&P SuperComposite 1500 - combines the S&P 500, MidCap 400, and SmallCap
     600 indices, representing 87% of the total U.S. equity market
     capitalization.

     S&P 100 Index - known by its ticker symbol OEX, this index measures large
     company U.S. stock market performance. This market capitalization-weighted
     index is made up of 100 major, blue chip stocks across diverse industry
     groups.

     S&P/BARRA Growth and Value Indices - are constructed by dividing the
     securities in the S&P 500 Index according to price-to-book ratio. The Value
     index contains the companies with the lower price-to-book ratios; while the
     companies with the higher price-to-book ratios are contained in the Growth
     index.

     S&P REIT Composite Index - launched in 1997, this benchmark tracks the
     market performance of U.S. Real Estate Investment Trusts, known as REITS.
     The REIT Composite consists of 100 REITs chosen for their liquidity and
     importance in representing a diversified real estate portfolio. The Index
     covers over 80% of the securitized U.S. real estate market.

     S&P Utilities Stock Price Index - a market capitalization weighted index
     representing three utility groups and, with the three groups, 43 of the
     largest utility companies listed on the New York Stock Exchange, including
     23 electric power companies, 12 natural gas distributors and 8 telephone
     companies.

     Standard & Poor's CANADA Indices:
     --------------------------------

     S&P/TSE Canadian MidCap Index - measures the performance of the mid-size
     company segment of the Canadian equity market.

     S&P/TSE Canadian SmallCap Index - Measures the small company segment of the
     Canadian equity market.

     Standard & Poor's Global Indices:
     --------------------------------

     S&P Global 1200 Index - aims to provide investors with an investable
     portfolio. This index, which covers 29 countries and consists of seven
     regional components, offers global investors an easily accessible, tradable
     set of stocks and particularly suits the new generation of index products,
     such as exchange-traded funds (ETFs).

     S&P Euro and S&P Euro Plus Indices - the S&P Euro Index covers the Eurobloc
     countries; the Euro Plus Index includes the Euro markets as well as
     Denmark, Norway, Sweden and Switzerland. The S&P Euro Plus Index contains
     200 constituents, and the S&P Euro Index, a subset of Euro Plus, contains
     160 constituents. Both indices provide geographic and economic diversity
     over 11 industry sectors.

     S&P/TSE 60 Index - developed with the Toronto Stock Exchange, is designed
     as the new Canadian large cap benchmark and will ultimately replace the
     Toronto 35 and the TSE 100.

     S&P/TOPIX 150 - includes 150 highly liquid securities selected from each
     major sector of the Tokyo market. It is designed specifically to give
     portfolio managers and derivative traders an index that is broad enough to
     provide representation of the market, but narrow enough to ensure
     liquidity.

     S&P Asia Pacific 100 Index - includes highly liquid securities from each
     major economic sector of major Asia-Pacific equity markets. Seven countries
     -- Australia, Hong Kong, Korea, Malaysia, New Zealand, Singapore, and
     Taiwan -- are represented in the new index.

     S&P Latin America 40 Index -part of the S&P Global 1200 Index, includes
     highly liquid securities from major economic sectors of Mexican and South
     American equity markets. Companies from Mexico, Brazil, Argentina, and
     Chile are represented in the new index.

                                      63
<PAGE>


     S&P United Kingdom 150 Index - includes 150 highly liquid securities
     selected from each of the new S&P sectors. The S&P UK 150 is designed to be
     broad enough to provide representation of the market, but narrow enough to
     ensure liquidity.

     Salomon Smith Barney Global excluding U.S. Equity Index - an unmanaged
     index comprised of the smallest stocks (less than $1 billion market
     capitalization) of the Extended Market Index, of both developed and
     emerging markets.

     Salomon Smith Barney One to Three Year Treasury Index - an unmanaged index
     comprised of U.S. treasury notes and bonds with maturities of one year or
     greater, but less than three years.

     Salomon Smith Barney Three-Month T-Bill Average -- the average for all
     treasury bills for the previous three-month period.

     Salomon Smith Barney Three-Month U.S. Treasury Bill Index - a return
     equivalent yield average based on the last three 3-month Treasury bill
     issues.

     Savings and Loan Historical Interest Rates -- as published by the U.S.
     Savings and Loan League Fact Book.

     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.


     Target Large Company Value Index - an index comprised of large companies
     with market capitalizations currently extending down to approximately $1.9
     billion that are monitored using a variety of relative value criteria in
     order to capture the most attractive value opportunities available. A high
     quality profile is required and companies undergoing adverse financial
     pressures are eliminated.

     U.S. Three-Month Treasury Bill Average - the average return for all
     treasury bills for the previous three month period.


     Value Line Composite Index -- composed of over 1,600 stocks in the Value
     Line Investment Survey.

     Wilshire Real Estate Securities Index - a market capitalization-weighted
     index of publicly traded real estate securities, including real estate
     investment trusts, real estate operating companies and partnerships. The
     index is used by the institutional investment community as a broad measure
     of the performance of public real estate equity for asset allocation and
     performance comparison.

     Wilshire REIT Index - includes 112 real estate investment trusts (REITs)
     but excludes seven real estate operating companies that are included in the
     Wilshire Real Estate Securities Index.

     Note: With respect to the comparative measures of performance for equity
     securities described herein, comparisons of performance assume reinvestment
     of dividends, except as otherwise stated.

                                      64
<PAGE>

                                   UAM Funds
                                 PO Box 419081
                          Kansas City, MO 64141-6081
                     (Toll free) 1-877-UAM-LINK (826-5465)




                          FMA Small Company Portfolio

                          Institutional Class Shares
                      Institutional Service Class Shares



                       Statement of Additional Information
                               February 28, 2000

  This statement of additional information (SAI) is not a prospectus. However,
  you should read it in conjunction with the prospectus of the portfolio dated
  February 28, 2000, as supplemented from time to time. You may obtain a
  prospectus for the portfolio by contacting the UAM Funds at the address listed
  above.
<PAGE>

                               Table Of Contents

<TABLE>
<S>                                                                                                           <C>
Description of Permitted Investments.......................................................................    1
 What Investment Strategies May the Portfolio Use?.........................................................    1
 Debt Securities...........................................................................................    1
 Derivatives...............................................................................................    8
 Equity Securities.........................................................................................   16
 Foreign Securities........................................................................................   18
 Investment Companies......................................................................................   21
 Repurchase Agreements.....................................................................................   22
 Restricted Securities.....................................................................................   22
 Securities Lending........................................................................................   22
 When Issued Transactions..................................................................................   23
Investment Policies of the Portfolio.......................................................................   23
 Fundamental Policies......................................................................................   24
 Non-Fundamental Policies..................................................................................   24
Management Of The Fund.....................................................................................   25
Principal Shareholders.....................................................................................   26
Investment Advisory and Other Services.....................................................................   27
 Investment Adviser........................................................................................   27
 Distributor...............................................................................................   29
 Service And Distribution Plans............................................................................   30
 Administrative Services...................................................................................   32
 Custodian.................................................................................................   34
 Independent Accountants...................................................................................   34
Brokerage Allocation and Other Practices...................................................................   34
 Selection of Brokers......................................................................................   34
 Simultaneous Transactions.................................................................................   34
 Brokerage Commissions.....................................................................................   34
Capital Stock and Other Securities.........................................................................   35
 Description Of Shares And Voting Rights...................................................................   35
Purchase, Redemption and Pricing of Shares.................................................................   36
 Net Asset Value Per Share.................................................................................   37
 Purchase of Shares........................................................................................   37
 Redemption of Shares......................................................................................   38
 Exchange Privilege........................................................................................   40
 Transfer Of Shares........................................................................................   40
Performance Calculations...................................................................................   40
 Total Return..............................................................................................   41
 Yield.....................................................................................................   41
 Comparisons...............................................................................................   42
Financial Statements.......................................................................................   42
Glossary...................................................................................................   43
Bond Ratings...............................................................................................   44
 Moody's Investors Service, Inc............................................................................   44
 Standard & Poor's Ratings Services........................................................................   46
 Duff & Phelps Credit Rating Co............................................................................   49
 Fitch IBCA Ratings........................................................................................   50
Comparative Benchmarks.....................................................................................   51
</TABLE>
<PAGE>


Description of Permitted Investments

WHAT INVESTMENT STRATEGIES MAY THE PORTFOLIO USE?
- --------------------------------------------------------------------------------

  The portfolio currently intends to use the securities and investment
  strategies listed below in seeking its objectives; however, it may at any time
  invest in any of the investment strategies described in this SAI.  This SAI
  describes each of these investments/strategies and their risks. The portfolio
  may not notify shareholders before employing new strategies, unless it expects
  such strategies to become principal strategies.  The investments that are
  italicized are principal strategies and you can find more information on these
  techniques in the prospectus of the portfolio. You can find more information
  concerning the limits on the ability of the portfolio to use these investments
  in "What Are the Investment Strategies of the Portfolio?"

  .  Foreign securities.

  .  Equity securities.

  .  Short-term investments.

  .  Futures.

  .  Options.

  .  Investment companies.

  .  Repurchase agreements.

  .  Restricted securities.

  .  Securities lending.

  .  When issued securities.

DEBT SECURITIES
- --------------------------------------------------------------------------------
  Corporations and governments use debt securities 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.

Types of Debt Securities

  U.S. Government Securities

  U.S. government securities are securities that the U.S.  Treasury has issued
  (treasury securities) and securities that a federal agency or a government-
  sponsored entity has issued (agency securities). Treasury securities include
  treasury notes, which have initial maturities of one to ten years and treasury
  bonds, which have initial maturities of at least ten years and certain types
  of mortgage-backed securities that are described under "Mortgage-Backed
  Securities" and "Other Asset-Backed Securities." This SAI discusses mortgage-
  backed treasury and agency securities in detail in the section called
  "Mortgage-Backed Securities" and "Other Asset-Backed Securities."

  The full faith and credit of the U.S. government supports treasury securities.
  Unlike treasury securities, the full faith and credit of the U.S.  government
  generally do not back agency securities.  Agency securities are typically
  supported in one of three ways:

  .  by the right of the issuer to borrow from the U.S. Treasury;

  .  by the discretionary authority of the U.S. government to buy the
obligations of the agency; or

                                       1
<PAGE>


 . by the credit of the sponsoring agency.

  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

  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.

  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. Unlike most debt securities, which pay
  interest periodically and repay principal at maturity or on specified call
  dates, mortgage-backed securities make monthly payments that consist of both
  interest and principal payments. In effect, these payments are a "pass-
  through" of the monthly payments made by the individual borrowers on their
  mortgage loans, net of any fees paid to the issuer or guarantor of such
  securities.  Since homeowners usually have the option of paying either part or
  all of the loan balance before maturity, the effective maturity of a mortgage-
  backed security is often shorter than is stated.

  Governmental entities, private insurers and the mortgage poolers may insure or
  guarantee 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.  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 is the principal governmental guarantor of mortgage-related securities.
  GNMA is a wholly owned corporation of the U.S. government and it falls within
  the Department of Housing and Urban Development. Securities issued by GNMA are
  treasury securities, which means the full faith and credit of the U.S.
  government backs them.  GNMA 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, the 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 is regulated by the Secretary of Housing and Urban
  development.  FNMA purchases conventional mortgages from a list of approved
  sellers and service providers, including state and federally-chartered savings
  and loan associations, mutual savings banks,

                                       2
<PAGE>


  commercial banks and credit unions and mortgage bankers. Securities issued by
  FNMA are agency securities, which means FNMA, but not the U.S. government,
  guarantees their timely payment of principal and interest.

  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. 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.


  Risks of Mortgage-Backed Securities

  Yield characteristics of mortgage-backed securities differ from those of
  traditional debt securities in a variety of ways, the most significant
  differences are mortgage-backed securities:

 .  payments of interest and principal are more frequent (usually monthly); and

 .  falling interest rates generally cause individual borrowers to pay off their
   mortgage earlier than expected forcing the portfolio to reinvest the money at
   a lower interest rate.

  In addition to risks associated with changes in interest rates described in
  "Factors Affecting the Value of Debt Securities," a variety of economic,
  geographic, social and other factors, such as the sale of the underlying
  property, refinancing or foreclosure, can cause investors to repay the loans
  underlying a mortgage-backed security sooner than expected. If the prepayment
  rates increase, the portfolio may have to reinvest its principal at a rate of
  interest that is lower than the rate on existing mortgage-backed securities.

  Other Asset-Backed Securities

  These securities are interests in pools of a broad range of assets other than
  mortgages, such as automobile loans, computer leases and credit card
  receivables.  Like mortgage-backed securities, these securities are pass-
  through. 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

                                       3
<PAGE>


  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
  related asset-backed securities. Due to the quantity of vehicles involved and
  requirements under state laws, 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 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.


  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 prepay principal
  monthly. While whole mortgage loans may collateralize CMOs, 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.

  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 securities listed below, U.S. government securities and
  investment-grade corporate debt securities. Unless otherwise specified, a
  short-term debt security has a maturity of one year or less.

  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.
                                       4
<PAGE>


  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 is a short-term obligation with a maturity ranging from 1 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 "Bond Ratings" for a description
  of commercial paper ratings.

  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 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

                                       5
<PAGE>

  will have a longer duration than an ordinary debt security with the same
  maturity. The 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 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 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," the portfolio can record its beneficial ownership of the coupon
  or corpus directly in the book-entry record-keeping system.


Terms to Understand

  Maturity

  Every debt security has a stated maturity date when the issuer must repay the
  amount it borrowed (principal) from investors.  Some debt securities, however,
  are callable, meaning the issuer can repay the principal earlier, on or after
  specified dates (call dates).  Debt securities are most likely to be called
  when interest rates are falling because the issuer can refinance at a lower
  rate, similar to a homeowner refinancing a mortgage.  The effective maturity
  of a debt security is usually its nearest call date.

  The portfolio that invests in debt securities has no real maturity.  Instead,
  it calculates its weighted average maturity.  This number is an average of the
  stated maturity of each debt security held by the portfolio, with the maturity
  of each security weighted by the percentage of the assets of the portfolio it
  represents.

  Duration

  Duration is a calculation that seeks to measure the price sensitivity of a
  debt security, or the portfolio that invests in debt securities, to changes in
  interest rates.  It measures sensitivity more accurately than maturity because
  it takes into account the time value of cash flows generated over the life of
  a debt security.  Future interest payments and principal payments are
  discounted to reflect their present value and then are multiplied by the
  number of years they will be received to produce a value expressed in years --
  the duration.  Effective duration takes into account call features and sinking
  fund prepayments that may shorten the life of a debt security.

  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.

                                       6
<PAGE>


Factors Affecting the Value of Debt 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).

  Prepayment Risk

  This risk effects mainly mortgage-backed securities.  Unlike other debt
  securities, falling interest rates can hurt mortgage-backed securities, which
  may cause your share price to fall.  Lower rates motivate people to pay off
  mortgage-backed and asset-backed securities earlier than expected.  The
  portfolio may then have to reinvest the proceeds from such prepayments at
  lower interest rates, which can reduce its yield. 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.  If
  left unattended, drifts in the average maturity of the portfolio can have the
  unintended effect of increasing or reducing the effective duration of the
  portfolio, which may adversely affect the expected performance of the
  portfolio.

  Extension Risk

  The other side of prepayment risk occurs when interest rates are rising.
  Rising interest rates can cause the portfolio's average maturity to lengthen
  unexpectedly due to a drop in mortgage prepayments.  This would increase the
  sensitivity of the portfolio to rising rates and its potential for price
  declines.  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.

  Credit Rating

  Coupon interest is offered to investors of debt securities as compensation for
  assuming risk, although short-term Treasury securities, such as 3-month
  treasury bills, are considered "risk free." Corporate securities offer higher
  yields than Treasury securities 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 Treasuries securities.

  Changes in investor confidence regarding the certainty of interest and
  principal payments of a corporate debt 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.

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  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 the 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.

  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 use ratings compiled by Moody's Investor
  Services ("Moody's"), Standard and Poor's Ratings Services ("S&P"), Duff &
  Phelps Rating Co. and Fitch IBCA. Credit ratings are only an agency's opinion,
  not an absolute standard of quality, and they do not reflect an evaluation of
  market risk. The section "Bond Ratings" 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 the 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. The portfolio is not obligated to dispose of
  securities whose issuers subsequently are in default or which are downgraded
  below the above-stated ratings.

DERIVATIVES
- --------------------------------------------------------------------------------
  Derivatives are financial instruments whose value is based on an underlying
  asset, such as a stock or a bond, an underlying economic factor, such as an
  interest rate or a market benchmark, such as an index. Investors can use
  derivatives to gain exposure to various markets in a cost efficient manner, to
  reduce transaction costs or to remain fully invested.  They may also invest in
  derivatives to protect it 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.

Types of Derivatives

  Futures


  A futures contract is an agreement between two parties whereby one party sells
  and the other party agrees to buy a specified amount of a financial instrument
  at an agreed upon price and time. The financial instrument underlying the
  contract may be a stock, stock index, bond, bond index, interest rate, foreign
  exchange rate or other similar instrument. Agreeing to buy the underlying
  financial information is called buying a futures contract or taking a long
  position in the contract. Likewise, agreeing to sell the underlying financial
  instrument is called selling a futures contract or taking a short position in
  the contract.

  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.

  Unlike other securities, the parties to a futures contract do not have to pay
  for or deliver the underlying financial instrument until some future date (the
  delivery date). Contract markets require both the purchaser and seller to
  deposit

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  "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.  This process is known
  as "marking to the market."

  Although the actual terms of a futures contract calls for the actual delivery
  of and payment for the underlying security, in many cases the parties may
  close the contract early by taking an opposite position in an identical
  contract. If the sale price upon closing out the contract is less than the
  original purchase price, the person closing out the contract will realize a
  loss.  If the sale price upon closing out the contract is more that the
  original purchase price, the person closing out the contract will realize a
  gain.  The opposite is also true.  If the purchase price upon closing out the
  contract is more than the original sale price, the person closing out the
  contract will realize a loss.  If the purchase price upon closing out the
  contract is less than the original sale price, the person closing out the
  contract will realize a gain.

  The portfolio will incur commission expenses in either opening, closing or
  possibly opening and closing futures positions.

  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
  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.
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  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
     and segregating cash or liquid securities in an amount equal to the
     difference between the exercise prices;

  .  Cash or liquid securities equal to at least the market value of the
     optioned securities, interest rate, foreign currency or futures contract;
     or

  .  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;

                                      10
<PAGE>


  .  Purchasing a put option on the same security, index, interest rate, foreign
     currency or futures contract with a lesser exercise price and segregating
     cash or liquid securities in an amount equal to the difference between the
     exercise prices; or

  .  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 the 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

                                      11
<PAGE>


  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.

  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).

  .  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 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 the
  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. The 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.

  The portfolio may 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. The 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 the 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.

  The 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 the 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, the 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,

                                      12
<PAGE>


  the 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.

  Swaps, Caps, Collars and Floors

  Swap Agreements

  A swap is a financial instrument that typically involves the exchange of cash
  flows between two parties on specified dates (settlement dates), where the
  cash flows are based on agreed-upon prices, rates, indices, etc. The nominal
  amount on which the cash flows are calculated is called the notional amount.
  Swaps are individually negotiated and structured to include exposure to a
  variety of different types of investments or market factors, such as interest
  rates, foreign currency rates, mortgage securities, corporate borrowing rates,
  security prices or inflation rates.

  Swap agreements may increase or decrease the overall volatility of the
  investments of the portfolio and its share price. The performance of swap
  agreements may be affected by a change in the specific interest rate,
  currency, or other factors that determine the amounts of payments due to and
  from the portfolio. If a swap agreement calls for payments by the portfolio,
  the portfolio must be prepared to make such payments when due. In addition, if
  the counter-party's creditworthiness declined, the value of a swap agreement
  would be likely to decline, potentially resulting in losses.

  Generally, swap agreements have a fixed maturity date that will be agreed upon
  by the parties.  The agreement can be terminated before the maturity date only
  under limited circumstances, such as default by one of the parties or
  insolvency, among others, and can be transferred by a party only with the
  prior written consent of the other party.  The portfolio may be able to
  eliminate its exposure under a swap agreement either by assignment or by other
  disposition, or by entering into an offsetting swap agreement with the same
  party or a similarly creditworthy party. If the counter-party is unable to
  meet its obligations under the contract, declares bankruptcy, defaults or
  becomes insolvent, the portfolio may not be able to recover the money it
  expected to receive under the contract.

  A swap agreement can be a form of leverage, which can magnify a portfolio's
  gains or losses.  In order to reduce the risk associated with leveraging, a
  portfolio will cover its current obligations under swap agreements according
  to guidelines established by the SEC. If the portfolio enters into a swap
  agreement on a net basis, it will segregate assets with a daily value at least
  equal to the excess, if any, of the portfolio's accrued obligations under the
  swap agreement over the accrued amount the portfolio is entitled to receive
  under the agreement. If the portfolio enters into a swap agreement on other
  than a net basis, it will segregate assets with a value equal to the full
  amount of the portfolio's accrued obligations under the agreement.

  Equity Swaps -- In a typical equity index swap, one party agrees to pay
  another party the return on a stock, stock index or basket of stocks in return
  for a specified interest rate.  By entering into an equity index swap, for
  example, the index receiver can gain exposure to stocks making up the index of
  securities without actually purchasing those stocks.  Equity index swaps
  involve not only the risk associated with investment in the securities
  represented in the index, but also the risk that the performance of such
  securities, including dividends, will not exceed the return on the interest
  rate that the portfolio will be committed to pay.

  Interest Rate Swaps -- Interest rate swaps are financial instruments that
  involve the exchange on one type of interest rate for another type of interest
  rate cash flow on specified dates in the future.  Some of the different types
  of interest rate swaps are "fixed-for floating rate swaps," "termed basis
  swaps" and "index amortizing swaps."  Fixed-for floating rate swap involve the
  exchange of fixed interest rate cash flows for floating rate cash flows.
  Termed basis swaps entail cash flows to both parties based on floating
  interest rates, where the interest rate indices are different.  Index
  amortizing swaps are typically fixed-for floating swaps where the notional
  amount changes if certain conditions are met.

  Like a traditional investment in a debt security, a portfolio could lose money
  by investing in an interest rate swap if interest rates change adversely.  For
  example, if the portfolio enters into a swap where it agrees to exchange a
  floating rate of interest for a fixed rate of interest, the portfolio may have
  to pay more money than it receives.  Similarly, if the portfolio enters into a
  swap where it agrees to exchange a fixed rate of interest for a floating rate
  of interest, the portfolio may receive less money than it has agreed to pay.


                                      13
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  Currency Swaps -- A currency swap is an agreement between two parties in which
  one party agrees to make interest rate payments in one currency and the other
  promises to make interest rate payments in another currency. A portfolio may
  enter into a currency swap when it has one currency and desires a different
  currency. Typically the interest rates that determine the currency swap
  payments are fixed, although occasionally one or both parties may pay a
  floating rate of interest.  Unlike an interest rate swap, however, the
  principal amounts are exchanged at the beginning of the contract and returned
  at the end of the contract.  Changes in foreign exchange rates and changes in
  interest rates, as described above may negatively affect currency swaps.

  Caps, Collars and Floors

  Caps and floors have an effect similar to buying or writing options.  In a
  typical cap or floor agreement, one party agrees to make payments only under
  specified circumstances, usually in return for payment of a fee by the other
  party. For example, the buyer of an interest rate cap obtains the right to
  receive payments to the extent that a specified interest rate exceeds an
  agreed-upon level.  The seller of an interest rate floor is obligated to make
  payments to the extent that a specified interest rate falls below an agreed-
  upon level. An interest rate collar combines elements of buying a cap and
  selling a floor.

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.

  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
  expected.

  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; and

  .  differences between the derivatives, such as different margin requirements,
     different liquidity of such markets and the participation of speculators in
     such markets.

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<PAGE>

  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.
  Moreover, a portfolio may close out a futures contract only on the exchange
  the contract was initially traded.  Although a portfolio intends to purchase
  options and futures only where there appears to be an active market, there is
  no guarantee that such a liquid market will exist.  If there is no secondary
  market for the contract, or the market is illiquid, the portfolio may not be
  able to close out its position.  In an illiquid market, the portfolio may:

  .  have to sell securities to meet its daily margin requirements at a time
     when it is disadvantageous to do so;

  .  have to purchase or sell the instrument underlying the contract;

  .  not be able to hedge its investments; and

  .  not be able realize profits or limit 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:

  .  an exchange may suspend or limit trading in a particular derivative
     instrument, an entire category of derivatives or all derivatives, which
     sometimes occurs because of increased market volatility;

  .  unusual or unforeseen circumstances may interrupt normal operations of an
     exchange;

  .  the facilities of the exchange may not be adequate to handle current
     trading volume;

  .  equipment failures, government intervention, insolvency of a brokerage firm
     or clearing house or other occurrences may disrupt normal trading activity;
     or

  .  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

                                      15
<PAGE>


  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.

  Volatility and Leverage

  The prices of derivatives are volatile (i.e., they may change rapidly,
  substantially and unpredictably) and are influenced by a variety of factors,
  including:

  .  actual and anticipated changes in interest rates;

  .  fiscal and monetary policies; and

  .  national and international political events.

  Most exchanges limit the amount by which the price of a derivative can change
  during a single trading day.  Daily trading limits establish the maximum
  amount that the price of a derivative may vary from the settlement price of
  that derivative at the end of trading on the previous day.  Once the price of
  a derivative reaches this value, a portfolio may not trade that derivative at
  a price beyond that limit.  The daily limit governs only price movements
  during a given day and does not limit potential gains or losses.  Derivative
  prices have occasionally moved to the daily limit for several consecutive
  trading days, preventing prompt liquidation of the derivative.

  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-dealer with whom it has an open futures contract or related option
  becomes insolvent or declares bankruptcy.

EQUITY SECURITIES
- --------------------------------------------------------------------------------

Types of Equity Securities

  Common Stocks

  Common stocks represent units of ownership in a company.  Common stocks
  usually carry voting rights and earn dividends.  Unlike preferred stocks,
  which are described below, dividends on common stocks are not fixed but are
  declared at the discretion of the company's board of directors.

  Preferred Stocks

  Preferred stocks are also units of ownership in a company. Preferred stocks
  normally have preference over common stock in the payment of dividends and the
  liquidation of the company.  However, in all other respects, preferred stocks
  are subordinated to the liabilities of the issuer.  Unlike common stocks,
  preferred stocks are generally not entitled to vote on corporate matters.
  Types of preferred stocks include adjustable-rate preferred stock, fixed
  dividend preferred stock, perpetual preferred stock, and sinking fund
  preferred stock. Generally, the market values of preferred stock with a fixed
  dividend rate and no conversion element varies inversely with interest rates
  and perceived credit risk.

                                      16
<PAGE>


  Convertible Securities

  Convertible securities are debt securities and preferred stocks that are
  convertible into common stock at a specified price or conversion ratio.  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. Their market price tends to go up if the stock price moves up.

  Convertible securities are subject to the same risks as similar securities
  without the convertible feature. The price of a convertible security is more
  volatile during times of steady interest rates than other types of debt
  securities.

  Rights and Warrants

  A right is a privilege granted to existing shareholders of a corporation to
  subscribe to shares of a new issue of common stock before it is issued.
  Rights normally have a short life, usually two to four weeks, are freely
  transferable and entitle the holder to buy the new common stock at a lower
  price than the public offering price.  Warrants are securities that are
  usually issued together with a debt security or preferred stock and that give
  the holder the right to buy proportionate amount of common stock at a
  specified price.  Warrants are freely transferable and are traded on major
  exchanges.  Unlike rights, warrants normally have a life that is measured in
  years and entitles the holder to buy common stock of a company at a price that
  is usually higher than the market price at the time the warrant is issued.
  Corporations often issue warrants to make the accompanying debt security more
  attractive.

  An investment in warrants and rights may entail greater risks than certain
  other types of investments.  Generally, rights and warrants do not carry 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. In addition, their value does not necessarily change with the
  value of the underlying securities, and they cease to have value if they are
  not exercised on or before their expiration date.  Investing in rights and
  warrants increases the potential profit or loss to be realized from the
  investment as compared with investing the same amount in the underlying
  securities.

Risks of Investing in Equity Securities

  General Risks of Investing in Stocks

  While investing in stocks allows investors to participate in the benefits of
  owning a company, such investors 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.

  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; and

  .  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.

  Because preferred stock is generally 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.

                                      17
<PAGE>


  Small and Medium-Sized Companies

  Investors in small and medium-sized companies typically take on greater risk
  and price volatility than they would by investing in larger, more established
  companies.  This increased risk may be due to the greater business risks of
  their small or medium size, limited markets and financial resources, narrow
  product lines and frequent lack of management depth.  The securities of small
  and medium companies are often traded in the over-the-counter market and might
  not be traded in volumes typical of securities traded on a national securities
  exchange.  Thus, the securities of small and medium capitalization companies
  are likely to be less liquid, and subject to more abrupt or erratic market
  movements, than securities of larger, more established companies.

  Technology Companies

  Stocks of technology companies have tended to be subject to greater volatility
  than securities of companies that are not dependent upon or associated with
  technological issues.  Technology companies operate in various industries.
  Since these industries frequently share common characteristics, an event or
  issue affecting one industry may significantly influence other, related
  industries.  For example, technology companies may be strongly affected by
  worldwide scientific or technological developments and their products and
  services may be subject to governmental regulation or adversely affected by
  governmental policies.

FOREIGN SECURITIES
- --------------------------------------------------------------------------------

Types of Foreign Securities

  Foreign securities are debt and equity securities that are traded in markets
  outside of the United States.  The markets in which these securities are
  located can be developed or emerging.  People can invest in foreign securities
  in a number of ways:

  .  They can invest directly in foreign securities denominated in a foreign
     currency;

  .  They can invest in American Depositary Receipts, European Depositary
     Receipts and other similar global instruments; and

  .  They can invest in 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. EDRs are similar to ADRs, except that they are
  typically issued by European Banks or trust companies.

  Emerging Markets

  An "emerging country" is generally a country that 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 currently 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.

                                      18
<PAGE>


  Investment Funds

  Some emerging countries currently prohibit direct foreign investment in the
  securities of their companies.  Certain emerging countries, however, permit
  indirect foreign investment in the securities of companies listed and traded
  on their stock exchanges through investment funds that they have specifically
  authorized.  Investments in these investment funds are subject to the
  provisions of the 1940 Act.  Shareholders of a UAM Fund that invests in such
  investment funds will bear not only their proportionate share of the expenses
  of the UAM Fund (including operating expenses and the fees of the adviser),
  but also will bear indirectly bear similar expenses of the underlying
  investment funds.  In addition, these investment funds may trade at a premium
  over their net asset value.

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.


  Political and Economic Factors

  Local political, economic, regulatory, or social instability, military action
  or unrest, or adverse diplomatic developments may affect the value of foreign
  investments.  Listed below are some of the more important political and
  economic factors that could negatively affect an investment in foreign
  securities:

  .  The economies of foreign countries may differ from the economy of the
     United States in such areas as growth of gross national product, rate of
     inflation, capital reinvestment, resource self-sufficiency, budget deficits
     and national debt;

  .  Foreign governments sometimes participate to a significant degree, through
     ownership interests or regulation, in their respective economies. Actions
     by these governments could significantly influence the market prices of
     securities and payment of dividends;

  .  The economies of many foreign countries are dependent on international
     trade and their trading partners and they could be severely affected if
     their trading partners were to enact protective trade barriers and economic
     conditions;

  .  The internal policies of a particular foreign country may be less stable
     than in the United States. Other countries face significant external
     political risks, such as possible claims of sovereignty by other countries
     or tense and sometimes hostile border clashes; and

  .  A foreign government may act adversely to the interests of U.S. investors,
     including expropriation or nationalization of assets, confiscatory taxation
     and other restrictions on U.S. investment. A country may restrict or
     control foreign investments in its securities markets. These restrictions
     could limit the portfolio's ability to invest in a particular country or
     make it very expensive for the portfolio to invest in that country. Some
     countries require prior governmental approval, limit the types or amount of
     securities or companies in which a foreigner can invest. Other countries
     may restrict the ability of foreign investors to repatriate their
     investment income and capital gains.

  Information and Supervision

  There is generally less publicly available information about foreign companies
  than companies based in the United States.  For example, there are often no
  reports and ratings published about foreign companies comparable to the ones
  written about United States companies.  Foreign companies are typically not
  subject to uniform accounting, auditing and financial reporting standards,
  practices and requirements comparable to those applicable to United States
  companies.  The lack of comparable information makes investment decisions
  concerning foreign countries more difficult and less reliable than domestic
  companies.

                                      19
<PAGE>


  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 the markets in the
  United States.  Foreign stocks markets tend to differ from those in the United
  States in a number of ways:

  .  They are generally not as developed or efficient as, and more volatile,
     than those in the United States;

  .  They have substantially less volume;

  .  Their securities tend to be less liquid and to experience rapid and erratic
     price movements;

  .  Commissions on foreign stocks are generally higher and subject to set
     minimum rates, as opposed to negotiated rates;

  .  Foreign security trading, settlement and custodial practices are often less
     developed than those in U.S. markets; and

  .  They may have different settlement practices, which may cause delays and
     increase the potential for failed settlements.

  Foreign Currency Risk


  While the UAM Funds denominate their net asset value in United States dollars,
  the securities of foreign companies are frequently denominated in foreign
  currencies. Thus, a change in the value of a foreign currency against the
  United States dollar will result in a corresponding change in value of
  securities denominated in that currency.   Some of the factors that may impair
  the investments denominated in a foreign currency are:

  .  It may be expensive to convert foreign currencies into United States
     dollars and vice versa;

  .  Complex political and economic factors may significantly affect the values
     of various currencies, including United States dollars, and their 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 may be no systematic reporting of last sale information for foreign
     currencies or 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; and

  .  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.


  Taxes

  Certain foreign governments levy withholding taxes on dividend and interest
  income. Although in some countries it is possible for the portfolio to recover
  a portion of these taxes, the portion that cannot be recovered 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.

                                      20
<PAGE>


  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 relatively unstable governments;

  .  Present greater risks of nationalization of businesses, restrictions on
     foreign ownership and prohibitions on the repatriation of assets;

  .  Offer less protection of property rights than more developed countries; and

  .  Have economies that are 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.

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 began 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 became denominations of the
  Euro at fixed rates according to practices prescribed by the European Monetary
  Institute and the Euro became available as a book-entry currency.  On or about
  that date, member states began conducting financial market transactions in
  Euros and redenominating many investments, currency balances and transfer
  mechanisms into Euros.  The portfolio also anticipates pricing, trading,
  settling and valuing investments whose nominal values remain in their existing
  domestic currencies in Euros.  Accordingly, the portfolio expects the
  conversion to the Euro to impact investments in countries that 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?


INVESTMENT COMPANIES
- --------------------------------------------------------------------------------
  The portfolio may buy and sell shares of other investment companies.  Such
  investment companies may pay management and other fees that are similar to the
  fees currently paid by the portfolio.  Like other shareholders, the portfolio
  would pay its proportionate share of those fees.  Consequently, shareholders
  of the portfolio would pay not only the management fees of the portfolio, but
  also the management fees of the investment company in which the

                                      21
<PAGE>


  portfolio invests. The portfolio may invest up to 10% of its total assets in
  the securities of other investment companies, but may not invest more than 5%
  of its total assets in the securities of any one investment company or acquire
  more than 3% of the outstanding securities of any one investment company.

  The SEC has granted an order that allows the portfolio to invest the greater
  of 5% of its total assets or $2.5 million in the UAM DSI Money Market
  Portfolio, provided that the investment is:

  .  For cash management purposes;

  .  Consistent with the portfolio's investment policies and restrictions; and

  .  The adviser to the investing portfolio waives any fees it earns on the
     assets of the portfolio that are invested in the UAM DSI Money Market
     Portfolio.

  The 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, an investor agrees to buy a security (underlying
  security) from a securities dealer or bank that is a member of the Federal
  Reserve System (counter-party).  At the time, the counter-party agrees to
  repurchase the underlying security for the same price, plus interest.
  Repurchase agreements are generally for a relatively short period (usually not
  more than 7 days).  The portfolio normally uses repurchase agreements to earn
  income on assets that are not invested.

  When the portfolio enters into a repurchase agreement it will:

  .  Pay for the underlying securities only upon physically receiving them or
     upon evidence of their receipt in book-entry form; and

  .  Require the counter party to add to the collateral whenever the price of
     the repurchase agreement rises above the value of the underlying security
     (i.e., it will require the borrower to "mark 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.

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 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 the
  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.

SECURITIES LENDING
- --------------------------------------------------------------------------------
  The portfolio may lend a portion of its total assets to broker- dealers or
  other financial institutions. It may then reinvest the collateral it receives
  in short-term securities and money market funds. When the portfolio lends its
  securities, it will follow the following guidelines:

  .  The borrower must provide collateral at least equal to the market value of
     the securities loaned;

  .  The collateral 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;

                                      22
<PAGE>


  .  The borrower must add to the collateral whenever the price of the
     securities loaned rises (i.e., the borrower "marks to the market" on a
     daily basis);

  .  It must be able to terminate the loan at any time;

  .  It must receive reasonable interest on the loan (which may include the
     portfolio investing any cash collateral in interest bearing short-term
     investments); and

  .  It must determine that the borrower is an acceptable credit risk.

  These risks are similar to the ones involved with repurchase agreements. When
  the portfolio lends securities, there is a risk that the borrower will become
  financially unable to honor its contractual obligations.  If this happens, the
  portfolio could:

  .  Lose its rights in the collateral and not be able to retrieve the
     securities it lent to the borrower; and

  .  Experience delays in recovering its securities.

WHEN ISSUED 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 deliver
  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.

  The portfolio will segregate cash and liquid securities equal in value to
  commitments for the when-issued, delayed-delivery or forward delivery
  transaction.  The portfolio will segregate additional liquid assets daily so
  that the value of such assets is equal to the amount of its commitments.

Investment Policies of the Portfolio

  The portfolio will determine investment limitation percentages (with the
  exception of a limitation relating to borrowing) immediately after and as a
  result of its acquisition of such security or other asset.  Accordingly, the
  portfolio will not consider changes in values, net assets or other
  circumstances when determining whether the investment complies with its
  investment limitations.

                                      23
<PAGE>

FUNDAMENTAL POLICIES
- --------------------------------------------------------------------------------
  The following investment limitations are fundamental, which means the
  portfolio cannot change them without approval by the vote of a majority of the
  outstanding voting securities of the portfolio, as defined by the 1940 Act.
  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 (except
     obligations of the U.S. government and its 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.

  .  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 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 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 1940 Act 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.

NON-FUNDAMENTAL POLICIES
- --------------------------------------------------------------------------------
  The following limitations are non-fundamental, which means the portfolio may
  change them without shareholder approval.  The portfolio will not:

  .  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,

                                      24
<PAGE>

     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 on futures.

Management Of The Fund

  The governing board manages the business of the Fund.  The governing board
  elects officers to manage the day-to-day operations of the Fund and to execute
  policies the board has formulated.  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 and a $2,000 meeting fee.  In
  addition, the Fund reimburses each independent board member 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 board members that are affiliated with the fund for their
  services as board members. UAM, its affiliates or SEI 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.  The UAM Funds Complex is currently comprised of 51
  portfolios. Those people with an asterisk (*) beside their name are
  "interested persons" of the Fund as that term is defined in the 1940 Act. Mr.
  English does have an investment advisory relationship with Investment
  Counselors of Maryland, an investment adviser to one of the portfolios in the
  UAM Funds Complex.  However, the Fund does not believe that the relationship
  is a material business relationship, and, therefore, does not consider him to
  be an "interested person" of the Fund.  If these circumstances change, the
  Board will determine whether any action is required to change the composition
  of the Board.

<TABLE>
<CAPTION>
                                                                                                  Aggregate         Aggregate
                                                                                                Compensation       Compensation
                                                                                                From the Fund      From the Fund
                           Position     Principal Occupations During the                            as of          Complex as of
Name, Address, DOB        with Fund     Past 5 years                                           October 31, 1999   October 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S>                       <C>                                                                  <C>                <C>
John T. Bennett, Jr.      Board Member  President of Squam Investment Management Company,           $7,137             $10,625
College Road -- RFD 3                   Inc. and Great Island Investment Company, Inc.;
Meredith, NH 03253                      President of Bennett Management Company from 1988 to
1/26/29                                 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Nancy J. Dunn             Board Member  Financial Officer of World Wildlife Fund since              $7,137             $10,625
1250 24/th/ St., NW                     January 1999; Vice President for Finance and
Washington, DC 20037                    Administration and Treasurer of Radcliffe College
8/14/51                                 from 1991 to 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
William A. Humenuk        Board Member  Executive Vice President and Chief Administrative           $7,137             $10,625
100 King Street West                    Officer of Philip Services Corp.; Formerly, a Partner
P.O. Box 2440, LCD-1                    in the Philadelphia office of the law firm Dechert
Hamilton Ontario,                       Price & Rhoads and a Director of Hofler Corp.
Canada L8N-4J6
4/21/42
- ------------------------------------------------------------------------------------------------------------------------------------
Philip D. English         Board Member  President and Chief Executive Officer of Broventure         $7,137             $10,625
16 West Madison Street                  Company, Inc.; Chairman of the Board of Chektec
Baltimore, MD 21201                     Corporation and Cyber Scientific, Inc.
8/5/48
- ------------------------------------------------------------------------------------------------------------------------------------
James P. Pappas*          Board Member  President of UAM Investment Services, Inc. since               0                   0
211 Congress Street                     March 1999; Vice President UAM Trust Company since
Boston, MA 02110                        January 1996; Principal of UAM Fund Distributors,
2/24/53                                 Inc. since December 1995; Vice President of UAM
                                        Investment Services, Inc. from January 1996 to March
                                        1999 and a Director and Chief Operating Officer of CS
                                        First Boston Investment Management from 1993-1995.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      25
<PAGE>

<TABLE>
<CAPTION>
                                                                                                  Aggregate         Aggregate
                                                                                                Compensation       Compensation
                                                                                                From the Fund      From the Fund
Name, Address,             Position       Principal Occupations During the                          as of          Complex as of
DOB                        with Fund      Past 5 years                                         October 31, 1999   October 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S>                        <C>            <C>                                                  <C>                <C>
Norton H. Reamer*          Board          Chairman, Chief Executive Officer and a Director of          0                  0
One International Place    Member;        United Asset Management Corporation; Director,
Boston, MA 02110           President      Partner or Trustee of each of the Investment
3/21/35                    and Chairman   Companies of the Eaton Vance Group of Mutual Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
Peter M. Whitman, Jr.*     Board Member   President and Chief Investment Officer of Dewey              0                  0
One Financial Center                      Square Investors Corporation since 1988; Director and
Boston, MA 02111                          Chief Executive Officer of H.T. Investors, Inc.,
7/1/43                                    formerly a 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; Treasurer of the             0                  0
211 Congress Street                       Fidelity Group of Mutual Funds from 1991 to 1995;
Boston, MA 02110                          held various other offices with Fidelity Investments
7/4/51                                    from November 1990 to March 1995.
- ------------------------------------------------------------------------------------------------------------------------------------
Robert R. Flaherty         Assistant      Vice President of UAMFSI; Manager of Fund                    0                  0
211 Congress Street        Treasurer      Administration and Compliance of Chase Global Fund
Boston, MA 02110                          Services Company from 1995 to 1996; Senior Manager of
9/18/63                                   Deloitte & Touche LLP from 1985 to 1995,
- ------------------------------------------------------------------------------------------------------------------------------------
Robert J. DellaCroce       Assistant      Director, Mutual Fund Operations - SEI Investments;          0                  0
SEI Investments            Treasurer      Senior Manager at Arthur Andersen prior to 1994.
One Freedom Valley Rd.
Oaks, PA 19456
12/17/63
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Principal Shareholders


  As of February 1, 2000, the following persons or organizations held of record
  or beneficially 5% or more of the shares of a portfolio:

<TABLE>
<CAPTION>
Name and Address of Shareholder                    Percentage of Shares Owned                          Class
- ------------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>                                         <C>
Charles Schwab & Co., Inc.                                   23.70%                            Institutional Class Shares
Reinvest Account
Attn:  Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity Invest Inst Operations Co Inc.                      20.93%                            Institutional Class Shares
For Certain Employee Benefit Plans
100 Magellan Way KWIC
Covington, KY 41015-1999
- ------------------------------------------------------------------------------------------------------------------------------------
Dingle & Co.                                                  5.04%                            Institutional Class Shares
C/O Coamerica Bank
Attn: Mutual Funds
P.O. Box 75000
Detroit, MI 48275-0001
- ------------------------------------------------------------------------------------------------------------------------------------
American Express Trust Company TR                            99.98%                            Institutional  Service Class Shares
FBO American Express Trust Retirement Services Plan
PO Box 534
Minneapolis, MN 55440-0534
</TABLE>

  Any shareholder 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. Shareholders controlling the portfolio 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.  As of February 1,
  2000, the directors and officers of the Fund owned less than 1% of the
  outstanding shares of the portfolio.

                                      26
<PAGE>

Investment Advisory and Other Services

INVESTMENT ADVISER
- --------------------------------------------------------------------------------

  Fiduciary Management Associates Inc., an Illinois corporation located at 55
  Monroe Street, Suite 2550, Chicago, Illinois 60603, 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, foundations, endowments, pension and profit sharing
  plans, trusts, estates and other institutions as well as individuals since
  1980.

  The adviser is a subsidiary of UAM.  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 more than 50 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.



Portfolio Management

  A team of investment professionals is primarily responsible for the day-to-day
  management of the portfolio.  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>
Kathryn A. Vorisek            Ms. Vorisek joined the adviser in 1996 with a broad background in the investment field.
Executive Vice President &    Previous responsibilities include serving as Vice President in the fixed income and equity
Portfolio Manager             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 Association for Investment Management and Research as well as the Investment Analysts
                              Society of Chicago.
</TABLE>

                                      27
<PAGE>

<TABLE>
<CAPTION>
Name & Title                  Experience
- -------------------------------------------------------------------------------------------------------------------------
<S>                           <C>
Terry B. French               Mr. French joined the adviser in 1997 with over 25 years of professional investment
Senior Vice President &       experience.  Previous responsibilities include Senior Securities Analyst and Team Head for
Portfolio Manager             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 is a member
                              of the Association for Investment Management and Research as well as the Investment
                              Analysts Society of Chicago.

David Faircloth, CFA          Mr. Faircloth joined the adviser in 1998 with over 10 years of investment experience.
Vice President & Portfolio    Prior to joining the adviser, Mr. Faircloth was a Portfolio Manager and Vice President at
Manager                       The Northern Trust Company from 1990 until October 1998, where he co-managed a convertible
                              securities mutual fund and managed individual accounts.  He has a B.S. from DePaul
                              University and a Masters of Management from Northwestern University in Finance, Marketing
                              and International Business.  Mr. Faircloth is a Chartered Financial Analyst and a member
                              of the Association for Investment Management and Research as well as the Investment
                              Analysts Society of Chicago.
</TABLE>

Investment Advisory Agreement


  This section summarizes some of the important provisions of the Investment
  Advisory Agreement.  The Fund has filed the Investment Advisory Agreement with
  the SEC as part of its registration statement on Form N-1A.

  Service Performed by Adviser


  The adviser:

  .  Manages the investment and reinvestment of the portfolio's assets;

  .  Continuously reviews, supervises and administers the investment program of
     the portfolio; and

  .  Determines what portion of the portfolio's assets will be invested in
     securities and what portion will consist of cash.

  Limitation of Liability

  In the absence of (1) willful misfeasance, bad faith, or gross negligence on
  the part of the adviser in the performance of its obligations and duties under
  the Investment Advisory Agreement, (2) reckless disregard by the adviser of
  its obligations and duties under the Investment 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 Investment Advisory Agreement.

                                      28
<PAGE>

  Continuing an Investment Advisory Agreement


  The Investment Advisory Agreement continues in effect for periods of one year
  so long as such continuance is specifically approved at least annually by a:

  .  Majority of those Board Members who are not parties to the Investment
     Advisory Agreement or interested persons of any such party; and

  .  (2) (a) majority of the Members or (b) a majority of the shareholders of
     the portfolio.



  Terminating an Investment Advisory Agreement

  The Fund may terminate an Investment Advisory Agreement at any time, without
  the payment of any penalty if:

  .  A majority of the portfolio's shareholders vote to do so or a majority of
     Board Members vote to do so; and

  .  It gives the adviser 60 days' written notice.

  The adviser may terminate the Investment Advisory Agreement at any time,
  without the payment of any penalty, upon 90 days' written notice to the Fund.

  An Investment Advisory Agreement will automatically and immediately terminate
  if it is assigned.


Advisory Fees

  For its services, the portfolio pays its adviser a fee equal to  of the
  average daily net assets of the portfolio. Due to the effect of fee waivers by
  the adviser, the actual percentage of average net assets that the portfolio
  pays in any given year may be different from the rate set forth in its
  contract with the adviser.  For the last three fiscal years, the portfolio
  paid the following in management fees to the adviser:

<TABLE>
<CAPTION>
                                        Investment Advisory Fees  Investment Advisory Fees   Total Investment Advisory
                                                   Paid                  Waived                       Fees
- ------------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                       <C>                              <C>
FMA Small Company Portfolio                     $1,340,556              $310,560                   $1,029,996
          1999
- ------------------------------------------------------------------------------------------------------------------------------------
          1998                                  $  965,234              $110,445                   $  854,789
- ------------------------------------------------------------------------------------------------------------------------------------
          1997                                  $  142,036              $ 89,172                   $   52,864
</TABLE>

DISTRIBUTOR
- --------------------------------------------------------------------------------

  UAMFDI is 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.

                                      29
<PAGE>


SERVICE AND DISTRIBUTION PLANS
- --------------------------------------------------------------------------------
  The Fund has adopted a Distribution Plan and a Shareholder Servicing Plan (the
  "Plans") for the portfolio's Institutional Service Class Shares pursuant to
  Rule 12b-1 under the 1940 Act.

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 the portfolio's 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 Institutional 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 the 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.

                                      30
<PAGE>


  .  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 Institutional 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.

<TABLE>
<CAPTION>
                                                Distribution Plan Expenses
  ------------------------------------------------------------------------------
  <S>                                           <C>
  FMA Small Company Portfolio                             $2,189
           1999
</TABLE>

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.

  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.

                                      31
<PAGE>


  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, the portfolio or any class of
  shares of the 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.




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 Board Members 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.

                                      32
<PAGE>

  .  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.


  The Fund Administration Agreement continues in effect from year to year if the
  Board specifically approves such continuance every year. 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
  automatically terminates upon its assignment by UAMFSI without the prior
  written consent of the Fund.

  UAMFSI will from time to time employ other people to assist it in performing
  its duties under the Fund Administration Agreement.  Such people may be
  officers and employees who are employed by both UAMFSI and the Fund. UAMFSI
  will pay such people for such employment.  The Fund will not incur any
  obligations with respect to such people.


Administration and Transfer Agency Services Fees

  The portfolio pays a four-part fee to UAMFSI as follows:

  1.  In exchange for administrative services, the portfolio pays a fee to
      UAMFSI calculated at the annual rate of:

     .  $19,500 for the first operational class; plus

     .  $3,750 for each additional class; plus

     .  A fee calculated from the aggregate net assets of each portfolio at the
        following rates:

                                                                  Annual Rate
        ------------------------------------------------------------------------
        FMA Small Company Portfolio                                    0.063%

  2. The portfolio also pays a fee to UAMFSI for sub-administration and other
     services provided by SEI. The fee, which UAMFSI pays to SEI, is calculated
     at the annual rate of:

     .  Not more than $35,000 for the first operational class; plus

     .  $5,000 for each additional operational class; plus

     .  0.03% of their pro rata share of the combined assets of the UAM Funds
        Complex.

  3. 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.

  4. 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.

  For the last three fiscal years the portfolio paid the following in
  administration and sub-administration fees:

<TABLE>
<CAPTION>
                                            Administrators Fee  Sub-Administrators Fee  Total Administration Fee
  ------------------------------------------------------------------------------------------------------------
  <S>                                       <C>                 <C>                     <C>
  FMA Small Company Portfolio                      $87,089                $128,860               $215,949
       1999
  ------------------------------------------------------------------------------------------------------------
       1998                                        $62,840                $144,755               $207,595
 </TABLE>

                                      33

<PAGE>

<TABLE>
       <S>                                         <C>                    <C>                    <C>
       1997                                        $ 1,233                $ 80,327               $ 81,560
</TABLE>


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 ACCOUNTANTS
- --------------------------------------------------------------------------------

  PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110,
  serves as independent accountant for the Fund.


Brokerage Allocation and Other Practices


SELECTION OF BROKERS
- --------------------------------------------------------------------------------

  The Investment Advisory Agreement authorizes the adviser to select the brokers
  or dealers that will execute the purchases and sales of investment securities
  for the portfolio.  The Investment Agreement also directs the adviser to use
  its best efforts to obtain the best execution with respect to all transactions
  for the 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 Investment 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.

  It is not the practice of the Fund to allocate brokerage or effect principal
  transactions with dealers based on sales of shares that a broker-dealer firm
  makes.  However, the Fund may place trades with qualified broker-dealers who
  recommend the Fund or who act as agents in the purchase of Fund shares for
  their clients.


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.


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.

                                      34
<PAGE>

Debt Securities

  Debt securities are usually bought and sold directly from the issuer or an
  underwriter or market maker for the securities. Generally, the portfolio 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 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.


Commissions Paid

  For the last three fiscal years, the portfolio paid the following in brokerage
  commissions:

<TABLE>
<CAPTION>
                                                Brokerage Commissions
  ------------------------------------------------------------------------------
  <S>                                           <C>
  FMA Small Company Portfolio
       1999                                            $1,161,191
  ------------------------------------------------------------------------------
       1998                                            $  355,571
  ------------------------------------------------------------------------------
       1997                                            $   90,657
</TABLE>

Capital Stock and Other Securities



The Fund

  The Fund was organized under the name "The ICM Fund, Inc." as a Maryland
  corporation on October 11, 1988.  On January 18, 1989, the Fund changed its
  name 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 211
  Congress Street, Boston, MA  02110; however, shareholders should direct all
  correspondence to the address listed on the cover of this SAI.  The Fund is an
  open-end management company.



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

                                      35
<PAGE>

  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 1940 Act
  or other applicable law.


Dividend and Distribution Options

  There are three ways for shareholders to receive dividends and capital gains:

  .  Income dividends and capital gains distributions are reinvested in
     additional shares at net asset value;

  .  Income dividends are paid in cash and capital gains distributions are
     reinvested in additional shares at NAV; and

  .  Income dividends and capital gains distributions are paid in cash.

  Unless the shareholder elects otherwise in writing, the fund will
  automatically reinvest all dividends in additional shares of the portfolio at
  NAV (as of the business day following the record date).  Shareholders may
  change their dividend and distributions option by writing to the fund at least
  three days before the record date for income dividend or capital gain
  distribution.

  The fund sends account statements to shareholders whenever it pays an income
  dividend or capital gains distribution.


FEDERAL TAXES

  The portfolio intends to qualify as a regulated investment company under
  Subchapter M of the Internal Revenue Code, and to distribute out its income to
  shareholders each year so that the portfolio itself generally will be relieved
  of federal income and excise taxes.  If the portfolio were to fail to so
  qualify: (1) it would be taxed at regular corporate rates without any
  deduction for distributions to shareholder; and (2) its shareholders would be
  taxed as if they received ordinary dividends, although corporate shareholders
  could be eligible for the dividends received deduction.

  The portfolio's dividends that are paid to its corporate shareholders and are
  attributable to qualifying dividends it received from U.S. domestic
  corporations may be eligible, in the hands of such shareholders, for the
  corporate dividends received deduction, subject to certain holding period
  requirements and debt financing limitations.

Purchase, Redemption and Pricing of Shares

                                      36
<PAGE>


NET ASSET VALUE PER SHARE
- --------------------------------------------------------------------------------

Calculating NAV

  The purchase and redemption price of the shares of a portfolio is equal to the
  NAV of the portfolio.  The Fund calculates the NAV of a portfolio by
  subtracting its liabilities from its total assets and dividing the result by
  the total number of shares outstanding.  For purposes of this calculation:

  .  Liabilities include accrued expenses and dividends payable; and

  .  Total assets include the market value of the securities held by the
     portfolio, plus cash and other assets plus income accrued but not yet
     received.

  Each portfolio normally calculates its NAV as of the close of trading on the
  NYSE every day the NYSE is open for trading.  The NYSE usually closes at 4:00
  p.m.  The NYSE is closed on the following days: 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.

How the Fund Values it Assets

  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 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 governing board.


PURCHASE OF SHARES
- --------------------------------------------------------------------------------

  Service Agents may enter confirmed purchase orders on behalf of their
  customers. To do so, the Service Agent must receive your investment order
  before the close of trading on the NYSE and must transmit it to the fund
  before the close of its business day to receive that day's share price. The
  fund must receive proper payment for the order by the time the portfolio
  calculates its NAV 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.

                                      37
<PAGE>


  Shareholders can buy full and fractional (calculated to three decimal places)
  shares of a portfolio. The fund will not issue certificates for fractional
  shares and will only issue certificates for whole shares upon the written
  request of a shareholder.

  The Fund may 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


  At its discretion, the Fund may permit shareholders to purchase shares of the
  portfolio with securities, instead of cash.  If the Fund allows a shareholder
  to make an in-kind purchase, it will value such securities according to the
  policies described under "How the Fund Values it Assets" at the next
  determination of net asset value after acceptance. The Fund will issue shares
  of the portfolio at the NAV of the portfolio determined as of the same time.

  The Fund will only acquire securities through an in-kind purchase for
  investment and not for immediate resale. The Fund will only accept in-kind
  purchases if the transaction meets the following conditions:

  .  The securities are eligible investments for the portfolio;

  .  The securities have readily available market quotations;

  .  The investor represents and agrees that the securities are liquid and that
     there are no restrictions on their resale imposed by the 1933 Act or
     otherwise;

  .  All dividends, interest, subscription, or other rights pertaining to such
     securities become the property of the portfolio and are delivered to the
     fund by the investor upon receipt from the issuer; and

  .  Immediately after the transaction is complete, the value of all securities
     of the same issuer held by the portfolio cannot exceed 5% of the net assets
     of the portfolio. This condition does not apply to U.S. government
     securities.


  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 the shareholder wishes to redeem signed by all registered
     owners of the shares in the exact names in which they are registered;

  .  Any required signature guarantees (see "Signature Guarantees"); and

  .  Any other necessary legal documents for estates, trusts, guardianships,
     custodianships, corporations, pension and profit sharing plans and other
     organizations.

                                      38
<PAGE>

By Telephone


  Shareholders may not do the following by telephone:

  .  Change the name of the commercial bank or the account designated to receive
     redemption proceeds. To change an account in this manner, you must submit a
     written request signed by each shareholder, with each signature guaranteed.

  .  Redeem shares represented by a certificate.

  The Fund and UAMSSC will employ reasonable procedures to confirm that
  instructions communicated by telephone are genuine, and they may be liable for
  any losses if they fail to do so. These procedures include requiring the
  investor to provide certain personal identification at the time an account is
  opened and before 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 UAMSSC may be liable for any losses due to
  unauthorized or fraudulent telephone instructions if the Fund or the UAMSSC
  does not employ the procedures described above. Neither the Fund nor the
  UAMSSC 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.


  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 Board 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


  The Fund requires signature guarantees for certain types of documents,
  including:

  .  Written requests for redemption;

  .  Separate instruments for assignment ("stock power"), which should specify
     the total number of shares to be redeemed; and

  .  On all stock certificates tendered for redemption.

  The purpose of signature guarantees is to verify the identity of the person
  who has authorized a redemption from your account and to protect your account,
  the Fund and its sub-transfer agent from fraud.

                                      39
<PAGE>


  The Fund will accept signature guarantees from any eligible guarantor
  institution, as defined by the Securities Exchange Act of 1934 that
  participates in a signature guarantee program. Eligible guarantor institutions
  include banks, brokers, dealers, credit unions, national securities exchanges,
  registered securities associations, clearing agencies and savings
  associations.  You can get a complete definition of eligible guarantor
  institutions by calling 1-877-826-5465.  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.


Other Redemption Information


  Normally, the Fund will pay for all shares redeemed under proper procedures
  within seven days after it received your request.  However, the Fund will pay
  your redemption proceeds earlier as applicable law so requires.

  When the Fund may suspend redemption privileges or postpone the date of
  payment:

  .  when the NYSE and custodian bank are closed;

  .  when trading on the NYSE is restricted;

  .  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; or

  .  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 for exchanges.

  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.




Performance Calculations


  The portfolio measures its performance by calculating its yield and total
  return. Yield and total return figures are based on historical earnings and
  are not intended to indicate future performance. The portfolio calculates its
  current yield and average annual total return information according to the
  methods required by the SEC.  The performance is calculated

                                      40
<PAGE>


  separately for each Class of the portfolio. Dividends paid by the portfolio
  with respect to each Class 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
  Institutional 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. 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 fund calculates the average annual total return of the portfolio by
  finding the average annual compounded rates of return over one, five and ten-
  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.

  The fund calculates these figures 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).


  Set forth in the table below are the portfolio's average annual returns for
  the one-year period and the  five-year period ended October 31, 1999 and the
  shorter of the ten-year period ended October 30, 1999 or the period from the
  portfolio's inception date through October 31, 1999.

<TABLE>
<CAPTION>
                                                                            Shorter of 10 Years or
                                                  One Year   Five Years        Since Inception        Inception Date
  -----------------------------------------------------------------------------------------------------------------------
  <S>                                             <C>        <C>          <C>                         <C>
  Institutional Class                                -7.63%       12.36%                      12.70%        12/31/92
  -----------------------------------------------------------------------------------------------------------------------
  Institutional Service Class                        -7.85%        N/A                        -0.10%        08/01/97
</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 mutual funds. As
  this differs from other accounting methods, the quoted yield may not equal the
  income actually paid to shareholders.

                                      41
<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 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 this SAI. This information may also be included in sales
  literature and advertising.


  To help investors better evaluate how an investment in the portfolio 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 "Comparative Benchmarks" 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 indices and 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; and

  .  that shareholders cannot invest directly in such indices or averages.

  In addition, there can be no assurance that the portfolio will continue this
  performance as compared to such other averages.


Financial Statements


  The following documents are included in the portfolio's  October 31, 1999
  Annual Report:

  .  Financial statements for the fiscal year ended October 31, 1999.

  .  Financial highlights for the respective periods presented

                                      42
<PAGE>


  .  The report of PricewaterhouseCoopers LLP.

  Each of the above-referenced documents is incorporated by reference into this
  SAI.  However, no other parts of the portfolio's Annual Reports are
  incorporated by reference herein.  Shareholders may get copies of the
  portfolio's Annual Reports free of charge by calling the UAM Funds at the
  telephone number appearing on the front page of this SAI.

Glossary

  All terms that this SAI does not otherwise define, have the same meaning in
  the SAI as they do in the prospectus(es) of the portfolios.

  1933 Act means the Securities Act of 1933, as amended.

  1934 Act means the Securities Exchange Act of 1934, as amended.

  1940 Act means the Investment Company Act of 1940, as amended.

  Adviser means the investment adviser of the portfolio.

  Board Member refers to a single member of the Fund's Board.

  Board refers to the Fund's Board of Trustees as a group.

  SEI is SEI Investments Mutual Funds Services, the Fund's sub-administrator.

  Distribution Plan refers to the Distribution Plan the Fund has adopted for its
  Service Class Shares pursuant to Rule 12b-1 under the 1940 Act.

  Fund refers to UAM Funds, Inc.

  Governing Board, see Board.

  NAV is the net asset value per share of a portfolio.

  NYSE is the New York Stock Exchange.  Also known as "The Exchange" or "The Big
  Board," the NYSE is located on Wall Street and is the largest exchange in the
  United States.

  Plan member refers to 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.

  Plans refers to the Distribution and Shareholder Servicing Plans the Fund has
  adopted for its Service Class Shares pursuant to Rule 12b-1 under the 1940
  Act.

  SEC is the Securities and Exchange Commission.  The SEC is the federal agency
  that administers most of the federal securities laws in the United States.  In
  particular, the SEC administers the 1933 Act, the 1940 Act and the 1934 Act.

  Service Plan refers to the Shareholder Servicing Plan the Fund has adopted for
  its Service Class Shares pursuant to Rule 12b-1 under the 1940 Act.

  Service Class means the Institutional Service Class shares of a portfolio.

  UAM Funds Complex includes UAM Funds, Inc., UAM Funds Trust, UAM Funds Inc. II
  and all of their portfolios.

  UAM is United Asset Management Corporation.

  UAMFDI is UAM Fund Distributors, Inc., the Fund's distributor.

  UAMFSI is UAM Fund Services, Inc., the Fund's administrator.

  UAMSSC is UAM Fund Shareholder Servicing Center, the Fund's sub-shareholder-
  servicing agent.

                                      43
<PAGE>


BOND 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 stocks.

  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 that 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 period 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.

  plus (+) or  Moody's applies numerical modifiers 1, 2, and 3 in each rating
  minus (-)    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.

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.

                                      44
<PAGE>

  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-grade
               obligations. Factors giving security to principal and interest
               are considered adequate, but elements may be present which
               suggest a susceptibility to impairment sometime in the future.

  Baa          Bonds which are rated Baa are 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.


Con. (...)     (This rating applies only to U.S. Tax-Exempt Municipals) Bonds
               for which the security depends upon the completion of some act or
               the fulfillment of some condition are rated conditionally. These
               are bonds secured by (a) earnings of projects under construction,
               (b) earnings of projects unseasoned in operating experience, (c)
               rentals that begin when facilities are completed, or (d) payments
               to which some other limiting condition attaches. Parenthetical
               rating denotes probable credit stature upon completion of
               construction or elimination of basis of condition.

  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.

  Moody's employs the following three designations, all judged to be investment
  grade, to indicate the relative repayment ability of rated issuers:

                                      45
<PAGE>


Prime-1   ssuers 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:

             .  Leading market positions in well-established industries.

             .  Conservative capitalization structure with moderate reliance on
                debt and ample asset protection.

             .  Broad 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
- --------------------------------------------------------------------------------


Long-Term Issue Credit Ratings


  Issue credit ratings are based, in varying degrees, on the following
  considerations:

  1. 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;

  2. Nature of and provisions of the obligation;

  3. 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.



     The issue rating definitions are expressed in terms of default risk. As
     such, they pertain to senior obligations of an entity. Junior obligations
     are typically rated lower than senior obligations, to reflect the lower
     priority in bankruptcy, as noted above. Accordingly, in the case of junior
     debt, the rating may not conform exactly with the category definition.

                                      46
<PAGE>


AAA      An obligation rated 'AAA' has 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 obligor 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.

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        A subordinated debt or preferred stock obligation rated 'C' is
         CURRENTLY HIGHLY VULNERABLE to non-payment. The 'C' rating may be used
         to cover a situation where a bankruptcy petition has been filed or
         similar action taken, but payments on this obligation are being
         continued. A 'C' will also be assigned to a preferred stock issue in
         arrears on dividends or sinking fund payments, but that is currently
         paying.

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.

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.

                                      47
<PAGE>


    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 obligation as a matter of
          policy.

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.

Short-Term Issue Credit 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 obligations in higher rating categories. However, the
          obligor's capacity to meet its financial commitment on the obligation
          is satisfactory.

    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.


Local Currency and Foreign Currency Risks

Country risks considerations are a standard part of Standard & Poor's analysis
for credit ratings on any issuer or issue.  Currency of repayment is a key
factor in this analysis.  An obligor's capacity to repay foreign currency
obligations may be lower than its capacity to repay obligations in its local
currency due to the sovereign government's own relatively lower capacity to
repay external versus domestic debt.  These sovereign risk considerations are
incorporated in the debt ratings assigned to specific issues.  Foreign currency
issuer ratings are also distinguished from local currency issuer ratings to
identity those instances where sovereign risks make them different for the same
issuer.

                                      48
<PAGE>

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
  AA-       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/   Below investment grade but deemed likely to meet obligations when
  BB-       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 met 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.

  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.

                                      49
<PAGE>

  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 of 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           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.

  BBB         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.

                                      50
<PAGE>


  DDD,DD,D    Default. The ratings of obligations in this category are based on
              their prospects for achieving partial or full recovery in a
              reorganization or liquidation of the obligor. While expected
              recovery values are highly speculative and cannot be estimated
              with any precision, the following serve as general guidelines.
              "DDD" obligations have the highest potential for recovery, around
              90%-100% of outstanding amounts and accrued interest. "D"
              indicates potential recoveries in the range of 50%-90%, and "D"
              the lowest recovery potential, i.e., below 50%.

                    Entities rated in this category have defaulted on some or
              all of their obligations. Entities rated "DDD" have the highest
              prospect for resumption of performance or continued operation with
              or without a formal reorganization process. Entities rated "DD"
              and "D" are generally undergoing a formal reorganization or
              liquidation process; those rated "DD" are likely to satisfy a
              higher portion of their outstanding obligations, while entities
              rated "D" have a poor prospect for repaying all obligations.


International Short-Term Credit Ratings

  F1          Highest credit quality. Indicates the Best 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.

  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.



Comparative Benchmarks

  (alphabetically)

                                      51
<PAGE>

  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.

  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.

  Donoghue's Money Fund Average -- is an average of all major money market fund
  yields, published weekly for 7 and 30-day yields.

  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.


  Financial publications: Business Week, Changing Times, Financial World,
  Forbes, Fortune, Money, Barron's, Consumer's Digest, Financial Times, Global
  Investor, Investor's Daily, Lipper, Inc., Morningstar, Inc., The New York
  Times, Personal Investor, The Wall Street Journal and Weisenberger Investment
  Companies Service -- publications that rate fund performance over specified
  time periods.\

  Historical data supplied by the research departments of First Boston
  Corporation, J.P. Morgan & Co, Inc., Salomon Smith Barney, Merrill Lynch &
  Co., Inc., Lehman Brothers, Inc. and Bloomberg L.P.


  IBC's Money Fund Average/All Taxable Index - an average of all major money
  market fund yields, published weekly for 7- and 30-day yields.

  IFC Investable Composite Index - an unmanaged market capitalization-weighted
  index maintained by the International Finance Corporation.  This index
  consists of over 890 companies in 26 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.

  Lehman Brothers Indices:
  ------------------------

  Lehman Brothers Aggregate Bond Index - an unmanaged fixed income market value-
  weighted index that combines the Lehman Government/Corporate Index and the
  Lehman Mortgage-Backed Securities Index, and includes treasury issues, agency
  issues, corporate bond issues and mortgage backed securities.  It includes
  fixed rate issuers of investment grade (BBB) or higher, with maturities of at
  least one year and outstanding par values of at least $100 million for U.S.
  government issues and $25 million for others.

  Lehman Brothers Corporate Bond Index - an unmanaged index of all publicly
  issued, fixed-rate, nonconvertible investment grade domestic corporate debt.
  Also included are yankee bonds, which are dollar-denominated SEC registered
  public, noncovertible debt issued or guaranteed by foreign sovereign
  governments, municipalities, or governmental agencies, or international
  agencies.

  Lehman Brothers Government Bond Index -an unmanaged treasury bond index
  including all public obligations of the U.S. Treasury, excluding flower bonds
  and foreign-targeted issues, and the Agency Bond Index (all publicly issued
  debt of U.S. government agencies and quasi-federal corporations, and corporate
  debt guaranteed by the U.S. government).  In addition to the aggregate index,
  sub-indices cover intermediate and long term issues.

  Lehman Brothers Government/Corporate Bond Index -- an unmanaged fixed income
  market value-weighted index that combines the Government and Corporate Bond
  Indices, including U.S. government treasury securities, corporate and yankee
  bonds.   All issues are investment grade (BBB) or higher, with maturities of
  at least one year and outstanding par value of at least $100 million of  U.S.
  government issues and $25 million for others.  Any security downgraded during


                                      52
<PAGE>


  the month is held in the index until month end and then removed.  All returns
  are market value weighted inclusive of accrued income.

  Lehman Brothers High Yield Bond Index - an unmanaged index of fixed rate, non-
  investment grade debt.  All bonds included in the index are dollar
  denominated, noncovertible, have at least one year remaining to maturity and
  an outstanding par value of at least $100 million.

  Lehman Brothers Intermediate Government/Corporate Index - an unmanaged fixed
  income, market value-weighted index that combines the Lehman Brothers
  Government Bond Index (intermediate-term sub-index) and four corporate bond
  sectors.

  Lehman Brothers Mortgage-Backed Securities Index - an unmanaged index of all
  fixed-rate securities backed by mortgage pools of Government National Mortgage
  Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC),  and
  Federal National Mortgage Association (FNMA).

  Lipper, Inc./Lipper Indices/Lipper Averages
  -------------------------------------------

  The Lipper Indices are equally weighted indices for typically the 30 largest
  mutual funds within their respective portfolio investment objectives.  The
  indices are currently grouped in six categories:  U.S. Diversified Equity with
  12 indices; Equity with 27 indices, Taxable Fixed-Income with 20 indices, Tax-
  Exempt Fixed-Income with 28 indices, Closed-End Funds with 16 indices, and
  Variable Annuity Funds with 18 indices.

  In September, 1999, Lipper, Inc. introduced its new portfolio-based mutual
  fund classification method in which peer comparisons are based upon
  characteristics of the specific stocks in the underlying funds, rather than
  upon a broader investment objective stated in a prospectus.  Certain of
  Lipper, Inc.'s classifications for general equity funds' investment objectives
  were changed while other equity objectives remain unchanged.  Changing
  investment objectives include Capital Appreciation Funds, Growth Funds, Mid-
  Cap Funds, Small-Cap Funds, Micro-Cap Funds, Growth & Income Funds, and Equity
  Income Funds.  Unchanged investment objectives include Sector Equity Funds,
  World Equity  Funds, Mixed Equity Funds, and certain other funds including all
  Fixed Income Funds and S&P(R) Index Funds.

  Criteria for the Lipper Indices are:  1) component funds are largest in group;
  2) number of component funds remains the same (30); 3) component funds are
  defined annually; 4) can be linked historically; and 5) are used as a
  benchmark for fund performance.

  Criteria for the Lipper Averages are:  1) includes all funds in the group in
  existence for the period; 2) number of component funds always changes; 3)
  universes are dynamic due to revisions for new funds, mergers, liquidations,
  etc.; and 4) will be inaccurate if historical averages are linked.

  Certain Lipper, Inc. indices/averages used by the UAM Funds may include, but
  are not limited to, the following:

  Lipper Short-Intermediate Investment Grade Debt Funds Average -- is an average
  of 100 funds that invest at least 65% of assets in investment grade debt
  issues (BBB or higher) with dollar-weighted average maturities of one to five
  years or less.  (Taxable Fixed-Income category)

  Lipper Balanced Fund Index - an unmanaged index of open-end equity funds whose
  primary objective is to conserve principal by maintaining at all times a
  balanced portfolio of both stocks and bonds.  Typically, the stock/bond ratio
  ranges around 60%/40%.  (Equity category)

  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.  (Equity category)

  Lipper Equity Mid Cap Fund Index - an unmanaged index of funds that by
  prospectus or portfolio practice invest primarily in companies with market
  capitalizations less than $5 billion at the time of purchase.  (Equity
  category)

  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.  (Equity
  category)

                                      53
<PAGE>


  Lipper Growth Fund Index - an unmanaged index composed of the 30 largest funds
  by asset size which invest in companies with long-term earnings expected to
  grow significantly faster than the earnings of the stocks represented in the
  major unmanaged stock indices.  (Equity category)

  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.

  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 (BBB or higher).


  Merrill Lynch 1-3 Year Treasury Index - an unmanaged index composed of U.S.
  treasury securities with maturities from 1 to 3 years.

  Morgan Stanley Capital International EAFE Index -- 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.

  Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
  yield, risk and total return for equity funds.

  NASDAQ Composite Index -- is a market capitalization, price only, unmanaged
  index that tracks the performance of domestic common stocks traded on the
  regular NASDAQ market as well as national market System traded foreign common
  stocks and ADRs.


  Nekkei Stock Average - a price weighted index of 225 selected leading stocks
  listed on the First Section of the Tokyo Stock Exchange.

  New York Stock Exchange composite or component indices -- capitalization-
  weighted unmanaged indices of all industrial, utilities, transportation and
  finance stocks listed on the New York Stock Exchange.


  Russell U.S. Equity Indexes:
  ----------------------------

  Russell 3000(R) Index - measures the performance of the 3,000 largest U.S.
  companies based on total market capitalization, which represents approximately
  98% of the investable U.S. equity market.

  Russell 1000(R) Index - an unmanaged index which measures the performance of
  the 1,000 largest companies in the Russell 3000 Index, which represents
  approximately 92% of the total market capitalization of the Russell 3000
  Index.

  Russell 2000(R) Index -- an unmanaged index which measures the performance of
  the 2,000 smallest companies in the Russell 3000 Index, which represents
  approximately 8% of the total market capitalization of the Russell 3000 Index.

  Russell Top 200(TM) Index - measures the performance of the 200 largest
  companies in the Russell 1000 Index, which represents approximately 74% of the
  total market capitalization of the Russell 1000 Index.

  Russell Mid-Cap(TM) Index -- measures the performance of the 800 smallest
  companies in the Russell 1000 Index, which represents approximately 26% of the
  total market capitalization of the Russell 1000 Index.

  Russell 2500(TM) Index - an unmanaged index which measures the performance of
  the 2,5000 smallest companies in the Russell 3000 Index, which represents
  approximately 17% of the total market capitalization of the Russell 3000
  Index.

                                      54
<PAGE>


  Russell 3000(R) Growth Index - measures the performance of those Russell 3000
  Index companies with higher price-to-book ratios and higher forecasted growth
  values.  The stocks in this index are also members of either the Russell 1000
  Growth or the Russell 2000 Growth indexes.

  Russell 3000(R) Value Index - measures the performance of those Russell 3000
  Index companies with lower price-to-book ratios and lower forecasted growth
  values.  The stocks in this index are also members of either the Russell 1000
  Value or the Russell 2000 Value indexes.

  Russell 1000(R) Growth Index - measures the performance of those Russell 1000
  companies with higher price-to-book ratios and higher forecasted growth
  values.

  Russell 1000(R) Value Index - measures the performance of those Russell 1000
  with lower price-to-book ratios and lower forecasted growth values.

  Russell 2000(R) Growth Index - measures the performance of  those Russell 2000
  companies with higher price-to-book ratios and higher forecasted growth
  values.

  Russell 2000(R) Value Index - measures the performance of those Russell 2000
  companies with lower price-to-book ratios and lower forecasted growth values.

  Russell Top 200(TM) Growth Index - measures the performance of those Russell
  Top 200 companies with higher price-to-book ratios and higher forecasted
  growth values.  The stocks re also members of the Russell 1000 Growth index.

  Russell Top 200(TM) Value Index - measures the performance of those Russell
  Top 200 companies with lower price-to-book ratios and lower forecasted growth
  values.  The stocks are also members of the Russell 1000 Value index.

  Russell Midcap(TM) Growth Index - measures the performance of those Russell
  Midcap companies with higher price-to-book ratios and higher forecasted growth
  values.  The stocks are also members of the Russell 1000 Growth index.

  Russell Midcap(TM) Value Index - measures the performance of those Russell
  Midcap companies with lower price-to-book ratios and lower forecasted growth
  values.  The stocks are also members of the Russell 1000 Value index.

  Russell 2500(TM) Growth Index - measures the performance of those Russell 2500
  companies with higher price-to-book ratios and higher forecasted growth
  values.

  Russell 2500(TM) Value Index - measures the performance of those Russell 2500
  companies with lower price-to-book ratios and lower forecasted growth values.

  Ryan Labs 5 Year GIC Master Index  - an arithmetic mean of market rates of $1
  million GIC contracts held for five years.  The market rates are
  representative of a diversified, investment grade portfolio of contracts
  issued by credit worthy insurance companies.  The index is unmanaged and does
  not reflect any transaction costs.  Direct investment in the index is not
  possible.

  Standard & Poor's U.S. Indices:
  -------------------------------

  In October, 1999,  Standard & Poor's and Morgan Stanley Capital International
  launched a new global industry classification standard consisting of 10
  economic sectors aggregated from 23 industry groups, 59 industries, and 123
  sub-industries covering almost 6,000 companies globally.  The new
  classification standard will be used with all of their respective indices.
  Features of the new classification include 10 economic sectors, rather than
  the 11 S&P currently uses.  Sector and industry gradations are less severe.
  Rather than jumping from 11 sectors to 115 industries under the former S&P
  system, the new system progresses from 10 sectors through 23 industry groups,
  50 industries and 123 sub-industries.

  S&P 500 Index - an unmanaged index composed of 400 industrial stocks, 40
  financial stocks, 40 utilities stocks and 20 transportation stocks. Widely
  regarded as the standard for  measuring large-cap U.S. stock market
  performance. It is used by 97% of U.S. money managers and pension plan
  sponsors. More than $1 trillion is indexed to the S&P 500.

  S&P MidCap 400 Index -- consists of 400 domestic stocks chosen for market
  size, liquidity, and industry group representation.  It is a market-value
  weighted index with each stock affecting the index in proportion to its market
  value.

                                      55
<PAGE>


  It is used by over 95% of U.S. managers and pension plan sponsors. More than
  $25 billion is indexed to the S&P Midcap400.

  S&P Small Cap 600 Index - an unmanaged index comprised of 600 domestic stocks
  chosen for market size, liquidity, and industry group representation.  The
  index is comprised of stocks from the industrial, utility, financial, and
  transportation sectors.  It is gaining wide acceptance as the preferred
  benchmark for both active and passive management due to its low turnover and
  greater liquidity.  Approximately $8 billion is indexed to the S&P SmallCap
  600.

  S&P SuperComposite 1500 - combines the S&P 500, MidCap 400, and SmallCap 600
  indices, representing 87% of the total U.S. equity market capitalization.

  S&P 100 Index - known by its ticker symbol OEX, this index measures large
  company U.S. stock market performance.  This market capitalization-weighted
  index is made up of 100 major, blue chip stocks across diverse industry
  groups.

  S&P/BARRA Growth and Value Indices - are constructed by dividing the
  securities in the S&P 500 Index according to price-to-book ratio.  The Value
  index contains the companies with the lower price-to-book ratios; while the
  companies with the higher price-to-book ratios are contained in the Growth
  index.

  S&P REIT Composite Index - launched in 1997, this benchmark tracks the market
  performance of U.S. Real Estate Investment Trusts, known as REITS.  The REIT
  Composite consists of 100 REITs chosen for their liquidity and importance in
  representing a diversified real estate portfolio.  The Index covers over 80%
  of the securitized U.S. real estate market.

  S&P Utilities Stock Price Index - a market capitalization weighted index
  representing three utility groups and, with the three groups, 43 of the
  largest utility companies listed on the New York Stock Exchange, including 23
  electric power companies, 12 natural gas distributors and 8 telephone
  companies.

  Standard & Poor's CANADA Indices:
  ---------------------------------

  S&P/TSE Canadian MidCap Index - measures the performance of the mid-size
  company segment of the Canadian equity market.

  S&P/TSE Canadian SmallCap Index - Measures the small company segment of the
  Canadian equity market.

  Standard & Poor's Global Indices:
  ---------------------------------

  S&P Global 1200 Index - aims to provide investors with an investable
  portfolio.  This index, which covers 29 countries and consists of seven
  regional components, offers global investors an easily accessible, tradable
  set of stocks and particularly suits the new generation of index products,
  such as exchange-traded funds (ETFs).

  S&P Euro  and S&P Euro Plus Indices - the S&P Euro Index covers the Eurobloc
  countries; the Euro Plus Index includes the Euro markets as well as Denmark,
  Norway, Sweden and Switzerland.  The S&P Euro Plus Index contains 200
  constituents, and the S&P Euro Index, a subset of Euro Plus, contains 160
  constituents.  Both indices provide geographic and economic diversity over 11
  industry sectors.

  S&P/TSE 60 Index  - developed with the Toronto Stock Exchange, is designed as
  the new Canadian large cap benchmark and will ultimately replace the Toronto
  35 and the TSE 100.

  S&P/TOPIX 150 -  includes 150 highly liquid securities selected from each
  major sector of the Tokyo market. It  is designed specifically to give
  portfolio managers and derivative traders an index that is broad enough to
  provide representation of the market, but narrow enough to ensure liquidity.

  S&P Asia Pacific 100 Index - includes highly liquid securities from each major
  economic sector of major Asia-Pacific equity markets. Seven countries --
  Australia, Hong Kong, Korea, Malaysia, New Zealand, Singapore, and Taiwan --
  are represented in the new index.

  S&P Latin America 40 Index -part of the S&P Global 1200 Index, includes highly
  liquid securities from major economic sectors of Mexican and South American
  equity markets. Companies from Mexico, Brazil, Argentina, and Chile are
  represented in the new index.

                                      56
<PAGE>


  S&P United Kingdom 150 Index - includes 150 highly liquid securities selected
  from each of the new S&P sectors. The S&P UK 150 is designed to be broad
  enough to provide representation of the market, but narrow enough to ensure
  liquidity.

  Salomon Smith Barney Global excluding U.S. Equity Index - an unmanaged index
  comprised of the smallest stocks (less than $1 billion market capitalization)
  of the Extended Market Index, of both developed and emerging markets.

  Salomon Smith Barney One to Three Year Treasury Index - an unmanaged index
  comprised of U.S. treasury notes and bonds with maturities of one year or
  greater, but less than three years.

  Salomon Smith Barney Three-Month T-Bill Average -- the average for all
  treasury bills for the previous three-month period.

  Salomon Smith Barney Three-Month U.S. Treasury Bill Index - a return
  equivalent yield average based on the last three 3-month Treasury bill issues.

  Savings and Loan Historical Interest Rates -- as published by the U.S. Savings
  and Loan League Fact Book.

  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.


  Target Large Company Value Index - an index comprised of large companies with
  market capitalizations currently extending down to approximately $1.9 billion
  that are monitored using a variety of relative value criteria in order to
  capture the most attractive value opportunities available.  A high quality
  profile is required and companies undergoing adverse financial pressures are
  eliminated.

  U.S. Three-Month Treasury Bill Average - the average return for all treasury
  bills for the previous three month period.


  Value Line Composite Index -- composed of over 1,600 stocks in the Value Line
  Investment Survey.

  Wilshire Real Estate Securities Index - a market capitalization-weighted index
  of publicly traded real estate securities, including real estate investment
  trusts, real estate operating companies and partnerships.  The index is used
  by the institutional investment community as a broad measure of the
  performance of public real estate equity for asset allocation and performance
  comparison.

  Wilshire REIT Index - includes 112 real estate investment trusts (REITs) but
  excludes seven real estate operating companies that are included in the
  Wilshire Real Estate Securities Index.

  Note:  With respect to the comparative measures of performance for equity
  securities described herein, comparisons of performance assume reinvestment of
  dividends, except as otherwise stated.

                                      57
<PAGE>


                                   UAM Funds
                                 PO Box 419081
                          Kansas City, MO 64141-6081
                     (Toll free) 1-877-UAM-LINK (826-5465)


                            ICM Small Company Portfolio




                          Institutional Class Shares

                       Statement of Additional Information
                               February 28, 2000

  This statement of additional information (SAI) is not a prospectus. However,
  you should read it in conjunction with the prospectus of the portfolio dated
  February 28, 2000, as supplemented from time to time. You may obtain a
  prospectus for the portfolio by contacting the UAM Funds at the address listed
  above.
<PAGE>

<TABLE>
Table Of Contents
<S>                                                                  <C>
Description of Permitted Investments...............................   1
 What Investment Strategies May the Portfolio Use?.................   1
 Debt Securities...................................................   1
 Derivatives.......................................................   8
 Equity Securities.................................................  16
 Foreign Securities................................................  18
 Investment Companies..............................................  21
 Repurchase Agreements.............................................  22
 Restricted Securities.............................................  22
 Securities Lending................................................  22
 When Issued Transactions..........................................  23
Investment Policies of the Portfolio...............................  23
 Fundamental Policies..............................................  24
 Non-Fundamental Policies..........................................  25
Management Of The Fund.............................................  25
Principal Shareholders.............................................  26
Investment Advisory and Other Services.............................  27
 Investment Adviser................................................  27
 Distributor.......................................................  30
 Shareholder Servicing Arrangements................................  30
 Administrative Services...........................................  30
 Custodian.........................................................  32
 Independent Accountants...........................................  32
Brokerage Allocation and Other Practices...........................  32
 Selection of Brokers..............................................  32
 Simultaneous Transactions.........................................  32
 Brokerage Commissions.............................................  33
Capital Stock and Other Securities.................................  33
 Description Of Shares And Voting Rights...........................  33
Purchase, Redemption and Pricing of Shares.........................  35
 Net Asset Value Per Share.........................................  35
 Purchase of Shares................................................  36
 Redemption of Shares..............................................  36
 Exchange Privilege................................................  38
 Transfer Of Shares................................................  38
Performance Calculations...........................................  39
 Total Return......................................................  39
 Yield.............................................................  40
 Comparisons.......................................................  40
Financial Statements...............................................  41
Glossary...........................................................  41
Bond Ratings.......................................................  41
 Moody's Investors Service, Inc....................................  42
 Standard & Poor's Ratings Services................................  44
 Duff & Phelps Credit Rating Co....................................  47
 Fitch IBCA Ratings................................................  48
Comparative Benchmarks.............................................  49
</TABLE>
<PAGE>


Description of Permitted Investments

WHAT INVESTMENT STRATEGIES MAY THE PORTFOLIO USE?
- -------------------------------------------------------------------------------

  The portfolio currently intends to use the securities and investment
  strategies listed below in seeking its objectives; however, it may at any time
  invest in any of the investment strategies described in this SAI. This SAI
  describes each of these investments/strategies and their risks. The portfolio
  may not notify shareholders before employing new strategies, unless it expects
  such strategies to become principal strategies. The investments that are
  italicized are principal strategies and you can find more information on these
  techniques in the prospectus of the portfolio. You can find more information
  concerning the limits on the ability of the portfolio to use these investments
  in "What Are the Investment Strategies of the Portfolio?"

  .  Equity securities.

  .  Short-term investments.

  .  Investment companies.

  .  Repurchase agreements.

  .  Restricted securities.

  .  Securities lending.

  .  When issued securities.

DEBT SECURITIES
- -------------------------------------------------------------------------------

  Corporations and governments use debt securities 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.

Types of Debt Securities

  U.S. Government Securities

  U.S. government securities are securities that the U.S. Treasury has issued
  (treasury securities) and securities that a federal agency or a government-
  sponsored entity has issued (agency securities). Treasury securities include
  treasury notes, which have initial maturities of one to ten years and treasury
  bonds, which have initial maturities of at least ten years and certain types
  of mortgage-backed securities that are described under "Mortgage-Backed
  Securities" and "Other Asset-Backed Securities." This SAI discusses mortgage-
  backed treasury and agency securities in detail in the section called
  "Mortgage-Backed Securities" and "Other Asset-Backed Securities."

  The full faith and credit of the U.S. government supports treasury securities.
  Unlike treasury securities, the full faith and credit of the U.S. government
  generally do not back agency securities. Agency securities are typically
  supported in one of three ways:

  .  by the right of the issuer to borrow from the U.S. Treasury;

  .  by the discretionary authority of the U.S. government to buy the
     obligations of the agency; or

  .  by the credit of the sponsoring agency.

  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,

                                       1
<PAGE>


  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

  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.

  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. Unlike most debt securities, which pay
  interest periodically and repay principal at maturity or on specified call
  dates, mortgage-backed securities make monthly payments that consist of both
  interest and principal payments. In effect, these payments are a "pass-
  through" of the monthly payments made by the individual borrowers on their
  mortgage loans, net of any fees paid to the issuer or guarantor of such
  securities.  Since homeowners usually have the option of paying either part or
  all of the loan balance before maturity, the effective maturity of a mortgage-
  backed security is often shorter than is stated.

  Governmental entities, private insurers and the mortgage poolers may insure or
  guarantee 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. 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 is the principal governmental guarantor of mortgage-related securities.
  GNMA is a wholly owned corporation of the U.S. government and it falls within
  the Department of Housing and Urban Development. Securities issued by GNMA are
  treasury securities, which means the full faith and credit of the U.S.
  government backs them. GNMA 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, the 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 is regulated by the Secretary of Housing and Urban
  development. FNMA purchases conventional mortgages from a list of approved
  sellers and service providers, including state and federally-chartered savings
  and loan associations, mutual savings banks, commercial banks and credit
  unions and mortgage bankers. Securities issued by FNMA are agency securities,
  which means FNMA, but not the U.S. government, guarantees their timely payment
  of principal and interest.

                                       2
<PAGE>

  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. 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.


  Risks of Mortgage-Backed Securities

  Yield characteristics of mortgage-backed securities differ from those of
  traditional debt securities in a variety of ways, the most significant
  differences are mortgage-backed securities:

  .  payments of interest and principal are more frequent (usually monthly); and

  .  falling interest rates generally cause individual borrowers to pay off
     their mortgage earlier than expected forcing the portfolio to reinvest the
     money at a lower interest rate.

  In addition to risks associated with changes in interest rates described in
  "Factors Affecting the Value of Debt Securities," a variety of economic,
  geographic, social and other factors, such as the sale of the underlying
  property, refinancing or foreclosure, can cause investors to repay the loans
  underlying a mortgage-backed security sooner than expected. If the prepayment
  rates increase, the portfolio may have to reinvest its principal at a rate of
  interest that is lower than the rate on existing mortgage-backed securities.

  Other Asset-Backed Securities

  These securities are interests in pools of a broad range of assets other than
  mortgages, such as automobile loans, computer leases and credit card
  receivables.  Like mortgage-backed securities, these securities are pass-
  through. 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 related asset-backed securities.  Due
  to the quantity of vehicles involved and requirements under state laws, asset-
  backed securities backed by automobile receivables may not have a proper
  security interest in all of the obligations backing such receivables.

                                       3
<PAGE>

  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 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.


  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 prepay principal
  monthly. While whole mortgage loans may collateralize CMOs, 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.

  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 securities listed below, U.S. government securities and
  investment-grade corporate debt securities. Unless otherwise specified, a
  short-term debt security has a maturity of one year or less.

  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.

                                       4
<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 a short-term obligation with a maturity ranging from 1 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 "Bond Ratings" for a description
  of commercial paper ratings.

  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 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. The 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 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

                                       5
<PAGE>


  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 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," the portfolio can record its beneficial ownership of the coupon
  or corpus directly in the book-entry record-keeping system.


Terms to Understand

  Maturity

  Every debt security has a stated maturity date when the issuer must repay the
  amount it borrowed (principal) from investors. Some debt securities, however,
  are callable, meaning the issuer can repay the principal earlier, on or after
  specified dates (call dates). Debt securities are most likely to be called
  when interest rates are falling because the issuer can refinance at a lower
  rate, similar to a homeowner refinancing a mortgage. The effective maturity of
  a debt security is usually its nearest call date.

  The portfolio that invests in debt securities has no real maturity.  Instead,
  it calculates its weighted average maturity.  This number is an average of the
  stated maturity of each debt security held by the portfolio, with the maturity
  of each security weighted by the percentage of the assets of the portfolio it
  represents.

  Duration

  Duration is a calculation that seeks to measure the price sensitivity of a
  debt security, or the portfolio that invests in debt securities, to changes in
  interest rates. It measures sensitivity more accurately than maturity because
  it takes into account the time value of cash flows generated over the life of
  a debt security. Future interest payments and principal payments are
  discounted to reflect their present value and then are multiplied by the
  number of years they will be received to produce a value expressed in years --
  the duration. Effective duration takes into account call features and sinking
  fund prepayments that may shorten the life of a debt security.

  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.

Factors Affecting the Value of Debt 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.

                                       6
<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).

  Prepayment Risk

  This risk effects mainly mortgage-backed securities. Unlike other debt
  securities, falling interest rates can hurt mortgage-backed securities, which
  may cause your share price to fall. Lower rates motivate people to pay off
  mortgage-backed and asset-backed securities earlier than expected. The
  portfolio may then have to reinvest the proceeds from such prepayments at
  lower interest rates, which can reduce its yield. 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. If
  left unattended, drifts in the average maturity of the portfolio can have the
  unintended effect of increasing or reducing the effective duration of the
  portfolio, which may adversely affect the expected performance of the
  portfolio.

  Extension Risk

  The other side of prepayment risk occurs when interest rates are rising.
  Rising interest rates can cause the portfolio's average maturity to lengthen
  unexpectedly due to a drop in mortgage prepayments.  This would increase the
  sensitivity of the portfolio to rising rates and its potential for price
  declines.  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.

  Credit Rating

  Coupon interest is offered to investors of debt securities as compensation for
  assuming risk, although short-term Treasury securities, such as 3-month
  treasury bills, are considered "risk free." Corporate securities offer higher
  yields than Treasury securities 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 Treasuries securities.

  Changes in investor confidence regarding the certainty of interest and
  principal payments of a corporate debt 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.

  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 the 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.

                                       7
<PAGE>


  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 use ratings compiled by Moody's Investor
  Services ("Moody's"), Standard and Poor's Ratings Services ("S&P"), Duff &
  Phelps Rating Co. and Fitch IBCA. Credit ratings are only an agency's opinion,
  not an absolute standard of quality, and they do not reflect an evaluation of
  market risk. The section "Bond Ratings" 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 the 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. The portfolio is not obligated to dispose of
  securities whose issuers subsequently are in default or which are downgraded
  below the above-stated ratings.

DERIVATIVES
- --------------------------------------------------------------------------------

  Derivatives are financial instruments whose value is based on an underlying
  asset, such as a stock or a bond, an underlying economic factor, such as an
  interest rate or a market benchmark, such as an index. Investors can use
  derivatives to gain exposure to various markets in a cost efficient manner, to
  reduce transaction costs or to remain fully invested.  They may also invest in
  derivatives to protect it 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.

Types of Derivatives

  Futures


  A futures contract is an agreement between two parties whereby one party sells
  and the other party agrees to buy a specified amount of a financial instrument
  at an agreed upon price and time. The financial instrument underlying the
  contract may be a stock, stock index, bond, bond index, interest rate, foreign
  exchange rate or other similar instrument. Agreeing to buy the underlying
  financial information is called buying a futures contract or taking a long
  position in the contract. Likewise, agreeing to sell the underlying financial
  instrument is called selling a futures contract or taking a short position in
  the contract.

  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.

  Unlike other securities, the parties to a futures contract do not have to pay
  for or deliver the underlying financial instrument until some future date (the
  delivery date). 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.  This process is known
  as "marking to the market."

  Although the actual terms of a futures contract calls for the actual delivery
  of and payment for the underlying security, in many cases the parties may
  close the contract early by taking an opposite position in an identical
  contract. If the sale

                                      8
<PAGE>


  price upon closing out the contract is less than the original purchase price,
  the person closing out the contract will realize a loss. If the sale price
  upon closing out the contract is more that the original purchase price, the
  person closing out the contract will realize a gain. The opposite is also
  true. If the purchase price upon closing out the contract is more than the
  original sale price, the person closing out the contract will realize a loss.
  If the purchase price upon closing out the contract is less than the original
  sale price, the person closing out the contract will realize a gain.

  The portfolio will incur commission expenses in either opening, closing or
  possibly opening and closing futures positions.

  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
  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.

                                       9
<PAGE>

  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
     and segregating cash or liquid securities in an amount equal to the
     difference between the exercise prices;

  .  Cash or liquid securities equal to at least the market value of the
     optioned securities, interest rate, foreign currency or futures contract;
     or

  .  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;

  .  Purchasing a put option on the same security, index, interest rate, foreign
     currency or futures contract with a lesser exercise price and segregating
     cash or liquid securities in an amount equal to the difference between the
     exercise prices; or

  .  Maintaining the entire exercise price in liquid securities.

                                      10
<PAGE>

  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 the 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.

  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

                                      11
<PAGE>


  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 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 the
  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. The 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.

  The portfolio may 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. The 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 the 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.

  The 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 the 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, the 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, the
  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.

                                      12
<PAGE>


  Swaps, Caps, Collars and Floors

  Swap Agreements

  A swap is a financial instrument that typically involves the exchange of cash
  flows between two parties on specified dates (settlement dates), where the
  cash flows are based on agreed-upon prices, rates, indices, etc. The nominal
  amount on which the cash flows are calculated is called the notional amount.
  Swaps are individually negotiated and structured to include exposure to a
  variety of different types of investments or market factors, such as interest
  rates, foreign currency rates, mortgage securities, corporate borrowing rates,
  security prices or inflation rates.

  Swap agreements may increase or decrease the overall volatility of the
  investments of the portfolio and its share price. The performance of swap
  agreements may be affected by a change in the specific interest rate,
  currency, or other factors that determine the amounts of payments due to and
  from the portfolio. If a swap agreement calls for payments by the portfolio,
  the portfolio must be prepared to make such payments when due. In addition, if
  the counter-party's creditworthiness declined, the value of a swap agreement
  would be likely to decline, potentially resulting in losses.

  Generally, swap agreements have a fixed maturity date that will be agreed upon
  by the parties.  The agreement can be terminated before the maturity date only
  under limited circumstances, such as default by one of the parties or
  insolvency, among others, and can be transferred by a party only with the
  prior written consent of the other party.  The portfolio may be able to
  eliminate its exposure under a swap agreement either by assignment or by other
  disposition, or by entering into an offsetting swap agreement with the same
  party or a similarly creditworthy party. If the counter-party is unable to
  meet its obligations under the contract, declares bankruptcy, defaults or
  becomes insolvent, the portfolio may not be able to recover the money it
  expected to receive under the contract.

  A swap agreement can be a form of leverage, which can magnify a portfolio's
  gains or losses.  In order to reduce the risk associated with leveraging, a
  portfolio will cover its current obligations under swap agreements according
  to guidelines established by the SEC. If the portfolio enters into a swap
  agreement on a net basis, it will segregate assets with a daily value at least
  equal to the excess, if any, of the portfolio's accrued obligations under the
  swap agreement over the accrued amount the portfolio is entitled to receive
  under the agreement. If the portfolio enters into a swap agreement on other
  than a net basis, it will segregate assets with a value equal to the full
  amount of the portfolio's accrued obligations under the agreement.

  Equity Swaps -- In a typical equity index swap, one party agrees to pay
  another party the return on a stock, stock index or basket of stocks in return
  for a specified interest rate.  By entering into an equity index swap, for
  example, the index receiver can gain exposure to stocks making up the index of
  securities without actually purchasing those stocks.   Equity index swaps
  involve not only the risk associated with investment in the securities
  represented in the index, but also the risk that the performance of such
  securities, including dividends, will not exceed the return on the interest
  rate that the portfolio will be committed to pay.

  Interest Rate Swaps -- Interest rate swaps are financial instruments that
  involve the exchange on one type of interest rate for another type of interest
  rate cash flow on specified dates in the future.  Some of the different types
  of interest rate swaps are "fixed-for floating rate swaps," "termed basis
  swaps" and "index amortizing swaps."  Fixed-for floating rate swap involve the
  exchange of fixed interest rate cash flows for floating rate cash flows.
  Termed basis swaps entail cash flows to both parties based on floating
  interest rates, where the interest rate indices are different.  Index
  amortizing swaps are typically fixed-for floating swaps where the notional
  amount changes if certain conditions are met.

  Like a traditional investment in a debt security, a portfolio could lose money
  by investing in an interest rate swap if interest rates change adversely.  For
  example, if the portfolio enters into a swap where it agrees to exchange a
  floating rate of interest for a fixed rate of interest, the portfolio may have
  to pay more money than it receives.  Similarly, if the portfolio enters into a
  swap where it agrees to exchange a fixed rate of interest for a floating rate
  of interest, the portfolio may receive less money than it has agreed to pay.

  Currency Swaps -- A currency swap is an agreement between two parties in which
  one party agrees to make interest rate payments in one currency and the other
  promises to make interest rate payments in another currency. A portfolio may
  enter into a currency swap when it has one currency and desires a different
  currency. Typically the interest rates

                                      13
<PAGE>


  that determine the currency swap payments are fixed, although occasionally one
  or both parties may pay a floating rate of interest. Unlike an interest rate
  swap, however, the principal amounts are exchanged at the beginning of the
  contract and returned at the end of the contract. Changes in foreign exchange
  rates and changes in interest rates, as described above may negatively affect
  currency swaps.

  Caps, Collars and Floors

  Caps and floors have an effect similar to buying or writing options. In a
  typical cap or floor agreement, one party agrees to make payments only under
  specified circumstances, usually in return for payment of a fee by the other
  party. For example, the buyer of an interest rate cap obtains the right to
  receive payments to the extent that a specified interest rate exceeds an
  agreed-upon level. The seller of an interest rate floor is obligated to make
  payments to the extent that a specified interest rate falls below an agreed-
  upon level. An interest rate collar combines elements of buying a cap and
  selling a floor.

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.

  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
  expected.

  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; and

  .  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

                                      14
<PAGE>

  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.
  Moreover, a portfolio may close out a futures contract only on the exchange
  the contract was initially traded.  Although a portfolio intends to purchase
  options and futures only where there appears to be an active market, there is
  no guarantee that such a liquid market will exist.  If there is no secondary
  market for the contract, or the market is illiquid, the portfolio may not be
  able to close out its position.  In an illiquid market, the portfolio may:

  .  have to sell securities to meet its daily margin requirements at a time
     when it is disadvantageous to do so;

  .  have to purchase or sell the instrument underlying the contract;

  .  not be able to hedge its investments; and

  .  not be able realize profits or limit 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:

  .  an exchange may suspend or limit trading in a particular derivative
     instrument, an entire category of derivatives or all derivatives, which
     sometimes occurs because of increased market volatility;

  .  unusual or unforeseen circumstances may interrupt normal operations of an
     exchange;

  .  the facilities of the exchange may not be adequate to handle current
     trading volume;

  .  equipment failures, government intervention, insolvency of a brokerage firm
     or clearing house or other occurrences may disrupt normal trading activity;
     or

  .  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.

                                      15
<PAGE>


  Volatility and Leverage

  The prices of derivatives are volatile (i.e., they may change rapidly,
  substantially and unpredictably) and are influenced by a variety of factors,
  including:

  .  actual and anticipated changes in interest rates;

  .  fiscal and monetary policies; and

  .  national and international political events.

  Most exchanges limit the amount by which the price of a derivative can change
  during a single trading day. Daily trading limits establish the maximum amount
  that the price of a derivative may vary from the settlement price of that
  derivative at the end of trading on the previous day. Once the price of a
  derivative reaches this value, a portfolio may not trade that derivative at a
  price beyond that limit. The daily limit governs only price movements during a
  given day and does not limit potential gains or losses. Derivative prices have
  occasionally moved to the daily limit for several consecutive trading days,
  preventing prompt liquidation of the derivative.

  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-dealer with whom it has an open futures contract or related option
  becomes insolvent or declares bankruptcy.

EQUITY SECURITIES
- --------------------------------------------------------------------------------

Types of Equity Securities

  Common Stocks

  Common stocks represent units of ownership in a company. Common stocks usually
  carry voting rights and earn dividends. Unlike preferred stocks, which are
  described below, dividends on common stocks are not fixed but are declared at
  the discretion of the company's board of directors.

  Preferred Stocks

  Preferred stocks are also units of ownership in a company. Preferred stocks
  normally have preference over common stock in the payment of dividends and the
  liquidation of the company. However, in all other respects, preferred stocks
  are subordinated to the liabilities of the issuer. Unlike common stocks,
  preferred stocks are generally not entitled to vote on corporate matters.
  Types of preferred stocks include adjustable-rate preferred stock, fixed
  dividend preferred stock, perpetual preferred stock, and sinking fund
  preferred stock. Generally, the market values of preferred stock with a fixed
  dividend rate and no conversion element varies inversely with interest rates
  and perceived credit risk.

  Convertible Securities

  Convertible securities are debt securities and preferred stocks that are
  convertible into common stock at a specified price or conversion ratio.  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. Their market price tends to go up if the stock price moves
  up.

                                    16
<PAGE>


  Convertible securities are subject to the same risks as similar securities
  without the convertible feature. The price of a convertible security is more
  volatile during times of steady interest rates than other types of debt
  securities.

  Rights and Warrants

  A right is a privilege granted to existing shareholders of a corporation to
  subscribe to shares of a new issue of common stock before it is issued. Rights
  normally have a short life, usually two to four weeks, are freely transferable
  and entitle the holder to buy the new common stock at a lower price than the
  public offering price. Warrants are securities that are usually issued
  together with a debt security or preferred stock and that give the holder the
  right to buy proportionate amount of common stock at a specified price.
  Warrants are freely transferable and are traded on major exchanges. Unlike
  rights, warrants normally have a life that is measured in years and entitles
  the holder to buy common stock of a company at a price that is usually higher
  than the market price at the time the warrant is issued. Corporations often
  issue warrants to make the accompanying debt security more attractive.

  An investment in warrants and rights may entail greater risks than certain
  other types of investments.  Generally, rights and warrants do not carry 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. In addition, their value does not necessarily change with the
  value of the underlying securities, and they cease to have value if they are
  not exercised on or before their expiration date.  Investing in rights and
  warrants increases the potential profit or loss to be realized from the
  investment as compared with investing the same amount in the underlying
  securities.

Risks of Investing in Equity Securities

  General Risks of Investing in Stocks

  While investing in stocks allows investors to participate in the benefits of
  owning a company, such investors 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.

  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; and

  .  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.

  Because preferred stock is generally 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.

  Small and Medium-Sized Companies

  Investors in small and medium-sized companies typically take on greater risk
  and price volatility than they would by investing in larger, more established
  companies. This increased risk may be due to the greater business risks of
  their small or medium size, limited markets and financial resources, narrow
  product lines and frequent lack of management depth. The securities of small
  and medium companies are often traded in the over-the-counter market and might
  not be traded in volumes typical of securities traded on a national securities
  exchange. Thus, the securities of small and

                                      17
<PAGE>


  medium capitalization companies are likely to be less liquid, and subject to
  more abrupt or erratic market movements, than securities of larger, more
  established companies.

  Technology Companies

  Stocks of technology companies have tended to be subject to greater volatility
  than securities of companies that are not dependent upon or associated with
  technological issues. Technology companies operate in various industries.
  Since these industries frequently share common characteristics, an event or
  issue affecting one industry may significantly influence other, related
  industries. For example, technology companies may be strongly affected by
  worldwide scientific or technological developments and their products and
  services may be subject to governmental regulation or adversely affected by
  governmental policies.

FOREIGN SECURITIES
- ------------------------------------------------------------------------------

Types of Foreign Securities

  Foreign securities are debt and equity securities that are traded in markets
  outside of the United States.  The markets in which these securities are
  located can be developed or emerging.  People can invest in foreign securities
  in a number of ways:

  .  They can invest directly in foreign securities denominated in a foreign
     currency;

  .  They can invest in American Depositary Receipts, European Depositary
     Receipts and other similar global instruments; and

  .  They can invest in 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. EDRs are similar to ADRs, except that they are
  typically issued by European Banks or trust companies.

  Emerging Markets

  An "emerging country" is generally a country that 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 currently 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.

  Investment Funds

  Some emerging countries currently prohibit direct foreign investment in the
  securities of their companies.  Certain emerging countries, however, permit
  indirect foreign investment in the securities of companies listed and traded
  on their stock exchanges through investment funds that they have specifically
  authorized.  Investments in these investment funds

                                      18
<PAGE>



  are subject to the provisions of the 1940 Act. Shareholders of a UAM Fund that
  invests in such investment funds will bear not only their proportionate share
  of the expenses of the UAM Fund (including operating expenses and the fees of
  the adviser), but also will bear indirectly bear similar expenses of the
  underlying investment funds. In addition, these investment funds may trade at
  a premium over their net asset value.

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.



  Political and Economic Factors

  Local political, economic, regulatory, or social instability, military action
  or unrest, or adverse diplomatic developments may affect the value of foreign
  investments.  Listed below are some of the more important political and
  economic factors that could negatively affect an investment in foreign
  securities:

  .  The economies of foreign countries may differ from the economy of the
     United States in such areas as growth of gross national product, rate of
     inflation, capital reinvestment, resource self-sufficiency, budget deficits
     and national debt;

  .  Foreign governments sometimes participate to a significant degree, through
     ownership interests or regulation, in their respective economies. Actions
     by these governments could significantly influence the market prices of
     securities and payment of dividends;

  .  The economies of many foreign countries are dependent on international
     trade and their trading partners and they could be severely affected if
     their trading partners were to enact protective trade barriers and economic
     conditions;

  .  The internal policies of a particular foreign country may be less stable
     than in the United States. Other countries face significant external
     political risks, such as possible claims of sovereignty by other countries
     or tense and sometimes hostile border clashes; and

  .  A foreign government may act adversely to the interests of U.S. investors,
     including expropriation or nationalization of assets, confiscatory taxation
     and other restrictions on U.S. investment. A country may restrict or
     control foreign investments in its securities markets. These restrictions
     could limit the portfolio's ability to invest in a particular country or
     make it very expensive for the portfolio to invest in that country. Some
     countries require prior governmental approval, limit the types or amount of
     securities or companies in which a foreigner can invest. Other countries
     may restrict the ability of foreign investors to repatriate their
     investment income and capital gains.

  Information and Supervision

  There is generally less publicly available information about foreign companies
  than companies based in the United States. For example, there are often no
  reports and ratings published about foreign companies comparable to the ones
  written about United States companies. Foreign companies are typically not
  subject to uniform accounting, auditing and financial reporting standards,
  practices and requirements comparable to those applicable to United States
  companies. The lack of comparable information makes investment decisions
  concerning foreign countries more difficult and less reliable than domestic
  companies.

  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

                                      19
<PAGE>


  sophistication, are generally not as developed as the markets in the United
  States. Foreign stocks markets tend to differ from those in the United States
  in a number of ways:

  .  They are generally not as developed or efficient as, and more volatile,
     than those in the United States;

  .  They have substantially less volume;

  .  Their securities tend to be less liquid and to experience rapid and erratic
     price movements;

  .  Commissions on foreign stocks are generally higher and subject to set
     minimum rates, as opposed to negotiated rates;

  .  Foreign security trading, settlement and custodial practices are often less
     developed than those in U.S. markets; and

  .  They may have different settlement practices, which may cause delays and
     increase the potential for failed settlements.

  Foreign Currency Risk

  While the UAM Funds denominate their net asset value in United States dollars,
  the securities of foreign companies are frequently denominated in foreign
  currencies. Thus, a change in the value of a foreign currency against the
  United States dollar will result in a corresponding change in value of
  securities denominated in that currency.   Some of the factors that may impair
  the investments denominated in a foreign currency are:

  .  It may be expensive to convert foreign currencies into United States
     dollars and vice versa;

  .  Complex political and economic factors may significantly affect the values
     of various currencies, including United States dollars, and their 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 may be no systematic reporting of last sale information for foreign
     currencies or 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; and

  .  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.



  Taxes

  Certain foreign governments levy withholding taxes on dividend and interest
  income. Although in some countries it is possible for the portfolio to recover
  a portion of these taxes, the portion that cannot be recovered 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.

                                      20
<PAGE>


  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 relatively unstable governments;

  .  Present greater risks of nationalization of businesses, restrictions on
     foreign ownership and prohibitions on the repatriation of assets;

  .  Offer less protection of property rights than more developed countries; and

  .  Have economies that are 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.

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 began 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 became denominations of the
  Euro at fixed rates according to practices prescribed by the European Monetary
  Institute and the Euro became available as a book-entry currency.  On or about
  that date, member states began conducting financial market transactions in
  Euros and redenominating many investments, currency balances and transfer
  mechanisms into Euros.  The portfolio also anticipates pricing, trading,
  settling and valuing investments whose nominal values remain in their existing
  domestic currencies in Euros.  Accordingly, the portfolio expects the
  conversion to the Euro to impact investments in countries that 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?

INVESTMENT COMPANIES
- --------------------------------------------------------------------------------

  The portfolio may buy and sell shares of other investment companies. Such
  investment companies may pay management and other fees that are similar to the
  fees currently paid by the portfolio. Like other shareholders, the portfolio
  would pay its proportionate share of those fees. Consequently, shareholders of
  the portfolio would pay not only the management fees of the portfolio, but
  also the management fees of the investment company in which the

                                      21
<PAGE>


  portfolio invests. The portfolio may invest up to 10% of its total assets in
  the securities of other investment companies, but may not invest more than 5%
  of its total assets in the securities of any one investment company or acquire
  more than 3% of the outstanding securities of any one investment company.

  The SEC has granted an order that allows the portfolio to invest the greater
  of 5% of its total assets or $2.5 million in the UAM DSI Money Market
  Portfolio, provided that the investment is:

  .  For cash management purposes;

  .  Consistent with the portfolio's investment policies and restrictions; and

  .  The adviser to the investing portfolio waives any fees it earns on the
     assets of the portfolio that are invested in the UAM DSI Money Market
     Portfolio.

  The 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, an investor agrees to buy a security (underlying
  security) from a securities dealer or bank that is a member of the Federal
  Reserve System (counter-party). At the time, the counter-party agrees to
  repurchase the underlying security for the same price, plus interest.
  Repurchase agreements are generally for a relatively short period (usually not
  more than 7 days). The portfolio normally uses repurchase agreements to earn
  income on assets that are not invested.

  When the portfolio enters into a repurchase agreement it will:

  .  Pay for the underlying securities only upon physically receiving them or
     upon evidence of their receipt in book-entry form; and

  .  Require the counter party to add to the collateral whenever the price of
     the repurchase agreement rises above the value of the underlying security
     (i.e., it will require the borrower to "mark 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.

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 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 the
  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.

SECURITIES LENDING
- ------------------------------------------------------------------------------

  The portfolio may lend a portion of its total assets to broker- dealers or
  other financial institutions. It may then reinvest the collateral it receives
  in short-term securities and money market funds. When the portfolio lends its
  securities, it will follow the following guidelines:

  .  The borrower must provide collateral at least equal to the market value of
     the securities loaned;

  .  The collateral 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;

                                      22
<PAGE>


  .  The borrower must add to the collateral whenever the price of the
     securities loaned rises (i.e., the borrower "marks to the market" on a
     daily basis);

  .  It must be able to terminate the loan at any time;

  .  It must receive reasonable interest on the loan (which may include the
     portfolio investing any cash collateral in interest bearing short-term
     investments); and

  .  It must determine that the borrower is an acceptable credit risk.

  These risks are similar to the ones involved with repurchase agreements. When
  the portfolio lends securities, there is a risk that the borrower will become
  financially unable to honor its contractual obligations.  If this happens, the
  portfolio could:

  .  Lose its rights in the collateral and not be able to retrieve the
     securities it lent to the borrower; and

  .  Experience delays in recovering its securities.

WHEN ISSUED 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 deliver 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.

  The portfolio will segregate cash and liquid securities equal in value to
  commitments for the when-issued, delayed-delivery or forward delivery
  transaction.  The portfolio will segregate additional liquid assets daily so
  that the value of such assets is equal to the amount of its commitments.

Investment Policies of the Portfolio

  The portfolio will determine investment limitation percentages (with the
  exception of a limitation relating to borrowing) immediately after and as a
  result of its acquisition of such security or other asset. Accordingly, the
  portfolio will not consider changes in values, net assets or other
  circumstances when determining whether the investment complies with its
  investment limitations.

                                      23
<PAGE>

FUNDAMENTAL POLICIES
- --------------------------------------------------------------------------------

  The following investment limitations are fundamental, which means the
  portfolio cannot change them without approval by the vote of a majority of the
  outstanding voting securities of the portfolio, as defined by the 1940 Act.
  The portfolio will not:

  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 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, 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
     1940 Act 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.

                                      24
<PAGE>

NON-FUNDAMENTAL POLICIES
- --------------------------------------------------------------------------------

  The following limitations are non-fundamental, which means the portfolio may
  change them without shareholder approval.  The portfolio will not:

  The portfolio will not:

  .  invest more than 20% of the portfolio's assets in American Depositary
     Receipts.

Management Of The Fund

  The governing board manages the business of the Fund. The governing board
  elects officers to manage the day-to-day operations of the Fund and to execute
  policies the board has formulated. 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 and a $2,000 meeting fee. In
  addition, the Fund reimburses each independent board member 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 board members that are affiliated with the fund for their
  services as board members. UAM, its affiliates or SEI 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. The UAM Funds Complex is currently comprised of 51
  portfolios. Those people with an asterisk (*) beside their name are
  "interested persons" of the Fund as that term is defined in the 1940 Act. Mr.
  English does have an investment advisory relationship with Investment
  Counselors of Maryland, an investment adviser to one of the portfolios in the
  UAM Funds Complex. However, the Fund does not believe that the relationship is
  a material business relationship, and, therefore, does not consider him to be
  an "interested person" of the Fund. If these circumstances change, the Board
  will determine whether any action is required to change the composition of the
  Board.

<TABLE>
<CAPTION>
                                                                                                                     Aggregate
                                                                                                    Aggregate       Compensation
                                                                                                   Compensation    From the Fund
                           Position                                                                From the Fund   Complex as of
  Name, Address,             with           Principal Occupations During the                       as of October    October 31,
  DOB                        Fund           Past 5 years                                             31, 1999          1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S>                        <C>              <C>                                                    <C>             <C>
  John T. Bennett, Jr.       Board          President of Squam Investment Management Company,         $7,137          $10,625
  College Road -- RFD 3      Member         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              Board          Financial Officer of World Wildlife Fund since            $7,137          $10,625
  1250 24/th/ St., NW        Member         January 1999; Vice President for Finance and
  Washington, DC 20037                      Administration and Treasurer of Radcliffe College
  8/14/51                                   from 1991 to 1999.
- ---------------------------------------------------------------------------------------------------------------------------------
  William A. Humenuk         Board          Executive Vice President and Chief Administrative         $7,137          $10,625
  100 King Street West       Member         Officer of Philip Services Corp.; Formerly, a Partner
  P.O. Box 2440, LCD-1                      in the Philadelphia office of the law firm Dechert
  Hamilton Ontario,                         Price & Rhoads and a Director of Hofler Corp.
  Canada L8N-4J6
  4/21/42
- ---------------------------------------------------------------------------------------------------------------------------------
  Philip D. English          Board          President and Chief Executive Officer of Broventure       $7,137          $10,625
  16 West Madison Street     Member         Company, Inc.; Chairman of the Board of Chektec
  Baltimore, MD 21201                       Corporation and Cyber Scientific, Inc.
  8/5/48
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      25
<PAGE>

<TABLE>
<CAPTION>
                                                                                                                     Aggregate
                                                                                                    Aggregate       Compensation
                                                                                                   Compensation    From the Fund
                           Position                                                                From the Fund   Complex as of
  Name, Address,             with           Principal Occupations During the                       as of October    October 31,
  DOB                        Fund           Past 5 years                                             31, 1999          1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S>                        <C>              <C>                                                    <C>             <C>
  James P. Pappas*           Board          President of UAM Investment Services, Inc. since               0                0
  211 Congress Street        Member         March 1999; Vice President UAM Trust Company since
  Boston, MA 02110                          January 1996; Principal of UAM Fund Distributors,
  2/24/53                                   Inc. since December 1995; Vice President of UAM
                                            Investment Services, Inc. from January 1996 to March
                                            1999 and a Director and Chief Operating Officer of CS
                                            First Boston Investment Management from 1993-1995.
- ---------------------------------------------------------------------------------------------------------------------------------
  Norton H. Reamer*          Board          Chairman, Chief Executive Officer and a Director of            0                0
  One International Place    Member;        United Asset Management Corporation; Director,
  Boston, MA 02110           President      Partner or Trustee of each of the Investment
  3/21/35                    and Chairman   Companies of the Eaton Vance Group of Mutual Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
  Peter M. Whitman, Jr.*     Board          President and Chief Investment Officer of Dewey                0                0
  One Financial Center       Member         Square Investors Corporation since 1988; Director and
  Boston, MA 02111                          Chief Executive Officer of H.T. Investors, Inc.,
  7/1/43                                    formerly a 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; Treasurer of the               0                0
  211 Congress Street                       Fidelity Group of Mutual Funds from 1991 to 1995;
  Boston, MA 02110                          held various other offices with Fidelity Investments
  7/4/51                                    from November 1990 to March 1995.
- ---------------------------------------------------------------------------------------------------------------------------------
  Robert R. Flaherty         Assistant      Vice President of UAMFSI; Manager of Fund                      0                0
  211 Congress Street        Treasurer      Administration and Compliance of Chase Global Fund
  Boston, MA 02110                          Services Company from 1995 to 1996; Senior Manager of
  9/18/63                                   Deloitte & Touche LLP from 1985 to 1995,
- ---------------------------------------------------------------------------------------------------------------------------------
  Robert J. DellaCroce       Assistant      Director, Mutual Fund Operations - SEI Investments;            0                0
  SEI Investments            Treasurer      Senior Manager at Arthur Andersen prior to 1994.
  One Freedom Valley Rd.
  Oaks, PA 19456
  12/17/63
</TABLE>

Principal Shareholders


  As of February 1, 2000, the following persons or organizations held of record
  or beneficially 5% or more of the shares of a portfolio:

<TABLE>
<CAPTION>
  Name and Address of Shareholder                       Percentage of Shares Owned             Class
- --------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                                <C>
  Washington Suburban Sanitary Commission
  14501 Sweitzer Lane
  Laurel, MD 20707-5902                                            9.72%                   Institutional
- --------------------------------------------------------------------------------------------------------------
  Major League Baseball Players Benefit Plan
  c/o Investment Counselors of MD
  Attn: Anne D. Benson
  803 Cathedral Street
  Baltimore, MD 32302-5237                                         8.59%                   Institutional
- --------------------------------------------------------------------------------------------------------------
Strafe & CO
FAO Riverside Methodist Hospital Foundation
PO Box 160
Westerville, OH 43086-0160                                         5.68%                   Institutional
</TABLE>

                                      26
<PAGE>

<TABLE>
<CAPTION>
  Name and Address of Shareholder                       Percentage of Shares Owned             Class
- --------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                                <C>
U.S. Trust Company of North Carolina
Attn: Trust Accounting
PO Box 26262
Greensboro, NC 27420                                               5.18%                   Institutional
</TABLE>

  Any shareholder 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. Shareholders controlling the portfolio 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.  As of February 1,
  2000, the directors and officers of the Fund owned less than 1% of the
  outstanding shares of the portfolio.

Investment Advisory and Other Services

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. 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.

  The adviser is a subsidiary of UAM.  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 more than 50 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.

Portfolio Management

  A team of investment professionals is primarily responsible for the day-to-day
  management of the portfolios.  Listed below are the investment professionals
  that comprise that team and a brief description of their business experience.

<TABLE>
<CAPTION>
  Name and Title                   Experience
- ---------------------------------------------------------------------------------------------------------------------------
<S>                                <C>
  William V. Heaphy                Mr. Heaphy joined the adviser in 1994 as a security analyst in the equity research
  Vice President                   department.  Prior to joining the adviser, 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.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      27
<PAGE>

<TABLE>
<CAPTION>
  Name and Title                   Experience
- ---------------------------------------------------------------------------------------------------------------------------
<S>                                <C>
  Robert D. McDorman, Jr.          Mr. McDorman joined in June 1985. His primary responsibilities are the management of
  Principal and Chief Investment   ICM Small Company Portfolio and related separate accounts and equity security analysis.
  Officer                          Before joining the adviser, Mr. McDorman managed the Financial Industrial Income Fund.
                                   Mr. McDorman earned his B.A. degree at Trinity College and his law degree at the
                                   University of Baltimore.  He is a Chartered Financial Analyst.  Mr. McDorman has
                                   managed the portfolio since its inception.

  Simeon F. Wooten, III            Mr. Wooten joined the adviser in 1998 as a research analyst and as a member of the
  Senior Vice President            management team of the ICM Small Company Portfolio.  Prior to joining the adviser, 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.
</TABLE>

  Listed below are additional members of the adviser's team of professionals and
  a brief description of their business experience.

<TABLE>
<CAPTION>
  Name and Title                   Experience
- ---------------------------------------------------------------------------------------------------------------------------
<S>                                <C>
  Paul L. Borssuck                 Mr. Borssuck joined the adviser in 1985 and heads the firm's Individual Capital
  Principal                        Management Division.  Prior to joining the adviser, 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.
- ---------------------------------------------------------------------------------------------------------------------------
  Robert F. Boyd                   Mr. Boyd joined the advisor in 1995 as Director of Research - Large and Mid Cap
  Principal                        Equities.  Prior to joining the advisor.  Mr. Boyd was a Managing Director and
                                   Portfolio Manager at Brandywine Asset Management.  Prior to that, he was Senior Vice
                                   President and Director of Research at Mercantile-0Sage Deposit & Trust Company.  Robby
                                   earned his B.S. degree at the University of Virginia and his M.B.A. at Columbia
                                   University, after which he joined Smith Barney.  He is a Chartered Financial Analyst.
- ---------------------------------------------------------------------------------------------------------------------------
  Stuart M. Christhilf, III        Mr. Christhilf joined ICM in 1998.  In addition to managing the firm's operations, he
  Principal and                    directs the marketing effort for Individual Capital Management.  Prior to joining ICM,
  Chief Executive Officer          Stuart was President of a re-insurance agency and earlier served as head of Kidder
                                   Peabody's Mid-Atlantic Institutional Sales effort.  He holds his BA from the University
                                   of Virginia and an MBA in Finance from Loyola College.  He presently sits on the Boards
                                   of Loyola High School and the Friends of Modern Art of the Baltimore Museum of Art.
- ---------------------------------------------------------------------------------------------------------------------------
  Andrew L. Gilchrist              Mr. Gilchrist joined the adviser in 1996 as Director of Investment Technology.  Prior
  Principal and Treasurer          to the adviser, 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.

  Julie L. Hale                    Ms. Hale joined the adviser in 1998 with seventeen years of investment experience.
  Senior Vice President            Prior to joining the adviser, she was a Senior Vice President and mutual fund manager
                                   for NationsBank 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).

  Stephen T. Scott                 Mr. Scott specializes in the management of pension assets, private foundations and
  Principal and President          endowments.  He joined the adviser 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.
</TABLE>

                                      28
<PAGE>

Investment Advisory Agreement


  This section summarizes some of the important provisions of the Investment
  Advisory Agreement.  The Fund has filed the Investment Advisory Agreement with
  the SEC as part of its registration statement on Form N-1A.

  Service Performed by Adviser


  The adviser:

  .  Manages the investment and reinvestment of the portfolio's assets;

  .  Continuously reviews, supervises and administers the investment program of
     the portfolio; and

  .  Determines what portion of the portfolio's assets will be invested in
     securities and what portion will consist of cash.

  Limitation of Liability

  In the absence of (1) willful misfeasance, bad faith, or gross negligence on
  the part of the adviser in the performance of its obligations and duties under
  the Investment Advisory Agreement, (2) reckless disregard by the adviser of
  its obligations and duties under the Investment 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 Investment Advisory Agreement.

  Continuing an Investment Advisory Agreement


  The Investment Advisory Agreement continues in effect for periods of one year
  so long as such continuance is specifically approved at least annually by a:

  .  Majority of those Board Members who are not parties to the Investment
     Advisory Agreement or interested persons of any such party;  and

  .  (2) (a) majority of the Members or (b) a majority of the shareholders of
     the portfolio.


  Terminating an Investment Advisory Agreement

  The Fund may terminate an Investment Advisory Agreement at any time, without
  the payment of any penalty if:

  .  A majority of the portfolio's shareholders vote to do so or a majority of
     Board Members vote to do so; and

  .  It gives the adviser 60 days' written notice.

  The adviser may terminate the Investment Advisory Agreement at any time,
  without the payment of any penalty, upon 90 days' written notice to the Fund.

  An Investment Advisory Agreement will automatically and immediately terminate
  if it is assigned.

                                      29
<PAGE>

Advisory Fees


  For its services, the portfolio pays its adviser a fee equal to  of the
  average daily net assets of the portfolio. Due to the effect of fee waivers by
  the adviser, the actual percentage of average net assets that the portfolio
  pays in any given year may be different from the rate set forth in its
  contract with the adviser.  For the last three fiscal years, the portfolio
  paid the following in management fees to the adviser:

                                           Investment Advisory Fees Paid
- --------------------------------------------------------------------------------
ICM Small Company Portfolio
         1999                                        $4,391,761
- --------------------------------------------------------------------------------
         1998                                        $4,163,155
- --------------------------------------------------------------------------------
         1997                                        $2,852,097


DISTRIBUTOR
- --------------------------------------------------------------------------------
  UAMFDI is 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.

SHAREHOLDER SERVICING ARRANGEMENTS
- --------------------------------------------------------------------------------

  UAM and each 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 or the 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.

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 Board Members 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.

                                      30
<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.

   The Fund Administration Agreement continues in effect from year to year if
   the Board specifically approves such continuance every year. 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 automatically terminates upon its assignment by UAMFSI without the
   prior written consent of the Fund.

   UAMFSI will from time to time employ other people to assist it in performing
   its duties under the Fund Administration Agreement. Such people may be
   officers and employees who are employed by both UAMFSI and the Fund. UAMFSI
   will pay such people for such employment. The Fund will not incur any
   obligations with respect to such people.

Administration and Transfer Agency Services Fees

   The portfolio pays a four-part fee to UAMFSI as follows:

   1.  In exchange for administrative services, the portfolio pays a fee to
       UAMFSI calculated at the annual rate of:

       .   $19,500 for the first operational class; plus

       .   $3,750 for each additional class; plus

       .   A fee calculated from the aggregate net assets of each portfolio at
           the following rates:

                                                                  Annual Rate
       -------------------------------------------------------------------------
       ICM Small Company Portfolio                                  0.063%

   2.  The portfolio also pays a fee to UAMFSI for sub-administration and other
       services provided by SEI. The fee, which UAMFSI pays to SEI, is
       calculated at the annual rate of:

      .   Not more than $35,000 for the first operational class; plus

      .   $5,000 for each additional operational class; plus

      .   0.03% of their pro rata share of the combined assets of the UAM Funds
          Complex.

   3. 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.

                                      31
<PAGE>


   4.  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.

   For the last three fiscal years the portfolio paid the following in
   administration and sub-administration fees:


<TABLE>
<CAPTION>
                                        Administrators Fee    Sub-Administrators Fee    Total Administration Fee
   -------------------------------------------------------------------------------------------------------------
   <S>                                  <C>                   <C>                       <C>
   ICM Small Company Portfolio
     1999                                    $251,348                 $314,423                $  565,771
   -------------------------------------------------------------------------------------------------------------
     1998                                    $801,694                 $544,957                $1,346,651
   -------------------------------------------------------------------------------------------------------------
     1997                                    $555,980                 $393,014                $  948,994
</TABLE>

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 ACCOUNTANTS
- --------------------------------------------------------------------------------

   PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110,
   serves as independent accountant for the Fund.

Brokerage Allocation and Other Practices

SELECTION OF BROKERS
- --------------------------------------------------------------------------------

   The Investment Advisory Agreement authorizes the adviser to select the
   brokers or dealers that will execute the purchases and sales of investment
   securities for the portfolio. The Investment Agreement also directs the
   adviser to use its best efforts to obtain the best execution with respect to
   all transactions for the 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
   Investment 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.

   It is not the practice of the Fund to allocate brokerage or effect principal
   transactions with dealers based on sales of shares that a broker-dealer firm
   makes.  However, the Fund may place trades with qualified broker-dealers who
   recommend the Fund or who act as agents in the purchase of Fund shares for
   their clients.

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.

                                      32
<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, the portfolio 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 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.

Commissions Paid

   For the last three fiscal years, the portfolio paid the following in
   brokerage commissions:


<TABLE>
<CAPTION>
                                                        Brokerage Commissions
   ----------------------------------------------------------------------------
   <S>                                                  <C>
   ICM Small Company Portfolio
     1999                                                      $1,046,123
   ----------------------------------------------------------------------------
     1998                                                      $  547,879
   ----------------------------------------------------------------------------
     1997                                                      $  264,115
</TABLE>

Capital Stock and Other Securities

The Fund

   The Fund was organized under the name "The ICM Fund, Inc." as a Maryland
   corporation on October 11, 1988. On January 18, 1989, the Fund changed its
   name 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 211
   Congress Street, Boston, MA 02110; however, shareholders should direct all
   correspondence to the address listed on the cover of this SAI. The Fund is an
   open-end management company.

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.

                                      33
<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 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 1940 Act
  or other applicable law.


Dividend and Distribution Options

  There are three ways for shareholders to receive dividends and capital gains:

  .  Income dividends and capital gains distributions are reinvested in
     additional shares at net asset value;

  .  Income dividends are paid in cash and capital gains distributions are
     reinvested in additional shares at NAV; and

  .  Income dividends and capital gains distributions are paid in cash.

  Unless the shareholder elects otherwise in writing, the fund will
  automatically reinvest all dividends in additional shares of the portfolio at
  NAV (as of the business day following the record date).  Shareholders may
  change their dividend and distributions option by writing to the fund at least
  three days before the record date for income dividend or capital gain
  distribution.

  The fund sends account statements to shareholders whenever it pays an income
  dividend or capital gains distribution.


FEDERAL TAXES

  The portfolio intends to qualify as a regulated investment company under
  Subchapter M of the Internal Revenue Code, and to distribute out its income to
  shareholders each year so that the portfolio itself generally will be relieved
  of federal income and excise taxes.  If the portfolio were to fail to so
  qualify: (1) it would be taxed at regular corporate rates without any
  deduction for distributions to shareholder; and (2) its shareholders would be
  taxed as if they received ordinary dividends, although corporate shareholders
  could be eligible for the dividends received deduction.

                                      34
<PAGE>


  The portfolio's dividends that are paid to its corporate shareholders and are
  attributable to qualifying dividends it received from U.S. domestic
  corporations may be eligible, in the hands of such shareholders, for the
  corporate dividends received deduction, subject to certain holding period
  requirements and debt financing limitations.


Purchase, Redemption and Pricing of Shares

NET ASSET VALUE PER SHARE
- --------------------------------------------------------------------------------

Calculating NAV

  The purchase and redemption price of the shares of a portfolio is equal to the
  NAV of the portfolio.  The Fund calculates the NAV of a portfolio by
  subtracting its liabilities from its total assets and dividing the result by
  the total number of shares outstanding.  For purposes of this calculation:

  .  Liabilities include accrued expenses and dividends payable; and

  .  Total assets include the market value of the securities held by the
     portfolio, plus cash and other assets plus income accrued but not yet
     received.

  Each portfolio normally calculates its NAV as of the close of trading on the
  NYSE every day the NYSE is open for trading.  The NYSE usually closes at 4:00
  p.m.  The NYSE is closed on the following days: 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.

How the Fund Values it Assets

  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 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 governing board.

                                      35
<PAGE>

PURCHASE OF SHARES
- --------------------------------------------------------------------------------

  Service Agents may enter confirmed purchase orders on behalf of their
  customers. To do so, the Service Agent must receive your investment order
  before the close of trading on the NYSE and must transmit it to the fund
  before the close of its business day to receive that day's share price. The
  fund must receive proper payment for the order by the time the portfolio
  calculates its NAV 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.

  Shareholders can buy full and fractional (calculated to three decimal places)
  shares of a portfolio. The fund will not issue certificates for fractional
  shares and will only issue certificates for whole shares upon the written
  request of a shareholder.

  The Fund may 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

  At its discretion, the Fund may permit shareholders to purchase shares of the
  portfolio with securities, instead of cash.  If the Fund allows a shareholder
  to make an in-kind purchase, it will value such securities according to the
  policies described under "How the Fund Values it Assets" at the next
  determination of net asset value after acceptance. The Fund will issue shares
  of the portfolio at the NAV of the portfolio determined as of the same time.

  The Fund will only acquire securities through an in-kind purchase for
  investment and not for immediate resale. The Fund will only accept in-kind
  purchases if the transaction meets the following conditions:

  .  The securities are eligible investments for the portfolio;

  .  The securities have readily available market quotations;

  .  The investor represents and agrees that the securities are liquid and that
     there are no restrictions on their resale imposed by the 1933 Act or
     otherwise;

  .  All dividends, interest, subscription, or other rights pertaining to such
     securities become the property of the portfolio and are delivered to the
     fund by the investor upon receipt from the issuer; and

  .  Immediately after the transaction is complete, the value of all securities
     of the same issuer held by the portfolio cannot exceed 5% of the net assets
     of the portfolio. This condition does not apply to U.S. government
     securities.

  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:

                                      36
<PAGE>

  .  Share certificates, if issued;

  .  A letter of instruction or an assignment specifying the number of shares or
     dollar amount the shareholder wishes to redeem signed by all registered
     owners of the shares in the exact names in which they are registered;

  .  Any required signature guarantees (see "Signature Guarantees"); and

  .  Any other necessary legal documents for estates, trusts, guardianships,
     custodianships, corporations, pension and profit sharing plans and other
     organizations.

By Telephone

  Shareholders may not do the following by telephone:

  .  Change the name of the commercial bank or the account designated to receive
     redemption proceeds. To change an account in this manner, you must submit a
     written request signed by each shareholder, with each signature guaranteed.

  .  Redeem shares represented by a certificate.

  The Fund and UAMSSC will employ reasonable procedures to confirm that
  instructions communicated by telephone are genuine, and they may be liable for
  any losses if they fail to do so. These procedures include requiring the
  investor to provide certain personal identification at the time an account is
  opened and before 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 UAMSSC may be liable for any losses due to
  unauthorized or fraudulent telephone instructions if the Fund or the UAMSSC
  does not employ the procedures described above. Neither the Fund nor the
  UAMSSC 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.

  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 Board 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

  The Fund requires signature guarantees for certain types of documents,
  including:

                                      37
<PAGE>


  .  Written requests for redemption;

  .  Separate instruments for assignment ("stock power"), which should specify
     the total number of shares to be redeemed; and

  .  On all stock certificates tendered for redemption.

  The purpose of signature guarantees is to verify the identity of the person
  who has authorized a redemption from your account and to protect your account,
  the Fund and its sub-transfer agent from fraud.

  The Fund will accept signature guarantees from any eligible guarantor
  institution, as defined by the Securities Exchange Act of 1934 that
  participates in a signature guarantee program. Eligible guarantor institutions
  include banks, brokers, dealers, credit unions, national securities exchanges,
  registered securities associations, clearing agencies and savings
  associations.  You can get a complete definition of eligible guarantor
  institutions by calling 1-877-826-5465.  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.

Other Redemption Information

  Normally, the Fund will pay for all shares redeemed under proper procedures
  within seven days after it received your request.  However, the Fund will pay
  your redemption proceeds earlier as applicable law so requires.

  When the Fund may suspend redemption privileges or postpone the date of
  payment:

  .  when the NYSE and custodian bank are closed;

  .  when trading on the NYSE is restricted;

  .  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; or

  .  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 for exchanges.

  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.

                                      38
<PAGE>




Performance Calculations

  The portfolio measures its performance by calculating its yield and total
  return. Yield and total return figures are based on historical earnings and
  are not intended to indicate future performance. The portfolio calculates its
  current yield and average annual total return information according to the
  methods required by the SEC.

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. 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 fund calculates the average annual total return of the portfolio by
  finding the average annual compounded rates of return over one, five and ten-
  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.

  The fund calculates these figures 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).

  Set forth in the table below are the portfolio's average annual returns for
  the one-year period and the  five-year period ended October 31, 1999 and the
  shorter of the ten-year period ended October 30, 1999 or the period from the
  portfolio's inception date through October 31, 1999.

<TABLE>
<CAPTION>
                                                                     Shorter of
                                                                 10 Years or Since
                                        One Year    Five Years      Inception         Inception Date
- ------------------------------------------------------------------------------------------------------
<S>                                     <C>        <C>           <C>                       <C>
ICM Small Company Portfolio              -0.13%      13.09%           14.66%              04/19/89
</TABLE>

                                      39
<PAGE>

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 mutual 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 this SAI. This information may also be included in sales
  literature and advertising.


  To help investors better evaluate how an investment in the portfolio 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 "Comparative Benchmarks" 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 indices and 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; and

  .  that shareholders cannot invest directly in such indices or averages.

  In addition, there can be no assurance that the portfolio will continue this
  performance as compared to such other averages.

                                      40
<PAGE>

Financial Statements

  The following documents are included in the portfolio's  October 31, 1999
  Annual Report:

   .  Financial statements for the fiscal year ended October 31, 1999.

   .  Financial highlights for the respective periods presented

   .  The report of PricewaterhouseCoopers LLP.

  Each of the above-referenced documents is incorporated by reference into this
  SAI.  However, no other parts of the portfolio's Annual Reports are
  incorporated by reference herein.  Shareholders may get copies of the
  portfolio's Annual Reports free of charge by calling the UAM Funds at the
  telephone number appearing on the front page of this SAI.

Glossary

  All terms that this SAI does not otherwise define, have the same meaning in
  the SAI as they do in the prospectus(es) of the portfolios.

  1933 Act means the Securities Act of 1933, as amended.

  1934 Act means the Securities Exchange Act of 1934, as amended.

  1940 Act means the Investment Company Act of 1940, as amended.

  Adviser means the investment adviser of the portfolio.

  Board Member refers to a single member of the Fund's Board.

  Board refers to the Fund's Board of Trustees as a group.

  SEI is SEI Investments Mutual Funds Services, the Fund's sub-administrator.

  Fund refers to UAM Funds, Inc.

  Governing Board, see Board.

  NAV is the net asset value per share of a portfolio.

  NYSE is the New York Stock Exchange.  Also known as "The Exchange" or "The Big
  Board," the NYSE is located on Wall Street and is the largest exchange in the
  United States.

  SEC is the Securities and Exchange Commission.  The SEC is the federal agency
  that administers most of the federal securities laws in the United States.  In
  particular, the SEC administers the 1933 Act, the 1940 Act and the 1934 Act.

  UAM Funds Complex includes UAM Funds, Inc., UAM Funds Trust, UAM Funds Inc. II
  and all of their portfolios.

  UAM is United Asset Management Corporation.

  UAMFDI is UAM Fund Distributors, Inc., the Fund's distributor.

  UAMFSI is UAM Fund Services, Inc., the Fund's administrator.

  UAMSSC is UAM Fund Shareholder Servicing Center, the Fund's
  sub-shareholder-serving agents.

Bond Ratings

                                      41
<PAGE>

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 stocks.

  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 that 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 period 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.

  plus (+) or   Moody's applies numerical modifiers 1, 2, and 3 in each rating
  minus (-)     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.

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.

                                      42
<PAGE>

   A            Bonds which are rated A possess many favorable investment
                attributes and are to be considered as upper-medium-grade
                obligations. Factors giving security to principal and interest
                are considered adequate, but elements may be present which
                suggest a susceptibility to impairment sometime in the future.

  Baa           Bonds which are rated Baa are 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.

  Con. (...)    (This rating applies only to U.S. Tax-Exempt Municipals) Bonds
                for which the security depends upon the completion of some act
                or the fulfillment of some condition are rated conditionally.
                These are bonds secured by (a) earnings of projects under
                construction, (b) earnings of projects unseasoned in operating
                experience, (c) rentals that begin when facilities are
                completed, or (d) payments to which some other limiting
                condition attaches. Parenthetical rating denotes probable credit
                stature upon completion of construction or elimination of basis
                of condition.

  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.

  Moody's employs the following three designations, all judged to be investment
  grade, to indicate the relative repayment ability of rated issuers:

                                      43
<PAGE>


   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:

                .  Leading market positions in well-established industries.

                .  Conservative capitalization structure with moderate reliance
                   on debt and ample asset protection.

                .  Broad 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


Long-Term Issue Credit Ratings

  Issue credit ratings are based, in varying degrees, on the following
  considerations:

  1. 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;

  2.  Nature of and provisions of the obligation;

  3. 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.

     The issue rating definitions are expressed in terms of default risk. As
     such, they pertain to senior obligations of an entity. Junior obligations
     are typically rated lower than senior obligations, to reflect the lower
     priority in bankruptcy, as noted above. Accordingly, in the case of junior
     debt, the rating may not conform exactly with the category definition.

                                      44
<PAGE>


  AAA          An obligation rated 'AAA' has 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 obligor 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.

  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            A subordinated debt or preferred stock obligation rated 'C' is
               CURRENTLY HIGHLY VULNERABLE to non-payment. The 'C' rating may be
               used to cover a situation where a bankruptcy petition has been
               filed or similar action taken, but payments on this obligation
               are being continued. A 'C' will also be assigned to a preferred
               stock issue in arrears on dividends or sinking fund payments, but
               that is currently paying.

  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.

  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.

                                      45
<PAGE>


  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 obligation as a
               matter of policy.

  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.

Short-Term Issue Credit 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 obligations in higher rating categories. However,
               the obligor's capacity to meet its financial commitment on the
               obligation is satisfactory.

  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.

Local Currency and Foreign Currency Risks

  Country risks considerations are a standard part of Standard & Poor's analysis
  for credit ratings on any issuer or issue.  Currency of repayment is a key
  factor in this analysis.  An obligor's capacity to repay foreign currency
  obligations may be lower than its capacity to repay obligations in its local
  currency due to the sovereign government's own relatively lower capacity to
  repay external versus domestic debt.  These sovereign risk considerations are
  incorporated in the debt ratings assigned to specific issues.  Foreign
  currency issuer ratings are also distinguished from local currency issuer
  ratings to identity those instances where sovereign risks make them different
  for the same issuer.

                                      46
<PAGE>

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
  AA-          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/      Below investment grade but deemed likely to meet obligations when
  BB-          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 met 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.

  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.

                                      47
<PAGE>

  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 of 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            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.

  BBB          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.

                                      48
<PAGE>


  DDD,DD,D     Default. The ratings of obligations in this category are based on
               their prospects for achieving partial or full recovery in a
               reorganization or liquidation of the obligor. While expected
               recovery values are highly speculative and cannot be estimated
               with any precision, the following serve as general guidelines.
               "DDD" obligations have the highest potential for recovery, around
               90%-100% of outstanding amounts and accrued interest. "D"
               indicates potential recoveries in the range of 50%-90%, and "D"
               the lowest recovery potential, i.e., below 50%.

                    Entities rated in this category have defaulted on some or
               all of their obligations. Entities rated "DDD" have the highest
               prospect for resumption of performance or continued operation
               with or without a formal reorganization process. Entities rated
               "DD" and "D" are generally undergoing a formal reorganization or
               liquidation process; those rated "DD" are likely to satisfy a
               higher portion of their outstanding obligations, while entities
               rated "D" have a poor prospect for repaying all obligations.


International Short-Term Credit Ratings

  F1           Highest credit quality. Indicates the Best 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.

  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.


Comparative Benchmarks

  (Alphabetically)

                                      49
<PAGE>

  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.

  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.

  Donoghue's Money Fund Average -- is an average of all major money market fund
  yields, published weekly for 7 and 30-day yields.

  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.


  Financial publications: Business Week, Changing Times, Financial World,
  Forbes, Fortune, Money, Barron's, Consumer's Digest, Financial Times, Global
  Investor, Investor's Daily, Lipper, Inc., Morningstar, Inc., The New York
  Times, Personal Investor, The Wall Street Journal and Weisenberger Investment
  Companies Service -- publications that rate fund performance over specified
  time periods.

  Historical data supplied by the research departments of First Boston
  Corporation, J.P. Morgan & Co, Inc., Salomon Smith Barney, Merrill Lynch &
  Co., Inc., Lehman Brothers, Inc. and Bloomberg L.P.


  IBC's Money Fund Average/All Taxable Index - an average of all major money
  market fund yields, published weekly for 7- and 30-day yields.

  IFC Investable Composite Index - an unmanaged market capitalization-weighted
  index maintained by the International Finance Corporation.  This index
  consists of over 890 companies in 26 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.

  Lehman Brothers Indices:
  ------------------------

  Lehman Brothers Aggregate Bond Index - an unmanaged fixed income market value-
  weighted index that combines the Lehman Government/Corporate Index and the
  Lehman Mortgage-Backed Securities Index, and includes treasury issues, agency
  issues, corporate bond issues and mortgage backed securities.  It includes
  fixed rate issuers of investment grade (BBB) or higher, with maturities of at
  least one year and outstanding par values of at least $100 million for U.S.
  government issues and $25 million for others.

  Lehman Brothers Corporate Bond Index - an unmanaged index of all publicly
  issued, fixed-rate, nonconvertible investment grade domestic corporate debt.
  Also included are yankee bonds, which are dollar-denominated SEC registered
  public, noncovertible debt issued or guaranteed by foreign sovereign
  governments, municipalities, or governmental agencies, or international
  agencies.

  Lehman Brothers Government Bond Index - an unmanaged treasury bond index
  including all public obligations of the U.S. Treasury, excluding flower bonds
  and foreign-targeted issues, and the Agency Bond Index (all publicly issued
  debt of U.S. government agencies and quasi-federal corporations, and corporate
  debt guaranteed by the U.S. government).  In addition to the aggregate index,
  sub-indices cover intermediate and long term issues.

  Lehman Brothers Government/Corporate Bond Index -- an unmanaged fixed income
  market value-weighted index that combines the Government and Corporate Bond
  Indices, including U.S. government treasury securities, corporate and yankee
  bonds.   All issues are investment grade (BBB) or higher, with maturities of
  at least one year and outstanding par value of at least $100 million of  U.S.
  government issues and $25 million for others.  Any security downgraded
  during

                                      50
<PAGE>


  the month is held in the index until month end and then removed.  All returns
  are market value weighted inclusive of accrued income.

  Lehman Brothers High Yield Bond Index - an unmanaged index of fixed rate, non-
  investment grade debt.  All bonds included in the index are dollar
  denominated, noncovertible, have at least one year remaining to maturity and
  an outstanding par value of at least $100 million.

  Lehman Brothers Intermediate Government/Corporate Index - an unmanaged fixed
  income, market value-weighted index that combines the Lehman Brothers
  Government Bond Index (intermediate-term sub-index) and four corporate bond
  sectors.

  Lehman Brothers Mortgage-Backed Securities Index - an unmanaged index of all
  fixed-rate securities backed by mortgage pools of Government National Mortgage
  Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC),  and
  Federal National Mortgage Association (FNMA).

  Lipper, Inc./Lipper Indices/Lipper Averages
  -------------------------------------------

  The Lipper Indices are equally weighted indices for typically the 30 largest
  mutual funds within their respective portfolio investment objectives.  The
  indices are currently grouped in six categories:  U.S. Diversified Equity with
  12 indices; Equity with 27 indices, Taxable Fixed-Income with 20 indices, Tax-
  Exempt Fixed-Income with 28 indices, Closed-End Funds with 16 indices, and
  Variable Annuity Funds with 18 indices.

  In September, 1999, Lipper, Inc. introduced its new portfolio-based mutual
  fund classification method in which peer comparisons are based upon
  characteristics of the specific stocks in the underlying funds, rather than
  upon a broader investment objective stated in a prospectus.  Certain of
  Lipper, Inc.'s classifications for general equity funds' investment objectives
  were changed while other equity objectives remain unchanged.  Changing
  investment objectives include Capital Appreciation Funds, Growth Funds, Mid-
  Cap Funds, Small-Cap Funds, Micro-Cap Funds, Growth & Income Funds, and Equity
  Income Funds.  Unchanged investment objectives include Sector Equity Funds,
  World Equity  Funds, Mixed Equity Funds, and certain other funds including all
  Fixed Income Funds and S&P(R) Index Funds.

  Criteria for the Lipper Indices are:  1) component funds are largest in group;
  2) number of component funds remains the same (30);  3) component funds are
  defined annually;  4) can be linked historically; and  5) are used as a
  benchmark for fund performance.

  Criteria for the Lipper Averages are:  1) includes all funds in the group in
  existence for the period;  2) number of component funds always changes;  3)
  universes are dynamic due to revisions for new funds, mergers, liquidations,
  etc.; and  4) will be inaccurate if historical averages are linked.

  Certain Lipper, Inc. indices/averages used by the UAM Funds may include, but
  are not limited to, the following:

  Lipper Short-Intermediate Investment Grade Debt Funds Average -- is an average
  of 100 funds that invest at least 65% of assets in investment grade debt
  issues (BBB or higher) with dollar-weighted average maturities of one to five
  years or less.  (Taxable Fixed-Income category)

  Lipper Balanced Fund Index - an unmanaged index of open-end equity funds whose
  primary objective is to conserve principal by maintaining at all times a
  balanced portfolio of both stocks and bonds.  Typically, the stock/bond ratio
  ranges around 60%/40%.  (Equity category)

  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.  (Equity category)

  Lipper Equity Mid Cap Fund Index - an unmanaged index of funds that by
  prospectus or portfolio practice invest primarily in companies with market
  capitalizations less than $5 billion at the time of purchase.  (Equity
  category)

  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.  (Equity
  category)

                                      51
<PAGE>


  Lipper Growth Fund Index - an unmanaged index composed of the 30 largest funds
  by asset size which invest in companies with long-term earnings expected to
  grow significantly faster than the earnings of the stocks represented in the
  major unmanaged stock indices.  (Equity category)

  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.



  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 (BBB or higher).


  Merrill Lynch 1-3 Year Treasury Index - an unmanaged index composed of U.S.
  treasury securities with maturities from 1 to 3 years.



  Morgan Stanley Capital International EAFE Index -- 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.

  Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
  yield, risk and total return for equity funds.

  NASDAQ Composite Index -- is a market capitalization, price only, unmanaged
  index that tracks the performance of domestic common stocks traded on the
  regular NASDAQ market as well as national market System traded foreign common
  stocks and ADRs.


  Nekkei Stock Average - a price weighted index of 225 selected leading stocks
  listed on the First Section of the Tokyo Stock Exchange.



  New York Stock Exchange composite or component indices -- capitalization-
  weighted unmanaged indices of all industrial, utilities, transportation and
  finance stocks listed on the New York Stock Exchange.


  Russell U.S. Equity Indexes:
  ----------------------------

  Russell 3000(R) Index - measures the performance of the 3,000 largest U.S.
  companies based on total market capitalization, which represents approximately
  98% of the investable U.S. equity market.

  Russell 1000(R) Index - an unmanaged index which measures the performance of
  the 1,000 largest companies in the Russell 3000 Index, which represents
  approximately 92% of the total market capitalization of the Russell 3000
  Index.

  Russell 2000(R) Index -- an unmanaged index which measures the performance of
  the 2,000 smallest companies in the Russell 3000 Index, which represents
  approximately 8% of the total market capitalization of the Russell 3000 Index.

  Russell Top 200(TM) Index - measures the performance of the 200 largest
  companies in the Russell 1000 Index, which represents approximately 74% of the
  total market capitalization of the Russell 1000 Index.

  Russell Mid-Cap(TM) Index -- measures the performance of the 800 smallest
  companies in the Russell 1000 Index, which represents approximately 26% of the
  total market capitalization of the Russell 1000 Index.

  Russell 2500(TM) Index - an unmanaged index which measures the performance of
  the 2,5000 smallest companies in the Russell 3000 Index, which represents
  approximately 17% of the total market capitalization of the Russell 3000
  Index.

                                      52
<PAGE>


  Russell 3000(R) Growth Index - measures the performance of those Russell 3000
  Index companies with higher price-to-book ratios and higher forecasted growth
  values.  The stocks in this index are also members of either the Russell 1000
  Growth or the Russell 2000 Growth indexes.

  Russell 3000(R) Value Index - measures the performance of those Russell 3000
  Index companies with lower price-to-book ratios and lower forecasted growth
  values.  The stocks in this index are also members of either the Russell 1000
  Value or the Russell 2000 Value indexes.

  Russell 1000(R) Growth Index - measures the performance of those Russell 1000
  companies with higher price-to-book ratios and higher forecasted growth
  values.

  Russell 1000(R) Value Index - measures the performance of those Russell 1000
  with lower price-to-book ratios and lower forecasted growth values.

  Russell 2000(R) Growth Index - measures the performance of  those Russell 2000
  companies with higher price-to-book ratios and higher forecasted growth
  values.

  Russell 2000(R) Value Index - measures the performance of those Russell 2000
  companies with lower price-to-book ratios and lower forecasted growth values.

  Russell Top 200(TM) Growth Index - measures the performance of those Russell
  Top 200 companies with higher price-to-book ratios and higher forecasted
  growth values.  The stocks re also members of the Russell 1000 Growth index.

  Russell Top 200(TM) Value Index - measures the performance of those Russell
  Top 200 companies with lower price-to-book ratios and lower forecasted growth
  values.  The stocks are also members of the Russell 1000 Value index.

  Russell Midcap(TM) Growth Index - measures the performance of those Russell
  Midcap companies with higher price-to-book ratios and higher forecasted growth
  values.  The stocks are also members of the Russell 1000 Growth index.

  Russell Midcap(TM) Value Index - measures the performance of those Russell
  Midcap companies with lower price-to-book ratios and lower forecasted growth
  values.  The stocks are also members of the Russell 1000 Value index.

  Russell 2500(TM) Growth Index - measures the performance of those Russell 2500
  companies with higher price-to-book ratios and higher forecasted growth
  values.

  Russell 2500(TM) Value Index - measures the performance of those Russell 2500
  companies with lower price-to-book ratios and lower forecasted growth values.

  Ryan Labs 5 Year GIC Master Index  - an arithmetic mean of market rates of $1
  million GIC contracts held for five years.  The market rates are
  representative of a diversified, investment grade portfolio of contracts
  issued by credit worthy insurance companies.  The index is unmanaged and does
  not reflect any transaction costs.  Direct investment in the index is not
  possible.

  Standard & Poor's U.S. Indices:
  -------------------------------

  In October, 1999,  Standard & Poor's and Morgan Stanley Capital International
  launched a new global industry classification standard consisting of 10
  economic sectors aggregated from 23 industry groups, 59 industries, and 123
  sub-industries covering almost 6,000 companies globally.  The new
  classification standard will be used with all of their respective indices.
  Features of the new classification include 10 economic sectors, rather than
  the 11 S&P currently uses.  Sector and industry gradations are less severe.
  Rather than jumping from 11 sectors to 115 industries under the former S&P
  system, the new system progresses from 10 sectors through 23 industry groups,
  50 industries and 123 sub-industries.

  S&P 500 Index - an unmanaged index composed of 400 industrial stocks, 40
  financial stocks, 40 utilities stocks and 20 transportation stocks. Widely
  regarded as the standard for  measuring large-cap U.S. stock market
  performance. It is used by 97% of U.S. money managers and pension plan
  sponsors. More than $1 trillion is indexed to the S&P 500.

  S&P MidCap 400 Index -- consists of 400 domestic stocks chosen for market
  size, liquidity, and industry group representation.  It is a market-value
  weighted index with each stock affecting the index in proportion to its market
  value.

                                      53
<PAGE>


  It is used by over 95% of U.S. managers and pension plan sponsors. More than
  $25 billion is indexed to the S&P Midcap400.

  S&P Small Cap 600 Index - an unmanaged index comprised of 600 domestic stocks
  chosen for market size, liquidity, and industry group representation.  The
  index is comprised of stocks from the industrial, utility, financial, and
  transportation sectors.  It is gaining wide acceptance as the preferred
  benchmark for both active and passive management due to its low turnover and
  greater liquidity.  Approximately $8 billion is indexed to the S&P SmallCap
  600.

  S&P SuperComposite 1500 - combines the S&P 500, MidCap 400, and SmallCap 600
  indices, representing 87% of the total U.S. equity market capitalization.

  S&P 100 Index - known by its ticker symbol OEX, this index measures large
  company U.S. stock market performance.  This market capitalization-weighted
  index is made up of 100 major, blue chip stocks across diverse industry
  groups.

  S&P/BARRA Growth and Value Indices - are constructed by dividing the
  securities in the S&P 500 Index according to price-to-book ratio.  The Value
  index contains the companies with the lower price-to-book ratios; while the
  companies with the higher price-to-book ratios are contained in the Growth
  index.

  S&P REIT Composite Index - launched in 1997, this benchmark tracks the market
  performance of U.S. Real Estate Investment Trusts, known as REITS.  The REIT
  Composite consists of 100 REITs chosen for their liquidity and importance in
  representing a diversified real estate portfolio.  The Index covers over 80%
  of the securitized U.S. real estate market.

  S&P Utilities Stock Price Index - a market capitalization weighted index
  representing three utility groups and, with the three groups, 43 of the
  largest utility companies listed on the New York Stock Exchange, including 23
  electric power companies, 12 natural gas distributors and 8 telephone
  companies.

  Standard & Poor's CANADA Indices:
  ---------------------------------

  S&P/TSE Canadian MidCap Index - measures the performance of the mid-size
  company segment of the Canadian equity market.

  S&P/TSE Canadian SmallCap Index - Measures the small company segment of the
  Canadian equity market.

  Standard & Poor's Global Indices:
  ---------------------------------

  S&P Global 1200 Index - aims to provide investors with an investable
  portfolio.  This index, which covers 29 countries and consists of seven
  regional components, offers global investors an easily accessible, tradable
  set of stocks and particularly suits the new generation of index products,
  such as exchange-traded funds (ETFs).

  S&P Euro and S&P Euro Plus Indices - the S&P Euro Index covers the Eurobloc
  countries; the Euro Plus Index includes the Euro markets as well as Denmark,
  Norway, Sweden and Switzerland.  The S&P Euro Plus Index contains 200
  constituents, and the S&P Euro Index, a subset of Euro Plus, contains 160
  constituents.  Both indices provide geographic and economic diversity over 11
  industry sectors.

  S&P/TSE 60 Index  - developed with the Toronto Stock Exchange, is designed as
  the new Canadian large cap benchmark and will ultimately replace the Toronto
  35 and the TSE 100.

  S&P/TOPIX 150 -  includes 150 highly liquid securities selected from each
  major sector of the Tokyo market. It  is designed specifically to give
  portfolio managers and derivative traders an index that is broad enough to
  provide representation of the market, but narrow enough to ensure liquidity.

  S&P Asia Pacific 100 Index - includes highly liquid securities from each major
  economic sector of major Asia-Pacific equity markets. Seven countries --
  Australia, Hong Kong, Korea, Malaysia, New Zealand, Singapore, and Taiwan --
  are represented in the new index.

  S&P Latin America 40 Index - part of the S&P Global 1200 Index, includes
  highly liquid securities from major economic sectors of Mexican and South
  American equity markets. Companies from Mexico, Brazil, Argentina, and Chile
  are represented in the new index.

                                      54
<PAGE>


  S&P United Kingdom 150 Index - includes 150 highly liquid securities selected
  from each of the new S&P sectors. The S&P UK 150 is designed to be broad
  enough to provide representation of the market, but narrow enough to ensure
  liquidity.



  Salomon Smith Barney Global excluding U.S. Equity Index - an unmanaged index
  comprised of the smallest stocks (less than $1 billion market capitalization)
  of the Extended Market Index, of both developed and emerging markets.

  Salomon Smith Barney One to Three Year Treasury Index - an unmanaged index
  comprised of U.S. treasury notes and bonds with maturities of one year or
  greater, but less than three years.

  Salomon Smith Barney Three-Month T-Bill Average -- the average for all
  treasury bills for the previous three-month period.

  Salomon Smith Barney Three-Month U.S. Treasury Bill Index - a return
  equivalent yield average based on the last three 3-month Treasury bill issues.

  Savings and Loan Historical Interest Rates -- as published by the U.S. Savings
  and Loan League Fact Book.

  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.


  Target Large Company Value Index - an index comprised of large companies with
  market capitalizations currently extending down to approximately $1.9 billion
  that are monitored using a variety of relative value criteria in order to
  capture the most attractive value opportunities available.  A high quality
  profile is required and companies undergoing adverse financial pressures are
  eliminated.



  U.S. Three-Month Treasury Bill Average - the average return for all treasury
  bills for the previous three month period.


  Value Line Composite Index -- composed of over 1,600 stocks in the Value Line
  Investment Survey.



  Wilshire Real Estate Securities Index - a market capitalization-weighted index
  of publicly traded real estate securities, including real estate investment
  trusts, real estate operating companies and partnerships.  The index is used
  by the institutional investment community as a broad measure of the
  performance of public real estate equity for asset allocation and performance
  comparison.

  Wilshire REIT Index - includes 112 real estate investment trusts (REITs) but
  excludes seven real estate operating companies that are included in the
  Wilshire Real Estate Securities Index.

  Note:  With respect to the comparative measures of performance for equity
  securities described herein, comparisons of performance assume reinvestment of
  dividends, except as otherwise stated.

                                      55
<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
                                February 28, 2000



This statement of additional information (SAI) is not a prospectus. However, you
should read it in conjunction with the prospectus of the portfolios dated
February 28, 2000, as supplemented from time to time. You may obtain a
prospectus for the portfolios by contacting the UAM Funds at the address listed
above.
<PAGE>

<TABLE>
<CAPTION>
Table Of Contents
<S>                                                                                                  <C>
Description of Permitted Investments...............................................................   1
   What Investment Strategies May the Portfolios Use?..............................................   1
   Debt Securities.................................................................................   2
   Derivatives.....................................................................................   9
   Equity Securities..............................................................................   17
   Foreign Securities.............................................................................   19
   Investment Companies...........................................................................   23
   Repurchase Agreements..........................................................................   23
   Restricted Securities..........................................................................   23
   Securities Lending.............................................................................   24
   When Issued Transactions.......................................................................   24
Investment Policies of the Portfolios.............................................................   25
   Fundamental Policies...........................................................................   25
   Non-Fundamental Policies.......................................................................   26
Management Of The Fund............................................................................   26
Principal Shareholders............................................................................   27
Investment Advisory and Other Services............................................................   30
   Investment Adviser.............................................................................   30
   Distributor....................................................................................   32
   Shareholder Servicing Arrangements.............................................................   32
   Administrative Services........................................................................   33
   Custodian......................................................................................   34
   Independent Accountants........................................................................   34
Brokerage Allocation and Other Practices..........................................................   34
   Selection of Brokers...........................................................................   34
   Simultaneous Transactions......................................................................   34
   Brokerage Commissions..........................................................................   35
Capital Stock and Other Securities................................................................   35
   Description Of Shares And Voting Rights........................................................   36
Purchase, Redemption and Pricing of Shares........................................................   37
   Net Asset Value Per Share......................................................................   37
   Purchase of Shares.............................................................................   38
   Redemption of Shares...........................................................................   39
   Exchange Privilege.............................................................................   41
   Transfer Of Shares.............................................................................   41
Performance Calculations..........................................................................   41
   Total Return...................................................................................   41
   Yield..........................................................................................   42
   Comparisons....................................................................................   42
Financial Statements..............................................................................   43
Glossary..........................................................................................   43
Bond Ratings......................................................................................   44
   Moody's Investors Service, Inc.................................................................   44
   Standard & Poor's Ratings Services.............................................................   46
   Duff & Phelps Credit Rating Co.................................................................   49
   Fitch IBCA Ratings.............................................................................   50
Comparative Benchmarks............................................................................   52
</TABLE>
<PAGE>

Description Of Permitted Investments

WHAT INVESTMENT STRATEGIES MAY THE PORTFOLIOS USE?
- ----------------------------------------------------------------------------

     The portfolios currently intend to use the securities and investment
     strategies listed below in seeking their objectives; however, they may at
     any time invest in any of the investment strategies described in this SAI.
     This SAI describes each of these investments/strategies and their risks. A
     portfolio may not notify shareholders before employing new strategies,
     unless it expects such strategies to become principal strategies. The
     investments that are italicized are principal strategies and you can find
     more information on these techniques in the prospectus of the portfolio.
     You can find more information concerning the limits on the ability of the
     portfolios to use these investments in "What Are the Investment Policies of
     the Portfolios?"


U.S. Government Portfolio

     .    Debt securities.

     .    Futures.

     .    Options.

     .    Investment companies.

     .    Repurchase agreements.

     .    Restricted securities.

     .    Securities lending.

     .    When issued securities.


Domestic Equity Portfolio

     .    Equity securities.

     .    Short-term investments.

     .    Futures.

     .    Options.

     .    Investment companies.

     .    Repurchase agreements.

     .    Restricted securities.

     .    Securities lending.

     .    When issued securities.

International Equity Portfolio

     .    Foreign securities.

     .    Equity securities.

     .    Short-term investments.

     .    Futures.

                                       1
<PAGE>

     .  Options.

     .  Forward currency exchange contracts.

     .  Investment companies.

     .  Repurchase agreements.

     .  Restricted securities.

     .  Securities lending.

     .  When issued securities.


Small Cap Equity Portfolio

     .  Equity securities.

     .  Short-term investments.

     .  Futures.

     .  Options.

     .  Investment companies.

     .  Repurchase agreements.

     .  Restricted securities.

     .  Securities lending.

     .  When issued securities.


DEBT SECURITIES
- -----------------------------------------------------------------------------

     Corporations and governments use debt securities 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.

Types of Debt Securities

     U.S. Government Securities

     U.S. government securities are securities that the U.S. Treasury has issued
     (treasury securities) and securities that a federal agency or a government-
     sponsored entity has issued (agency securities). Treasury securities
     include treasury notes, which have initial maturities of one to ten years
     and treasury bonds, which have initial maturities of at least ten years and
     certain types of mortgage-backed securities that are described under
     "Mortgage-Backed Securities" and "Other Asset-Backed Securities." This SAI
     discusses mortgage-backed treasury and agency securities in detail in the
     section called "Mortgage-Backed Securities" and "Other Asset-Backed
     Securities."

     The full faith and credit of the U.S. government supports treasury
     securities. Unlike treasury securities, the full faith and credit of the
     U.S. government generally do not back agency securities. Agency securities
     are typically supported in one of three ways:

     .  by the right of the issuer to borrow from the U.S. Treasury;

     .  by the discretionary authority of the U.S. government to buy the
        obligations of the agency; or

     .  by the credit of the sponsoring agency.

                                       2
<PAGE>


     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

     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.


     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. Unlike most debt securities, which pay
     interest periodically and repay principal at maturity or on specified call
     dates, mortgage-backed securities make monthly payments that consist of
     both interest and principal payments. In effect, these payments are a
     "pass-through" of the monthly payments made by the individual borrowers on
     their mortgage loans, net of any fees paid to the issuer or guarantor of
     such securities. Since homeowners usually have the option of paying either
     part or all of the loan balance before maturity, the effective maturity of
     a mortgage-backed security is often shorter than is stated.

     Governmental entities, private insurers and the mortgage poolers may insure
     or guarantee 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. 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 is the principal governmental guarantor of mortgage-related
     securities. GNMA is a wholly owned corporation of the U.S. government and
     it falls within the Department of Housing and Urban Development. Securities
     issued by GNMA are treasury securities, which means the full faith and
     credit of the U.S. government backs them. GNMA 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 a portfolio's 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 is regulated by the Secretary of Housing and Urban
     development. FNMA purchases conventional mortgages from a list of approved
     sellers and service providers, including state and federally-chartered
     savings and loan associations, mutual savings banks,

                                       3
<PAGE>


     commercial banks and credit unions and mortgage bankers. Securities issued
     by FNMA are agency securities, which means FNMA, but not the U.S.
     government, guarantees their timely payment of principal and interest.

     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. 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.



     Risks of Mortgage-Backed Securities
     Yield characteristics of mortgage-backed securities differ from those of
     traditional debt securities in a variety of ways, the most significant
     differences are mortgage-backed securities:

     .  payments of interest and principal are more frequent (usually monthly);
        and

     .  falling interest rates generally cause individual borrowers to pay off
        their mortgage earlier than expected forcing a portfolio to reinvest the
        money at a lower interest rate.

     In addition to risks associated with changes in interest rates described in
     "Factors Affecting the Value of Debt Securities," a variety of economic,
     geographic, social and other factors, such as the sale of the underlying
     property, refinancing or foreclosure, can cause investors to repay the
     loans underlying a mortgage-backed security 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.

     Other Asset-Backed Securities

     These securities are interests in pools of a broad range of assets other
     than mortgages, such as automobile loans, computer leases and credit card
     receivables. Like mortgage-backed securities, these securities are pass-
     through. 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

                                      4
<PAGE>


     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 related asset-backed securities. Due to the quantity of
     vehicles involved and requirements under state laws, 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.




     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 prepay
     principal monthly. While whole mortgage loans may collateralize CMOs,
     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.


     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 securities listed below, U.S. government
     securities and investment-grade corporate debt securities. Unless otherwise
     specified, a short-term debt security has a maturity of one year or less.

     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
        the portfolio may purchase.

                                       5
<PAGE>


     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 is a short-term obligation with a maturity ranging from 1
     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 "Bond Ratings" for a
     description of commercial paper ratings.


     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
     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

                                       6
<PAGE>

     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 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 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.




Terms to Understand


     Maturity

     Every debt security has a stated maturity date when the issuer must repay
     the amount it borrowed (principal) from investors. Some debt securities,
     however, are callable, meaning the issuer can repay the principal earlier,
     on or after specified dates (call dates). Debt securities are most likely
     to be called when interest rates are falling because the issuer can
     refinance at a lower rate, similar to a homeowner refinancing a mortgage.
     The effective maturity of a debt security is usually its nearest call date.

     A portfolio that invests in debt securities has no real maturity. Instead,
     it calculates its weighted average maturity. This number is an average of
     the stated maturity of each debt security held by a portfolio, with the
     maturity of each security weighted by the percentage of the assets of the
     portfolio it represents.


     Duration

     Duration is a calculation that seeks to measure the price sensitivity of a
     debt security, or a portfolio that invests in debt securities, to changes
     in interest rates. It measures sensitivity more accurately than maturity
     because it takes into account the time value of cash flows generated over
     the life of a debt security. Future interest payments and principal
     payments are discounted to reflect their present value and then are
     multiplied by the number of years they will be received to produce a value
     expressed in years -- the duration. Effective duration takes into account
     call features and sinking fund prepayments that may shorten the life of a
     debt security.

     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

                                       7
<PAGE>

     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.


Factors Affecting the Value of Debt 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).

     Prepayment Risk

     This risk effects mainly mortgage-backed securities. Unlike other debt
     securities, falling interest rates can hurt mortgage-backed securities,
     which may cause your share price to fall. Lower rates motivate people to
     pay off mortgage-backed and asset-backed securities earlier than expected.
     A portfolio may then have to reinvest the proceeds from such prepayments at
     lower interest rates, which can reduce its yield. 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 a portfolio. If
     left unattended, drifts in the average maturity of a portfolio can have the
     unintended effect of increasing or reducing the effective duration of the
     portfolio, which may adversely affect the expected performance of the
     portfolio.

     Extension Risk

     The other side of prepayment risk occurs when interest rates are rising.
     Rising interest rates can cause a portfolio's average maturity to lengthen
     unexpectedly due to a drop in mortgage prepayments. This would increase the
     sensitivity of a portfolio to rising rates and its potential for price
     declines. 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.


     Credit Rating

     Coupon interest is offered to investors of debt securities as compensation
     for assuming risk, although short-term Treasury securities, such as 3-month
     treasury bills, are considered "risk free." Corporate securities offer
     higher yields than Treasury securities 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 Treasury securities.

     Changes in investor confidence regarding the certainty of interest and
     principal payments of a corporate debt 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

                                      8
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     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.

     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 Moody's Investor
     Services ("Moody's"), Standard and Poor's Ratings Services ("S&P"), Duff &
     Phelps Rating Co. and Fitch IBCA. Credit ratings are only an agency's
     opinion, not an absolute standard of quality, and they do not reflect an
     evaluation of market risk. The section "Bond Ratings" 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.


DERIVATIVES
- ----------------------------------------------------------------------------

     Derivatives are financial instruments whose value is based on an underlying
     asset, such as a stock or a bond, an underlying economic factor, such as an
     interest rate or a market benchmark, such as an index. Investors can use
     derivatives to gain exposure to various markets in a cost efficient manner,
     to reduce transaction costs or to remain fully invested. They may also
     invest in derivatives to protect it 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.



Types of Derivatives

     Futures


     A futures contract is an agreement between two parties whereby one party
     sells and the other party agrees to buy a specified amount of a financial
     instrument at an agreed upon price and time. The financial instrument
     underlying the contract may be a stock, stock index, bond, bond index,
     interest rate, foreign exchange rate or other similar instrument. Agreeing
     to buy the underlying financial information is called buying a futures
     contract or taking a long position in the contract. Likewise, agreeing to
     sell the underlying financial instrument is called selling a futures
     contract or taking a short position in the contract.

     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.

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     These contract markets standardize the terms, including the maturity date
     and underlying financial instrument, of all futures contracts.

     Unlike other securities, the parties to a futures contract do not have to
     pay for or deliver the underlying financial instrument until some future
     date (the delivery date). 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. This process is known as "marking to the market."

     Although the actual terms of a futures contract calls for the actual
     delivery of and payment for the underlying security, in many cases the
     parties may close the contract early by taking an opposite position in an
     identical contract. If the sale price upon closing out the contract is less
     than the original purchase price, the person closing out the contract will
     realize a loss. If the sale price upon closing out the contract is more
     that the original purchase price, the person closing out the contract will
     realize a gain. The opposite is also true. If the purchase price upon
     closing out the contract is more than the original sale price, the person
     closing out the contract will realize a loss. If the purchase price upon
     closing out the contract is less than the original sale price, the person
     closing out the contract will realize a gain.

     The portfolio will incur commission expenses in either opening, closing or
     possibly opening and closing futures positions.


     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 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

                                      10
<PAGE>


     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 and segregating cash or liquid securities in an amount equal to
        the difference between the exercise prices;

     .  Cash or liquid securities equal to at least the market value of the
        optioned securities, interest rate, foreign currency or futures
        contract; or

     .  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:

                                      11
<PAGE>


     . 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 and
       segregating cash or liquid securities in an amount equal to the
       difference between the exercise prices; or

     . 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 the 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




                                      12
<PAGE>

     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.


     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).

     . 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 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 the
     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. The 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.

     The portfolio may 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. The 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 the 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.

     The 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

                                      13
<PAGE>

     cause the 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, the 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,
     the 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.


     Swaps, Caps, Collars and Floors


     Swap Agreements

     A swap is a financial instrument that typically involves the exchange of
     cash flows between two parties on specified dates (settlement dates), where
     the cash flows are based on agreed-upon prices, rates, indices, etc. The
     nominal amount on which the cash flows are calculated is called the
     notional amount. Swaps are individually negotiated and structured to
     include exposure to a variety of different types of investments or market
     factors, such as interest rates, foreign currency rates, mortgage
     securities, corporate borrowing rates, security prices or inflation rates.

     Swap agreements may increase or decrease the overall volatility of the
     investments of the portfolio and its share price. The performance of swap
     agreements may be affected by a change in the specific interest rate,
     currency, or other factors that determine the amounts of payments due to
     and from the portfolio. If a swap agreement calls for payments by the
     portfolio, the portfolio must be prepared to make such payments when due.
     In addition, if the counter-party's creditworthiness declined, the value of
     a swap agreement would be likely to decline, potentially resulting in
     losses.

     Generally, swap agreements have a fixed maturity date that will be agreed
     upon by the parties. The agreement can be terminated before the maturity
     date only under limited circumstances, such as default by one of the
     parties or insolvency, among others, and can be transferred by a party only
     with the prior written consent of the other party. The portfolio may be
     able to eliminate its exposure under a swap agreement either by assignment
     or by other disposition, or by entering into an offsetting swap agreement
     with the same party or a similarly creditworthy party. If the counter-party
     is unable to meet its obligations under the contract, declares bankruptcy,
     defaults or becomes insolvent, the portfolio may not be able to recover the
     money it expected to receive under the contract.

     A swap agreement can be a form of leverage, which can magnify a portfolio's
     gains or losses. In order to reduce the risk associated with leveraging, a
     portfolio will cover its current obligations under swap agreements
     according to guidelines established by the SEC. If the portfolio enters
     into a swap agreement on a net basis, it will segregate assets with a daily
     value at least equal to the excess, if any, of the portfolio's accrued
     obligations under the swap agreement over the accrued amount the portfolio
     is entitled to receive under the agreement. If the portfolio enters into a
     swap agreement on other than a net basis, it will segregate assets with a
     value equal to the full amount of the portfolio's accrued obligations under
     the agreement.

     Equity Swaps -- In a typical equity index swap, one party agrees to pay
     another party the return on a stock, stock index or basket of stocks in
     return for a specified interest rate. By entering into an equity index
     swap, for example, the index receiver can gain exposure to stocks making up
     the index of securities without actually purchasing those stocks. Equity
     index swaps involve not only the risk associated with investment in the
     securities represented in the index, but also the risk that the performance
     of such securities, including dividends, will not exceed the return on the
     interest rate that the portfolio will be committed to pay.

     Interest Rate Swaps -- Interest rate swaps are financial instruments that
     involve the exchange on one type of interest rate for another type of
     interest rate cash flow on specified dates in the future. Some of the
     different types of interest rate swaps are "fixed-for floating rate swaps,"
     "termed basis swaps" and "index amortizing swaps." Fixed-for floating rate
     swap involve the exchange of fixed interest rate cash flows for floating
     rate cash flows. Termed basis swaps entail cash flows to both parties based
     on floating interest rates, where the interest rate indices are different.
     Index amortizing swaps are typically fixed-for floating swaps where the
     notional amount changes if certain conditions are met.

                                      14
<PAGE>


     Like a traditional investment in a debt security, a portfolio could lose
     money by investing in an interest rate swap if interest rates change
     adversely. For example, if the portfolio enters into a swap where it agrees
     to exchange a floating rate of interest for a fixed rate of interest, the
     portfolio may have to pay more money than it receives. Similarly, if the
     portfolio enters into a swap where it agrees to exchange a fixed rate of
     interest for a floating rate of interest, the portfolio may receive less
     money than it has agreed to pay.

     Currency Swaps -- A currency swap is an agreement between two parties in
     which one party agrees to make interest rate payments in one currency and
     the other promises to make interest rate payments in another currency. A
     portfolio may enter into a currency swap when it has one currency and
     desires a different currency. Typically the interest rates that determine
     the currency swap payments are fixed, although occasionally one or both
     parties may pay a floating rate of interest. Unlike an interest rate swap,
     however, the principal amounts are exchanged at the beginning of the
     contract and returned at the end of the contract. Changes in foreign
     exchange rates and changes in interest rates, as described above may
     negatively affect currency swaps.

     Caps, Collars and Floors

     Caps and floors have an effect similar to buying or writing options. In a
     typical cap or floor agreement, one party agrees to make payments only
     under specified circumstances, usually in return for payment of a fee by
     the other party. For example, the buyer of an interest rate cap obtains the
     right to receive payments to the extent that a specified interest rate
     exceeds an agreed-upon level. The seller of an interest rate floor is
     obligated to make payments to the extent that a specified interest rate
     falls below an agreed-upon level. An interest rate collar combines elements
     of buying a cap and selling a floor.


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.



     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 expected.

     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;

                                      15
<PAGE>


     . 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; and

     . 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. Moreover, a portfolio may close out a futures contract only on
     the exchange the contract was initially traded. Although a portfolio
     intends to purchase options and futures only where there appears to be an
     active market, there is no guarantee that such a liquid market will exist.
     If there is no secondary market for the contract, or the market is
     illiquid, the portfolio may not be able to close out its position. In an
     illiquid market, the portfolio may:

     . have to sell securities to meet its daily margin requirements at a time
       when it is disadvantageous to do so;

     . have to purchase or sell the instrument underlying the contract;

     . not be able to hedge its investments; and

     . not be able realize profits or limit 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:

     . an exchange may suspend or limit trading in a particular derivative
       instrument, an entire category of derivatives or all derivatives, which
       sometimes occurs because of increased market volatility;

     . unusual or unforeseen circumstances may interrupt normal operations of an
       exchange;

     . the facilities of the exchange may not be adequate to handle current
       trading volume;

     . equipment failures, government intervention, insolvency of a brokerage
       firm or clearing house or other occurrences may disrupt normal trading
       activity; or

     . investors may lose interest in a particular derivative or category of
       derivatives.


                                      16
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     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.


     Volatility and Leverage

     The prices of derivatives are volatile (i.e., they may change rapidly,
     substantially and unpredictably) and are influenced by a variety of
     factors, including:

     . actual and anticipated changes in interest rates;

     . fiscal and monetary policies; and

     . national and international political events.

     Most exchanges limit the amount by which the price of a derivative can
     change during a single trading day. Daily trading limits establish the
     maximum amount that the price of a derivative may vary from the settlement
     price of that derivative at the end of trading on the previous day. Once
     the price of a derivative reaches this value, a portfolio may not trade
     that derivative at a price beyond that limit. The daily limit governs only
     price movements during a given day and does not limit potential gains or
     losses. Derivative prices have occasionally moved to the daily limit for
     several consecutive trading days, preventing prompt liquidation of the
     derivative.


     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-dealer with whom it has an open futures
     contract or related option becomes insolvent or declares bankruptcy.


EQUITY SECURITIES
- --------------------------------------------------------------------------


Types of Equity Securities


     Common Stocks

     Common stocks represent units of ownership in a company. Common stocks
     usually carry voting rights and earn dividends. Unlike preferred stocks,
     which are described below, dividends on common stocks are not fixed but are
     declared at the discretion of the company's board of directors.


     Preferred Stocks

     Preferred stocks are also units of ownership in a company. Preferred stocks
     normally have preference over common stock in the payment of dividends and
     the liquidation of the company. However, in all other respects, preferred
     stocks are subordinated to the liabilities of the issuer. Unlike common
     stocks, preferred stocks are generally not entitled to vote on

                                      17
<PAGE>

     corporate matters. Types of preferred stocks include adjustable-rate
     preferred stock, fixed dividend preferred stock, perpetual preferred stock,
     and sinking fund preferred stock. Generally, the market values of preferred
     stock with a fixed dividend rate and no conversion element varies inversely
     with interest rates and perceived credit risk.


     Convertible Securities

     Convertible securities are debt securities and preferred stocks that are
     convertible into common stock at a specified price or conversion ratio. 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. Their market price tends to go up if the stock price moves up.

     Convertible securities are subject to the same risks as similar securities
     without the convertible feature. The price of a convertible security is
     more volatile during times of steady interest rates than other types of
     debt securities.


     Rights and Warrants

     A right is a privilege granted to existing shareholders of a corporation to
     subscribe to shares of a new issue of common stock before it is issued.
     Rights normally have a short life, usually two to four weeks, are freely
     transferable and entitle the holder to buy the new common stock at a lower
     price than the public offering price. Warrants are securities that are
     usually issued together with a debt security or preferred stock and that
     give the holder the right to buy proportionate amount of common stock at a
     specified price. Warrants are freely transferable and are traded on major
     exchanges. Unlike rights, warrants normally have a life that is measured in
     years and entitles the holder to buy common stock of a company at a price
     that is usually higher than the market price at the time the warrant is
     issued. Corporations often issue warrants to make the accompanying debt
     security more attractive.

     An investment in warrants and rights may entail greater risks than certain
     other types of investments. Generally, rights and warrants do not carry 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. In addition, their value does not necessarily change with
     the value of the underlying securities, and they cease to have value if
     they are not exercised on or before their expiration date. Investing in
     rights and warrants increases the potential profit or loss to be realized
     from the investment as compared with investing the same amount in the
     underlying securities.


Risks of Investing in Equity Securities


     General Risks of Investing in Stocks

     While investing in stocks allows investors to participate in the benefits
     of owning a company, such investors 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.

     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; and

     . 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.

                                      18
<PAGE>

     Because preferred stock is generally 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.


     Small and Medium-Sized Companies

     Investors in small and medium-sized companies typically take on greater
     risk and price volatility than they would by investing in larger, more
     established companies. This increased risk may be due to the greater
     business risks of their small or medium size, limited markets and financial
     resources, narrow product lines and frequent lack of management depth. The
     securities of small and medium companies are often traded in the over-the-
     counter market and might not be traded in volumes typical of securities
     traded on a national securities exchange. Thus, the securities of small and
     medium capitalization companies are likely to be less liquid, and subject
     to more abrupt or erratic market movements, than securities of larger, more
     established companies.


     Technology Companies

     Stocks of technology companies have tended to be subject to greater
     volatility than securities of companies that are not dependent upon or
     associated with technological issues. Technology companies operate in
     various industries. Since these industries frequently share common
     characteristics, an event or issue affecting one industry may significantly
     influence other, related industries. For example, technology companies may
     be strongly affected by worldwide scientific or technological developments
     and their products and services may be subject to governmental regulation
     or adversely affected by governmental policies.


FOREIGN SECURITIES
- -----------------------------------------------------------------------------


Types of Foreign Securities

     Foreign securities are debt and equity securities that are traded in
     markets outside of the United States. The markets in which these securities
     are located can be developed or emerging. People can invest in foreign
     securities in a number of ways:

     . They can invest directly in foreign securities denominated in a foreign
       currency;

     . They can invest in American Depositary Receipts, European Depositary
       Receipts and other similar global instruments; and

     . They can invest in 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. EDRs are
     similar to ADRs, except that they are typically issued by European Banks or
     trust companies.


     Emerging Markets

     An "emerging country" is generally a country that the International Bank
     for Reconstruction and Development (World Bank) and the International
     Finance Corporation would consider to be an emerging or developing country.
     Typically,

                                      19
<PAGE>


     emerging markets are in countries that are in the process of
     industrialization, with lower gross national products (GNP) than more
     developed countries. There are currently 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.


     Investment Funds

     Some emerging countries currently prohibit direct foreign investment in the
     securities of their companies. Certain emerging countries, however, permit
     indirect foreign investment in the securities of companies listed and
     traded on their stock exchanges through investment funds that they have
     specifically authorized. Investments in these investment funds are subject
     to the provisions of the 1940 Act. Shareholders of a UAM Fund that invests
     in such investment funds will bear not only their proportionate share of
     the expenses of the UAM Fund (including operating expenses and the fees of
     the adviser), but also will bear indirectly bear similar expenses of the
     underlying investment funds. In addition, these investment funds may trade
     at a premium over their net asset value.



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.


     Political and Economic Factors

     Local political, economic, regulatory, or social instability, military
     action or unrest, or adverse diplomatic developments may affect the value
     of foreign investments. Listed below are some of the more important
     political and economic factors that could negatively affect an investment
     in foreign securities:

     . The economies of foreign countries may differ from the economy of the
       United States in such areas as growth of gross national product, rate of
       inflation, capital reinvestment, resource self-sufficiency, budget
       deficits and national debt;

     . Foreign governments sometimes participate to a significant degree,
       through ownership interests or regulation, in their respective economies.
       Actions by these governments could significantly influence the market
       prices of securities and payment of dividends;

     . The economies of many foreign countries are dependent on international
       trade and their trading partners and they could be severely affected if
       their trading partners were to enact protective trade barriers and
       economic conditions;

     . The internal policies of a particular foreign country may be less stable
       than in the United States. Other countries face significant external
       political risks, such as possible claims of sovereignty by other
       countries or tense and sometimes hostile border clashes; and

     . A foreign government may act adversely to the interests of U.S.
       investors, including expropriation or nationalization of assets,
       confiscatory taxation and other restrictions on U.S. investment. A
       country may restrict or control foreign investments in its securities
       markets. These restrictions could limit the portfolio's ability to invest
       in a particular country or make it very expensive for the portfolio to
       invest in that country. Some countries require prior governmental
       approval, limit the types or amount of securities or companies in which a
       foreigner can invest. Other countries may restrict the ability of foreign
       investors to repatriate their investment income and capital gains.

                                      20
<PAGE>


     Information and Supervision

     There is generally less publicly available information about foreign
     companies than companies based in the United States. For example, there are
     often no reports and ratings published about foreign companies comparable
     to the ones written about United States companies. Foreign companies are
     typically not subject to uniform accounting, auditing and financial
     reporting standards, practices and requirements comparable to those
     applicable to United States companies. The lack of comparable information
     makes investment decisions concerning foreign countries more difficult and
     less reliable than domestic companies.


     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 the
     markets in the United States. Foreign stocks markets tend to differ from
     those in the United States in a number of ways:

     . They are generally not as developed or efficient as, and more volatile,
       than those in the United States;

     . They have substantially less volume;

     . Their securities tend to be less liquid and to experience rapid and
       erratic price movements;

     . Commissions on foreign stocks are generally higher and subject to set
       minimum rates, as opposed to negotiated rates;

     . Foreign security trading, settlement and custodial practices are often
       less developed than those in U.S. markets; and

     . They may have different settlement practices, which may cause delays and
       increase the potential for failed settlements.



     Foreign Currency Risk


     While the UAM Funds denominate their net asset value in United States
     dollars, the securities of foreign companies are frequently denominated in
     foreign currencies. Thus, a change in the value of a foreign currency
     against the United States dollar will result in a corresponding change in
     value of securities denominated in that currency. Some of the factors that
     may impair the investments denominated in a foreign currency are:

     . It may be expensive to convert foreign currencies into United States
       dollars and vice versa;

     . Complex political and economic factors may significantly affect the
       values of various currencies, including United States dollars, and their
       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 may be no systematic reporting of last sale information for foreign
       currencies or 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; and


                                      21
<PAGE>

     . 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.

     Taxes

     Certain foreign governments levy withholding taxes on dividend and interest
     income. Although in some countries it is possible for the portfolio to
     recover a portion of these taxes, the portion that cannot be recovered 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.

     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 relatively unstable governments;

     . Present greater risks of nationalization of businesses, restrictions on
       foreign ownership and prohibitions on the repatriation of assets;

     . Offer less protection of property rights than more developed countries;
       and

     . Have economies that are 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.


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 began 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 became denominations of
     the Euro at fixed rates according to practices prescribed by the European
     Monetary Institute and the Euro became available as a book-entry currency.
     On or about that date, member states began conducting financial market
     transactions in Euros and redenominating many investments, currency
     balances and transfer mechanisms into Euros. The portfolio also anticipates
     pricing, trading, settling and valuing investments whose nominal values
     remain in their existing domestic currencies in Euros. Accordingly, the
     portfolio expects the conversion to the Euro to impact investments in
     countries that 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?

                                      22
<PAGE>

     . How will existing currencies be exchanged into Euro?

     . Will suitable clearing and settlement payment systems for the new
       currency be created?

INVESTMENT COMPANIES
- -----------------------------------------------------------------------------

     A portfolio may buy and sell shares of other investment companies. Such
     investment companies may pay management and other fees that are similar to
     the fees currently paid by a portfolio. Like other shareholders, each
     portfolio would pay its proportionate share of those fees. Consequently,
     shareholders of a portfolio would pay not only the management fees of the
     portfolio, but also the management fees of the investment company in which
     the portfolio invests. A portfolio may invest up to 10% of its total assets
     in the securities of other investment companies, but may not invest more
     than 5% of its total assets in the securities of any one investment company
     or acquire more than 3% of the outstanding securities of any one investment
     company.

     The SEC has granted an order that allows a portfolio to invest the greater
     of 5% of its total assets or $2.5 million in the UAM DSI Money Market
     Portfolio, provided that the investment is:

     . For cash management purposes;

     . Consistent with a portfolio's investment policies and restrictions; and

     . The adviser to the investing portfolio waives any fees it earns on the
       assets of the portfolio that are invested 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, an investor agrees to buy a security (underlying
     security) from a securities dealer or bank that is a member of the Federal
     Reserve System (counter-party). At the time, the counter-party agrees to
     repurchase the underlying security for the same price, plus interest.
     Repurchase agreements are generally for a relatively short period (usually
     not more than 7 days). The portfolios normally use repurchase agreements to
     earn income on assets that are not invested.

     When a portfolio enters into a repurchase agreement it will:

     . Pay for the underlying securities only upon physically receiving them or
       upon evidence of their receipt in book-entry form; and

     . Require the counter party to add to the collateral whenever the price of
       the repurchase agreement rises above the value of the underlying security
       (i.e., it will require the borrower to "mark 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.

RESTRICTED SECURITIES
- -----------------------------------------------------------------------------

     The portfolios 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 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 the portfolio's investment limitations. The price realized from
     the sales of these securities could be more or less than those originally
     paid by a portfolio or less than what may be considered the fair value of
     such securities.

                                      23
<PAGE>


SECURITIES LENDING
- ------------------------------------------------------------------------------

     A portfolio may lend a portion of its total assets to broker- dealers or
     other financial institutions. It may then reinvest the collateral it
     receives in short-term securities and money market funds. When a portfolio
     lends its securities, it will follow the following guidelines:

     . The borrower must provide collateral at least equal to the market value
       of the securities loaned;

     . The collateral 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 must add to the collateral whenever the price of the
       securities loaned rises (i.e., the borrower "marks to the market" on a
       daily basis);

     . It must be able to terminate the loan at any time;

     . It must receive reasonable interest on the loan (which may include the
       portfolio investing any cash collateral in interest bearing short-term
       investments); and

     . It must determine that the borrower is an acceptable credit risk.

     These risks are similar to the ones involved with repurchase agreements.
     When the portfolio lends securities, there is a risk that the borrower will
     become financially unable to honor its contractual obligations. If this
     happens, the portfolio could:

     . Lose its rights in the collateral and not be able to retrieve the
       securities it lent to the borrower; and

     . Experience delays in recovering its securities.


WHEN ISSUED 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 deliver 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 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, a
     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.

     A portfolio will segregate cash and liquid securities equal in value to
     commitments for the when-issued, delayed-delivery or forward delivery
     transaction. A portfolio will segregate additional liquid assets daily so
     that the value of such assets is equal to the amount of its commitments.

                                      24
<PAGE>

Investment Policies of the Portfolios

     A portfolio will determine investment limitation percentages (with the
     exception of a limitation relating to borrowing) immediately after and as a
     result of its acquisition of such security or other asset. Accordingly, a
     portfolio will not consider changes in values, net assets or other
     circumstances when determining whether the investment complies with its
     investment limitations.

FUNDAMENTAL POLICIES
- ------------------------------------------------------------------------------

     The following investment limitations are fundamental, which means a
     portfolio cannot change them without approval by the vote of a majority of
     the outstanding voting securities of the portfolio, as defined by the 1940
     Act.

     Each of the portfolios 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 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 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 1940 Act 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.

     . Write or acquire options or interests in oil, gas or other mineral
       exploration or development programs.

                                      25
<PAGE>

NON-FUNDAMENTAL POLICIES
- -----------------------------------------------------------------------------

     The following limitations are non-fundamental, which means a portfolio may
     change them without shareholder approval.

     The portfolios will not:

     . Invest in stock or bond futures and/or options on futures unless 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.

     . 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.


Management of the Fund

     The governing board manages the business of the Fund. The governing board
     elects officers to manage the day-to-day operations of the Fund and to
     execute policies the board has formulated. 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 and a $2,000 meeting
     fee. In addition, the Fund reimburses each independent board member 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 board members that are affiliated with
     the fund for their services as board members. UAM, its affiliates or SEI
     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. The UAM Funds Complex is currently comprised of 51
     portfolios. Those people with an asterisk (*) beside their name are
     "interested persons" of the Fund as that term is defined in the 1940 Act.
     Mr. English does have an investment advisory relationship with Investment
     Counselors of Maryland, an investment adviser to one of the portfolios in
     the UAM Funds Complex. However, the Fund does not believe that the
     relationship is a material business relationship, and, therefore, does not
     consider him to be an "interested person" of the Fund. If these
     circumstances change, the Board will determine whether any action is
     required to change the composition of the Board.

<TABLE>
<CAPTION>
                                                                                                             Aggregate
                                                                                         Aggregate       Compensation From
                                                                                     Compensation From    the Fund Complex
                             Position   Principal Occupations During the Past 5       the Fund as of     as of October 31,
    Name, Address, DOB       with Fund  years                                        October 31, 1999           1999
    ------------------------------------------------------------------------------------------------------------------------
<S>                          <C>        <C>                                          <C>                 <C>
    John T. Bennett, Jr.     Board      President of Squam Investment Management          $7,137              $10,625
    College Road-- RFD 3     Member     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            Board      Financial Officer of World Wildlife Fund          $7,137              $10,625
    1250 24/th/ St., NW      Member     since January 1999; Vice President for
    Washington, DC 20037                Finance and  Administration and Treasurer
    8/14/51                             of Radcliffe College from 1991 to 1999.
    ------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      26
<PAGE>

<TABLE>
<CAPTION>
                                                                                                          Aggregate
                                                                                      Aggregate       Compensation From
                                                                                  Compensation From    the Fund Complex
                          Position   Principal Occupations During the Past 5       the Fund as of     as of October 31,
 Name, Address, DOB       with Fund  years                                        October 31, 1999           1999
 ------------------------------------------------------------------------------------------------------------------------
<S>                      <C>        <C>                                          <C>                 <C>
William A. Humenuk       Board      Executive Vice President and Chief                $7,137              $10,625
100 King Street West     Member     Administrative Officer of Philip Services
P.O. Box 2440, LCD-1                Corp.; Formerly, a Partner in the
Hamilton  Ontario,                  Philadelphia  office of the law firm
Canada L8N-4J6                      Dechert Price & Rhoads and a Director of
4/21/42                             Hofler Corp.
- ------------------------------------------------------------------------------------------------------------------------
Philip D. English        Board      President and Chief Executive Officer of          $7,137              $10,625
16 West Madison Street   Member     Broventure Company,  Inc.; Chairman of the
Baltimore, MD 21201                 Board of Chektec Corporation and Cyber
8/5/48                              Scientific, Inc.
- ------------------------------------------------------------------------------------------------------------------------
James P. Pappas*         Board      President of UAM Investment Services,                  0                    0
211 Congress Street      Member     Inc. since March 1999; Vice President UAM
Boston, MA 02110                    Trust Company since January 1996;
2/24/53                             Principal of UAM Fund Distributors, Inc.
                                    since December 1995; Vice President of
                                    UAM Investment Services, Inc. from
                                    January 1996 to March 1999 and a Director
                                    and Chief Operating Officer of CS First
                                    Boston Investment Management from
                                    1993-1995.
- ------------------------------------------------------------------------------------------------------------------------
Norton H. Reamer*        Board      Chairman, Chief Executive Officer and a                0                   0
One International Place  Member;    Director of United Asset Management
Boston, MA 02110         President  Corporation; Director, Partner or Trustee
3/21/35                  and        of each of the Investment Companies of
                         Chairman   the Eaton Vance Group of Mutual Funds.
- ------------------------------------------------------------------------------------------------------------------------
Peter M. Whitman, Jr.*   Board      President and Chief Investment Officer of             0                   0
One Financial Center     Member     Dewey Square Investors Corporation since
Boston, MA 02111                    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; Treasurer            0                    0
211 Congress Street                 of the Fidelity Group of Mutual Funds
Boston, MA 02110                    from 1991 to 1995; held various other
7/4/51                              offices with Fidelity Investments from
                                    November 1990 to March 1995.
- ------------------------------------------------------------------------------------------------------------------------
Robert R. Flaherty       Assistant  Vice President of UAMFSI;  Manager of Fund            0                   0
211 Congress Street      Treasurer  Administration and Compliance of Chase
Boston, MA 02110                    Global Fund Services Company from 1995 to
9/18/63                             1996; Senior Manager of Deloitte & Touche
                                    LLP from 1985 to 1995,
- ------------------------------------------------------------------------------------------------------------------------
Robert J. DellaCroce     Assistant  Director, Mutual Fund Operations - SEI                0                   0
SEI Investments          Treasurer  Investments; Senior Manager at Arthur
One Freedom Valley Rd.              Andersen prior to 1994.
Oaks, PA 19456
12/17/63
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

Principal Shareholders

     As of February 1, 2000, the following persons or organizations held of
     record or beneficially 5% or more of the shares of a portfolio:

                                      27
<PAGE>

<TABLE>
<CAPTION>
                                                                Percentage of
Name and Address of Shareholder                                  Shares Owned          Portfolio           Class
- ------------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>                 <C>                 <C>
Wesbanco Bank Wheeling                                              21.33%          McKee Domestic      Institutional
Agnt City of Wheeling Municipal Employees Retirement &                              Equity Portfolio    Class Shares
Benefit Fund
U/A 1/10/89
1 Bank Plaza
Wheeling, WV 26003-3565
- ------------------------------------------------------------------------------------------------------------------------
Carey & CO                                                          10.41%          McKee Domestic      Institutional
PO Box 1558                                                                         Equity Portfolio    Class Shares
Columbus,  OH 43260-0002
- ------------------------------------------------------------------------------------------------------------------------
Wilmington Trust Co                                                  9.30%          McKee Domestic      Institutional
FBO Iron Workers Local 549 Security Plan                                            Equity Portfolio    Class Shares
c/o Mutual Funds
PO Box 8971
Wilmington, DE 19899-8971
- ------------------------------------------------------------------------------------------------------------------------
One Valley Bank NA CUST                                              8.07%          McKee Domestic      Institutional
FBO Morgantown Utility                                                              Equity Portfolio    Class Shares
Attn:  Security Cage
Mail Street 1510
PO Box 1793
Charleston, WV 25326-1793
- ------------------------------------------------------------------------------------------------------------------------
Strafe & CO                                                          7.30%          McKee Domestic      Institutional
Ironworkers Med AC                                                                  Equity Portfolio    Class Shares
PO Box 160
Westervivlle, OH 43086-0160
- ------------------------------------------------------------------------------------------------------------------------
Saxon & CO                                                           6.36%          McKee Domestic      Institutional
Borough of Canonsburg                                                               Equity Portfolio    Class Shares
68 E. Pike Street
Canonsburg, PA 15317-1312
- ------------------------------------------------------------------------------------------------------------------------
City of Sr. Mary's Police Pension Fund                              5.16%           McKee Domestic      Institutional
808 S. Michael Road                                                                 Equity Portfolio    Class Shares
P.O. Box 1994
Saint Marys, PA 15857-5994
- ------------------------------------------------------------------------------------------------------------------------
Saxon & CO                                                          17.27%          McKee International Institutional
FBO Westmoreland County Employees Retirement Fund                                   Equity Portfolio    Class Shares
PO Box 7780
Philadelphia, PA 19182-0001
- ------------------------------------------------------------------------------------------------------------------------
MAC & CO                                                            15.37%          McKee International  Institutional
A/C MIDF 8346BN2                                                                    Equity Portfolio     Class Shares
Mutual Funds Operations
PO Box 3198
Pittsburgh, PA 15230-3198
- ------------------------------------------------------------------------------------------------------------------------
Fulvest & CO                                                         9.22%          McKee International Institutional
FBO Lancaster County Era                                                            Equity Portfolio    Class Shares
PO Box 3215
Lancaster,  PA 17604-3215
- ------------------------------------------------------------------------------------------------------------------------
AllFirst Trust CO NA                                                 8.72%          McKee International  Institutional
FBO County of Dauphin Retirement Plan                                               Equity Portfolio     Class Shares
Security Processing 109-911
PO Box 1596
Baltimore, MD 21203-1596
- ------------------------------------------------------------------------------------------------------------------------
Saxon & Co.                                                          6.71%          McKee International Institutional
FBO Cumberland County City Employees Retirement CUST                                Equity Portfolio    Class Shares
PO Box 7780-1888
Philadelphia, PA 19182-0001
- ------------------------------------------------------------------------------------------------------------------------
Saxon & CO                                                           5.38%          McKee International Institutional
FBO Butler City Retirement                                                          Equity Portfolio    Class Shares
PO Box 7780-1888
Philadelphia, PA 19182-0001
- ------------------------------------------------------------------------------------------------------------------------
Keystone Financial Inc.                                              5.32%          McKee International Institutional
C/O Keystone Financial Trust OPS                                                    Equity Portfolio    Class Shares
P.O. Box 2450
Altoona, PA 16608-2450
- ------------------------------------------------------------------------------------------------------------------------
Light & CO                                                          20.81%          McKee Small Cap     Institutional
c/o AllFirst Trust CO NA                                                            Equity Portfolio    Class Shares
Security Processing 109-911
PO Box 1596
Baltimore,  MD 21203-1596
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      28

<PAGE>


<TABLE>
<CAPTION>
                                                                  Percentage of
 Name and Address of Shareholder                                   Shares Owned           Portfolio             Class
- ---------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>                   <C>                  <C>
     MAC & CO                                                            11.46%           McKee Small Cap    Institutional
     A/C MIDF 52561W2                                                                    Equity Portfolio       Class
     Mutual Funds Operations                                                                                   Shares
     PO Box 3198
     Pittsburgh, PA 15230-3198
- ---------------------------------------------------------------------------------------------------------------------------
     MAC & CO                                                             8.64%           McKee Small Cap    Institutional
     A/C MIDF 8346BN2                                                                    Equity Portfolio       Class
     Mutual Funds Operations                                                                                   Shares
     PO Box 3198
     Pittsburgh, PA 15230-3198
- ---------------------------------------------------------------------------------------------------------------------------
     Strafe & CO                                                          7.13%           McKee Small Cap    Institutional
     FBO Ironworkers   A/C 9388396001                                                    Equity Portfolio       Class
     PO Box 160                                                                                                Shares
     Westerville, OH 43086-0160
- ---------------------------------------------------------------------------------------------------------------------------
     Saxon & Co.                                                          5.94%           McKee Small Cap    Institutional
     FBO Cumberland County City Employees Retirement CUST                                Equity Portfolio       Class
     PO Box 7780-1888                                                                                          Shares
     Philadelphia, PA 19182-0001
- ---------------------------------------------------------------------------------------------------------------------------
     First Union National Bank                                            5.30%           McKee Small Cap    Institutional
     FBO Lackawanna City Employees Retirement Fund                                       Equity Portfolio       Class
     1525 West WT Harris Blvd CMG NC 1151                                                                      Shares
     Charlotte, NC 28288-8522
- ---------------------------------------------------------------------------------------------------------------------------
     Wilmington Trust Co                                                 34.45%             McKee U.S.       Institutional
     FBO Iron Workers Local 549 Security Plan                                               Government          Class
     c/o Mutual Funds                                                                        Portfolio         Shares
     PO Box 8971
     Wilmington, DE 19899-8971
- ---------------------------------------------------------------------------------------------------------------------------
     City of St. Mary's Police Pension Fund                               8.85%             McKee U.S.       Institutional
     808 S. Michael Road                                                                    Government          Class
     PO Box 1994                                                                             Portfolio         Shares
     Saint Mary's, PA 15857-5994
- ---------------------------------------------------------------------------------------------------------------------------
     Saxon & CO                                                           8.17%             McKee U.S.       Institutional
     Borough of Canonsburg                                                                  Government          Class
     68 E. Pike Street                                                                       Portfolio         Shares
     Canonsburg, PA 15317-1312
- ---------------------------------------------------------------------------------------------------------------------------
     Teamsters Local 211 Reserve Account                                  7.43%             McKee U.S.       Institutional
     625 Stanwix Street 1903                                                                Government          Class
     Pittsburgh, PA 15222-1406                                                             Portfolio         Shares
- ---------------------------------------------------------------------------------------------------------------------------
     Greene County Employees Retirement Fund                              6.19%             McKee U.S.       Institutional
     New County Office Bldg.                                                                Government          Class
     93 East High Street                                                                     Portfolio         Shares
     Waynesburg, PA 15370-1839
- ---------------------------------------------------------------------------------------------------------------------------
     Econony Borough Employees Fund                                       5.57%             McKee U.S.       Institutional
     c/o Controllers Office                                                                 Government          Class
     2856 Conway Wallrose Road                                                               Portfolio         Shares
     Baden, PA 15005-2306
- ---------------------------------------------------------------------------------------------------------------------------
     Zoar Home                                                            5.43%             McKee U.S.       Institutional
     801 Union Avenue                                                                       Government          Class
     Pittsburgh, PA 15212-5523                                                               Portfolio         Shares
</TABLE>

     Any shareholder 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. Shareholders controlling the portfolio
     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. As of
     February 1, 2000, the directors and officers of the Fund owned less than 1%
     of the outstanding shares of the portfolios.

                                      29
<PAGE>

INVESTMENT ADVISORY AND OTHER SERVICES

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 is a subsidiary of UAM. 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 more than 50 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

     This section summarizes some of the important provisions the Investment
     Advisory Agreements. The Fund has filed each agreement with the SEC as part
     of its registration statement on Form N-1A.

Service Performed by Adviser

     Each adviser:

     .   Manages the investment and reinvestment of a portfolio's assets;

     .   Continuously reviews, supervises and administers the investment program
         of a portfolio; and

     .   Determines what portion of a portfolio's assets will be invested in
         securities and what portion will consist of cash.


Limitation of Liability

     In the absence of (1) willful misfeasance, bad faith, or gross negligence
     on the part of the adviser in the performance of its obligations and duties
     under the Investment Advisory Agreement, (2) reckless disregard by the
     adviser of its obligations and duties under the Investment 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 Investment Advisory Agreement.

                                      30
<PAGE>

Continuing an Investment Advisory Agreement

     An Investment Advisory Agreement continues in effect for periods of one
     year so long as such continuance is specifically approved at least annually
     by a:

     .   Majority of those Board Members who are not parties to the Investment
         Advisory Agreement or interested persons of any such party; and

     .   (2) (a) majority of the Board Members or (b) a majority of the
         shareholders of the portfolio.


     Terminating an Investment Advisory Agreement

     The Fund may terminate an Investment Advisory Agreement at any time,
without the payment of any penalty if:

     .   A majority of the portfolio's shareholders vote to do so or a majority
of Board Members vote to do so; and

     .   It gives the adviser 60 days' written notice.

     The adviser may terminate the Investment Advisory Agreement at any time,
     without the payment of any penalty, upon 90 days' written notice to the
     Fund.

     An Investment Advisory Agreement will automatically and immediately
terminate if it is assigned.


Advisory Fees

     For its services, each portfolio pays its adviser the following annual
     fees, which are expressed as a percentage of the average daily net assets
     of the portfolio. Due to the effect of fee waivers by the adviser, the
     actual percentage of average net assets that a portfolio pays in any given
     year may be different from the rate set forth in its contract with the
     adviser. For the last three fiscal years, the portfolios paid the following
     in management fees to the adviser:

<TABLE>
<CAPTION>
                                                                    Investment Advisory Fees Paid
     ----------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>
     U.S. Government Portfolio
          1999                                                                 $  104,458
     ----------------------------------------------------------------------------------------------------------------------
          1998                                                                 $  188,898
     ----------------------------------------------------------------------------------------------------------------------
          1997                                                                 $  180,278
     ----------------------------------------------------------------------------------------------------------------------
     Domestic Equity Portfolio
          1999                                                                 $  302,499
     ----------------------------------------------------------------------------------------------------------------------
          1998                                                                 $  418,475
     ----------------------------------------------------------------------------------------------------------------------
          1997                                                                 $  589,228
     ----------------------------------------------------------------------------------------------------------------------
     International Equity Portfolio
          1999                                                                 $1,051,174
     ----------------------------------------------------------------------------------------------------------------------
          1998                                                                 $  857,075
     ----------------------------------------------------------------------------------------------------------------------
          1997                                                                 $  738,184
     ----------------------------------------------------------------------------------------------------------------------
     Small Cap Equity Portfolio
          1999                                                                 $  824,282
     ----------------------------------------------------------------------------------------------------------------------
          1998                                                                 $  675,734
     ----------------------------------------------------------------------------------------------------------------------
          1997                                                                      N/A
</TABLE>
<PAGE>

DISTRIBUTOR
- --------------------------------------------------------------------------------

     UAMFDI is 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.


SHAREHOLDER SERVICING ARRANGEMENTS
- --------------------------------------------------------------------------------


     UAM and each 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 or
     the 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.


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 Board Members 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.

                                      32
<PAGE>

     .   Trade association dues and expenses.

     .   Any extraordinary expenses and other customary Fund expenses.

     The Fund Administration Agreement continues in effect from year to year if
     the Board specifically approves such continuance every year. 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 automatically terminates upon its assignment by UAMFSI without
     the prior written consent of the Fund.

     UAMFSI will from time to time employ other people to assist it in
     performing its duties under the Fund Administration Agreement. Such people
     may be officers and employees who are employed by both UAMFSI and the Fund.
     UAMFSI will pay such people for such employment. The Fund will not incur
     any obligations with respect to such people.






Administration and Transfer Agency Services Fees


     Each portfolio pays a four-part fee to UAMFSI as follows:

     1.  In exchange for administrative services, a portfolio pays a fee to
         UAMFSI calculated at the annual rate of:

         .   $19,500 for the first operational class; plus

         .   $3,750 for each additional class; plus

         .   A fee calculated from the aggregate net assets of each portfolio at
             the following rates:

<TABLE>
<CAPTION>
                                                                                                    Annual Rate
             --------------------------------------------------------------------------------------------------------------
<S>                                                                                                 <C>
             U.S. Government Portfolio                                                                0.043%
             --------------------------------------------------------------------------------------------------------------
             Domestic Equity Portfolio                                                                0.043%
             --------------------------------------------------------------------------------------------------------------
             International Equity Portfolio                                                           0.063%
             --------------------------------------------------------------------------------------------------------------
             Small Cap Equity Portfolio                                                               0.043%
</TABLE>

     2.  Each portfolio also pays a fee to UAMFSI for sub-administration and
         other services provided by SEI. The fee, which UAMFSI pays to SEI, is
         calculated at the annual rate of:

         .   Not more than $35,000 for the first operational class; plus

         .   $5,000 for each additional operational class; plus

         .   0.03% of their pro rata share of the combined assets of the UAM
             Funds Complex.

     3.  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.

     4.  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.

     For the last three fiscal years the portfolios paid the following in
     administration and sub-administration fees:

<TABLE>
<CAPTION>
                                    Administrators Fee           Sub-Administrators Fee       Total Administration Fee
     ---------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>                          <C>
     U.S. Government Portfolio
          1999                            $18,087                       $61,618                        $79,705
     ---------------------------------------------------------------------------------------------------------------------
          1998                           $102,948                       $83,328                       $186,276
</TABLE>

                                      33
<PAGE>

<TABLE>
<S>                                <C>                           <C>                    <C>
          1997                            $99,215                       $83,206                       $182,421
     ---------------------------------------------------------------------------------------------------------------------
     Domestic Equity Portfolio
          1999                            $27,987                       $70,883                        $98,870
     ---------------------------------------------------------------------------------------------------------------------
          1998                           $112,236                       $83,629                       $195,865
     ---------------------------------------------------------------------------------------------------------------------
          1997                           $127,984                       $91,727                       $219,711
     ---------------------------------------------------------------------------------------------------------------------
     International Equity
     Portfolio
          1999                           $104,039                       $109,597                      $213,636
     ---------------------------------------------------------------------------------------------------------------------
          1998                           $198,575                       $120,940                      $319,515
     ---------------------------------------------------------------------------------------------------------------------
          1997                           $178,372                       $115,116                      $293,488
     ---------------------------------------------------------------------------------------------------------------------
     Small Cap Equity
     Portfolio
          1999                            $43,277                       $71,221                       $114,498
     ---------------------------------------------------------------------------------------------------------------------
          1998                            $93,068                       $63,571                       $156,639
     ---------------------------------------------------------------------------------------------------------------------
          1997                              N/A                         $188,977                         N/A
</TABLE>

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 Accountants
- --------------------------------------------------------------------------------

     PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts
02110, serves as independent accountant for the Fund.




BROKERAGE ALLOCATION AND OTHER PRACTICES

Selection of Brokers
- --------------------------------------------------------------------------------


     Each Investment Advisory Agreement authorizes the adviser to select the
     brokers or dealers that will execute the purchases and sales of investment
     securities for each portfolio. The Investment Agreement also directs the
     adviser to use its best efforts to obtain the best execution with respect
     to all transactions for the 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
     Investment 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.

     It is not the practice of the Fund to allocate brokerage or effect
     principal transactions with dealers based on sales of shares that a
     broker-dealer firm makes. However, the Fund may place trades with qualified
     broker-dealers who recommend the Fund or who act as agents in the purchase
     of Fund shares for their clients.


Simultaneous Transactions
- --------------------------------------------------------------------------------


     The adviser makes investment decisions for each 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

                                      34
<PAGE>


     specified formula for allocating such transactions, the Fund's governing
     board periodically reviews the various allocation methods used by the
     adviser.


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, a portfolio 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.


Commissions Paid

     For the last three fiscal years, the portfolios paid the following in
brokerage commissions:

<TABLE>
<CAPTION>
                                                                          Brokerage Commissions
     -------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>
     U.S. Government Portfolio
          1999                                                                   $     0
     -------------------------------------------------------------------------------------------------------------------------
          1998                                                                   $12,459
     -------------------------------------------------------------------------------------------------------------------------
          1997                                                                   $     0
     -------------------------------------------------------------------------------------------------------------------------
     Domestic Equity Portfolio
          1999                                                                  $110,547
     -------------------------------------------------------------------------------------------------------------------------
          1998                                                                  $174,853
     -------------------------------------------------------------------------------------------------------------------------
          1997                                                                  $172,158
     -------------------------------------------------------------------------------------------------------------------------
     International Equity Portfolio
          1999                                                                  $339,129
     -------------------------------------------------------------------------------------------------------------------------
          1998                                                                  $211,763
     -------------------------------------------------------------------------------------------------------------------------
          1997                                                                  $199,969
     -------------------------------------------------------------------------------------------------------------------------
     Small Cap Equity Portfolio
          1999                                                                  $212,727
     -------------------------------------------------------------------------------------------------------------------------
          1998                                                                  $188,977
     -------------------------------------------------------------------------------------------------------------------------
          1997                                                                     N/A
</TABLE>

CAPITAL STOCK AND OTHER SECURITIES

The Fund

     The Fund was organized under the name "The ICM Fund, Inc." as a Maryland
     corporation on October 11, 1988. On January 18, 1989, the Fund changed its
     name 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 211 Congress Street, Boston, MA

                                      35
<PAGE>


     02110; however, shareholders should direct all correspondence to the
     address listed on the cover of this SAI. The Fund is an open-end management
     company.


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 1940
     Act or other applicable law.


Dividend and Distribution Options

     There are three ways for shareholders to receive dividends and capital
     gains:

     .   Income dividends and capital gains distributions are reinvested in
         additional shares at net asset value;

     .   Income dividends are paid in cash and capital gains distributions are
         reinvested in additional shares at NAV; and

     .   Income dividends and capital gains distributions are paid in cash.

     Unless the shareholder elects otherwise in writing, the fund will
     automatically reinvest all dividends in additional shares of the portfolio
     at NAV (as of the business day following the record date). Shareholders may
     change their dividend and distributions option by writing to the fund at
     least three days before the record date for income dividend or capital gain
     distribution.

     The fund sends account statements to shareholders whenever it pays an
     income dividend or capital gains distribution.

                                      36
<PAGE>


FEDERAL TAXES

     Each portfolio intends to qualify as a regulated investment company under
     Subchapter M of the Internal Revenue Code, and to distribute out its income
     to shareholders each year so that the portfolio itself generally will be
     relieved of federal income and excise taxes. If a portfolio were to fail to
     so qualify: (1) it would be taxed at regular corporate rates without any
     deduction for distributions to shareholder; and (2) its shareholders would
     be taxed as if they received ordinary dividends, although corporate
     shareholders could be eligible for the dividends received deduction.

     A portfolios' dividends that are paid to their corporate shareholders and
     are attributable to qualifying dividends it received from U.S. domestic
     corporations may be eligible, in the hands of such shareholders, for the
     corporate dividends received deduction, subject to certain holding period
     requirements and debt financing limitations.

PURCHASE, REDEMPTION AND PRICING OF SHARES


NET ASSET VALUE PER SHARE
- ----------------------------------------------------------------------------

Calculating NAV

     The purchase and redemption price of the shares of a portfolio is equal to
     the NAV of the portfolio. The Fund calculates the NAV of a portfolio by
     subtracting its liabilities from its total assets and dividing the result
     by the total number of shares outstanding. For purposes of this
     calculation:

     .   Liabilities include accrued expenses and dividends payable; and

     .   Total assets include the market value of the securities held by the
         portfolio, plus cash and other assets plus income accrued but not yet
         received.

     Each portfolio normally calculates its NAV as of the close of trading on
     the NYSE every day the NYSE is open for trading. The NYSE usually closes at
     4:00 p.m. The NYSE is closed on the following days: 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.

How the Fund Values it Assets

     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.


                                      37
<PAGE>


     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 governing board.



Purchase of Shares
- ------------------------------------------------------------------------------


     Service Agents may enter confirmed purchase orders on behalf of their
     customers. To do so, the Service Agent must receive your investment order
     before the close of trading on the NYSE and must transmit it to the fund
     before the close of its business day to receive that day's share price. The
     fund must receive proper payment for the order by the time the portfolio
     calculates its NAV 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.

     Shareholders can buy full and fractional (calculated to three decimal
     places) shares of a portfolio. The fund will not issue certificates for
     fractional shares and will only issue certificates for whole shares upon
     the written request of a shareholder.

     The Fund may 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


     At its discretion, the Fund may permit shareholders to purchase shares of
     the portfolio with securities, instead of cash. If the Fund allows a
     shareholder to make an in-kind purchase, it will value such securities
     according to the policies described under "How the Fund Values it Assets"
     at the next determination of net asset value after acceptance. The Fund
     will issue shares of the portfolio at the NAV of the portfolio determined
     as of the same time.

     The Fund will only acquire securities through an in-kind purchase for
     investment and not for immediate resale. The Fund will only accept in-kind
     purchases if the transaction meets the following conditions:

     .   The securities are eligible investments for the portfolio;

     .   The securities have readily available market quotations;

     .   The investor represents and agrees that the securities are liquid and
         that there are no restrictions on their resale imposed by the 1933 Act
         or otherwise;

     .   All dividends, interest, subscription, or other rights pertaining to
         such securities become the property of the portfolio and are delivered
         to the fund by the investor upon receipt from the issuer; and

     .   Immediately after the transaction is complete, the value of all
         securities of the same issuer held by the portfolio cannot exceed 5% of
         the net assets of the portfolio. This condition does not apply to U.S.
         government securities.


                                      38
<PAGE>

     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 the shareholder wishes to redeem signed by all
         registered owners of the shares in the exact names in which they are
         registered;

     .   Any required signature guarantees (see "Signature Guarantees"); and

     .   Any other necessary legal documents for estates, trusts, guardianships,
         custodianships, corporations, pension and profit sharing plans and
         other organizations.


  By Telephone

     Shareholders may not do the following by telephone:

     .   Change the name of the commercial bank or the account designated to
         receive redemption proceeds. To change an account in this manner, you
         must submit a written request signed by each shareholder, with each
         signature guaranteed.

     .   Redeem shares represented by a certificate.

     The Fund and UAMSSC will employ reasonable procedures to confirm that
     instructions communicated by telephone are genuine, and they may be liable
     for any losses if they fail to do so. These procedures include requiring
     the investor to provide certain personal identification at the time an
     account is opened and before 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 UAMSSC may be liable
     for any losses due to unauthorized or fraudulent telephone instructions if
     the Fund or the UAMSSC does not employ the procedures described above.
     Neither the Fund nor the UAMSSC 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.

                                      39
<PAGE>


     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 Board 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


     The Fund requires signature guarantees for certain types of documents,
     including:

     .   Written requests for redemption;

     .   Separate instruments for assignment ("stock power"), which should
         specify the total number of shares to be redeemed; and

     .   On all stock certificates tendered for redemption.

     The purpose of signature guarantees is to verify the identity of the person
     who has authorized a redemption from your account and to protect your
     account, the Fund and its sub-transfer agent from fraud.

     The Fund will accept signature guarantees from any eligible guarantor
     institution, as defined by the Securities Exchange Act of 1934 that
     participates in a signature guarantee program. Eligible guarantor
     institutions include banks, brokers, dealers, credit unions, national
     securities exchanges, registered securities associations, clearing agencies
     and savings associations. You can get a complete definition of eligible
     guarantor institutions by calling 1-877-826-5465. 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.


Other Redemption Information


     Normally, the Fund will pay for all shares redeemed under proper procedures
     within seven days after it received your request. However, the Fund will
     pay your redemption proceeds earlier as applicable law so requires.

     When the Fund may suspend redemption privileges or postpone the date of
     payment:

     .   when the NYSE and custodian bank are closed;

     .   when trading on the NYSE is restricted;

     .   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; or

     .   for such other periods as the Commission may permit.


                                      40
<PAGE>

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 for exchanges.

     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.





PERFORMANCE CALCULATIONS

     Each portfolio measures its performance by calculating its yield and total
     return. Yield and total return figures are based on historical earnings and
     are not intended to indicate future performance. The portfolio calculates
     its current yield and average annual total return information according to
     the methods required by the SEC. The performance is calculated separately
     for each portfolio.




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. 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 fund calculates the average annual total return of a portfolio by
     finding the average annual compounded rates of return over one, five and
     ten-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.


     The fund calculates these figures according to the following formula:

         P (1 + T)n = ERV

         Where:

         P      =   a hypothetical initial payment of $1,000

         T      =   average annual total return


                                      41
<PAGE>

         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).


     Set forth in the table below are the portfolios' average annual returns for
     the one-year period and the five-year period ended October 31, 1999 and the
     shorter of the ten-year period ended October 30, 1999 or the period from a
     portfolio's inception date through October 31, 1999.


<TABLE>
<CAPTION>
                                                            Shorter of
                                                           10 Years or         30-Day
                               One Year    Five Years    Since Inception        Yield      Inception Date
- ---------------------------------------------------------------------------------------------------------------------
<S>                              <C>         <C>          <C>                  <C>           <C>
U.S. Government Portfolio        2.44%         N/A            5.56%              5.46%          03/02/95
- ---------------------------------------------------------------------------------------------------------------------
Domestic Equity Portfolio        13.76%        N/A           17.40%              N/A            12/31/98
- ---------------------------------------------------------------------------------------------------------------------
International Equity Portfolio   30.33%      10.83%          10.77%              N/A            12/31/99
- ---------------------------------------------------------------------------------------------------------------------
Small Cap Equity Portfolio       0.81%         N/A            7.66%              N/A            11/04/97
- ---------------------------------------------------------------------------------------------------------------------
</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 mutual 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
- ------------------------------------------------------------------------------

     A 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 this SAI. This information may also be included in
     sales literature and advertising.


     To help investors better evaluate how an investment in a portfolio might
     satisfy their investment objective, advertisements regarding the Fund may
     discuss various measures of Fund performance as reported by various
     financial


                                      42
<PAGE>


     publications. Advertisements may also compare performance (as calculated
     above) to performance as reported by other investments, indices and
     averages. Please see "Comparative Benchmarks" 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 a
         portfolio;

     .   that the indices and averages are generally unmanaged; and

     .   that the items included in the calculations of such averages may not be
         identical to the formula used by a portfolio to calculate its
         performance; and

     .   that shareholders cannot invest directly in such indices or averages.

     In addition, there can be no assurance that a portfolio will continue this
     performance as compared to such other averages.

FINANCIAL STATEMENTS


     The following documents are included in the portfolios' October 31, 1999
     Annual Report:

     .   Financial statements for the fiscal year ended October 31, 1999.

     .   Financial highlights for the respective periods presented

     .   The report of PricewaterhouseCoopers LLP.

     Each of the above-referenced documents is incorporated by reference into
     this SAI. However, no other parts of the portfolios' Annual Reports are
     incorporated by reference herein. Shareholders may get copies of the
     portfolios' Annual Reports free of charge by calling the UAM Funds at the
     telephone number appearing on the front page of this SAI.


GLOSSARY

     All terms that this SAI does not otherwise define, have the same meaning
     in the SAI as they do in the prospectus(es) of the portfolios.

     1933 Act means the Securities Act of 1933, as amended.

     1934 Act means the Securities Exchange Act of 1934, as amended.

     1940 Act means the Investment Company Act of 1940, as amended.

     Adviser means the investment adviser to each portfolio.

     Board Member refers to a single member of the Fund's Board.

     Board refers to the Fund's Board of Trustees as a group.

     SEI is SEI Investments Mutual Funds Services, the Fund's sub-
     administrator.

     Fund refers to UAM Funds, Inc.

     Governing Board, see Board.

     NAV is the net asset value per share of a portfolio.



                                      43
<PAGE>

     NYSE is the New York Stock Exchange. Also known as "The Exchange" or "The
     Big Board," the NYSE is located on Wall Street and is the largest exchange
     in the United States.

     Portfolio refers to a single series of the Fund, while portfolios refer to
     all of the series of the Fund.

     SEC is the Securities and Exchange Commission. The SEC is the federal
     agency that administers most of the federal securities laws in the United
     States. In particular, the SEC administers the 1933 ACT, the 1940 ACT and
     the 1934 ACT.

     UAM Funds Complex includes UAM Funds, Inc., UAM Funds Trust, UAM Funds
     Inc. II and all of their portfolios.

     UAM is United Asset Management Corporation.

     UAMFDI is UAM Fund Distributors, Inc., the Fund's distributor.

     UAMFSI is UAM Fund Services, Inc., the Fund's administrator.

     UAMSSC is UAM Fund Shareholder Servicing Center, the Fund's sub-
     shareholder servicing agent.


BOND 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 stocks.

     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 that 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 period 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.

                                      44
<PAGE>

     plus (+) or    Moody's applies numerical modifiers 1, 2, and 3 in each
     minus (-)      rating classification: the modifier 1 indicates that the
                    security ranks in the higher end of its generic rating
                    catefory; 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.

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-grade
                    obligations. Factors giving security to principal and
                    interest are considered adequate, but elements may be
                    present which suggest a susceptibility to impairment
                    sometime in the future.

     Baa            Bonds which are rated Baa are 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.

     Con. (...)     (This rating applies only to U.S. Tax-Exempt Municipals)
                    Bonds for which the security depends upon the completion
                    of some act or the fulfillment of some condition
                    are rated conditionally. These are bonds secured by (a)
                    earnings of projects under construction, (b) earnings of
                    projects unseasoned in operating experience, (c) rentals
                    that begin when facilities are completed, or (d) payments
                    to which some other limiting condition attaches.
                    Parenthetical rating denotes probable credit stature upon
                    completion of construction or elimination of basis of
                    condition.

                                      45
<PAGE>

     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.

     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:

                     .   Leading market positions in well-established
                         industries.

                     .   Conservative capitalization structure with
                         moderate reliance on debt and ample asset
                         protection.

                     .   Broad 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
- --------------------------------------------------------------------------------



Long-Term Issue Credit Ratings


     Issue credit ratings are based, in varying degrees, on the following
     considerations:

     1. 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;

                                      46
<PAGE>


     2. Nature of and provisions of the obligation;

     3. 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.





        The issue rating definitions are expressed in terms of default risk. As
        such, they pertain to senior obligations of an entity. Junior
        obligations are typically rated lower than senior obligations, to
        reflect the lower priority in bankruptcy, as noted above. Accordingly,
        in the case of junior debt, the rating may not conform exactly with the
        category definition.



     AAA       An obligation rated 'AAA' has 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 obligor 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.

     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         A subordinated debt or preferred stock obligation rated 'C'
               is CURENTLY HIGHLY VULNERABLE to non-payment. The 'C'
               rating may be used to cover a situation where a bankruptcy
               petition has been filed or similar action taken, but
               payments on this obligation are being continued. A 'C' will
               also be assigned to a preferred stock issue in arrears on
               dividends or sinking fund payments, but that is currently
               paying.

                                      47
<PAGE>

     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.

     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.


     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 obligation as a matter of policy.

     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.


Short-Term Issue Credit 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 obligations in
               higher rating categories. However, the obligor's capacity to
               meet its financial commitment on the obligation is
               satisfactory.

     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.

Local Currency and Foreign Currency Risks

     Country risks considerations are a standard part of Standard & Poor's
     analysis for credit ratings on any issuer or issue. Currency of repayment
     is a key factor in this analysis. An obligor's capacity to repay foreign
     currency obligations may

                                      48
<PAGE>


     be lower than its capacity to repay obligations in its local currency due
     to the sovereign government's own relatively lower capacity to repay
     external versus domestic debt. These sovereign risk considerations are
     incorporated in the debt ratings assigned to specific issues. Foreign
     currency issuer ratings are also distinguished from local currency issuer
     ratings to identity those instances where sovereign risks make them
     different for the same issuer.



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
     AA-       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/   Below investment grade but deemed likely to meet obligations when
     BB-       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 met 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.

     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.

                                      49
<PAGE>

     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 of
               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         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.

     BBB       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.

                                      50
<PAGE>

     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. The ratings of obligations in this category are
               based on their prospects for achieving partial or full
               recovery in a reorganization or liquidation of the obligor.
               While expected recovery values are highly speculative and
               cannot be estimated with any precision, the following serve
               as general guidelines. "DDD" obligations have the highest
               potential for recovery, around 90%-100% of outstanding
               amounts and accrued interest. "D" indicates potential
               recoveries in the range of 50%-90%, and "D" the lowest
               recovery potential, i.e., below 50%.

                    Entities rated in this category have defaulted on some or
               all of their obligations. Entities rated "DDD" have the highest
               prospect for resumption of performance or continued operation
               with or without a formal reorganization process. Entities rated
               "DD" and "D" are generally undergoing a formal reorganization or
               liquidation process; those rated "DD" are likely to satisfy a
               higher portion of their outstanding obligations, while
               entities rated "D" have a poor prospect for repaying all
               obligations.


International Short-Term Credit Ratings

     F1        Highest credit quality. Indicates the Best 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.

     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,

                                      51
<PAGE>

     "Negative", for a potential downgrade, or "Evolving", if ratings may be
     raised, lowered or maintained. RatingAlert is typically resolved over a
     relatively short period.




COMPARATIVE BENCHMARKS
     (alphabetically)



     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.

     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.

     Donoghue's Money Fund Average -- is an average of all major money market
     fund yields, published weekly for 7 and 30-day yields.

     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.


     Financial publications: Business Week, Changing Times, Financial World,
     Forbes, Fortune, Money, Barron's, Consumer's Digest, Financial Times,
     Global Investor, Investor's Daily, Lipper, Inc., Morningstar, Inc., The New
     York Times, Personal Investor, The Wall Street Journal and Weisenberger
     Investment Companies Service -- publications that rate fund performance
     over specified time periods.


     Historical data supplied by the research departments of First Boston
     Corporation, J.P. Morgan & Co, Inc., Salomon Smith Barney, Merrill Lynch &
     Co., Inc., Lehman Brothers, Inc. and Bloomberg L.P.


     IBC's Money Fund Average/All Taxable Index - an average of all major money
     market fund yields, published weekly for 7- and 30-day yields.

     IFC Investable Composite Index - an unmanaged market
     capitalization-weighted index maintained by the International Finance
     Corporation. This index consists of over 890 companies in 26 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.

     Lehman Brothers Indices:
     -----------------------

     Lehman Brothers Aggregate Bond Index - an unmanaged fixed income market
     value-weighted index that combines the Lehman Government/Corporate Index
     and the Lehman Mortgage-Backed Securities Index, and includes treasury
     issues, agency issues, corporate bond issues and mortgage backed
     securities. It includes fixed rate issuers of investment grade (BBB) or
     higher, with maturities of at least one year and outstanding par values of
     at least $100 million for U.S. government issues and $25 million for
     others.

     Lehman Brothers Corporate Bond Index - an unmanaged index of all publicly
     issued, fixed-rate, nonconvertible investment grade domestic corporate
     debt. Also included are yankee bonds, which are dollar-denominated SEC

                                      52
<PAGE>

registered public, noncovertible debt issued or guaranteed by foreign sovereign
governments, municipalities, or governmental agencies, or international
agencies.

Lehman Brothers Government Bond Index -an unmanaged treasury bond index
including all public obligations of the U.S. Treasury, excluding flower bonds
and foreign-targeted issues, and the Agency Bond Index (all publicly issued debt
of U.S. government agencies and quasi-federal corporations, and corporate debt
guaranteed by the U.S. government). In addition to the aggregate index, sub-
indices cover intermediate and long term issues.

Lehman Brothers Government/Corporate Bond Index -- an unmanaged fixed income
market value-weighted index that combines the Government and Corporate Bond
Indices, including U.S. government treasury securities, corporate and yankee
bonds. All issues are investment grade (BBB) or higher, with maturities of at
least one year and outstanding par value of at least $100 million of 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.

Lehman Brothers High Yield Bond Index - an unmanaged index of fixed rate, non-
investment grade debt. All bonds included in the index are dollar denominated,
noncovertible, have at least one year remaining to maturity and an outstanding
par value of at least $100 million.

Lehman Brothers Intermediate Government/Corporate Index - an unmanaged fixed
income, market value-weighted index that combines the Lehman Brothers Government
Bond Index (intermediate-term sub-index) and four corporate bond sectors.

Lehman Brothers Mortgage-Backed Securities Index - an unmanaged index of all
fixed-rate securities backed by mortgage pools of Government National Mortgage
Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC), and Federal
National Mortgage Association (FNMA).

Lipper, Inc./Lipper Indices/Lipper Averages
- -------------------------------------------

The Lipper Indices are equally weighted indices for typically the 30 largest
mutual funds within their respective portfolio investment objectives. The
indices are currently grouped in six categories: U.S. Diversified Equity with 12
indices; Equity with 27 indices, Taxable Fixed-Income with 20 indices, Tax-
Exempt Fixed-Income with 28 indices, Closed-End Funds with 16 indices, and
Variable Annuity Funds with 18 indices.

In September, 1999, Lipper, Inc. introduced its new portfolio-based mutual fund
classification method in which peer comparisons are based upon characteristics
of the specific stocks in the underlying funds, rather than upon a broader
investment objective stated in a prospectus. Certain of Lipper, Inc.'s
classifications for general equity funds' investment objectives were changed
while other equity objectives remain unchanged. Changing investment objectives
include Capital Appreciation Funds, Growth Funds, Mid-Cap Funds, Small-Cap
Funds, Micro-Cap Funds, Growth & Income Funds, and Equity Income Funds.
Unchanged investment objectives include Sector Equity Funds, World Equity Funds,
Mixed Equity Funds, and certain other funds including all Fixed Income Funds and
S&P(R) Index Funds.

Criteria for the Lipper Indices are: 1) component funds are largest in group; 2)
number of component funds remains the same (30); 3) component funds are defined
annually; 4) can be linked historically; and 5) are used as a benchmark for fund
performance.

Criteria for the Lipper Averages are: 1) includes all funds in the group in
existence for the period; 2) number of component funds always changes; 3)
universes are dynamic due to revisions for new funds, mergers, liquidations,
etc.; and 4) will be inaccurate if historical averages are linked.

Certain Lipper, Inc. indices/averages used by the UAM Funds may include, but are
not limited to, the following:

Lipper Short-Intermediate Investment Grade Debt Funds Average -- is an average
of 100 funds that invest at least 65% of assets in investment grade debt issues
(BBB or higher) with dollar-weighted average maturities of one to five years or
less. (Taxable Fixed-Income category)

                                      53
<PAGE>


Lipper Balanced Fund Index - an unmanaged index of open-end equity funds whose
primary objective is to conserve principal by maintaining at all times a
balanced portfolio of both stocks and bonds. Typically, the stock/bond ratio
ranges around 60%/40%. (Equity category)

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. (Equity category)

Lipper Equity Mid Cap Fund Index - an unmanaged index of funds that by
prospectus or portfolio practice invest primarily in companies with market
capitalizations less than $5 billion at the time of purchase. (Equity category)

Lipper Equity Small Cap Fund Index - an unmanaged index of funds prospectus or
portfolio practice invest primarily in companies with market capitalizations
less than $1 billion at the time of purchase. (Equity category)

Lipper Growth Fund Index - an unmanaged index composed of the 30 largest funds
by asset size which invest in companies with long-term earnings expected to grow
significantly faster than the earnings of the stocks represented in the major
unmanaged stock indices. (Equity category)

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.

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 (BBB or higher).

Merrill Lynch 1-3 Year Treasury Index - an unmanaged index composed of U.S.
securities with maturities from 1 to 3 years.

Morgan Stanley Capital International EAFE Index -- 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.

Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price, yield,
risk and total return for equity funds.

NASDAQ Composite Index -- is a market capitalization, price only, unmanaged
index that tracks the performance of domestic common stocks traded on the
regular NASDAQ market as well as national market System traded foreign common
stocks and ADRs.

Nekkei Stock Average - a price weighted index of 225 selected leading stocks
listed on the First Section of the Tokyo Stock Exchange.

New York Stock Exchange composite or component indices --capitalization-weighted
unmanaged indices of all industrial, utilities, transportation and finance
stocks listed on the New York Stock Exchange.

Russell U.S. Equity Indexes:
- ---------------------------

Russell 3000(R)Index - measures the performance of the 3,000 largest U.S.
companies based on total market capitalization, which represents approximately
98% of the investable U.S. equity market.

Russell 1000(R) Index - an unmanaged index which measures the performance of the
1,000 largest companies in the Russell 3000 Index, which represents
approximately 92% of the total market capitalization of the Russell 3000 Index.


                                      54
<PAGE>

Russell 2000(R) Index -- an unmanaged index which measures the performance of
the 2,000 smallest companies in the Russell 3000 Index, which represents
approximately 8% of the total market capitalization of the Russell 3000 Index.

Russell Top 200(TM) Index - measures the performance of the 200 largest
companies in the Russell 1000 Index, which represents approximately 74% of the
total market capitalization of the Russell 1000 Index.

Russell Mid-Cap(TM) Index -- measures the performance of the 800 smallest
companies in the Russell 1000 Index, which represents approximately 26% of the
total market capitalization of the Russell 1000 Index.

Russell 2500(TM) Index - an unmanaged index which measures the performance of
the 2,5000 smallest companies in the Russell 3000 Index, which represents
approximately 17% of the total market capitalization of the Russell 3000 Index.

Russell 3000(R) Growth Index - measures the performance of those Russell 3000
Index companies with higher price-to-book ratios and higher forecasted growth
values. The stocks in this index are also members of either the Russell 1000
Growth or the Russell 2000 Growth indexes.

Russell 3000(R) Value Index - measures the performance of those Russell 3000
Index companies with lower price-to-book ratios and lower forecasted growth
values. The stocks in this index are also members of either the Russell 1000
Value or the Russell 2000 Value indexes.

Russell 1000(R) Growth Index - measures the performance of those Russell 1000
companies with higher price-to-book ratios and higher forecasted growth values.

Russell 1000(R) Value Index - measures the performance of those Russell 1000
with lower price-to-book ratios and lower forecasted growth values.

Russell 2000(R) Growth Index - measures the performance of those Russell 2000
companies with higher price-to-book ratios and higher forecasted growth values.

Russell 2000(R) Value Index - measures the performance of those Russell 2000
companies with lower price-to-book ratios and lower forecasted growth values.

Russell Top 200(TM) Growth Index - measures the performance of those Russell Top
200 companies with higher price-to-book ratios and higher forecasted growth
values. The stocks re also members of the Russell 1000 Growth index.

Russell Top 200(TM) Value Index - measures the performance of those Russell Top
200 companies with lower price-to-book ratios and lower forecasted growth
values. The stocks are also members of the Russell 1000 Value index.

Russell Midcap(TM) Growth Index - measures the performance of those Russell
Midcap companies with higher price-to-book ratios and higher forecasted growth
values. The stocks are also members of the Russell 1000 Growth index.

Russell Midcap(TM) Value Index - measures the performance of those Russell
Midcap companies with lower price-to-book ratios and lower forecasted growth
values. The stocks are also members of the Russell 1000 Value index.

Russell 2500(TM) Growth Index - measures the performance of those Russell 2500
companies with higher price-to-book ratios and higher forecasted growth values.

Russell 2500(TM) Value Index - measures the performance of those Russell 2500
companies with lower price-to-book ratios and lower forecasted growth values.

Ryan Labs 5 Year GIC Master Index - an arithmetic mean of market rates of $1
million GIC contracts held for five years. The market rates are representative
of a diversified, investment grade portfolio of contracts issued by credit
worthy insurance companies. The index is unmanaged and does not reflect any
transaction costs. Direct investment in the index is not possible.

Standard & Poor's U.S. Indices:
- ------------------------------

In October, 1999, Standard & Poor's and Morgan Stanley Capital International
launched a new global industry classification standard consisting of 10 economic
sectors aggregated from 23 industry groups, 59 industries, and 123 sub-
industries covering almost 6,000 companies globally. The new classification
standard will be used with all of their

                                      55
<PAGE>

respective indices. Features of the new classification include 10 economic
sectors, rather than the 11 S&P currently uses. Sector and industry gradations
are less severe. Rather than jumping from 11 sectors to 115 industries under the
former S&P system, the new system progresses from 10 sectors through 23 industry
groups, 50 industries and 123 sub-industries.

S&P 500 Index - an unmanaged index composed of 400 industrial stocks, 40
financial stocks, 40 utilities stocks and 20 transportation stocks. Widely
regarded as the standard for measuring large-cap U.S. stock market performance.
It is used by 97% of U.S. money managers and pension plan sponsors. More than $1
trillion is indexed to the S&P 500.

S&P MidCap 400 Index -- consists of 400 domestic stocks chosen for market size,
liquidity, and industry group representation. It is a market-value weighted
index with each stock affecting the index in proportion to its market value. It
is used by over 95% of U.S. managers and pension plan sponsors. More than $25
billion is indexed to the S&P Midcap400.

S&P Small Cap 600 Index - an unmanaged index comprised of 600 domestic stocks
chosen for market size, liquidity, and industry group representation. The index
is comprised of stocks from the industrial, utility, financial, and
transportation sectors. It is gaining wide acceptance as the preferred benchmark
for both active and passive management due to its low turnover and greater
liquidity. Approximately $8 billion is indexed to the S&P SmallCap 600.

S&P SuperComposite 1500 - combines the S&P 500, MidCap 400, and SmallCap 600
indices, representing 87% of the total U.S. equity market capitalization.

S&P 100 Index - known by its ticker symbol OEX, this index measures large
company U.S. stock market performance. This market capitalization-weighted index
is made up of 100 major, blue chip stocks across diverse industry groups.

S&P/BARRA Growth and Value Indices - are constructed by dividing the securities
in the S&P 500 Index according to price-to-book ratio. The Value index contains
the companies with the lower price-to-book ratios; while the companies with the
higher price-to-book ratios are contained in the Growth index.

S&P REIT Composite Index - launched in 1997, this benchmark tracks the market
performance of U.S. Real Estate Investment Trusts, known as REITS. The REIT
Composite consists of 100 REITs chosen for their liquidity and importance in
representing a diversified real estate portfolio. The Index covers over 80% of
the securitized U.S. real estate market.

S&P Utilities Stock Price Index - a market capitalization weighted index
representing three utility groups and, with the three groups, 43 of the largest
utility companies listed on the New York Stock Exchange, including 23 electric
power companies, 12 natural gas distributors and 8 telephone companies.

Standard & Poor's CANADA Indices:
- --------------------------------

S&P/TSE Canadian MidCap Index - measures the performance of the mid-size segment
of the Canadian equity market.

S&P/TSE Canadian SmallCap Index - Measures the small company segment of the
Canadian equity market.

Standard & Poor's Global Indices:
- --------------------------------

S&P Global 1200 Index - aims to provide investors with an investable portfolio.
This index, which covers 29 countries and consists of seven regional components,
offers global investors an easily accessible, tradable set of stocks and
particularly suits the new generation of index products, such as exchange-traded
funds (ETFs).

S&P Euro and S&P Euro Plus Indices - the S&P Euro Index covers the Eurobloc
countries; the Euro Plus Index includes the Euro markets as well as Denmark,
Norway, Sweden and Switzerland. The S&P Euro Plus Index contains 200
constituents, and the S&P Euro Index, a subset of Euro Plus, contains 160
constituents. Both indices provide geographic and economic diversity over 11
industry sectors.

S&P/TSE 60 Index - developed with the Toronto Stock Exchange, is designed as the
new Canadian large cap benchmark and will ultimately replace the Toronto 35 and
the TSE 100.

                                      56
<PAGE>


S&P/TOPIX 150 - includes 150 highly liquid securities selected from each major
sector of the Tokyo market. It is designed specifically to give portfolio
managers and derivative traders an index that is broad enough to provide
representation of the market, but narrow enough to ensure liquidity.

S&P Asia Pacific 100 Index - includes highly liquid securities from each major
economic sector of major Asia-Pacific equity markets. Seven countries--
Australia, Hong Kong, Korea, Malaysia, New Zealand, Singapore, and Taiwan -- are
represented in the new index.

S&P Latin America 40 Index -part of the S&P Global 1200 Index, includes highly
liquid securities from major economic sectors of Mexican and South American
equity markets. Companies from Mexico, Brazil, Argentina, and Chile are
represented in the new index.

S&P United Kingdom 150 Index - includes 150 highly liquid securities selected
from each of the new S&P sectors. The S&P UK 150 is designed to be broad enough
to provide representation of the market, but narrow enough to ensure
liquidity.

Salomon Smith Barney Global excluding U.S. Equity Index - an unmanaged index
comprised of the smallest stocks (less than $1 billion market capitalization) of
the Extended Market Index, of both developed and emerging markets.

Salomon Smith Barney One to Three Year Treasury Index - an unmanaged index
comprised of U.S. treasury notes and bonds with maturities of one year or
greater, but less than three years.

Salomon Smith Barney Three-Month T-Bill Average -- the average for all treasury
bills for the previous three-month period.

Salomon Smith Barney Three-Month U.S. Treasury Bill Index - a return equivalent
yield average based on the last three 3-month Treasury bill issues.

Savings and Loan Historical Interest Rates -- as published by the U.S. Savings
and Loan League Fact Book.

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.

Target Large Company Value Index - an index comprised of large companies with
market capitalizations currently extending down to approximately $1.9 billion
that are monitored using a variety of relative value criteria in order to
capture the most attractive value opportunities available. A high quality
profile is required and companies undergoing adverse financial pressures are
eliminated.

U.S. Three-Month Treasury Bill Average - the average return for all treasury
bills for the previous three month period.

Value Line Composite Index -- composed of over 1,600 stocks in the Value
Line Investment Survey.

Wilshire Real Estate Securities Index - a market capitalization-weighted index
of publicly traded real estate securities, including real estate investment
trusts, real estate operating companies and partnerships. The index is used by
the institutional investment community as a broad measure of the performance of
public real estate equity for asset allocation and performance comparison.

Wilshire REIT Index - includes 112 real estate investment trusts (REITs) but
excludes seven real estate operating companies that are included in the Wilshire
Real Estate Securities Index.

Note: With respect to the comparative measures of performance for equity
securities described herein, comparisons of performance assume reinvestment of
dividends, except as otherwise stated.

                                      57
<PAGE>

                                      58
<PAGE>

                                   UAM Funds
                                 PO Box 419081
                          Kansas City, MO  64141-6081
                     (Toll free) 1-877-UAM-LINK (826-5465)

                           NWQ Special Equity Portfolio



                           Institutional Class Shares
                       Institutional Service Class Shares

                        Statement of Additional Information
                               February 28, 2000

This statement of additional information (SAI) is not a prospectus. However, you
should read it in conjunction with the prospectuses of the portfolios dated
February 28, 2000, as supplemented from time to time. You may obtain a
prospectus for the portfolios by contacting the UAM Funds at the address listed
above.
<PAGE>

Table Of Contents
<TABLE>
<CAPTION>
<S>                                                      <C>
Description of Permitted Investments..................    1
 What Investment Strategies May the Portfolio Use?....    1
 Debt Securities......................................    1
 Derivatives..........................................    8
 Equity Securities....................................   16
 Foreign Securities...................................   18
 Investment Companies.................................   21
 Repurchase Agreements................................   22
 Restricted Securities................................   22
 Securities Lending...................................   22
 When Issued Transactions.............................   23
Investment Policies of the Portfolio..................   23
 Fundamental Policies.................................   24
 Non-Fundamental Policies.............................   24
Management Of The Fund................................   25
Principal Shareholders................................   26
Investment Advisory and Other Services................   27
 Investment Adviser...................................   27
 Distributor..........................................   29
 Service And Distribution Plans.......................   29
 Administrative Services..............................   32
 Custodian............................................   33
 Independent Accountants..............................   33
Brokerage Allocation and Other Practices..............   33
 Selection of Brokers.................................   33
 Simultaneous Transactions............................   34
 Brokerage Commissions................................   34
Capital Stock and Other Securities....................   35
 Description Of Shares And Voting Rights..............   35
Purchase, Redemption and Pricing of Shares............   36
 Net Asset Value Per Share............................   36
 Purchase of Shares...................................   37
 Redemption of Shares.................................   38
 Exchange Privilege...................................   40
 Transfer Of Shares...................................   40
Performance Calculations..............................   40
 Total Return.........................................   40
 Yield................................................   41
 Comparisons..........................................   42
Financial Statements..................................   42
Glossary..............................................   42
Bond Ratings..........................................   43
 Moody's Investors Service, Inc.......................   43
 Standard & Poor's Ratings Services...................   46
 Duff & Phelps Credit Rating Co.......................   48
 Fitch IBCA Ratings...................................   49
Comparative Benchmarks................................   51
</TABLE>
<PAGE>


Description of Permitted Investments

WHAT INVESTMENT STRATEGIES MAY THE PORTFOLIO USE?
- --------------------------------------------------------------------------------
  The portfolio currently intends to use the securities and investment
  strategies listed below in seeking its objectives; however, it may at any time
  invest in any of the investment strategies described in this SAI. This SAI
  describes each of these investments/strategies and their risks. The portfolio
  may not notify shareholders before employing new strategies, unless it expects
  such strategies to become principal strategies. The investments that are
  italicized are principal strategies and you can find more information on these
  techniques in the prospectus of the portfolio. You can find more information
  concerning the limits on the ability of the portfolio to use these investments
  in "What Are the Investment Strategies of the Portfolio?"

  .  Foreign securities.
  .  Equity securities.
  .  Debt securities.
  .  Futures.
  .  Options.
  .  Investment companies.
  .  Repurchase agreements.
  .  Restricted securities.
  .  Securities lending.
  .  When issued securities.

DEBT SECURITIES
- --------------------------------------------------------------------------------
  Corporations and governments use debt securities 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.

Types of Debt Securities

  U.S. Government Securities

  U.S. government securities are securities that the U.S. Treasury has issued
  (treasury securities) and securities that a federal agency or a government-
  sponsored entity has issued (agency securities). Treasury securities include
  treasury notes, which have initial maturities of one to ten years and treasury
  bonds, which have initial maturities of at least ten years and certain types
  of mortgage-backed securities that are described under "Mortgage-Backed
  Securities" and "Other Asset-Backed Securities." This SAI discusses mortgage-
  backed treasury and agency securities in detail in the section called
  "Mortgage-Backed Securities" and "Other Asset-Backed Securities."

  The full faith and credit of the U.S. government supports treasury securities.
  Unlike treasury securities, the full faith and credit of the U.S.  government
  generally do not back agency securities.  Agency securities are typically
  supported in one of three ways:

  .  by the right of the issuer to borrow from the U.S. Treasury;
  .  by the discretionary authority of the U.S. government to buy the
     obligations of the agency; or
                                       1
<PAGE>


  .  by the credit of the sponsoring agency.

  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

  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.

  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. Unlike most debt securities, which pay
  interest periodically and repay principal at maturity or on specified call
  dates, mortgage-backed securities make monthly payments that consist of both
  interest and principal payments. In effect, these payments are a "pass-
  through" of the monthly payments made by the individual borrowers on their
  mortgage loans, net of any fees paid to the issuer or guarantor of such
  securities. Since homeowners usually have the option of paying either part or
  all of the loan balance before maturity, the effective maturity of a mortgage-
  backed security is often shorter than is stated.

  Governmental entities, private insurers and the mortgage poolers may insure or
  guarantee 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. 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 is the principal governmental guarantor of mortgage-related securities.
  GNMA is a wholly owned corporation of the U.S. government and it falls within
  the Department of Housing and Urban Development. Securities issued by GNMA are
  treasury securities, which means the full faith and credit of the U.S.
  government backs them. GNMA 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, the 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 is regulated by the Secretary of Housing and Urban
  development. FNMA purchases conventional mortgages from a list of approved
  sellers and service providers, including state and federally-chartered savings
  and loan associations, mutual savings banks,

                                       2
<PAGE>


  commercial banks and credit unions and mortgage bankers. Securities issued by
  FNMA are agency securities, which means FNMA, but not the U.S. government,
  guarantees their timely payment of principal and interest.

  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. 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.


  Risks of Mortgage-Backed Securities

  Yield characteristics of mortgage-backed securities differ from those of
  traditional debt securities in a variety of ways, the most significant
  differences are mortgage-backed securities:

  .  payments of interest and principal are more frequent (usually monthly); and

  .  falling interest rates generally cause individual borrowers to pay off
     their mortgage earlier than expected forcing the portfolio to reinvest the
     money at a lower interest rate.

  In addition to risks associated with changes in interest rates described in
  "Factors Affecting the Value of Debt Securities," a variety of economic,
  geographic, social and other factors, such as the sale of the underlying
  property, refinancing or foreclosure, can cause investors to repay the loans
  underlying a mortgage-backed security sooner than expected. If the prepayment
  rates increase, the portfolio may have to reinvest its principal at a rate of
  interest that is lower than the rate on existing mortgage-backed securities.

  Other Asset-Backed Securities

  These securities are interests in pools of a broad range of assets other than
  mortgages, such as automobile loans, computer leases and credit card
  receivables.  Like mortgage-backed securities, these securities are pass-
  through. 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

                                       3
<PAGE>


  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
  related asset-backed securities. Due to the quantity of vehicles involved and
  requirements under state laws, 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 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.


  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 prepay principal
  monthly. While whole mortgage loans may collateralize CMOs, 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.

  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 securities listed below, U.S. government securities and
  investment-grade corporate debt securities. Unless otherwise specified, a
  short-term debt security has a maturity of one year or less.

  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.

                                       4
<PAGE>


  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 is a short-term obligation with a maturity ranging from 1 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 "Bond Ratings" for a description
  of commercial paper ratings.

  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 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

                                       5
<PAGE>

  will have a longer duration than an ordinary debt security with the same
  maturity. The 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 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 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," the portfolio can record its beneficial ownership of the coupon
  or corpus directly in the book-entry record-keeping system.


Terms to Understand

  Maturity

  Every debt security has a stated maturity date when the issuer must repay the
  amount it borrowed (principal) from investors.  Some debt securities, however,
  are callable, meaning the issuer can repay the principal earlier, on or after
  specified dates (call dates).  Debt securities are most likely to be called
  when interest rates are falling because the issuer can refinance at a lower
  rate, similar to a homeowner refinancing a mortgage.  The effective maturity
  of a debt security is usually its nearest call date.

  The portfolio that invests in debt securities has no real maturity.  Instead,
  it calculates its weighted average maturity.  This number is an average of the
  stated maturity of each debt security held by the portfolio, with the maturity
  of each security weighted by the percentage of the assets of the portfolio it
  represents.

  Duration

  Duration is a calculation that seeks to measure the price sensitivity of a
  debt security, or the portfolio that invests in debt securities, to changes in
  interest rates. It measures sensitivity more accurately than maturity because
  it takes into account the time value of cash flows generated over the life of
  a debt security. Future interest payments and principal payments are
  discounted to reflect their present value and then are multiplied by the
  number of years they will be received to produce a value expressed in years --
  the duration. Effective duration takes into account call features and sinking
  fund prepayments that may shorten the life of a debt security.

  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.

                                       6
<PAGE>


Factors Affecting the Value of Debt 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).

  Prepayment Risk

  This risk effects mainly mortgage-backed securities.  Unlike other debt
  securities, falling interest rates can hurt mortgage-backed securities, which
  may cause your share price to fall.  Lower rates motivate people to pay off
  mortgage-backed and asset-backed securities earlier than expected.  The
  portfolio may then have to reinvest the proceeds from such prepayments at
  lower interest rates, which can reduce its yield. 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.  If
  left unattended, drifts in the average maturity of the portfolio can have the
  unintended effect of increasing or reducing the effective duration of the
  portfolio, which may adversely affect the expected performance of the
  portfolio.

  Extension Risk

  The other side of prepayment risk occurs when interest rates are rising.
  Rising interest rates can cause the portfolio's average maturity to lengthen
  unexpectedly due to a drop in mortgage prepayments.  This would increase the
  sensitivity of the portfolio to rising rates and its potential for price
  declines.  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.

  Credit Rating

  Coupon interest is offered to investors of debt securities as compensation for
  assuming risk, although short-term Treasury securities, such as 3-month
  treasury bills, are considered "risk free." Corporate securities offer higher
  yields than Treasury securities 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 Treasuries securities.

  Changes in investor confidence regarding the certainty of interest and
  principal payments of a corporate debt 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.

                                       7
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  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 the 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.

  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 use ratings compiled by Moody's Investor
  Services ("Moody's"), Standard and Poor's Ratings Services ("S&P"), Duff &
  Phelps Rating Co. and Fitch IBCA. Credit ratings are only an agency's opinion,
  not an absolute standard of quality, and they do not reflect an evaluation of
  market risk. The section "Bond Ratings" 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 the 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. The portfolio is not obligated to dispose of
  securities whose issuers subsequently are in default or which are downgraded
  below the above-stated ratings.

DERIVATIVES
- --------------------------------------------------------------------------------
  Derivatives are financial instruments whose value is based on an underlying
  asset, such as a stock or a bond, an underlying economic factor, such as an
  interest rate or a market benchmark, such as an index. Investors can use
  derivatives to gain exposure to various markets in a cost efficient manner, to
  reduce transaction costs or to remain fully invested.  They may also invest in
  derivatives to protect it 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.


Types of Derivatives

  Futures


  A futures contract is an agreement between two parties whereby one party sells
  and the other party agrees to buy a specified amount of a financial instrument
  at an agreed upon price and time. The financial instrument underlying the
  contract may be a stock, stock index, bond, bond index, interest rate, foreign
  exchange rate or other similar instrument. Agreeing to buy the underlying
  financial information is called buying a futures contract or taking a long
  position in the contract. Likewise, agreeing to sell the underlying financial
  instrument is called selling a futures contract or taking a short position in
  the contract.

  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.

  Unlike other securities, the parties to a futures contract do not have to pay
  for or deliver the underlying financial instrument until some future date (the
  delivery date). Contract markets require both the purchaser and seller to
  deposit

                                       8
<PAGE>


  "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. This process is known
  as "marking to the market."

  Although the actual terms of a futures contract calls for the actual delivery
  of and payment for the underlying security, in many cases the parties may
  close the contract early by taking an opposite position in an identical
  contract. If the sale price upon closing out the contract is less than the
  original purchase price, the person closing out the contract will realize a
  loss.  If the sale price upon closing out the contract is more that the
  original purchase price, the person closing out the contract will realize a
  gain.  The opposite is also true.  If the purchase price upon closing out the
  contract is more than the original sale price, the person closing out the
  contract will realize a loss.  If the purchase price upon closing out the
  contract is less than the original sale price, the person closing out the
  contract will realize a gain.

  The portfolio will incur commission expenses in either opening, closing or
  possibly opening and closing futures positions.

  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
  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.

                                       9
<PAGE>


  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
     and segregating cash or liquid securities in an amount equal to the
     difference between the exercise prices;

  .  Cash or liquid securities equal to at least the market value of the
     optioned securities, interest rate, foreign currency or futures contract;
     or

  .  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;

                                      10
<PAGE>


  .  Purchasing a put option on the same security, index, interest rate, foreign
     currency or futures contract with a lesser exercise price and segregating
     cash or liquid securities in an amount equal to the difference between the
     exercise prices; or

  .  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 the 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

                                     11
<PAGE>


  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.

  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).

  .  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 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 the
  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. The 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.

  The portfolio may 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. The 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 the 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.

  The 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 the 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, the 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,

                                      12
<PAGE>


  the 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.

  Swaps, Caps, Collars and Floors

  Swap Agreements

  A swap is a financial instrument that typically involves the exchange of cash
  flows between two parties on specified dates (settlement dates), where the
  cash flows are based on agreed-upon prices, rates, indices, etc. The nominal
  amount on which the cash flows are calculated is called the notional amount.
  Swaps are individually negotiated and structured to include exposure to a
  variety of different types of investments or market factors, such as interest
  rates, foreign currency rates, mortgage securities, corporate borrowing rates,
  security prices or inflation rates.

  Swap agreements may increase or decrease the overall volatility of the
  investments of the portfolio and its share price. The performance of swap
  agreements may be affected by a change in the specific interest rate,
  currency, or other factors that determine the amounts of payments due to and
  from the portfolio. If a swap agreement calls for payments by the portfolio,
  the portfolio must be prepared to make such payments when due. In addition, if
  the counter-party's creditworthiness declined, the value of a swap agreement
  would be likely to decline, potentially resulting in losses.

  Generally, swap agreements have a fixed maturity date that will be agreed upon
  by the parties.  The agreement can be terminated before the maturity date only
  under limited circumstances, such as default by one of the parties or
  insolvency, among others, and can be transferred by a party only with the
  prior written consent of the other party.  The portfolio may be able to
  eliminate its exposure under a swap agreement either by assignment or by other
  disposition, or by entering into an offsetting swap agreement with the same
  party or a similarly creditworthy party. If the counter-party is unable to
  meet its obligations under the contract, declares bankruptcy, defaults or
  becomes insolvent, the portfolio may not be able to recover the money it
  expected to receive under the contract.

  A swap agreement can be a form of leverage, which can magnify a portfolio's
  gains or losses.  In order to reduce the risk associated with leveraging, a
  portfolio will cover its current obligations under swap agreements according
  to guidelines established by the SEC. If the portfolio enters into a swap
  agreement on a net basis, it will segregate assets with a daily value at least
  equal to the excess, if any, of the portfolio's accrued obligations under the
  swap agreement over the accrued amount the portfolio is entitled to receive
  under the agreement. If the portfolio enters into a swap agreement on other
  than a net basis, it will segregate assets with a value equal to the full
  amount of the portfolio's accrued obligations under the agreement.

  Equity Swaps -- In a typical equity index swap, one party agrees to pay
  another party the return on a stock, stock index or basket of stocks in return
  for a specified interest rate.  By entering into an equity index swap, for
  example, the index receiver can gain exposure to stocks making up the index of
  securities without actually purchasing those stocks.   Equity index swaps
  involve not only the risk associated with investment in the securities
  represented in the index, but also the risk that the performance of such
  securities, including dividends, will not exceed the return on the interest
  rate that the portfolio will be committed to pay.

  Interest Rate Swaps -- Interest rate swaps are financial instruments that
  involve the exchange on one type of interest rate for another type of interest
  rate cash flow on specified dates in the future.  Some of the different types
  of interest rate swaps are "fixed-for floating rate swaps," "termed basis
  swaps" and "index amortizing swaps."  Fixed-for floating rate swap involve the
  exchange of fixed interest rate cash flows for floating rate cash flows.
  Termed basis swaps entail cash flows to both parties based on floating
  interest rates, where the interest rate indices are different.  Index
  amortizing swaps are typically fixed-for floating swaps where the notional
  amount changes if certain conditions are met.

  Like a traditional investment in a debt security, a portfolio could lose money
  by investing in an interest rate swap if interest rates change adversely.  For
  example, if the portfolio enters into a swap where it agrees to exchange a
  floating rate of interest for a fixed rate of interest, the portfolio may have
  to pay more money than it receives.  Similarly, if the portfolio enters into a
  swap where it agrees to exchange a fixed rate of interest for a floating rate
  of interest, the portfolio may receive less money than it has agreed to pay.


                                      13
<PAGE>


  Currency Swaps -- A currency swap is an agreement between two parties in which
  one party agrees to make interest rate payments in one currency and the other
  promises to make interest rate payments in another currency. A portfolio may
  enter into a currency swap when it has one currency and desires a different
  currency. Typically the interest rates that determine the currency swap
  payments are fixed, although occasionally one or both parties may pay a
  floating rate of interest.  Unlike an interest rate swap, however, the
  principal amounts are exchanged at the beginning of the contract and returned
  at the end of the contract.  Changes in foreign exchange rates and changes in
  interest rates, as described above may negatively affect currency swaps.

  Caps, Collars and Floors

  Caps and floors have an effect similar to buying or writing options.  In a
  typical cap or floor agreement, one party agrees to make payments only under
  specified circumstances, usually in return for payment of a fee by the other
  party. For example, the buyer of an interest rate cap obtains the right to
  receive payments to the extent that a specified interest rate exceeds an
  agreed-upon level.  The seller of an interest rate floor is obligated to make
  payments to the extent that a specified interest rate falls below an agreed-
  upon level. An interest rate collar combines elements of buying a cap and
  selling a floor.

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.

  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
  expected.

  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; and

  .  differences between the derivatives, such as different margin requirements,
     different liquidity of such markets and the participation of speculators in
     such markets.

                                      14
<PAGE>

  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.
  Moreover, a portfolio may close out a futures contract only on the exchange
  the contract was initially traded.  Although a portfolio intends to purchase
  options and futures only where there appears to be an active market, there is
  no guarantee that such a liquid market will exist.  If there is no secondary
  market for the contract, or the market is illiquid, the portfolio may not be
  able to close out its position.  In an illiquid market, the portfolio may:

  .  have to sell securities to meet its daily margin requirements at a time
     when it is disadvantageous to do so;

  .  have to purchase or sell the instrument underlying the contract;

  .  not be able to hedge its investments; and

  .  not be able realize profits or limit 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:

  .  an exchange may suspend or limit trading in a particular derivative
     instrument, an entire category of derivatives or all derivatives, which
     sometimes occurs because of increased market volatility;

  .  unusual or unforeseen circumstances may interrupt normal operations of an
     exchange;

  .  the facilities of the exchange may not be adequate to handle current
     trading volume;

  .  equipment failures, government intervention, insolvency of a brokerage firm
     or clearing house or other occurrences may disrupt normal trading activity;
     or

  .  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.

                                      15
<PAGE>


  Volatility and Leverage

  The prices of derivatives are volatile (i.e., they may change rapidly,
  substantially and unpredictably) and are influenced by a variety of factors,
  including:

  .  actual and anticipated changes in interest rates;

  .  fiscal and monetary policies; and

  .  national and international political events.

  Most exchanges limit the amount by which the price of a derivative can change
  during a single trading day. Daily trading limits establish the maximum amount
  that the price of a derivative may vary from the settlement price of that
  derivative at the end of trading on the previous day. Once the price of a
  derivative reaches this value, a portfolio may not trade that derivative at a
  price beyond that limit. The daily limit governs only price movements during a
  given day and does not limit potential gains or losses. Derivative prices have
  occasionally moved to the daily limit for several consecutive trading days,
  preventing prompt liquidation of the derivative.

  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-dealer with whom it has an open futures contract or related option
  becomes insolvent or declares bankruptcy.

EQUITY SECURITIES
- --------------------------------------------------------------------------------

Types of Equity Securities

  Common Stocks

  Common stocks represent units of ownership in a company.  Common stocks
  usually carry voting rights and earn dividends.  Unlike preferred stocks,
  which are described below, dividends on common stocks are not fixed but are
  declared at the discretion of the company's board of directors.

  Preferred Stocks

  Preferred stocks are also units of ownership in a company. Preferred stocks
  normally have preference over common stock in the payment of dividends and the
  liquidation of the company.  However, in all other respects, preferred stocks
  are subordinated to the liabilities of the issuer.  Unlike common stocks,
  preferred stocks are generally not entitled to vote on corporate matters.
  Types of preferred stocks include adjustable-rate preferred stock, fixed
  dividend preferred stock, perpetual preferred stock, and sinking fund
  preferred stock. Generally, the market values of preferred stock with a fixed
  dividend rate and no conversion element varies inversely with interest rates
  and perceived credit risk.

  Convertible Securities

  Convertible securities are debt securities and preferred stocks that are
  convertible into common stock at a specified price or conversion ratio.  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. Their market price tends to go up if the stock price moves up.


                                      16
<PAGE>


  Convertible securities are subject to the same risks as similar securities
  without the convertible feature. The price of a convertible security is more
  volatile during times of steady interest rates than other types of debt
  securities.

  Rights and Warrants

  A right is a privilege granted to existing shareholders of a corporation to
  subscribe to shares of a new issue of common stock before it is issued.
  Rights normally have a short life, usually two to four weeks, are freely
  transferable and entitle the holder to buy the new common stock at a lower
  price than the public offering price.  Warrants are securities that are
  usually issued together with a debt security or preferred stock and that give
  the holder the right to buy proportionate amount of common stock at a
  specified price.  Warrants are freely transferable and are traded on major
  exchanges.  Unlike rights, warrants normally have a life that is measured in
  years and entitles the holder to buy common stock of a company at a price that
  is usually higher than the market price at the time the warrant is issued.
  Corporations often issue warrants to make the accompanying debt security more
  attractive.

  An investment in warrants and rights may entail greater risks than certain
  other types of investments.  Generally, rights and warrants do not carry 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. In addition, their value does not necessarily change with the
  value of the underlying securities, and they cease to have value if they are
  not exercised on or before their expiration date.  Investing in rights and
  warrants increases the potential profit or loss to be realized from the
  investment as compared with investing the same amount in the underlying
  securities.

Risks of Investing in Equity Securities

  General Risks of Investing in Stocks

  While investing in stocks allows investors to participate in the benefits of
  owning a company, such investors 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.

  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; and

  .  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.

  Because preferred stock is generally 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.

  Small and Medium-Sized Companies

  Investors in small and medium-sized companies typically take on greater risk
  and price volatility than they would by investing in larger, more established
  companies.  This increased risk may be due to the greater business risks of
  their small or medium size, limited markets and financial resources, narrow
  product lines and frequent lack of management depth.  The securities of small
  and medium companies are often traded in the over-the-counter market and might
  not be traded in volumes typical of securities traded on a national securities
  exchange.  Thus, the securities of small and

                                      17
<PAGE>


  medium capitalization companies are likely to be less liquid, and subject to
  more abrupt or erratic market movements, than securities of larger, more
  established companies.

  Technology Companies

  Stocks of technology companies have tended to be subject to greater volatility
  than securities of companies that are not dependent upon or associated with
  technological issues.  Technology companies operate in various industries.
  Since these industries frequently share common characteristics, an event or
  issue affecting one industry may significantly influence other, related
  industries.  For example, technology companies may be strongly affected by
  worldwide scientific or technological developments and their products and
  services may be subject to governmental regulation or adversely affected by
  governmental policies.

FOREIGN SECURITIES
- --------------------------------------------------------------------------------

Types of Foreign Securities

  Foreign securities are debt and equity securities that are traded in markets
  outside of the United States.  The markets in which these securities are
  located can be developed or emerging.  People can invest in foreign securities
  in a number of ways:

  .  They can invest directly in foreign securities denominated in a foreign
     currency;

  .  They can invest in American Depositary Receipts, European Depositary
     Receipts and other similar global instruments; and

  .  They can invest in 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. EDRs are similar to ADRs, except that they are
  typically issued by European Banks or trust companies.

  Emerging Markets

  An "emerging country" is generally a country that 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 currently 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.

  Investment Funds

  Some emerging countries currently prohibit direct foreign investment in the
  securities of their companies.  Certain emerging countries, however, permit
  indirect foreign investment in the securities of companies listed and traded
  on their stock exchanges through investment funds that they have specifically
  authorized.  Investments in these investment funds

                                      18
<PAGE>


  are subject to the provisions of the 1940 Act. Shareholders of a UAM Fund that
  invests in such investment funds will bear not only their proportionate share
  of the expenses of the UAM Fund (including operating expenses and the fees of
  the adviser), but also will bear indirectly bear similar expenses of the
  underlying investment funds. In addition, these investment funds may trade at
  a premium over their net asset value.

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.


  Political and Economic Factors

  Local political, economic, regulatory, or social instability, military action
  or unrest, or adverse diplomatic developments may affect the value of foreign
  investments.  Listed below are some of the more important political and
  economic factors that could negatively affect an investment in foreign
  securities:

  .  The economies of foreign countries may differ from the economy of the
     United States in such areas as growth of gross national product, rate of
     inflation, capital reinvestment, resource self-sufficiency, budget deficits
     and national debt;

  .  Foreign governments sometimes participate to a significant degree, through
     ownership interests or regulation, in their respective economies. Actions
     by these governments could significantly influence the market prices of
     securities and payment of dividends;

  .  The economies of many foreign countries are dependent on international
     trade and their trading partners and they could be severely affected if
     their trading partners were to enact protective trade barriers and
     economic conditions;

  .  The internal policies of a particular foreign country may be less stable
     than in the United States. Other countries face significant external
     political risks, such as possible claims of sovereignty by other countries
     or tense and sometimes hostile border clashes; and

  .  A foreign government may act adversely to the interests of U.S. investors,
     including expropriation or nationalization of assets, confiscatory taxation
     and other restrictions on U.S. investment. A country may restrict or
     control foreign investments in its securities markets. These restrictions
     could limit the portfolio's ability to invest in a particular country or
     make it very expensive for the portfolio to invest in that country. Some
     countries require prior governmental approval, limit the types or amount of
     securities or companies in which a foreigner can invest. Other countries
     may restrict the ability of foreign investors to repatriate their
     investment income and capital gains.

  Information and Supervision

  There is generally less publicly available information about foreign companies
  than companies based in the United States.  For example, there are often no
  reports and ratings published about foreign companies comparable to the ones
  written about United States companies.  Foreign companies are typically not
  subject to uniform accounting, auditing and financial reporting standards,
  practices and requirements comparable to those applicable to United States
  companies.   The lack of comparable information makes investment decisions
  concerning foreign countries more difficult and less reliable than domestic
  companies.

  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

                                      19
<PAGE>


  sophistication, are generally not as developed as the markets in the United
  States. Foreign stocks markets tend to differ from those in the United States
  in a number of ways:

  .  They are generally not as developed or efficient as, and more volatile,
     than those in the United States;

  .  They have substantially less volume;

  .  Their securities tend to be less liquid and to experience rapid and erratic
     price movements;

  .  Commissions on foreign stocks are generally higher and subject to set
     minimum rates, as opposed to negotiated rates;

  .  Foreign security trading, settlement and custodial practices are often less
     developed than those in U.S. markets; and

  .  They may have different settlement practices, which may cause delays and
     increase the potential for failed settlements.

  Foreign Currency Risk


  While the UAM Funds denominate their net asset value in United States dollars,
  the securities of foreign companies are frequently denominated in foreign
  currencies. Thus, a change in the value of a foreign currency against the
  United States dollar will result in a corresponding change in value of
  securities denominated in that currency.   Some of the factors that may impair
  the investments denominated in a foreign currency are:

  .  It may be expensive to convert foreign currencies into United States
     dollars and vice versa;

  .  Complex political and economic factors may significantly affect the values
     of various currencies, including United States dollars, and their 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 may be no systematic reporting of last sale information for foreign
     currencies or 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; and


  .  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.



  Taxes

  Certain foreign governments levy withholding taxes on dividend and interest
  income. Although in some countries it is possible for the portfolio to recover
  a portion of these taxes, the portion that cannot be recovered 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.

                                      20
<PAGE>


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 relatively unstable governments;

  .  Present greater risks of nationalization of businesses, restrictions on
     foreign ownership and prohibitions on the repatriation of assets;

  .  Offer less protection of property rights than more developed countries; and

  .  Have economies that are 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.



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 began 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 became denominations of the
  Euro at fixed rates according to practices prescribed by the European Monetary
  Institute and the Euro became available as a book-entry currency.  On or about
  that date, member states began conducting financial market transactions in
  Euros and redenominating many investments, currency balances and transfer
  mechanisms into Euros.  The portfolio also anticipates pricing, trading,
  settling and valuing investments whose nominal values remain in their existing
  domestic currencies in Euros.  Accordingly, the portfolio expects the
  conversion to the Euro to impact investments in countries that 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?


INVESTMENT COMPANIES
- --------------------------------------------------------------------------------
  The portfolio may buy and sell shares of other investment companies.  Such
  investment companies may pay management and other fees that are similar to the
  fees currently paid by the portfolio.  Like other shareholders, the portfolio
  would pay its proportionate share of those fees.  Consequently, shareholders
  of the portfolio would pay not only the management fees of the portfolio, but
  also the management fees of the investment company in which the

                                      21
<PAGE>


  portfolio invests. The portfolio may invest up to 10% of its total assets in
  the securities of other investment companies, but may not invest more than 5%
  of its total assets in the securities of any one investment company or acquire
  more than 3% of the outstanding securities of any one investment company.

  The SEC has granted an order that allows the portfolio to invest the greater
  of 5% of its total assets or $2.5 million in the UAM DSI Money Market
  Portfolio, provided that the investment is:

  .  For cash management purposes;

  .  Consistent with the portfolio's investment policies and restrictions; and

  .  The adviser to the investing portfolio waives any fees it earns on the
     assets of the portfolio that are invested in the UAM DSI Money Market
     Portfolio.

  The 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, an investor agrees to buy a security (underlying
  security) from a securities dealer or bank that is a member of the Federal
  Reserve System (counter-party).  At the time, the counter-party agrees to
  repurchase the underlying security for the same price, plus interest.
  Repurchase agreements are generally for a relatively short period (usually not
  more than 7 days).  The portfolio normally uses repurchase agreements to earn
  income on assets that are not invested.

  When the portfolio enters into a repurchase agreement it will:

  .  Pay for the underlying securities only upon physically receiving them or
     upon evidence of their receipt in book-entry form; and

  .  Require the counter party to add to the collateral whenever the price of
     the repurchase agreement rises above the value of the underlying security
     (i.e., it will require the borrower to "mark 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.

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 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 the
  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.

SECURITIES LENDING
- --------------------------------------------------------------------------------

  The portfolio may lend a portion of its total assets to broker- dealers or
  other financial institutions. It may then reinvest the collateral it receives
  in short-term securities and money market funds. When the portfolio lends its
  securities, it will follow the following guidelines:

  .  The borrower must provide collateral at least equal to the market value of
     the securities loaned;

  .  The collateral 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;

                                      22
<PAGE>


  .  The borrower must add to the collateral whenever the price of the
     securities loaned rises (i.e., the borrower "marks to the market" on a
     daily basis);

  .  It must be able to terminate the loan at any time;

  .  It must receive reasonable interest on the loan (which may include the
     portfolio investing any cash collateral in interest bearing short-term
     investments); and

  .  It must determine that the borrower is an acceptable credit risk.

  These risks are similar to the ones involved with repurchase agreements. When
  the portfolio lends securities, there is a risk that the borrower will become
  financially unable to honor its contractual obligations.  If this happens, the
  portfolio could:

  .  Lose its rights in the collateral and not be able to retrieve the
     securities it lent to the borrower; and

  .  Experience delays in recovering its securities.


WHEN ISSUED 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 deliver
  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.

  The portfolio will segregate cash and liquid securities equal in value to
  commitments for the when-issued, delayed-delivery or forward delivery
  transaction.  The portfolio will segregate additional liquid assets daily so
  that the value of such assets is equal to the amount of its commitments.

Investment Policies of the Portfolio

  The portfolio will determine investment limitation percentages (with the
  exception of a limitation relating to borrowing) immediately after and as a
  result of its acquisition of such security or other asset.  Accordingly, the
  portfolio will not consider changes in values, net assets or other
  circumstances when determining whether the investment complies with its
  investment limitations.

                                      23
<PAGE>

FUNDAMENTAL POLICIES
- --------------------------------------------------------------------------------

  The following investment limitations are fundamental, which means the
  portfolio cannot change them without approval by the vote of a majority of the
  outstanding voting securities of the portfolio, as defined by the 1940 Act.
  The portfolio will not:

  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 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 (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 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.

  .  write or acquire options or interests in oil, gas, mineral leases or other
     mineral exploration or development programs.

NON-FUNDAMENTAL POLICIES
- --------------------------------------------------------------------------------

  The following limitations are non-fundamental, which means the portfolio may
  change them without shareholder approval.  The portfolio will not:

  The portfolio will not:

                                      24
<PAGE>

  .  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; and (2) not more than 20% of the portfolio's assets are invested
     in stock or bond futures and options on futures.

  .  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 15% of the portfolio's assets in securities rated less
     than BBB by S&P or Baa by Moody's (junk bonds).

  .  invest more than 35% of the portfolio's assets in foreign securities or
     American Depositary Receipts.

  .  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.

Management Of The Fund

  The governing board manages the business of the Fund.  The governing board
  elects officers to manage the day-to-day operations of the Fund and to execute
  policies the board has formulated.  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 and a $2,000 meeting fee.  In
  addition, the Fund reimburses each independent board member 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 board members that are affiliated with the fund for their
  services as board members. UAM, its affiliates or SEI 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.  The UAM Funds Complex is currently comprised of 51
  portfolios. Those people with an asterisk (*) beside their name are
  "interested persons" of the Fund as that term is defined in the 1940 Act. Mr.
  English does have an investment advisory relationship with Investment
  Counselors of Maryland, an investment adviser to one of the portfolios in the
  UAM Funds Complex.  However, the Fund does not believe that the relationship
  is a material business relationship, and, therefore, does not consider him to
  be an "interested person" of the Fund.  If these circumstances change, the
  Board will determine whether any action is required to change the composition
  of the Board.

<TABLE>
<CAPTION>
                                Position
Name, Address, DOB              with Fund          Principal Occupations During the Past 5 years
- -------------------------------------------------------------------------------------------------------
<S>                             <C>                <C>
John T. Bennett, Jr.            Board Member       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 to
1/26/29                                            1993.
- -------------------------------------------------------------------------------------------------------
Nancy J. Dunn                   Board Member       Financial Officer of World Wildlife Fund since
1250 24/th/ St., NW                                January 1999; Vice President for Finance and
Washington, DC  20037                              Administration and Treasurer of Radcliffe College
8/14/51                                            from 1991 to 1999.
- -------------------------------------------------------------------------------------------------------

<CAPTION>
                             Aggregate Compensation            Aggregate Compensation
                             From the Fund as of            From the Fund Complex as
Name, Address, DOB            October 31, 1999                 of October 31, 1999
- -------------------------------------------------------------------------------------
<S>                          <C>                            <C>
John T. Bennett, Jr.                $7,137                           $10,625
College Road -- RFD 3
Meredith, NH 03253
1/26/29
- -------------------------------------------------------------------------------------
Nancy J. Dunn                       $7,137                           $10,625
1250 24/th/ St., NW
Washington, DC  20037
8/14/51
- -------------------------------------------------------------------------------------
</TABLE>

                                      25
<PAGE>

<TABLE>
<CAPTION>
                                    Position
Name, Address, DOB                  with Fund          Principal Occupations During the Past 5 years
- --------------------------------------------------------------------------------------------------------------------
<S>                                 <C>                <C>
William A. Humenuk                  Board Member       Executive Vice President and Chief Administrative
100 King Street West                                   Officer of Philip Services Corp.; Formerly, a Partner
P.O. Box 2440, LCD-1                                   in the Philadelphia office of the law firm Dechert
Hamilton  Ontario,                                     Price & Rhoads and a Director of Hofler Corp.
Canada L8N-4J6
4/21/42
- --------------------------------------------------------------------------------------------------------------------
Philip D. English                   Board Member       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
- --------------------------------------------------------------------------------------------------------------------
James P. Pappas*                    Board Member       President of UAM Investment Services, Inc. since
211 Congress Street                                    March 1999; Vice President UAM Trust Company since
Boston, MA  02110                                      January 1996; Principal of UAM Fund Distributors,
2/24/53                                                Inc. since December 1995; Vice President of UAM
                                                       Investment Services, Inc. from January 1996 to March
                                                       1999 and a Director and Chief Operating Officer of CS
                                                       First Boston Investment Management from 1993-1995.
- --------------------------------------------------------------------------------------------------------------------
Norton H. Reamer*                   Board              Chairman, Chief Executive Officer and a Director of
One International Place             Member;            United Asset Management Corporation; Director,
Boston, MA 02110                    President          Partner or Trustee of each of the Investment
3/21/35                             and Chairman       Companies of the Eaton Vance Group of Mutual Funds.
- --------------------------------------------------------------------------------------------------------------------
Peter M. Whitman, Jr.*              Board Member       President and Chief Investment Officer of Dewey
One Financial Center                                   Square Investors Corporation since 1988; Director and
Boston, MA 02111                                       Chief Executive Officer of H.T. Investors, Inc.,
7/1/43                                                 formerly a subsidiary of Dewey Square.
- --------------------------------------------------------------------------------------------------------------------
William H. Park                     Vice               Executive Vice President and Chief Financial Officer
One International Place             President          of United Asset Management Corporation.
Boston, MA 02110
9/19/47
- --------------------------------------------------------------------------------------------------------------------
Gary L. French                      Treasurer          President of UAMFSI and UAMFDI; Treasurer of the
211 Congress Street                                    Fidelity Group of Mutual Funds from 1991 to 1995;
Boston, MA 02110                                       held various other offices with Fidelity Investments
7/4/51                                                 from November 1990 to March 1995.
- --------------------------------------------------------------------------------------------------------------------
Robert R. Flaherty                  Assistant          Vice President of UAMFSI; Manager of Fund
211 Congress Street                 Treasurer          Administration and Compliance of Chase Global Fund
Boston, MA 02110                                       Services Company from 1995 to 1996; Senior Manager of
9/18/63                                                Deloitte & Touche LLP from 1985 to 1995,
- --------------------------------------------------------------------------------------------------------------------
Robert J. DellaCroce                Assistant          Director, Mutual Fund Operations - SEI Investments;
SEI Investments                     Treasurer          Senior Manager at Arthur Andersen prior to 1994.
One Freedom Valley Rd.
Oaks, PA  19456
12/17/63


<CAPTION>
                               Aggregate Compensation            Aggregate Compensation
                                 From the Fund as of            From the Fund Complex as
Name, Address, DOB                October 31, 1999                 of October 31, 1999
- ----------------------------------------------------------------------------------------
<S>                            <C>                              <C>
William A. Humenuk                    $7,137                        $10,625
100 King Street West
P.O. Box 2440, LCD-1
Hamilton  Ontario,
Canada L8N-4J6
4/21/42
- ----------------------------------------------------------------------------------------
Philip D. English                     $7,137                        $10,625
16 West Madison Street
Baltimore, MD 21201
8/5/48
- ----------------------------------------------------------------------------------------
James P. Pappas*                         0                              0
211 Congress Street
Boston, MA  02110
2/24/53
- ----------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------
Robert R. Flaherty                       0                              0
211 Congress Street
Boston, MA 02110
9/18/63
- ----------------------------------------------------------------------------------------
Robert J. DellaCroce                     0                              0
SEI Investments
One Freedom Valley Rd.
Oaks, PA  19456
12/17/63
</TABLE>

Principal Shareholders


  As of February 1, 2000, the following persons or organizations held of record
  or beneficially 5% or more of the shares of a portfolio:

                                      26
<PAGE>


<TABLE>
<CAPTION>
                                                                     Percentage of
Name and Address of Shareholder                                       Shares Owned         Portfolio             Class
- -----------------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>              <C>                      <C>
Engineers Joint Pension Fund                                               66.89%     NWQ Special Equity       Institutional
PO Box 100                                                                                 Portfolio           Class Shares
Syracuse,  NY  13205-0100
- -----------------------------------------------------------------------------------------------------------------------------
Wilmington Trust CO TR                                                     10.87%     NWQ Special Equity       Institutional
U/A 4/01/1998 FBO IBT 401K                                                                 Portfolio           Class Shares
Profit Sharing Plan c/o Mutual Funds UAM
PO Box 8971
Wilmington,  DE  19899-8971
- -----------------------------------------------------------------------------------------------------------------------------
Charles Schwab & CO INC                                                     6.46%     NWQ Special Equity       Institutional
Reinvest Account                                                                           Portfolio           Class Shares
Attn:  Mutual Funds
101 Montgomery St
San Francisco,  CA  94104-4122
- -----------------------------------------------------------------------------------------------------------------------------
Carpenters Local 700 Def Ben efit Retirement Fund                           6.19%     NWQ Special Equity       Institutional
G. David Weaver, James N. Niver, James Dineen & Keith E. Shroyer ,TTEES                    Portfolio           Class Shares
21 Main Street
Addison,  NY  14801-1209
- -----------------------------------------------------------------------------------------------------------------------------
Wilmington Trust Co                                                        60.80%     NWQ Special Equity       Institutional
FBO Mustang Employees 401K PSP                                                             Portfolio           Service Class
c/o Mutual Funds                                                                                                  Shares
PO Box 8971
Wilmington,  DE  19899-8971
- -----------------------------------------------------------------------------------------------------------------------------
Linn Family Partnership                                                    21.88%     NWQ Special Equity       Institutional
95 Broad cove Drive                                                                        Portfolio           Service Class
Montgomery,  TX  77356-8311                                                                                       Shares
- -----------------------------------------------------------------------------------------------------------------------------
CIBC World Markets Corp                                                    14.73%     NWQ Special Equity      Institutional
FBO 0333-83066-16                                                                          Portfolio           Service Class
PO Box 3484                                                                                                      Shares
Church Street Station
New York,  NY  10008-3484
</TABLE>

  Any shareholder 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. Shareholders controlling the portfolio 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.  As of February 1,
  2000, the directors and officers of the Fund owned less than 1% of the
  outstanding shares of the portfolio.

Investment Advisory and Other Services

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 for 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 institutional and high net worth individuals since
  1982.

  The adviser is a subsidiary of UAM.  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 more than 50 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,

                                      27
<PAGE>


  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


  This section summarizes some of the important provisions of the Investment
  Advisory Agreement.  The Fund has filed the Investment Advisory Agreement with
  the SEC as part of its registration statement on Form N-1A.



  Service Performed by Adviser


  The adviser:

  .  Manages the investment and reinvestment of the portfolio's assets;

  .  Continuously reviews, supervises and administers the investment program of
     the portfolio; and

  .  Determines what portion of the portfolio's assets will be invested in
     securities and what portion will consist of cash.


  Limitation of Liability

  In the absence of (1) willful misfeasance, bad faith, or gross negligence on
  the part of the adviser in the performance of its obligations and duties under
  the Investment Advisory Agreement, (2) reckless disregard by the adviser of
  its obligations and duties under the Investment 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 Investment Advisory Agreement.

  Continuing an Investment Advisory Agreement


  The Investment Advisory Agreement continues in effect for periods of one year
  so long as such continuance is specifically approved at least annually by a:

  .  Majority of those Board Members who are not parties to the Investment
     Advisory Agreement or interested persons of any such party;  and

  .  (2) (a) majority of the Members or (b) a majority of the shareholders of
     the portfolio.




  Terminating an Investment Advisory Agreement

  The Fund may terminate an Investment Advisory Agreement at any time, without
  the payment of any penalty if:

  .  A majority of the portfolio's shareholders vote to do so or a majority of
     Board Members vote to do so; and

                                      28
<PAGE>


  .  It gives the adviser 60 days' written notice.

  The adviser may terminate the Investment Advisory Agreement at any time,
  without the payment of any penalty, upon 90 days' written notice to the Fund.

  An Investment Advisory Agreement will automatically and immediately terminate
  if it is assigned.





Advisory Fees

  For its services, the portfolio pays its adviser a fee equal to  of the
  average daily net assets of the portfolio. Due to the effect of fee waivers by
  the adviser, the actual percentage of average net assets that the portfolio
  pays in any given year may be different from the rate set forth in its
  contract with the adviser.  For the last three fiscal years, the portfolio
  paid the following in management fees to the adviser:

<TABLE>
<CAPTION>
                                            Investment Advisory Fees         Investment Advisory Fees     Total Investment Advisory
                                                      Paid                           Waived                          Fees
- -------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>                              <C>                          <C>
NWQ Special Equity Portfolio
  1999                                              $185,627                         $104,737                     $80,890
- -------------------------------------------------------------------------------------------------------------------------------
  1998                                              $      0                         $ 72,915                     $     0
- -------------------------------------------------------------------------------------------------------------------------------
  1997                                              $ 18,699                         $      0                     $18,699
</TABLE>


DISTRIBUTOR
- --------------------------------------------------------------------------------

  UAMFDI is 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.



SERVICE AND DISTRIBUTION PLANS
- --------------------------------------------------------------------------------
  The Fund has adopted a Distribution Plan and a Shareholder Servicing Plan (the
  "Plans") for the portfolio's Institutional Service Class Shares pursuant to
  Rule 12b-1 under the 1940 Act.

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 the portfolio's 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 Institutional 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.


                                      29
<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 the 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 Institutional 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.

                                      30
<PAGE>


  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.

                                         Distribution Plan Expenses
  ------------------------------------------------------------------------------
  NWQ Special Equity Portfolio                      $23,610
     1999

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.

  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, the portfolio or any class of
  shares of the 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.

                                      31
<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 Board Members 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.



  The Fund Administration Agreement continues in effect from year to year if the
  Board specifically approves such continuance every year. 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
  automatically terminates upon its assignment by UAMFSI without the prior
  written consent of the Fund.


  UAMFSI will from time to time employ other people to assist it in performing
  its duties under the Fund Administration Agreement.  Such people may be
  officers and employees who are employed by both UAMFSI and the Fund. UAMFSI
  will pay such people for such employment.  The Fund will not incur any
  obligations with respect to such people.

                                      32
<PAGE>



Administration and Transfer Agency Services Fees

  The portfolio pays a four-part fee to UAMFSI as follows:

  1. In exchange for administrative services, the portfolio pays a fee to UAMFSI
     calculated at the annual rate of:

     .  $19,500 for the first operational class; plus

     .  $3,750 for each additional class; plus

     .  A fee calculated from the aggregate net assets of each portfolio at the
        following rates:

                                                            Annual Rate
        ------------------------------------------------------------------------
        NWQ Special Equity Portfolio                              0.043%


  2. The portfolio also pays a fee to UAMFSI for sub-administration and other
     services provided by SEI. The fee, which UAMFSI pays to SEI, is calculated
     at the annual rate of:

     .  Not more than $35,000 for the first operational class; plus

     .  $5,000 for each additional operational class; plus

     .  0.03% of their pro rata share of the combined assets of the UAM Funds
        Complex.

  3. 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.

  4. 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.

  For the last three fiscal years the portfolio paid the following in
  administration and sub-administration fees:


<TABLE>
<CAPTION>
                                      Administrators Fee  Sub-Administrators Fee  Total Administration Fee
- ----------------------------------------------------------------------------------------------------------
<S>                                   <C>                 <C>                     <C>
NWQ Special Equity Portfolio
  1999                                      $16,236                 $58,223                   $74,459
- ----------------------------------------------------------------------------------------------------------
  1998                                      $ 6,063                 $56,235                   $62,298
- ----------------------------------------------------------------------------------------------------------
  1997                                      $     0                 $     0                   $     0
</TABLE>

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 ACCOUNTANTS
- --------------------------------------------------------------------------------
  PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110,
  serves as independent accountant for the Fund.


Brokerage Allocation and Other Practices


SELECTION OF BROKERS
- --------------------------------------------------------------------------------

                                      33
<PAGE>


  The Investment Advisory Agreement authorizes the adviser to select the brokers
  or dealers that will execute the purchases and sales of investment securities
  for the portfolio.  The Investment Agreement also directs the adviser to use
  its best efforts to obtain the best execution with respect to all transactions
  for the 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 Investment 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.



  It is not the practice of the Fund to allocate brokerage or effect principal
  transactions with dealers based on sales of shares that a broker-dealer firm
  makes.  However, the Fund may place trades with qualified broker-dealers who
  recommend the Fund or who act as agents in the purchase of Fund shares for
  their clients.

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.


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 portfolio 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 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.



Commissions Paid

  For the last three fiscal years, the portfolio paid the following in brokerage
  commissions:



                                                    Brokerage Commissions
- -----------------------------------------------------------------------------
NWQ Special Equity Portfolio
  1999                                                 $21,636
- -----------------------------------------------------------------------------
  1998                                                 $37,253


                                      34
<PAGE>


  1997                                                 $     0



Capital Stock and Other Securities



The Fund

  The Fund was organized under the name "The ICM Fund, Inc." as a Maryland
  corporation on October 11, 1988.  On January 18, 1989, the Fund changed its
  name 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 211
  Congress Street, Boston, MA  02110; however, shareholders should direct all
  correspondence to the address listed on the cover of this SAI.  The Fund is an
  open-end management company.


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 1940 Act
  or other applicable law.

                                      35
<PAGE>


Dividend and Distribution Options

  There are three ways for shareholders to receive dividends and capital gains:

  .  Income dividends and capital gains distributions are reinvested in
     additional shares at net asset value;

  .  Income dividends are paid in cash and capital gains distributions are
     reinvested in additional shares at NAV; and

  .  Income dividends and capital gains distributions are paid in cash.

  Unless the shareholder elects otherwise in writing, the fund will
  automatically reinvest all dividends in additional shares of the portfolio at
  NAV (as of the business day following the record date).  Shareholders may
  change their dividend and distributions option by writing to the fund at least
  three days before the record date for income dividend or capital gain
  distribution.

  The fund sends account statements to shareholders whenever it pays an income
  dividend or capital gains distribution.



FEDERAL TAXES

  The portfolio intends to qualify as a regulated investment company under
  Subchapter M of the Internal Revenue Code, and to distribute out its income to
  shareholders each year so that the portfolio itself generally will be relieved
  of federal income and excise taxes.  If the portfolio were to fail to so
  qualify: (1) it would be taxed at regular corporate rates without any
  deduction for distributions to shareholder; and (2) its shareholders would be
  taxed as if they received ordinary dividends, although corporate shareholders
  could be eligible for the dividends received deduction.

  The portfolio's dividends that are paid to its corporate shareholders and are
  attributable to qualifying dividends it received from U.S. domestic
  corporations may be eligible, in the hands of such shareholders, for the
  corporate dividends received deduction, subject to certain holding period
  requirements and debt financing limitations.


Purchase, Redemption and Pricing of Shares

NET ASSET VALUE PER SHARE
- --------------------------------------------------------------------------------


Calculating NAV

  The purchase and redemption price of the shares of a portfolio is equal to the
  NAV of the portfolio.  The Fund calculates the NAV of a portfolio by
  subtracting its liabilities from its total assets and dividing the result by
  the total number of shares outstanding.  For purposes of this calculation:

  .  Liabilities include accrued expenses and dividends payable; and

  .  Total assets include the market value of the securities held by the
     portfolio, plus cash and other assets plus income accrued but not yet
     received.

  Each portfolio normally calculates its NAV as of the close of trading on the
  NYSE every day the NYSE is open for trading.  The NYSE usually closes at 4:00
  p.m.  The NYSE is closed on the following days: 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.

                                      36
<PAGE>


How the Fund Values it Assets

  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 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 governing board.


PURCHASE OF SHARES
- -------------------------------------------------------------------------------

  Service Agents may enter confirmed purchase orders on behalf of their
  customers. To do so, the Service Agent must receive your investment order
  before the close of trading on the NYSE and must transmit it to the fund
  before the close of its business day to receive that day's share price. The
  fund must receive proper payment for the order by the time the portfolio
  calculates its NAV 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.

  Shareholders can buy full and fractional (calculated to three decimal places)
  shares of a portfolio. The fund will not issue certificates for fractional
  shares and will only issue certificates for whole shares upon the written
  request of a shareholder.

  The Fund may 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


  At its discretion, the Fund may permit shareholders to purchase shares of the
  portfolio with securities, instead of cash.  If the Fund allows a shareholder
  to make an in-kind purchase, it will value such securities according to the
  policies described under "How the Fund Values it Assets" at the next
  determination of net asset value after acceptance. The Fund will issue shares
  of the portfolio at the NAV of the portfolio determined as of the same time.

  The Fund will only acquire securities through an in-kind purchase for
  investment and not for immediate resale. The Fund will only accept in-kind
  purchases if the transaction meets the following conditions:
<PAGE>


  .  The securities are eligible investments for the portfolio;

  .  The securities have readily available market quotations;

  .  The investor represents and agrees that the securities are liquid and that
     there are no restrictions on their resale imposed by the 1933 Act or
     otherwise;

  .  All dividends, interest, subscription, or other rights pertaining to such
     securities become the property of the portfolio and are delivered to the
     fund by the investor upon receipt from the issuer; and

  .  Immediately after the transaction is complete, the value of all securities
     of the same issuer held by the portfolio cannot exceed 5% of the net assets
     of the portfolio. This condition does not apply to U.S. government
     securities.

  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 the shareholder wishes to redeem signed by all registered
     owners of the shares in the exact names in which they are registered;

  .  Any required signature guarantees (see "Signature Guarantees"); and

  .  Any other necessary legal documents for estates, trusts, guardianships,
     custodianships, corporations, pension and profit sharing plans and other
     organizations.


By Telephone


  Shareholders may not do the following by telephone:

  .  Change the name of the commercial bank or the account designated to receive
     redemption proceeds. To change an account in this manner, you must submit a
     written request signed by each shareholder, with each signature guaranteed.

  .  Redeem shares represented by a certificate.

  The Fund and UAMSSC will employ reasonable procedures to confirm that
  instructions communicated by telephone are genuine, and they may be liable for
  any losses if they fail to do so. These procedures include requiring the
  investor to provide certain personal identification at the time an account is
  opened and before 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 UAMSSC may be liable for any losses due to
  unauthorized or fraudulent telephone instructions if the Fund or the UAMSSC
  does not employ the procedures described above. Neither the Fund nor the
  UAMSSC will be responsible for any loss, liability, cost or expense for
  following instructions received by telephone that it reasonably believes to be
  genuine.

                                      38
<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 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.



  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 Board 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


  The Fund requires signature guarantees for certain types of documents,
  including:

  .  Written requests for redemption;

  .  Separate instruments for assignment ("stock power"), which should specify
     the total number of shares to be redeemed; and

  .  On all stock certificates tendered for redemption.

  The purpose of signature guarantees is to verify the identity of the person
  who has authorized a redemption from your account and to protect your account,
  the Fund and its sub-transfer agent from fraud.

  The Fund will accept signature guarantees from any eligible guarantor
  institution, as defined by the Securities Exchange Act of 1934 that
  participates in a signature guarantee program. Eligible guarantor institutions
  include banks, brokers, dealers, credit unions, national securities exchanges,
  registered securities associations, clearing agencies and savings
  associations.  You can get a complete definition of eligible guarantor
  institutions by calling 1-877-826-5465.  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.


Other Redemption Information


  Normally, the Fund will pay for all shares redeemed under proper procedures
  within seven days after it received your request.  However, the Fund will pay
  your redemption proceeds earlier as applicable law so requires.

  When the Fund may suspend redemption privileges or postpone the date of
  payment:

  .  when the NYSE and custodian bank are closed;

  .  when trading on the NYSE is restricted;

  .  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; or

                                      39
<PAGE>


  .  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 for exchanges.

  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.



PERFORMANCE CALCULATIONS


  The portfolio measures its performance by calculating its yield and total
  return. Yield and total return figures are based on historical earnings and
  are not intended to indicate future performance. The portfolio calculates its
  current yield and average annual total return information according to the
  methods required by the SEC. The performance is calculated separately for each
  Class of the portfolio. Dividends paid by the portfolio with respect to each
  Class 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 Institutional 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. 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 fund calculates the average annual total return of the portfolio by
  finding the average annual compounded rates of return over one, five and ten-
  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.

                                      40
<PAGE>

  The fund calculates these figures 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).


  Set forth in the table below are the portfolio's average annual returns for
  the one-year period and the five-year period ended October 31, 1999 and the
  shorter of the ten-year period ended October 30, 1999 or the period from the
  portfolio's inception date through October 31, 1999.

<TABLE>
<CAPTION>                                                                            Shorter of
                                                                                  10Years or Since
                                                  One Year       Five Years          Inception           Inception Date
- -------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>            <C>              <C>                    <C>
Institutional Class                                19.33%           N/A                9.28%                 11/4/97
- ------------------------------------------------------------------------------------------------------------------------------
 Institutional Service Class                       18.79%           N/A                9.40%                 11/7/97
</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 mutual 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.

                                      41
<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 this SAI. This information may also be included in sales
  literature and advertising.


  To help investors better evaluate how an investment in the portfolio 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 "Comparative Benchmarks" 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 indices and 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; and

  .  that shareholders cannot invest directly in such indices or averages.

  In addition, there can be no assurance that the portfolio will continue this
  performance as compared to such other averages.


FINANCIAL STATEMENTS


  The following documents are included in the portfolio's  October 31, 1999
  Annual Report:

  .  Financial statements for the fiscal year ended October 31, 1999.

  .  Financial highlights for the respective periods presented

  .  The report of PricewaterhouseCoopers LLP.

  Each of the above-referenced documents is incorporated by reference into this
  SAI. However, no other parts of the portfolio's Annual Reports are
  incorporated by reference herein. Shareholders may get copies of the
  portfolio's Annual Reports free of charge by calling the UAM Funds at the
  telephone number appearing on the front page of this SAI.


GLOSSARY

  All terms that this SAI does not otherwise define, have the same meaning in
  the SAI as they do in the prospectus(es) of the portfolios.

  1933 Act means the Securities Act of 1933, as amended.

  1934 Act means the Securities Exchange Act of 1934, as amended.

  1940 Act means the Investment Company Act of 1940, as amended.

  Adviser means the investment adviser of the portfolio.

  Board Member refers to a single member of the Fund's Board.

                                      42
<PAGE>


  Board refers to the Fund's Board of Trustees as a group.

  SEI is SEI Investments Mutual Funds Services, the Fund's sub-administrator.

  Distribution Plan refers to the Distribution Plan the Fund has adopted for its
  Service Class Shares pursuant to Rule 12b-1 under the 1940 Act.

  Fund refers to UAM Funds, Inc.

  Governing Board, see Board.

  NAV is the net asset value per share of a portfolio.

  NYSE is the New York Stock Exchange.  Also known as "The Exchange" or "The Big
  Board," the NYSE is located on Wall Street and is the largest exchange in the
  United States.

  Plan member refers to 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.

  Plans refers to the Distribution and Shareholder Servicing Plans the Fund has
  adopted for its Service Class Shares pursuant to Rule 12b-1 under the 1940
  Act.

  SEC is the Securities and Exchange Commission.  The SEC is the federal agency
  that administers most of the federal securities laws in the United States.  In
  particular, the SEC administers the 1933 Act, the 1940 Act and the 1934 Act.

  Service Plan refers to the Shareholder Servicing Plan the Fund has adopted for
  its Service Class Shares pursuant to Rule 12b-1 under the 1940 Act.

  Service Class means the Institutional Service Class shares of a portfolio.

  UAM Funds Complex includes UAM Funds, Inc., UAM Funds Trust, UAM Funds Inc. II
  and all of their portfolios.

  UAM is United Asset Management Corporation.

  UAMFDI is UAM Fund Distributors, Inc., the Fund's distributor.

  UAMFSI is UAM Fund Services, Inc., the Fund's administrator.

  UAMSSC is UAM Fund Shareholder Servicing Center, the Fund's sub-shareholder-
  servicing agent.


BOND 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
            stocks.

  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.

                                      43
<PAGE>

  baa          An issue that 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 period 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.

  plus (+) or  Moody's applies numerical modifiers 1, 2, and 3 in each rating
  minus (-)    classification: the modifier 1 indicates that the security ranks
               in the higher end of its generic rating catefory; 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.


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-grade
               obligations. Factors giving security to principal and interest
               are considered adequate, but elements may be present which
               suggest a susceptibility to impairment sometime in the future.

  Baa          Bonds which are rated Baa are 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.

                                      44
<PAGE>


  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.

  Con. (...)   (This rating applies only to U.S. Tax-Exempt Municipals) Bonds
               for which the security depends upon the completion of some act or
               the fulfillment of some condition are rated conditionally. These
               are bonds secured by (a) earnings of projects under construction,
               (b) earnings of projects unseasoned in operating experience, (c)
               rentals that begin when facilities are completed, or (d) payments
               to which some other limiting condition attaches. Parenthetical
               rating denotes probable credit stature upon completion of
               construction or elimination of basis of condition.


  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.

  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:

               .  Leading market positions in well-established industries.

               .  Conservative capitalization structure with moderate reliance
                  on debt and ample asset protection.

               .  Broad 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.

                                      45
<PAGE>

  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
- --------------------------------------------------------------------------------



Long-Term Issue Credit Ratings


  Issue credit ratings are based, in varying degrees, on the following
  considerations:

  1. 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;

  2.  Nature of and provisions of the obligation;

  3. 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.



    The issue rating definitions are expressed in terms of default risk. As
    such, they pertain to senior obligations of an entity. Junior obligations
    are typically rated lower than senior obligations, to reflect the lower
    priority in bankruptcy, as noted above. Accordingly, in the case of junior
    debt, the rating may not conform exactly with the category definition.


  AAA          An obligation rated 'AAA' has 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 obligor 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.

                                      46
<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            A subordinated debt or preferred stock obligation rated 'C' is
               CURENTLY HIGHLY VULNERABLE to non-payment. The 'C' rating may be
               used to cover a situation where a bankruptcy petition has been
               filed or similar action taken, but payments on this obligation
               are being continued. A 'C' will also be assigned to a preferred
               stock issue in arrears on dividends or sinking fund payments, but
               that is currently paying.

  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.

  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.


  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 obligation as a
               matter of policy.

  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.


Short-Term Issue Credit 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 obligations in higher rating categories. However,
               the obligor's capacity to meet its financial commitment on the
               obligation is satisfactory.

                                      47
<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.


Local Currency and Foreign Currency Risks

  Country risks considerations are a standard part of Standard & Poor's analysis
  for credit ratings on any issuer or issue. Currency of repayment is a key
  factor in this analysis. An obligor's capacity to repay foreign currency
  obligations may be lower than its capacity to repay obligations in its local
  currency due to the sovereign government's own relatively lower capacity to
  repay external versus domestic debt. These sovereign risk considerations are
  incorporated in the debt ratings assigned to specific issues. Foreign currency
  issuer ratings are also distinguished from local currency issuer ratings to
  identity those instances where sovereign risks make them different for the
  same issuer.


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
  AA-          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/      Below investment grade but deemed likely to meet obligations when
  BB-          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 met 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.
<PAGE>

     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.

     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 of
                    financial commitments. This capacity is highly unlikely to
                    be adversely affected by foreseeable events.

                                      49
<PAGE>

     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              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.

     BBB            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. The ratings of obligations in this category are
                    based on their prospects for achieving partial or full
                    recovery in a reorganization or liquidation of the obligor.
                    While expected recovery values are highly speculative and
                    cannot be estimated with any precision, the following serve
                    as general guidelines. "DDD" obligations have the highest
                    potential for recovery, around 90%-100% of outstanding
                    amounts and accrued interest. "D" indicates potential
                    recoveries in the range of 50%-90%, and "D" the lowest
                    recovery potential, i.e., below 50%.

                    Entities rated in this category have defaulted on some or
                    all of their obligations. Entities rated "DDD" have the
                    highest prospect for resumption of performance or continued
                    operation with or without a formal reorganization process.
                    Entities rated "DD" and "D" are generally undergoing a
                    formal reorganization or liquidation process; those rated
                    "DD" are likely to satisfy a higher portion of their
                    outstanding obligations, while entities rated "D" have a
                    poor prospect for repaying all obligations.

International Short-Term Credit Ratings

     F1             Highest credit quality. Indicates the Best 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.

                                      50
<PAGE>

     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.

     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.


Comparative Benchmarks

     (alphabetically)

     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.

     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.

     Donoghue's Money Fund Average -- is an average of all major money market
     fund yields, published weekly for 7 and 30-day yields.

     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.


     Financial publications: Business Week, Changing Times, Financial World,
     Forbes, Fortune, Money, Barron's, Consumer's Digest, Financial Times,
     Global Investor, Investor's Daily, Lipper, Inc., Morningstar, Inc., The New
     York Times, Personal Investor, The Wall Street Journal and Weisenberger
     Investment Companies Service -- publications that rate fund performance
     over specified time periods.

     Historical data supplied by the research departments of First Boston
     Corporation, J.P. Morgan & Co, Inc., Salomon Smith Barney, Merrill Lynch &
     Co., Inc., Lehman Brothers, Inc. and Bloomberg L.P.

                                      51
<PAGE>


  IBC's Money Fund Average/All Taxable Index - an average of all major money
  market fund yields, published weekly for 7- and 30-day yields.

  IFC Investable Composite Index - an unmanaged market capitalization-weighted
  index maintained by the International Finance Corporation. This index consists
  of over 890 companies in 26 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.

  Lehman Brothers Indices:
  ------------------------

  Lehman Brothers Aggregate Bond Index - an unmanaged fixed income market value-
  weighted index that combines the Lehman Government/Corporate Index and the
  Lehman Mortgage-Backed Securities Index, and includes treasury issues, agency
  issues, corporate bond issues and mortgage backed securities.  It includes
  fixed rate issuers of investment grade (BBB) or higher, with maturities of at
  least one year and outstanding par values of at least $100 million for U.S.
  government issues and $25 million for others.

  Lehman Brothers Corporate Bond Index - an unmanaged index of all publicly
  issued, fixed-rate, nonconvertible investment grade domestic corporate debt.
  Also included are yankee bonds, which are dollar-denominated SEC registered
  public, noncovertible debt issued or guaranteed by foreign sovereign
  governments, municipalities, or governmental agencies, or international
  agencies.

  Lehman Brothers Government Bond Index -an unmanaged treasury bond index
  including all public obligations of the U.S. Treasury, excluding flower bonds
  and foreign-targeted issues, and the Agency Bond Index (all publicly issued
  debt of U.S. government agencies and quasi-federal corporations, and corporate
  debt guaranteed by the U.S. government).  In addition to the aggregate index,
  sub-indices cover intermediate and long term issues.

  Lehman Brothers Government/Corporate Bond Index -- an unmanaged fixed income
  market value-weighted index that combines the Government and Corporate Bond
  Indices, including U.S. government treasury securities, corporate and yankee
  bonds.   All issues are investment grade (BBB) or higher, with maturities of
  at least one year and outstanding par value of at least $100 million of  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.

  Lehman Brothers High Yield Bond Index - an unmanaged index of fixed rate, non-
  investment grade debt.  All bonds included in the index are dollar
  denominated, noncovertible, have at least one year remaining to maturity and
  an outstanding par value of at least $100 million.

  Lehman Brothers Intermediate Government/Corporate Index - an unmanaged fixed
  income, market value-weighted index that combines the Lehman Brothers
  Government Bond Index (intermediate-term sub-index) and four corporate bond
  sectors.

  Lehman Brothers Mortgage-Backed Securities Index - an unmanaged index of all
  fixed-rate securities backed by mortgage pools of Government National Mortgage
  Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC),  and
  Federal National Mortgage Association (FNMA).

  Lipper, Inc./Lipper Indices/Lipper Averages
  -------------------------------------------

  The Lipper Indices are equally weighted indices for typically the 30 largest
  mutual funds within their respective portfolio investment objectives.  The
  indices are currently grouped in six categories:  U.S. Diversified Equity with
  12 indices; Equity with 27 indices, Taxable Fixed-Income with 20 indices, Tax-
  Exempt Fixed-Income with 28 indices, Closed-End Funds with 16 indices, and
  Variable Annuity Funds with 18 indices.

  In September, 1999, Lipper, Inc. introduced its new portfolio-based mutual
  fund classification method in which peer comparisons are based upon
  characteristics of the specific stocks in the underlying funds, rather than
  upon a broader investment objective stated in a prospectus.  Certain of
  Lipper, Inc.'s classifications for general equity funds' investment objectives
  were changed while other equity objectives remain unchanged.  Changing
  investment objectives include Capital Appreciation Funds, Growth Funds, Mid-
  Cap Funds, Small-Cap Funds, Micro-Cap Funds, Growth & Income

                                      52
<PAGE>


  Funds, and Equity Income Funds. Unchanged investment objectives include Sector
  Equity Funds, World Equity Funds, Mixed Equity Funds, and certain other funds
  including all Fixed Income Funds and S&P(R) Index Funds.

  Criteria for the Lipper Indices are:  1) component funds are largest in group;
  2) number of component funds remains the same (30);  3) component funds are
  defined annually;  4) can be linked historically; and  5) are used as a
  benchmark for fund performance.

  Criteria for the Lipper Averages are:  1) includes all funds in the group in
  existence for the period;  2) number of component funds always changes;  3)
  universes are dynamic due to revisions for new funds, mergers, liquidations,
  etc.; and  4) will be inaccurate if historical averages are linked.

  Certain Lipper, Inc. indices/averages used by the UAM Funds may include, but
  are not limited to, the following:

  Lipper Short-Intermediate Investment Grade Debt Funds Average -- is an average
  of 100 funds that invest at least 65% of assets in investment grade debt
  issues (BBB or higher) with dollar-weighted average maturities of one to five
  years or less.  (Taxable Fixed-Income category)

  Lipper Balanced Fund Index - an unmanaged index of open-end equity funds whose
  primary objective is to conserve principal by maintaining at all times a
  balanced portfolio of both stocks and bonds.  Typically, the stock/bond ratio
  ranges around 60%/40%.  (Equity category)

  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.  (Equity category)

  Lipper Equity Mid Cap Fund Index - an unmanaged index of funds that by
  prospectus or portfolio practice invest primarily in companies with market
  capitalizations less than $5 billion at the time of purchase.  (Equity
  category)

  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.  (Equity
  category)

  Lipper Growth Fund Index - an unmanaged index composed of the 30 largest funds
  by asset size which invest in companies with long-term earnings expected to
  grow significantly faster than the earnings of the stocks represented in the
  major unmanaged stock indices.  (Equity category)

  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.

  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 (BBB or higher).


  Merrill Lynch 1-3 Year Treasury Index - an unmanaged index composed of U.S.
  treasury securities with maturities from 1 to 3 years.

  Morgan Stanley Capital International EAFE Index -- 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.

  Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
  yield, risk and total return for equity funds.

  NASDAQ Composite Index -- is a market capitalization, price only, unmanaged
  index that tracks the performance of domestic common stocks traded on the
  regular NASDAQ market as well as national market System traded foreign common
  stocks and ADRs.

                                      53
<PAGE>


  Nekkei Stock Average - a price weighted index of 225 selected leading stocks
  listed on the First Section of the Tokyo Stock Exchange.

  New York Stock Exchange composite or component indices -- capitalization-
  weighted unmanaged indices of all industrial, utilities, transportation and
  finance stocks listed on the New York Stock Exchange.


  Russell U.S. Equity Indexes:
  ----------------------------

  Russell 3000(R) Index - measures the performance of the 3,000 largest U.S.
  companies based on total market capitalization, which represents approximately
  98% of the investable U.S. equity market.

  Russell 1000(R) Index - an unmanaged index which measures the performance of
  the 1,000 largest companies in the Russell 3000 Index, which represents
  approximately 92% of the total market capitalization of the Russell 3000
  Index.

  Russell 2000(R) Index -- an unmanaged index which measures the performance of
  the 2,000 smallest companies in the Russell 3000 Index, which represents
  approximately 8% of the total market capitalization of the Russell 3000 Index.

  Russell Top 200(TM) Index - measures the performance of the 200 largest
  companies in the Russell 1000 Index, which represents approximately 74% of the
  total market capitalization of the Russell 1000 Index.

  Russell Mid-Cap(TM) Index -- measures the performance of the 800 smallest
  companies in the Russell 1000 Index, which represents approximately 26% of the
  total market capitalization of the Russell 1000 Index.

  Russell 2500(TM) Index - an unmanaged index which measures the performance of
  the 2,5000 smallest companies in the Russell 3000 Index, which represents
  approximately 17% of the total market capitalization of the Russell 3000
  Index.

  Russell 3000(R) Growth Index - measures the performance of those Russell 3000
  Index companies with higher price-to-book ratios and higher forecasted growth
  values.  The stocks in this index are also members of either the Russell 1000
  Growth or the Russell 2000 Growth indexes.

  Russell 3000(R) Value Index - measures the performance of those Russell 3000
  Index companies with lower price-to-book ratios and lower forecasted growth
  values.  The stocks in this index are also members of either the Russell 1000
  Value or the Russell 2000 Value indexes.

  Russell 1000(R) Growth Index - measures the performance of those Russell 1000
  companies with higher price-to-book ratios and higher forecasted growth
  values.

  Russell 1000(R) Value Index - measures the performance of those Russell 1000
  with lower price-to-book ratios and lower forecasted growth values.

  Russell 2000(R) Growth Index - measures the performance of  those Russell 2000
  companies with higher price-to-book ratios and higher forecasted growth
  values.

  Russell 2000(R) Value Index - measures the performance of those Russell 2000
  companies with lower price-to-book ratios and lower forecasted growth values.

  Russell Top 200(TM) Growth Index - measures the performance of those Russell
  Top 200 companies with higher price-to-book ratios and higher forecasted
  growth values.  The stocks re also members of the Russell 1000 Growth index.

  Russell Top 200(TM) Value Index - measures the performance of those Russell
  Top 200 companies with lower price-to-book ratios and lower forecasted growth
  values.  The stocks are also members of the Russell 1000 Value index.

  Russell Midcap(TM) Growth Index - measures the performance of those Russell
  Midcap companies with higher price-to-book ratios and higher forecasted growth
  values.  The stocks are also members of the Russell 1000 Growth index.

  Russell Midcap(TM) Value Index - measures the performance of those Russell
  Midcap companies with lower price-to-book ratios and lower forecasted growth
  values.  The stocks are also members of the Russell 1000 Value index.

                                      54
<PAGE>


  Russell 2500(TM) Growth Index - measures the performance of those Russell 2500
  companies with higher price-to-book ratios and higher forecasted growth
  values.

  Russell 2500(TM) Value Index - measures the performance of those Russell 2500
  companies with lower price-to-book ratios and lower forecasted growth values.

  Ryan Labs 5 Year GIC Master Index  - an arithmetic mean of market rates of $1
  million GIC contracts held for five years.  The market rates are
  representative of a diversified, investment grade portfolio of contracts
  issued by credit worthy insurance companies.  The index is unmanaged and does
  not reflect any transaction costs.  Direct investment in the index is not
  possible.

  Standard & Poor's U.S. Indices:
  -------------------------------

  In October, 1999,  Standard & Poor's and Morgan Stanley Capital International
  launched a new global industry classification standard consisting of 10
  economic sectors aggregated from 23 industry groups, 59 industries, and 123
  sub-industries covering almost 6,000 companies globally.  The new
  classification standard will be used with all of their respective indices.
  Features of the new classification include 10 economic sectors, rather than
  the 11 S&P currently uses.  Sector and industry gradations are less severe.
  Rather than jumping from 11 sectors to 115 industries under the former S&P
  system, the new system progresses from 10 sectors through 23 industry groups,
  50 industries and 123 sub-industries.

  S&P 500 Index - an unmanaged index composed of 400 industrial stocks, 40
  financial stocks, 40 utilities stocks and 20 transportation stocks. Widely
  regarded as the standard for  measuring large-cap U.S. stock market
  performance. It is used by 97% of U.S. money managers and pension plan
  sponsors. More than $1 trillion is indexed to the S&P 500.

  S&P MidCap 400 Index -- consists of 400 domestic stocks chosen for market
  size, liquidity, and industry group representation.  It is a market-value
  weighted index with each stock affecting the index in proportion to its market
  value. It is used by over 95% of U.S. managers and pension plan sponsors. More
  than $25 billion is indexed to the S&P Midcap400.

  S&P Small Cap 600 Index - an unmanaged index comprised of 600 domestic stocks
  chosen for market size, liquidity, and industry group representation.  The
  index is comprised of stocks from the industrial, utility, financial, and
  transportation sectors.  It is gaining wide acceptance as the preferred
  benchmark for both active and passive management due to its low turnover and
  greater liquidity.  Approximately $8 billion is indexed to the S&P SmallCap
  600.

  S&P SuperComposite 1500 - combines the S&P 500, MidCap 400, and SmallCap 600
  indices, representing 87% of the total U.S. equity market capitalization.

  S&P 100 Index - known by its ticker symbol OEX, this index measures large
  company U.S. stock market performance.  This market capitalization-weighted
  index is made up of 100 major, blue chip stocks across diverse industry
  groups.

  S&P/BARRA Growth and Value Indices - are constructed by dividing the
  securities in the S&P 500 Index according to price-to-book ratio.  The Value
  index contains the companies with the lower price-to-book ratios; while the
  companies with the higher price-to-book ratios are contained in the Growth
  index.

  S&P REIT Composite Index - launched in 1997, this benchmark tracks the market
  performance of U.S. Real Estate Investment Trusts, known as REITS.  The REIT
  Composite consists of 100 REITs chosen for their liquidity and importance in
  representing a diversified real estate portfolio.  The Index covers over 80%
  of the securitized U.S. real estate market.

  S&P Utilities Stock Price Index - a market capitalization weighted index
  representing three utility groups and, with the three groups, 43 of the
  largest utility companies listed on the New York Stock Exchange, including 23
  electric power companies, 12 natural gas distributors and 8 telephone
  companies.

  Standard & Poor's CANADA Indices:
  ---------------------------------

  S&P/TSE Canadian MidCap Index - measures the performance of the mid-size
  company segment of the Canadian equity market.

                                      55
<PAGE>


  S&P/TSE Canadian SmallCap Index - Measures the small company segment of the
  Canadian equity market.

  Standard & Poor's Global Indices:
  ---------------------------------

  S&P Global 1200 Index - aims to provide investors with an investable
  portfolio.  This index, which covers 29 countries and consists of seven
  regional components, offers global investors an easily accessible, tradable
  set of stocks and particularly suits the new generation of index products,
  such as exchange-traded funds (ETFs).

  S&P Euro  and S&P Euro Plus Indices - the S&P Euro Index covers the Eurobloc
  countries; the Euro Plus Index includes the Euro markets as well as Denmark,
  Norway, Sweden and Switzerland.  The S&P Euro Plus Index contains 200
  constituents, and the S&P Euro Index, a subset of Euro Plus, contains 160
  constituents.  Both indices provide geographic and economic diversity over 11
  industry sectors.

  S&P/TSE 60 Index  - developed with the Toronto Stock Exchange, is designed as
  the new Canadian large cap benchmark and will ultimately replace the Toronto
  35 and the TSE 100.

  S&P/TOPIX 150 -  includes 150 highly liquid securities selected from each
  major sector of the Tokyo market. It  is designed specifically to give
  portfolio managers and derivative traders an index that is broad enough to
  provide representation of the market, but narrow enough to ensure liquidity.

  S&P Asia Pacific 100 Index - includes highly liquid securities from each major
  economic sector of major Asia-Pacific equity markets. Seven countries --
  Australia, Hong Kong, Korea, Malaysia, New Zealand, Singapore, and Taiwan --
  are represented in the new index.

  S&P Latin America 40 Index -part of the S&P Global 1200 Index, includes highly
  liquid securities from major economic sectors of Mexican and South American
  equity markets. Companies from Mexico, Brazil, Argentina, and Chile are
  represented in the new index.

  S&P United Kingdom 150 Index - includes 150 highly liquid securities selected
  from each of the new S&P sectors. The S&P UK 150 is designed to be broad
  enough to provide representation of the market, but narrow enough to ensure
  liquidity.

  Salomon Smith Barney Global excluding U.S. Equity Index - an unmanaged index
  comprised of the smallest stocks (less than $1 billion market capitalization)
  of the Extended Market Index, of both developed and emerging markets.

  Salomon Smith Barney One to Three Year Treasury Index - an unmanaged index
  comprised of U.S. treasury notes and bonds with maturities of one year or
  greater, but less than three years.

  Salomon Smith Barney Three-Month T-Bill Average -- the average for all
  treasury bills for the previous three-month period.

  Salomon Smith Barney Three-Month U.S. Treasury Bill Index - a return
  equivalent yield average based on the last three 3-month Treasury bill issues.

  Savings and Loan Historical Interest Rates -- as published by the U.S. Savings
  and Loan League Fact Book.

  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.


  Target Large Company Value Index - an index comprised of large companies with
  market capitalizations currently extending down to approximately $1.9 billion
  that are monitored using a variety of relative value criteria in order to
  capture the most attractive value opportunities available.  A high quality
  profile is required and companies undergoing adverse financial pressures are
  eliminated.

  U.S. Three-Month Treasury Bill Average - the average return for all treasury
  bills for the previous three month period.

                                      56
<PAGE>


  Value Line Composite Index -- composed of over 1,600 stocks in the Value Line
  Investment Survey.

  Wilshire Real Estate Securities Index - a market capitalization-weighted index
  of publicly traded real estate securities, including real estate investment
  trusts, real estate operating companies and partnerships.  The index is used
  by the institutional investment community as a broad measure of the
  performance of public real estate equity for asset allocation and performance
  comparison.

  Wilshire REIT Index - includes 112 real estate investment trusts (REITs) but
  excludes seven real estate operating companies that are included in the
  Wilshire Real Estate Securities Index.

  Note:  With respect to the comparative measures of performance for equity
  securities described herein, comparisons of performance assume reinvestment of
  dividends, except as otherwise stated.

                                      57
<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
                               February 28, 2000



This statement of additional information (SAI) is not a prospectus. However,
you should read it in conjunction with the prospectus of the portfolios dated
February 28, 2000, as supplemented from time to time. You may obtain a
prospectus for the portfolios by contacting the UAM Funds at the address
listed above.
<PAGE>

<TABLE>
<CAPTION>
Table Of Contents
<S>                                                                         <C>
Description of Permitted Investments......................................   1
  What Investment Strategies May the Portfolios Use?......................   1
  Debt Securities.........................................................   2
  Derivatives.............................................................   9
  Equity Securities.......................................................  17
  Foreign Securities......................................................  19
  Investment Companies....................................................  22
  Repurchase Agreements...................................................  23
  Restricted Securities...................................................  23
  Securities Lending......................................................  23
  When Issued Transactions................................................  23
Investment Policies of the Portfolios.....................................  24
  Fundamental Policies....................................................  24
  Non-Fundamental Policies................................................  24
Management Of The Fund....................................................  25
Principal Shareholders....................................................  25
Investment Advisory and Other Services....................................  27
  Investment Adviser......................................................  27
  Distributor.............................................................  27
  Shareholder Servicing Arrangements......................................  30
  Administrative Services.................................................  30
  Custodian...............................................................  30
  Independent Accountants.................................................  32
Brokerage Allocation and Other Practices..................................  32
  Selection of Brokers....................................................  32
  Simultaneous Transactions...............................................  32
  Brokerage Commissions...................................................  32
Capital Stock and Other Securities........................................  33
  Description Of Shares And Voting Rights.................................  33
Purchase, Redemption and Pricing of Shares................................  33
  Net Asset Value Per Share...............................................  35
  Purchase of Shares......................................................  35
  Redemption of Shares....................................................  36
  Exchange Privilege......................................................  36
  Transfer Of Shares......................................................  38
Performance Calculations..................................................  38
  Total Return............................................................  39
  Yield...................................................................  39
  Comparisons.............................................................  40
Financial Statements......................................................  40
Glossary..................................................................  41
Bond Ratings..............................................................  42
  Moody's Investors Service, Inc..........................................  42
  Standard & Poor's Ratings Services......................................  45
  Duff & Phelps Credit Rating Co..........................................  47
  Fitch IBCA Ratings......................................................  49
Comparative Benchmarks....................................................  50
</TABLE>
<PAGE>


Description of Permitted Investments

WHAT INVESTMENT STRATEGIES MAY THE PORTFOLIOS USE?
- --------------------------------------------------------------------------------

  The portfolios currently intend to use the securities and investment
  strategies listed below in seeking their objectives; however, they may at any
  time invest in any of the investment strategies described in this SAI.  This
  SAI describes each of these investments/strategies and their risks. A
  portfolio may not notify shareholders before employing new strategies, unless
  it expects such strategies to become principal strategies.  The investments
  that are italicized are principal strategies and you can find more information
  on these techniques in the prospectus of the portfolio. You can find more
  information concerning the limits on the ability of the portfolios to use
  these investments in "What Are the Investment Policies of the Portfolios?"

Small Cap Portfolio

  .  Foreign securities.

  .  Equity securities.

  .  Short-term investments.

  .  Futures.

  .  Options.

  .  Investment companies.

  .  Repurchase agreements.

  .  Restricted securities.

  .  Securities lending.

  .  When issued securities.

Small/Mid Cap Portfolio

  .  Foreign securities.

  .  Equity securities.

  .  Short-term investments.

  .  Futures.

  .  Options.

  .  Investment companies.

  .  Repurchase agreements.

  .  Restricted securities.

  .  Securities lending.

  .  When issued securities.

                                       1
<PAGE>


DEBT SECURITIES
- --------------------------------------------------------------------------------

  Corporations and governments use debt securities 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.

Types of Debt Securities

  U.S. Government Securities

  U.S. government securities are securities that the U.S. Treasury has issued
  (treasury securities) and securities that a federal agency or a government-
  sponsored entity has issued (agency securities). Treasury securities include
  treasury notes, which have initial maturities of one to ten years and treasury
  bonds, which have initial maturities of at least ten years and certain types
  of mortgage-backed securities that are described under "Mortgage-Backed
  Securities" and "Other Asset-Backed Securities." This SAI discusses mortgage-
  backed treasury and agency securities in detail in the section called
  "Mortgage-Backed Securities" and "Other Asset-Backed Securities."

  The full faith and credit of the U.S. government supports treasury securities.
  Unlike treasury securities, the full faith and credit of the U.S. government
  generally do not back agency securities.  Agency securities are typically
  supported in one of three ways:

  .  by the right of the issuer to borrow from the U.S. Treasury;

  .  by the discretionary authority of the U.S. government to buy the
     obligations of the agency; or

  .  by the credit of the sponsoring agency.

  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

  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.


  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. Unlike most debt securities, which pay
  interest periodically and repay principal at maturity or on specified call
  dates, mortgage-backed securities make monthly payments that consist of both
  interest and principal payments. In effect, these payments are a "pass-
  through" of the monthly payments made by the individual borrowers on their
  mortgage loans, net of any fees paid to the issuer or guarantor of such
  securities.  Since homeowners usually have the option of paying either part or
  all of the loan balance before maturity, the effective maturity of a mortgage-
  backed security is often shorter than is stated.

  Governmental entities, private insurers and the mortgage poolers may insure or
  guarantee 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.  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.

                                       2
<PAGE>




  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 is the principal governmental guarantor of mortgage-related securities.
  GNMA is a wholly owned corporation of the U.S. government and it falls within
  the Department of Housing and Urban Development. Securities issued by GNMA are
  treasury securities, which means the full faith and credit of the U.S.
  government backs them.  GNMA 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 a
  portfolio's 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 is regulated by the Secretary of Housing and Urban
  development.  FNMA purchases conventional mortgages from a list of approved
  sellers and service providers, including state and federally-chartered savings
  and loan associations, mutual savings banks, commercial banks and credit
  unions and mortgage bankers. Securities issued by FNMA are agency securities,
  which means FNMA, but not the U.S. government, guarantees their timely payment
  of principal and interest.

  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. 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.

  Risks of Mortgage-Backed Securities

  Yield characteristics of mortgage-backed securities differ from those of
  traditional debt securities in a variety of ways, the most significant
  differences are mortgage-backed securities:

                                       3
<PAGE>


  .  payments of interest and principal are more frequent (usually monthly); and
  .  falling interest rates generally cause individual borrowers to pay off
     their mortgage earlier than expected forcing a portfolio to reinvest the
     money at a lower interest rate.

  In addition to risks associated with changes in interest rates described in
  "Factors Affecting the Value of Debt Securities," a variety of economic,
  geographic, social and other factors, such as the sale of the underlying
  property, refinancing or foreclosure, can cause investors to repay the loans
  underlying a mortgage-backed security 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.

  Other Asset-Backed Securities

  These securities are interests in pools of a broad range of assets other than
  mortgages, such as automobile loans, computer leases and credit card
  receivables.  Like mortgage-backed securities, these securities are pass-
  through. 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 related asset-backed securities.  Due
  to the quantity of vehicles involved and requirements under state laws, 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.

  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 prepay principal
  monthly. While whole mortgage loans may collateralize CMOs, 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.

                                       4
<PAGE>


  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.

  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 securities listed below, U.S. government securities and
  investment-grade corporate debt securities. Unless otherwise specified, a
  short-term debt security has a maturity of one year or less.

  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 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.
  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 is a short-term obligation with a maturity ranging from 1 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 "Bond Ratings" for a description
  of commercial paper ratings.

  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

                                       5
<PAGE>


  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 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 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 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.



                                       6
<PAGE>


Terms to Understand

  Maturity

  Every debt security has a stated maturity date when the issuer must repay the
  amount it borrowed (principal) from investors.  Some debt securities, however,
  are callable, meaning the issuer can repay the principal earlier, on or after
  specified dates (call dates).  Debt securities are most likely to be called
  when interest rates are falling because the issuer can refinance at a lower
  rate, similar to a homeowner refinancing a mortgage.  The effective maturity
  of a debt security is usually its nearest call date.

  A portfolio that invests in debt securities has no real maturity.  Instead, it
  calculates its weighted average maturity.  This number is an average of the
  stated maturity of each debt security held by a portfolio, with the maturity
  of each security weighted by the percentage of the assets of the portfolio it
  represents.

  Duration

  Duration is a calculation that seeks to measure the price sensitivity of a
  debt security, or a portfolio that invests in debt securities, to changes in
  interest rates.  It measures sensitivity more accurately than maturity because
  it takes into account the time value of cash flows generated over the life of
  a debt security.   Future interest payments and principal payments are
  discounted to reflect their present value and then are multiplied by the
  number of years they will be received to produce a value expressed in years --
  the duration.  Effective duration takes into account call features and sinking
  fund prepayments that may shorten the life of a debt security.

  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.

Factors Affecting the Value of Debt 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).

  Prepayment Risk

  This risk effects mainly mortgage-backed securities.  Unlike other debt
  securities, falling interest rates can hurt mortgage-backed securities, which
  may cause your share price to fall.  Lower rates motivate people to pay off
  mortgage-backed and asset-backed securities earlier than expected.  A
  portfolio may then have to reinvest the proceeds from such prepayments at
  lower interest rates, which can reduce its yield. 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 a portfolio.  If
  left unattended, drifts in the average maturity of a portfolio can have the
  unintended effect of increasing or reducing the effective duration of the
  portfolio, which may adversely affect the expected performance of the
  portfolio.

                                       7
<PAGE>


  Extension Risk

  The other side of prepayment risk occurs when interest rates are rising.
  Rising interest rates can cause a portfolio's average maturity to lengthen
  unexpectedly due to a drop in mortgage prepayments.  This would increase the
  sensitivity of a portfolio to rising rates and its potential for price
  declines.  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.

  Credit Rating

  Coupon interest is offered to investors of debt securities as compensation for
  assuming risk, although short-term Treasury securities, such as 3-month
  treasury bills, are considered "risk free." Corporate securities offer higher
  yields than Treasury securities 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 Treasury securities.

  Changes in investor confidence regarding the certainty of interest and
  principal payments of a corporate debt 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.

  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.

  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 Moody's Investor
  Services ("Moody's"), Standard and Poor's Ratings Services ("S&P"), Duff &
  Phelps Rating Co. and Fitch IBCA. Credit ratings are only an agency's opinion,
  not an absolute standard of quality, and they do not reflect an evaluation of
  market risk. The section "Bond Ratings" 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.

                                       8
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DERIVATIVES
- --------------------------------------------------------------------------------


   Derivatives are financial instruments whose value is based on an underlying
   asset, such as a stock or a bond, an underlying economic factor, such as an
   interest rate or a market benchmark, such as an index. Investors can use
   derivatives to gain exposure to various markets in a cost efficient manner,
   to reduce transaction costs or to remain fully invested. They may also invest
   in derivatives to protect it 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.



Types of Derivatives

   Futures


   A futures contract is an agreement between two parties whereby one party
   sells and the other party agrees to buy a specified amount of a financial
   instrument at an agreed upon price and time. The financial instrument
   underlying the contract may be a stock, stock index, bond, bond index,
   interest rate, foreign exchange rate or other similar instrument. Agreeing to
   buy the underlying financial information is called buying a futures contract
   or taking a long position in the contract. Likewise, agreeing to sell the
   underlying financial instrument is called selling a futures contract or
   taking a short position in the contract.

   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.

   Unlike other securities, the parties to a futures contract do not have to pay
   for or deliver the underlying financial instrument until some future date
   (the delivery date). 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. This
   process is known as "marking to the market."

   Although the actual terms of a futures contract calls for the actual delivery
   of and payment for the underlying security, in many cases the parties may
   close the contract early by taking an opposite position in an identical
   contract. If the sale price upon closing out the contract is less than the
   original purchase price, the person closing out the contract will realize a
   loss. If the sale price upon closing out the contract is more that the
   original purchase price, the person closing out the contract will realize a
   gain. The opposite is also true. If the purchase price upon closing out the
   contract is more than the original sale price, the person closing out the
   contract will realize a loss. If the purchase price upon closing out the
   contract is less than the original sale price, the person closing out the
   contract will realize a gain.

   The portfolio will incur commission expenses in either opening, closing or
   possibly opening and closing futures positions.



                                       9
<PAGE>

  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
  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.

                                      10
<PAGE>


  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
      and segregating cash or liquid securities in an amount equal to the
      difference between the exercise prices;

  .   Cash or liquid securities equal to at least the market value of the
      optioned securities, interest rate, foreign currency or futures contract;
      or

  .   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;

  .   Purchasing a put option on the same security, index, interest rate,
      foreign currency or futures contract with a lesser exercise price and
      segregating cash or liquid securities in an amount equal to the difference
      between the exercise prices; or

  .   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

                                      11
<PAGE>

  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 the 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.

  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).

  .   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 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.

                                      12
<PAGE>

  Foreign Currency Hedging Strategies

  A "settlement hedge" or "transaction hedge" is designed to protect the
  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. The 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.

  The portfolio may 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. The 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 the 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.

  The 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 the 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, the 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, the
  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.

  Swaps, Caps, Collars and Floors

  Swap Agreements

  A swap is a financial instrument that typically involves the exchange of cash
  flows between two parties on specified dates (settlement dates), where the
  cash flows are based on agreed-upon prices, rates, indices, etc. The nominal
  amount on which the cash flows are calculated is called the notional amount.
  Swaps are individually negotiated and structured to include exposure to a
  variety of different types of investments or market factors, such as interest
  rates, foreign currency rates, mortgage securities, corporate borrowing rates,
  security prices or inflation rates.

  Swap agreements may increase or decrease the overall volatility of the
  investments of the portfolio and its share price. The performance of swap
  agreements may be affected by a change in the specific interest rate,
  currency, or other factors that determine the amounts of payments due to and
  from the portfolio. If a swap agreement calls for payments by the portfolio,
  the portfolio must be prepared to make such payments when due. In addition, if
  the counter-party's creditworthiness declined, the value of a swap agreement
  would be likely to decline, potentially resulting in losses.

                                     13
<PAGE>

  Generally, swap agreements have a fixed maturity date that will be agreed upon
  by the parties.  The agreement can be terminated before the maturity date only
  under limited circumstances, such as default by one of the parties or
  insolvency, among others, and can be transferred by a party only with the
  prior written consent of the other party.  The portfolio may be able to
  eliminate its exposure under a swap agreement either by assignment or by other
  disposition, or by entering into an offsetting swap agreement with the same
  party or a similarly creditworthy party. If the counter-party is unable to
  meet its obligations under the contract, declares bankruptcy, defaults or
  becomes insolvent, the portfolio may not be able to recover the money it
  expected to receive under the contract.

  A swap agreement can be a form of leverage, which can magnify a portfolio's
  gains or losses.  In order to reduce the risk associated with leveraging, a
  portfolio will cover its current obligations under swap agreements according
  to guidelines established by the SEC. If the portfolio enters into a swap
  agreement on a net basis, it will segregate assets with a daily value at least
  equal to the excess, if any, of the portfolio's accrued obligations under the
  swap agreement over the accrued amount the portfolio is entitled to receive
  under the agreement. If the portfolio enters into a swap agreement on other
  than a net basis, it will segregate assets with a value equal to the full
  amount of the portfolio's accrued obligations under the agreement.

  Equity Swaps -- In a typical equity index swap, one party agrees to pay
  another party the return on a stock, stock index or basket of stocks in return
  for a specified interest rate.  By entering into an equity index swap, for
  example, the index receiver can gain exposure to stocks making up the index of
  securities without actually purchasing those stocks.   Equity index swaps
  involve not only the risk associated with investment in the securities
  represented in the index, but also the risk that the performance of such
  securities, including dividends, will not exceed the return on the interest
  rate that the portfolio will be committed to pay.

  Interest Rate Swaps -- Interest rate swaps are financial instruments that
  involve the exchange on one type of interest rate for another type of interest
  rate cash flow on specified dates in the future.  Some of the different types
  of interest rate swaps are "fixed-for floating rate swaps," "termed basis
  swaps" and "index amortizing swaps."  Fixed-for floating rate swap involve the
  exchange of fixed interest rate cash flows for floating rate cash flows.
  Termed basis swaps entail cash flows to both parties based on floating
  interest rates, where the interest rate indices are different.  Index
  amortizing swaps are typically fixed-for floating swaps where the notional
  amount changes if certain conditions are met.

  Like a traditional investment in a debt security, a portfolio could lose money
  by investing in an interest rate swap if interest rates change adversely.  For
  example, if the portfolio enters into a swap where it agrees to exchange a
  floating rate of interest for a fixed rate of interest, the portfolio may have
  to pay more money than it receives.  Similarly, if the portfolio enters into a
  swap where it agrees to exchange a fixed rate of interest for a floating rate
  of interest, the portfolio may receive less money than it has agreed to pay.

  Currency Swaps -- A currency swap is an agreement between two parties in which
  one party agrees to make interest rate payments in one currency and the other
  promises to make interest rate payments in another currency. A portfolio may
  enter into a currency swap when it has one currency and desires a different
  currency. Typically the interest rates that determine the currency swap
  payments are fixed, although occasionally one or both parties may pay a
  floating rate of interest.  Unlike an interest rate swap, however, the
  principal amounts are exchanged at the beginning of the contract and returned
  at the end of the contract.  Changes in foreign exchange rates and changes in
  interest rates, as described above may negatively affect currency swaps.

  Caps, Collars and Floors

  Caps and floors have an effect similar to buying or writing options.  In a
  typical cap or floor agreement, one party agrees to make payments only under
  specified circumstances, usually in return for payment of a fee by the other
  party. For example, the buyer of an interest rate cap obtains the right to
  receive payments to the extent that a specified interest rate exceeds an
  agreed-upon level.  The seller of an interest rate floor is obligated to make
  payments to the extent that a specified interest rate falls below an agreed-
  upon level. An interest rate collar combines elements of buying a cap and
  selling a floor.

                                      14
<PAGE>


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.


  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
  expected.

  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; and

  .   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

                                      15
<PAGE>



  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.
  Moreover, a portfolio may close out a futures contract only on the exchange
  the contract was initially traded.  Although a portfolio intends to purchase
  options and futures only where there appears to be an active market, there is
  no guarantee that such a liquid market will exist.  If there is no secondary
  market for the contract, or the market is illiquid, the portfolio may not be
  able to close out its position.  In an illiquid market, the portfolio may:

  .   have to sell securities to meet its daily margin requirements at a time
      when it is disadvantageous to do so;

  .   have to purchase or sell the instrument underlying the contract;

  .   not be able to hedge its investments; and

  .   not be able realize profits or limit 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:

  .   an exchange may suspend or limit trading in a particular derivative
      instrument, an entire category of derivatives or all derivatives, which
      sometimes occurs because of increased market volatility;

  .   unusual or unforeseen circumstances may interrupt normal operations of an
      exchange;

  .   the facilities of the exchange may not be adequate to handle current
      trading volume;

  .   equipment failures, government intervention, insolvency of a brokerage
      firm or clearing house or other occurrences may disrupt normal trading
      activity; or

  .   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.

  Volatility and Leverage

  The prices of derivatives are volatile (i.e., they may change rapidly,
  substantially and unpredictably) and are influenced by a variety of factors,
  including:

  .   actual and anticipated changes in interest rates;

  .   fiscal and monetary policies; and

  .   national and international political events.

  Most exchanges limit the amount by which the price of a derivative can change
  during a single trading day.  Daily trading limits establish the maximum
  amount that the price of a derivative may vary from the settlement price of
  that derivative at the end of trading on the previous day.  Once the price of
  a derivative reaches this value, a portfolio may not trade that derivative at
  a price beyond that limit.  The daily limit governs only price movements
  during a given day and does not limit potential gains or losses.  Derivative
  prices have occasionally moved to the daily limit for several consecutive
  trading days, preventing prompt liquidation of the derivative.


                                      16
<PAGE>

  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-dealer with whom it has an open futures contract or related option
  becomes insolvent or declares bankruptcy.


EQUITY SECURITIES
- --------------------------------------------------------------------------------

Types of Equity Securities

  Common Stocks

  Common stocks represent units of ownership in a company.  Common stocks
  usually carry voting rights and earn dividends.  Unlike preferred stocks,
  which are described below, dividends on common stocks are not fixed but are
  declared at the discretion of the company's board of directors.

  Preferred Stocks

  Preferred stocks are also units of ownership in a company. Preferred stocks
  normally have preference over common stock in the payment of dividends and the
  liquidation of the company.  However, in all other respects, preferred stocks
  are subordinated to the liabilities of the issuer.  Unlike common stocks,
  preferred stocks are generally not entitled to vote on corporate matters.
  Types of preferred stocks include adjustable-rate preferred stock, fixed
  dividend preferred stock, perpetual preferred stock, and sinking fund
  preferred stock. Generally, the market values of preferred stock with a fixed
  dividend rate and no conversion element varies inversely with interest rates
  and perceived credit risk.

  Convertible Securities

  Convertible securities are debt securities and preferred stocks that are
  convertible into common stock at a specified price or conversion ratio.  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. Their market price tends to go up if the stock price moves up.

  Convertible securities are subject to the same risks as similar securities
  without the convertible feature. The price of a convertible security is more
  volatile during times of steady interest rates than other types of debt
  securities.

  Rights and Warrants

  A right is a privilege granted to existing shareholders of a corporation to
  subscribe to shares of a new issue of common stock before it is issued.
  Rights normally have a short life, usually two to four weeks, are freely
  transferable and entitle the holder to buy the new common stock at a lower
  price than the public offering price.  Warrants are securities that are
  usually issued together with a debt security or preferred stock and that give
  the holder the right to buy proportionate amount of common stock at a
  specified price.  Warrants are freely transferable and are traded on major
  exchanges.  Unlike rights, warrants normally have a life that is measured in
  years and entitles the holder to buy common stock of a company at a price that
  is usually higher than the market price at the time the warrant is issued.
  Corporations often issue warrants to make the accompanying debt security more
  attractive.

  An investment in warrants and rights may entail greater risks than certain
  other types of investments.  Generally, rights and warrants do not carry the
  right to receive dividends or exercise voting rights with respect to the
  underlying

                                      17
<PAGE>

  securities, and they do not represent any rights in the assets of the issuer.
  In addition, their value does not necessarily change with the value of the
  underlying securities, and they cease to have value if they are not exercised
  on or before their expiration date. Investing in rights and warrants increases
  the potential profit or loss to be realized from the investment as compared
  with investing the same amount in the underlying securities.

Risks of Investing in Equity Securities

  General Risks of Investing in Stocks

  While investing in stocks allows investors to participate in the benefits of
  owning a company, such investors 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.

  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; and

  .   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.

  Because preferred stock is generally 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.

  Small and Medium-Sized Companies

  Investors in small and medium-sized companies typically take on greater risk
  and price volatility than they would by investing in larger, more established
  companies.  This increased risk may be due to the greater business risks of
  their small or medium size, limited markets and financial resources, narrow
  product lines and frequent lack of management depth.  The securities of small
  and medium companies are often traded in the over-the-counter market and might
  not be traded in volumes typical of securities traded on a national securities
  exchange.  Thus, the securities of small and medium capitalization companies
  are likely to be less liquid, and subject to more abrupt or erratic market
  movements, than securities of larger, more established companies.

  Technology Companies

  Stocks of technology companies have tended to be subject to greater volatility
  than securities of companies that are not dependent upon or associated with
  technological issues.  Technology companies operate in various industries.
  Since these industries frequently share common characteristics, an event or
  issue affecting one industry may significantly influence other, related
  industries.  For example, technology companies may be strongly affected by
  worldwide scientific or technological developments and their products and
  services may be subject to governmental regulation or adversely affected by
  governmental policies.

                                      18
<PAGE>


FOREIGN SECURITIES
- --------------------------------------------------------------------------------

Types of Foreign Securities

     Foreign securities are debt and equity securities that are traded in
     markets outside of the United States. The markets in which these securities
     are located can be developed or emerging. People can invest in foreign
     securities in a number of ways:

     .    They can invest directly in foreign securities denominated in a
          foreign currency;

     .    They can invest in American Depositary Receipts, European Depositary
          Receipts and other similar global instruments; and

     .    They can invest in 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. EDRs are
     similar to ADRs, except that they are typically issued by European Banks or
     trust companies.

     Emerging Markets

     An "emerging country" is generally a country that 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 currently 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.

     Investment Funds

     Some emerging countries currently prohibit direct foreign investment in the
     securities of their companies. Certain emerging countries, however, permit
     indirect foreign investment in the securities of companies listed and
     traded on their stock exchanges through investment funds that they have
     specifically authorized. Investments in these investment funds are subject
     to the provisions of the 1940 Act. Shareholders of a UAM Fund that invests
     in such investment funds will bear not only their proportionate share of
     the expenses of the UAM Fund (including operating expenses and the fees of
     the adviser), but also will bear indirectly bear similar expenses of the
     underlying investment funds. In addition, these investment funds may trade
     at a premium over their net asset value.


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.

                                      19
<PAGE>

  Political and Economic Factors


  Local political, economic, regulatory, or social instability, military action
  or unrest, or adverse diplomatic developments may affect the value of foreign
  investments.  Listed below are some of the more important political and
  economic factors that could negatively affect an investment in foreign
  securities:

  .  The economies of foreign countries may differ from the economy of the
     United States in such areas as growth of gross national product, rate of
     inflation, capital reinvestment, resource self-sufficiency, budget deficits
     and national debt;

  .  Foreign governments sometimes participate to a significant degree, through
     ownership interests or regulation, in their respective economies. Actions
     by these governments could significantly influence the market prices of
     securities and payment of dividends;

  .  The economies of many foreign countries are dependent on international
     trade and their trading partners and they could be severely affected if
     their trading partners were to enact protective trade barriers and economic
     conditions;

  .  The internal policies of a particular foreign country may be less stable
     than in the United States. Other countries face significant external
     political risks, such as possible claims of sovereignty by other countries
     or tense and sometimes hostile border clashes; and

  .  A foreign government may act adversely to the interests of U.S. investors,
     including expropriation or nationalization of assets, confiscatory taxation
     and other restrictions on U.S. investment. A country may restrict or
     control foreign investments in its securities markets. These restrictions
     could limit the portfolio's ability to invest in a particular country or
     make it very expensive for the portfolio to invest in that country. Some
     countries require prior governmental approval, limit the types or amount of
     securities or companies in which a foreigner can invest. Other countries
     may restrict the ability of foreign investors to repatriate their
     investment income and capital gains.

  Information and Supervision

  There is generally less publicly available information about foreign companies
  than companies based in the United States.  For example, there are often no
  reports and ratings published about foreign companies comparable to the ones
  written about United States companies.  Foreign companies are typically not
  subject to uniform accounting, auditing and financial reporting standards,
  practices and requirements comparable to those applicable to United States
  companies.   The lack of comparable information makes investment decisions
  concerning foreign countries more difficult and less reliable than domestic
  companies.

  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 the markets in the
  United States.  Foreign stocks markets tend to differ from those in the United
  States in a number of ways:

  .  They are generally not as developed or efficient as, and more volatile,
     than those in the United States;

  .  They have substantially less volume;

  .  Their securities tend to be less liquid and to experience rapid and erratic
     price movements;

  .  Commissions on foreign stocks are generally higher and subject to set
     minimum rates, as opposed to negotiated rates;

  .  Foreign security trading, settlement and custodial practices are often less
     developed than those in U.S. markets; and

  .  They may have different settlement practices, which may cause delays and
     increase the potential for failed settlements.

                                      20
<PAGE>

  Foreign Currency Risk


  While the UAM Funds denominate their net asset value in United States dollars,
  the securities of foreign companies are frequently denominated in foreign
  currencies. Thus, a change in the value of a foreign currency against the
  United States dollar will result in a corresponding change in value of
  securities denominated in that currency.   Some of the factors that may impair
  the investments denominated in a foreign currency are:

  .  It may be expensive to convert foreign currencies into United States
     dollars and vice versa;

  .  Complex political and economic factors may significantly affect the values
     of various currencies, including United States dollars, and their 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 may be no systematic reporting of last sale information for foreign
     currencies or 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; and

  .  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.


  Taxes

  Certain foreign governments levy withholding taxes on dividend and interest
  income. Although in some countries it is possible for the portfolio to recover
  a portion of these taxes, the portion that cannot be recovered 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.

  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 relatively unstable governments;

  .  Present greater risks of nationalization of businesses, restrictions on
     foreign ownership and prohibitions on the repatriation of assets;

  .  Offer less protection of property rights than more developed countries; and

  .  Have economies that are 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.


                                      21
<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 began 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 became denominations of the
  Euro at fixed rates according to practices prescribed by the European Monetary
  Institute and the Euro became available as a book-entry currency.  On or about
  that date, member states began conducting financial market transactions in
  Euros and redenominating many investments, currency balances and transfer
  mechanisms into Euros.  The portfolio also anticipates pricing, trading,
  settling and valuing investments whose nominal values remain in their existing
  domestic currencies in Euros.  Accordingly, the portfolio expects the
  conversion to the Euro to impact investments in countries that 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?


INVESTMENT COMPANIES
- --------------------------------------------------------------------------------
  A portfolio may buy and sell shares of other investment companies.  Such
  investment companies may pay management and other fees that are similar to the
  fees currently paid by a portfolio.  Like other shareholders, each portfolio
  would pay its proportionate share of those fees.  Consequently, shareholders
  of a portfolio would pay not only the management fees of the portfolio, but
  also the management fees of the investment company in which the portfolio
  invests.  A portfolio may invest up to 10% of its total assets in the
  securities of other investment companies, but may not invest more than 5% of
  its total assets in the securities of any one investment company or acquire
  more than 3% of the outstanding securities of any one investment company.

  The SEC has granted an order that allows a portfolio to invest the greater of
  5% of its total assets or $2.5 million in the UAM DSI Money Market Portfolio,
  provided that the investment is:

  .  For cash management purposes;

  .  Consistent with a portfolio's investment policies and restrictions; and

  .  The adviser to the investing portfolio waives any fees it earns on the
     assets of the portfolio that are invested 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.

                                      22
<PAGE>


REPURCHASE AGREEMENTS
- --------------------------------------------------------------------------------
  In a repurchase agreement, an investor agrees to buy a security (underlying
  security) from a securities dealer or bank that is a member of the Federal
  Reserve System (counter-party).  At the time, the counter-party agrees to
  repurchase the underlying security for the same price, plus interest.
  Repurchase agreements are generally for a relatively short period (usually not
  more than 7 days).  The portfolios normally use repurchase agreements to earn
  income on assets that are not invested.

  When a portfolio enters into a repurchase agreement it will:

  .  Pay for the underlying securities only upon physically receiving them or
     upon evidence of their receipt in book-entry form; and

  .  Require the counter party to add to the collateral whenever the price of
     the repurchase agreement rises above the value of the underlying security
     (i.e., it will require the borrower to "mark 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.

RESTRICTED SECURITIES
- --------------------------------------------------------------------------------
  The portfolios 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 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 the
  portfolio's investment limitations.  The price realized from the sales of
  these securities could be more or less than those originally paid by a
  portfolio or less than what may be considered the fair value of such
  securities.

SECURITIES LENDING
- --------------------------------------------------------------------------------
  A portfolio may lend a portion of its total assets to broker- dealers or other
  financial institutions. It may then reinvest the collateral it receives in
  short-term securities and money market funds. When a portfolio lends its
  securities, it will follow the following guidelines:

  .  The borrower must provide collateral at least equal to the market value of
     the securities loaned;

  .  The collateral 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 must add to the collateral whenever the price of the
     securities loaned rises (i.e., the borrower "marks to the market" on a
     daily basis);

  .  It must be able to terminate the loan at any time;

  .  It must receive reasonable interest on the loan (which may include the
     portfolio investing any cash collateral in interest bearing short-term
     investments); and

  .  It must determine that the borrower is an acceptable credit risk.

  These risks are similar to the ones involved with repurchase agreements. When
  the portfolio lends securities, there is a risk that the borrower will become
  financially unable to honor its contractual obligations.  If this happens, the
  portfolio could:

  .  Lose its rights in the collateral and not be able to retrieve the
     securities it lent to the borrower; and

  .  Experience delays in recovering its securities.

                                      23
<PAGE>

WHEN ISSUED 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 deliver 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 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, a
  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.

  A portfolio will segregate cash and liquid securities equal in value to
  commitments for the when-issued, delayed-delivery or forward delivery
  transaction.  A portfolio will segregate additional liquid assets daily so
  that the value of such assets is equal to the amount of its commitments.

Investment Policies of the Portfolios

  A portfolio will determine investment limitation percentages (with the
  exception of a limitation relating to borrowing) immediately after and as a
  result of its acquisition of such security or other asset.  Accordingly, a
  portfolio will not consider changes in values, net assets or other
  circumstances when determining whether the investment complies with its
  investment limitations.

FUNDAMENTAL POLICIES
- --------------------------------------------------------------------------------
  The following investment limitations are fundamental, which means a portfolio
  cannot change them without approval by the vote of a majority of the
  outstanding voting securities of the portfolio, as defined by the 1940 Act.

  Each of 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 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.

                                      24
<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.

  .  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 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 long as the loans are in compliance with the 1940
     Act 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.

  .  Underwrite the securities of other issuers.

NON-FUNDAMENTAL POLICIES
- --------------------------------------------------------------------------------
  The following limitations are non-fundamental, which means a portfolio may
  change them without shareholder approval.

  Each portfolio will not:

  .  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 on
     futures.

  .  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 15% of the portfolio's assets in foreign based companies.

  .  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 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.

Management Of The Fund

  The governing board manages the business of the Fund.  The governing board
  elects officers to manage the day-to-day operations of the Fund and to execute
  policies the board has formulated.  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 and a $2,000 meeting fee.  In
  addition, the Fund reimburses each independent board member 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 board members that are affiliated with the fund for their
  services as board members. UAM, its affiliates or SEI pay the Fund's officers.

                                      25
<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.  The UAM Funds Complex is currently comprised of 51
  portfolios. Those people with an asterisk (*) beside their name are
  "interested persons" of the Fund as that term is defined in the 1940 Act. Mr.
  English does have an investment advisory relationship with Investment
  Counselors of Maryland, an investment adviser to one of the portfolios in the
  UAM Funds Complex.  However, the Fund does not believe that the relationship
  is a material business relationship, and, therefore, does not consider him to
  be an "interested person" of the Fund.  If these circumstances change, the
  Board will determine whether any action is required to change the composition
  of the Board.

<TABLE>
<CAPTION>
                                                                                                               Aggregate
                                                                                            Aggregate         Compensation
                                                                                          Compensation        From the Fund
                                                                                          From the Fund       Complex as of
Name, Address,           Position      Principal Occupations During the                   as of October        October 31,
DOB                      with Fund     Past 5 years                                         31, 1999              1999
- -----------------------------------------------------------------------------------------------------------------------------------
<S>                      <C>           <C>                                                <C>                 <C>
John T. Bennett, Jr.     Board         President of Squam Investment Management               $7,137               $10,625
College Road -- RFD 3    Member        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            Board         Financial Officer of World Wildlife Fund since         $7,137               $10,625
1250 24th St., NW        Member        January 1999; Vice President for Finance and
Washington, DC  20037                  Administration and Treasurer of Radcliffe College
8/14/51                                from 1991 to 1999.
- -----------------------------------------------------------------------------------------------------------------------------------
William A. Humenuk       Board         Executive Vice President and Chief                     $7,137               $10,625
100 King Street West     Member        Administrative Officer of Philip Services Corp.;
P.O. Box 2440, LCD-1                   Formerly, a Partner in the Philadelphia office
Hamilton  Ontario,                     of the law firm Dechert Price & Rhoads and a
Canada L8N-4J6                         Director of Hofler Corp.
4/21/42
- -----------------------------------------------------------------------------------------------------------------------------------
Philip D. English        Board         President and Chief Executive Officer of               $7,137               $10,625
16 West Madison Street   Member        Broventure Company, Inc.; Chairman of the Board
Baltimore, MD 21201                    of Chektec Corporation and Cyber Scientific, Inc.
8/5/48
- -----------------------------------------------------------------------------------------------------------------------------------
James P. Pappas*         Board         President of UAM Investment Services, Inc. since          0                    0
211 Congress Street      Member        March 1999; Vice President UAM Trust Company since
Boston, MA  02110                      January 1996; Principal of UAM Fund Distributors,
2/24/53                                Inc. since December 1995; Vice President of UAM
                                       Investment Services, Inc. from January 1996 to March
                                       1999 and a Director and Chief Operating Officer of CS
                                       First Boston Investment Management from 1993-1995.
- -----------------------------------------------------------------------------------------------------------------------------------
Norton H. Reamer*        Board         Chairman, Chief Executive Officer and a Director of       0                    0
One International Place  Member;       United Asset Management Corporation; Director,
Boston, MA 02110         President     Partner or Trustee of each of the Investment
3/21/35                  and Chairman  Companies of the Eaton Vance Group of Mutual Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Peter M. Whitman, Jr.*   Board         President and Chief Investment Officer of Dewey           0                    0
One Financial Center     Member        Square Investors Corporation since 1988; Director and
Boston, MA 02111                       Chief Executive Officer of H.T. Investors, Inc.,
7/1/43                                 formerly a 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; Treasurer of the          0                    0
211 Congress Street                    Fidelity Group of Mutual Funds from 1991 to 1995;
Boston, MA 02110                       held various other offices with Fidelity Investments
7/4/51                                 from November 1990 to March 1995.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      26
<PAGE>

<TABLE>
<CAPTION>
                                                                                                               Aggregate
                                                                                            Aggregate         Compensation
                                                                                          Compensation        From the Fund
                                                                                          From the Fund       Complex as of
Name, Address,           Position      Principal Occupations During the                   as of October        October 31,
DOB                      with Fund     Past 5 years                                         31, 1999              1999
- -----------------------------------------------------------------------------------------------------------------------------------
<S>                      <C>           <C>                                                <C>                 <C>
Robert R. Flaherty       Assistant     Vice President of UAMFSI; Manager of Fund                 0                    0
211 Congress Street      Treasurer     Administration and Compliance of Chase Global
Boston, MA 02110                       Fund Services Company from 1995 to 1996; Senior
9/18/63                                Manager of Deloitte & Touche LLP from
                                       1985 to 1995,
- -----------------------------------------------------------------------------------------------------------------------------------
Robert J. DellaCroce     Assistant     Director, Mutual Fund Operations - SEI                    0                    0
SEI Investments          Treasurer     Investments; Senior Manager at Arthur
One Freedom Valley Rd.                 Andersen prior to 1994.
Oaks, PA 19456
12/17/63
</TABLE>


Principal Shareholders


  As of February 1, 2000, the following persons or organizations held of record
  or beneficially 5% or more of the shares of a portfolio:

<TABLE>
<CAPTION>
                                                   Percentage of Shares
Name and Address of Shareholder                    Owned                        Portfolio                     Class
- -----------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>                          <C>                         <C>
Charles Schwab & Co Inc                           41.92%                        Rice Hall James Small       Institutional Class
Reinvest Account                                                                    Cap Portfolio                 Shares
Attn:  Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
- -----------------------------------------------------------------------------------------------------------------------------------
Frank Russell Trust Co. Inc. TR                   33.95%                         Rice Hall James            Institutional Class
FBO ICL Choice & Retirement Program 401K                                          Small/Mid Cap                  Shares
Defined Contribution Trust                                                          Portfolio
909 A Street
Tacoma, WA 98402-5120
- -----------------------------------------------------------------------------------------------------------------------------------
California Lutheran University                    7.13%                          Rice Hall James            Institutional Class
60 West Olsen Road #1200                                                          Small/Mid Cap                  Shares
Thousand Oaks, CA 93360-2787
- -----------------------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co. Inc.                         6.14%                          Rice Hall James            Institutional Class
Reinvest Account                                                                  Small/Mid Cap                  Shares
Attn:  Mutual Funds                                                                 Portfolio
101 Montgomery Street
San Francisco, CA 94104-4122
</TABLE>

  Any shareholder 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. Shareholders controlling the portfolio 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.  As of February 1,
  2000, the directors and officers of the Fund owned less than 1% of the
  outstanding shares of the portfolios.


Investment Advisory and Other Services

INVESTMENT ADVISER
- --------------------------------------------------------------------------------

                                      27
<PAGE>


  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 is a subsidiary of UAM.  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 more than 50 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.

Portfolio Management

  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 brief description of their business
  experience.

<TABLE>
<CAPTION>
Name and Title                                                        Experience
- -----------------------------------------------------------------------------------------------------------------------------------
<S>                         <C>
Samuel R. Trozzo             Mr. Trozzo has over thirty-seven years' investment experience.  Prior to founding the adviser in 1974,
Chairman                     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 sixteen years' investment experience.  Mr. McDowell joined the adviser in 1984.
President and Chief          Prior to that time, he was Investment Officer, Security Analyst and Portfolio Manager at California
Executive Officer            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-one years' investment experience.  Prior to joining the adviser in 1986,
Partner and Co-Director of   Mr. Tessmer was Vice President and Senior Portfolio Manager at The Pacific Century Group, San
Research                     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 seventeen years' investment experience.  Mr. Todaro joined the adviser in 1983.
Partner and Co-Director of   Prior to that time, he was Senior Investment Analyst at Comerica Bank, Detroit, Michigan.  Mr.
Research                     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 fourteen years' investment experience.  Mr. Rice was an Account Administrator with the
Partner                      Trust Division at Federated Investors, Inc., Pittsburgh, Pennsylvania prior to joining the adviser
                             in 1983.  He earned his B.A. degree in Economics/Business Administration at Vanderbilt University.
- -----------------------------------------------------------------------------------------------------------------------------------
Douglas Sheres               Mr. Sheres has over six years' investment experience.  Prior to joining the adviser in March of 1998,
Partner                      he was an Institutional Sales professional with Merrill Lynch in San Diego from May 1996 until February
                             1998. Previously he was a Research Analyst with Pacific Asset Management from January 1994 until May
                             1996. He began his career in January 1993 as a Demographics Consultant with I Cubed Information
                             Strategies after graduating from the University of California San Diego with a B.A. in Psychology.
</TABLE>

Investment Advisory Agreement


  This section summarizes some of the important provisions the Investment
  Advisory Agreements.  The Fund has filed each agreement with the SEC as part
  of its registration statement on Form N-1A.


                                      28
<PAGE>

  Service Performed by Adviser


  Each adviser:

  .  Manages the investment and reinvestment of a portfolio's assets;

  .  Continuously reviews, supervises and administers the investment program of
     a portfolio; and

  .  Determines what portion of a portfolio's assets will be invested in
     securities and what portion will consist of cash.


  Limitation of Liability

  In the absence of (1) willful misfeasance, bad faith, or gross negligence on
  the part of the adviser in the performance of its obligations and duties under
  the Investment Advisory Agreement, (2) reckless disregard by the adviser of
  its obligations and duties under the Investment 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 Investment Advisory Agreement.

  Continuing an Investment Advisory Agreement


  An Investment Advisory Agreement continues in effect for periods of one year
  so long as such continuance is specifically approved at least annually by a:

  .  Majority of those Board Members who are not parties to the Investment
     Advisory Agreement or interested persons of any such party;  and

  .  (2) (a) majority of the Board Members or (b) a majority of the shareholders
     of the portfolio.



  Terminating an Investment Advisory Agreement

  The Fund may terminate an Investment Advisory Agreement at any time, without
  the payment of any penalty if:

  .  A majority of the portfolio's shareholders vote to do so or a majority of
     Board Members vote to do so; and

  .  It gives the adviser 60 days' written notice.

  The adviser may terminate the Investment Advisory Agreement at any time,
  without the payment of any penalty, upon 90 days' written notice to the Fund.

  An Investment Advisory Agreement will automatically and immediately terminate
  if it is assigned.



Advisory Fees

  For its services, each portfolio pays its adviser the following annual fees,
  which are expressed as a percentage of the average daily net assets of the
  portfolio. Due to the effect of fee waivers by the adviser, the actual
  percentage of average net assets that a portfolio pays in any given year may
  be different from the rate set forth in its contract with the adviser.  For
  the last three fiscal years, the portfolios paid the following in management
  fees to the adviser:


                                      29
<PAGE>


<TABLE>
<CAPTION>
                              Investment Advisory Fees           Investment Advisory Fees      Total Investment Advisory
                                        Paid                               Waived                        Fees
- -------------------------------------------------------------------------------------------------------------------------------
<S>                           <C>                                <C>                           <C>
Small Cap Portfolio
    1999                               $344,628                              $0                         $344,628
- -------------------------------------------------------------------------------------------------------------------------------
    1998                               $367,727                              $0                         $367,727
- -------------------------------------------------------------------------------------------------------------------------------
    1997                               $320,608                              $0                         $320,608
- -------------------------------------------------------------------------------------------------------------------------------
Small/Mid Cap Portfolio
    1999                               $176,486                           $ 71,187                      $105,299
- -------------------------------------------------------------------------------------------------------------------------------
    1998                               $101,144                           $ 57,343                      $ 43,801
- -------------------------------------------------------------------------------------------------------------------------------
    1997                                  $0                              $422,239                         $0
</TABLE>



DISTRIBUTOR
- --------------------------------------------------------------------------------

  UAMFDI is 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.


SHAREHOLDER SERVICING ARRANGEMENTS
- --------------------------------------------------------------------------------


  UAM and each 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 or the 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.


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 Board Members 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.

                                      30
<PAGE>

  .  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.


  The Fund Administration Agreement continues in effect from year to year if the
  Board specifically approves such continuance every year. 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
  automatically terminates upon its assignment by UAMFSI without the prior
  written consent of the Fund.

  UAMFSI will from time to time employ other people to assist it in performing
  its duties under the Fund Administration Agreement. Such people may be
  officers and employees who are employed by both UAMFSI and the Fund. UAMFSI
  will pay such people for such employment. The Fund will not incur any
  obligations with respect to such people.


Administration and Transfer Agency Services Fees

  Each portfolio pays a four-part fee to UAMFSI as follows:

  1. In exchange for administrative services, a portfolio pays a fee to UAMFSI
     calculated at the annual rate of:

     .    $19,500 for the first operational class; plus

     .    $3,750 for each additional class; plus

     .    A fee calculated from the aggregate net assets of each portfolio at
          the following rates:

<TABLE>
<CAPTION>
                                                                                               Annual Rate
     --------------------------------------------------------------------------------------------------------------------------
     <S>                                                                                       <C>
     Small Cap Portfolio                                                                          0.043%
     --------------------------------------------------------------------------------------------------------------------------
     Small/Mid Cap Portfolio                                                                      0.043%
</TABLE>

  2. Each portfolio also pays a fee to UAMFSI for sub-administration and other
     services provided by SEI. The fee, which UAMFSI pays to SEI, is calculated
     at the annual rate of:

     .    Not more than $35,000 for the first operational class; plus

     .    $5,000 for each additional operational class; plus

     .    0.03% of their pro rata share of the combined assets of the UAM Funds
          Complex.

  3. 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.

  4. 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.

                                      31
<PAGE>

  For the last three fiscal years the portfolios paid the following in
  administration and sub-administration fees:


<TABLE>
<CAPTION>
                                  Administrators Fee        Sub-Administrators Fee        Total Administration Fee
- ------------------------------------------------------------------------------------------------------------------------------
<S>                               <C>                       <C>                           <C>
Small Cap Portfolio
    1999                                 $27,603                    $70,286                         $ 97,889
- ------------------------------------------------------------------------------------------------------------------------------
    1998                                 $22,712                    $80,210                         $102,922
- ------------------------------------------------------------------------------------------------------------------------------
    1997                                 $17,077                    $76,774                         $ 93,851
- ------------------------------------------------------------------------------------------------------------------------------
Small/Mid Cap Portfolio
    1999                                 $17,445                    $60,849                         $ 78,294
- ------------------------------------------------------------------------------------------------------------------------------
    1998                                 $10,762                    $70,275                         $ 81,037
- ------------------------------------------------------------------------------------------------------------------------------
    1997                                 $ 2,112                    $34,858                         $ 36,970
</TABLE>



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 ACCOUNTANTS
- --------------------------------------------------------------------------------

  PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110,
  serves as independent accountant for the Fund.


BROKERAGE ALLOCATION AND OTHER PRACTICES

SELECTION OF BROKERS
- --------------------------------------------------------------------------------

  Each Investment Advisory Agreement authorizes the adviser to select the
  brokers or dealers that will execute the purchases and sales of investment
  securities for each portfolio. The Investment Agreement also directs the
  adviser to use its best efforts to obtain the best execution with respect to
  all transactions for the 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
  Investment 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.

  It is not the practice of the Fund to allocate brokerage or effect principal
  transactions with dealers based on sales of shares that a broker-dealer firm
  makes. However, the Fund may place trades with qualified broker-dealers who
  recommend the Fund or who act as agents in the purchase of Fund shares for
  their clients.

SIMULTANEOUS TRANSACTIONS
- --------------------------------------------------------------------------------


  The adviser makes investment decisions for each 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.

                                      32
<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, a portfolio 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.



Commissions Paid

  For the last three fiscal years, the portfolios paid the following in
  brokerage commissions:

<TABLE>
<CAPTION>
                                               Brokerage Commissions
- -------------------------------------------------------------------------------------
<S>                                            <C>
Small Cap Portfolio
    1999                                             $582,604
- -------------------------------------------------------------------------------------
    1998                                             $123,079
- -------------------------------------------------------------------------------------
    1997                                             $ 72,700
- -------------------------------------------------------------------------------------
Small/Mid Cap Portfolio
    1999                                             $103,300
- -------------------------------------------------------------------------------------
    1998                                             $ 63,203
- -------------------------------------------------------------------------------------
    1997                                             $ 31,408
</TABLE>


CAPITAL STOCK AND OTHER SECURITIES



The Fund

  The Fund was organized under the name "The ICM Fund, Inc." as a Maryland
  corporation on October 11, 1988. On January 18, 1989, the Fund changed its
  name 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 211
  Congress Street, Boston, MA 02110; however, shareholders should direct all
  correspondence to the address listed on the cover of this SAI. The Fund is an
  open-end management company.


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

                                      33
<PAGE>

  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 1940 Act
  or other applicable law.



Dividend and Distribution Options

  There are three ways for shareholders to receive dividends and capital gains:

  .  Income dividends and capital gains distributions are reinvested in
     additional shares at net asset value;

  .  Income dividends are paid in cash and capital gains distributions are
     reinvested in additional shares at NAV; and

  .  Income dividends and capital gains distributions are paid in cash.

  Unless the shareholder elects otherwise in writing, the fund will
  automatically reinvest all dividends in additional shares of the portfolio at
  NAV (as of the business day following the record date). Shareholders may
  change their dividend and distributions option by writing to the fund at least
  three days before the record date for income dividend or capital gain
  distribution.

  The fund sends account statements to shareholders whenever it pays an income
  dividend or capital gains distribution.



FEDERAL TAXES

  Each portfolio intends to qualify as a regulated investment company under
  Subchapter M of the Internal Revenue Code, and to distribute out its income to
  shareholders each year so that the portfolio itself generally will be relieved
  of federal income and excise taxes. If a portfolio were to fail to so qualify:
  (1) it would be taxed at regular corporate rates without any deduction for
  distributions to shareholder; and (2) its shareholders would be taxed as if
  they received ordinary dividends, although corporate shareholders could be
  eligible for the dividends received deduction.

                                      34
<PAGE>


  A portfolios' dividends that are paid to their corporate shareholders and are
  attributable to qualifying dividends it received from U.S. domestic
  corporations may be eligible, in the hands of such shareholders, for the
  corporate dividends received deduction, subject to certain holding period
  requirements and debt financing limitations.


PURCHASE, REDEMPTION AND PRICING OF SHARES


NET ASSET VALUE PER SHARE
- --------------------------------------------------------------------------------


Calculating NAV

  The purchase and redemption price of the shares of a portfolio is equal to the
  NAV of the portfolio. The Fund calculates the NAV of a portfolio by
  subtracting its liabilities from its total assets and dividing the result by
  the total number of shares outstanding. For purposes of this calculation:

  .  Liabilities include accrued expenses and dividends payable; and

  .  Total assets include the market value of the securities held by the
     portfolio, plus cash and other assets plus income accrued but not yet
     received.

  Each portfolio normally calculates its NAV as of the close of trading on the
  NYSE every day the NYSE is open for trading. The NYSE usually closes at 4:00
  p.m. The NYSE is closed on the following days: 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.


How the Fund Values it Assets


  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 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 governing board.


                                      35
<PAGE>

PURCHASE OF SHARES
- --------------------------------------------------------------------------------


  Service Agents may enter confirmed purchase orders on behalf of their
  customers. To do so, the Service Agent must receive your investment order
  before the close of trading on the NYSE and must transmit it to the fund
  before the close of its business day to receive that day's share price. The
  fund must receive proper payment for the order by the time the portfolio
  calculates its NAV 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.

  Shareholders can buy full and fractional (calculated to three decimal places)
  shares of a portfolio. The fund will not issue certificates for fractional
  shares and will only issue certificates for whole shares upon the written
  request of a shareholder.

  The Fund may 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


  At its discretion, the Fund may permit shareholders to purchase shares of the
  portfolio with securities, instead of cash. If the Fund allows a shareholder
  to make an in-kind purchase, it will value such securities according to the
  policies described under "How the Fund Values it Assets" at the next
  determination of net asset value after acceptance. The Fund will issue shares
  of the portfolio at the NAV of the portfolio determined as of the same time.

  The Fund will only acquire securities through an in-kind purchase for
  investment and not for immediate resale. The Fund will only accept in-kind
  purchases if the transaction meets the following conditions:

  .  The securities are eligible investments for the portfolio;

  .  The securities have readily available market quotations;

  .  The investor represents and agrees that the securities are liquid and that
     there are no restrictions on their resale imposed by the 1933 Act or
     otherwise;

  .  All dividends, interest, subscription, or other rights pertaining to such
     securities become the property of the portfolio and are delivered to the
     fund by the investor upon receipt from the issuer; and

  .  Immediately after the transaction is complete, the value of all securities
     of the same issuer held by the portfolio cannot exceed 5% of the net assets
     of the portfolio. This condition does not apply to U.S. government
     securities.


  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:

                                      36
<PAGE>

  .  Share certificates, if issued;

  .  A letter of instruction or an assignment specifying the number of shares or
     dollar amount the shareholder wishes to redeem signed by all registered
     owners of the shares in the exact names in which they are registered;

  .  Any required signature guarantees (see "Signature Guarantees"); and

  .  Any other necessary legal documents for estates, trusts, guardianships,
     custodianships, corporations, pension and profit sharing plans and other
     organizations.


By Telephone


  Shareholders may not do the following by telephone:

  .  Change the name of the commercial bank or the account designated to receive
     redemption proceeds. To change an account in this manner, you must submit a
     written request signed by each shareholder, with each signature guaranteed.

  .  Redeem shares represented by a certificate.

  The Fund and UAMSSC will employ reasonable procedures to confirm that
  instructions communicated by telephone are genuine, and they may be liable for
  any losses if they fail to do so. These procedures include requiring the
  investor to provide certain personal identification at the time an account is
  opened and before 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 UAMSSC may be liable for any losses due to
  unauthorized or fraudulent telephone instructions if the Fund or the UAMSSC
  does not employ the procedures described above. Neither the Fund nor the
  UAMSSC 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.


  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 Board 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


  The Fund requires signature guarantees for certain types of documents,
  including:

                                      37
<PAGE>


  .  Written requests for redemption;

  .  Separate instruments for assignment ("stock power"), which should specify
     the total number of shares to be redeemed; and

  .  On all stock certificates tendered for redemption.

  The purpose of signature guarantees is to verify the identity of the person
  who has authorized a redemption from your account and to protect your account,
  the Fund and its sub-transfer agent from fraud.

  The Fund will accept signature guarantees from any eligible guarantor
  institution, as defined by the Securities Exchange Act of 1934 that
  participates in a signature guarantee program. Eligible guarantor institutions
  include banks, brokers, dealers, credit unions, national securities exchanges,
  registered securities associations, clearing agencies and savings
  associations. You can get a complete definition of eligible guarantor
  institutions by calling 1-877-826-5465. 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.


Other Redemption Information


  Normally, the Fund will pay for all shares redeemed under proper procedures
  within seven days after it received your request.  However, the Fund will pay
  your redemption proceeds earlier as applicable law so requires.

  When the Fund may suspend redemption privileges or postpone the date of
  payment:

  .  when the NYSE and custodian bank are closed;

  .  when trading on the NYSE is restricted;

  .  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; or

  .  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 for exchanges.

  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.

                                      38
<PAGE>



PERFORMANCE CALCULATIONS


  Each portfolio measures its performance by calculating its yield and total
  return. Yield and total return figures are based on historical earnings and
  are not intended to indicate future performance. The portfolio calculates its
  current yield and average annual total return information according to the
  methods required by the SEC. The performance is calculated separately for each
  portfolio.


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. 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 fund calculates the average annual total return of a portfolio by finding
  the average annual compounded rates of return over one, five and ten-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.

  The fund calculates these figures 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).


  Set forth in the table below are the portfolios' average annual returns for
  the one-year period and the  five-year period ended October 31, 1999 and the
  shorter of the ten-year period ended October 30, 1999 or the period from a
  portfolio's inception date through October 31, 1999.

<TABLE>
<CAPTION>                                                                              Shorter of
                                                                                       10 Years or
                                                  One Year       Five Years          Since Inception       Inception Date
  ---------------------------------------------------------------------------------------------------------------------------------
  <S>                                             <C>            <C>                 <C>                   <C>
  Small Cap Portfolio                              24.21%          17.08%                18.28%                 7/1/94
  ---------------------------------------------------------------------------------------------------------------------------------
  Small/Mid Cap Portfolio                           1.31%           N/A                   9.89%                11/1/96
</TABLE>

                                      39
<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 mutual 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
- --------------------------------------------------------------------------------

  A 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 this SAI. This information may also be included in sales
  literature and advertising.


  To help investors better evaluate how an investment in a portfolio 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 "Comparative Benchmarks" 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 a portfolio;

  .  that the indices and averages are generally unmanaged; and

  .  that the items included in the calculations of such averages may not be
     identical to the formula used by a portfolio to calculate its performance;
     and

  .  that shareholders cannot invest directly in such indices or averages.

  In addition, there can be no assurance that a portfolio will continue this
  performance as compared to such other averages.

                                      40
<PAGE>

Financial Statements


     The following documents are included in the portfolios' October 31, 1999
     Annual Report:

     .  Financial statements for the fiscal year ended October 31, 1999.

     .  Financial highlights for the respective periods presented

     .  The report of PricewaterhouseCoopers LLP.

      Each of the above-referenced documents is incorporated by reference into
      this SAI. However, no other parts of the portfolios' Annual Reports are
      incorporated by reference herein. Shareholders may get copies of the
      portfolios' Annual Reports free of charge by calling the UAM Funds at the
      telephone number appearing on the front page of this SAI.

                                      41
<PAGE>


Glossary

     All terms that this SAI does not otherwise define, have the same meaning in
     the SAI as they do in the prospectus(es) of the portfolios.

     1933 Act means the Securities Act of 1933, as amended.

     1934 Act means the Securities Exchange Act of 1934, as amended.

     1940 Act means the Investment Company Act of 1940, as amended.

     Adviser means the investment adviser to each portfolio.

     Board Member refers to a single member of the Fund's Board.

     Board refers to the Fund's Board of Trustees as a group.

     SEI is SEI Investments Mutual Funds Services, the Fund's sub-administrator.

     Fund refers to UAM Funds, Inc.

     Governing Board, see Board.

     NAV is the net asset value per share of a portfolio.

     NYSE is the New York Stock Exchange. Also known as "The Exchange" or "The
     Big Board," the NYSE is located on Wall Street and is the largest exchange
     in the United States.

     Portfolio refers to a single series of the Fund, while portfolios refer to
     all of the series of the Fund.

     SEC is the Securities and Exchange Commission. The SEC is the federal
     agency that administers most of the federal securities laws in the United
     States. In particular, the SEC administers the 1933 Act, the 1940 Act and
     the 1934 Act.

     UAM Funds Complex includes UAM Funds, Inc., UAM Funds Trust, UAM Funds Inc.
     II and all of their portfolios.

     UAM is United Asset Management Corporation.

     UAMFDI is UAM Fund Distributors, Inc., the Fund's distributor.

     UAMFSI is UAM Fund Services, Inc., the Fund's administrator.

     UAMSSC is UAM Fund Shareholder Servicing Center, the Fund's sub-
     shareholder-servicing agent.


Bond 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 stocks.

     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.

                                      42

<PAGE>

     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 that 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 period 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.

     plus (+) or    Moody's applies numerical modifiers 1, 2, and 3 in each
     minus (-)      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.

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-grade
                    obligations. Factors giving security to principal and
                    interest are considered adequate, but elements may be
                    present which suggest a susceptibility to impairment
                    sometime in the future.

     Baa            Bonds which are rated Baa are 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.

                                      43
<PAGE>

     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.

     Con. (...)     (This rating applies only to U.S. Tax-Exempt Municipals)
                    Bonds for which the security depends upon the completion of
                    some act or the fulfillment of some condition are rated
                    conditionally. These are bonds secured by (a) earnings of
                    projects under construction, (b) earnings of projects
                    unseasoned in operating experience, (c) rentals that begin
                    when facilities are completed, or (d) payments to which some
                    other limiting condition attaches. Parenthetical rating
                    denotes probable credit stature upon completion of
                    construction or elimination of basis of condition.



     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.

     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:

                         .  Leading market positions in well-established
                            industries.

                         .  Conservative capitalization structure with moderate
                            reliance on debt and ample asset protection.

                         .  Broad 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.


                                      44
<PAGE>

     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
- --------------------------------------------------------------------------------


Long-Term Issue Credit Ratings

     Issue credit ratings are based, in varying degrees, on the following
     considerations:

     1. 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;

     2. Nature of and provisions of the obligation;

     3. 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.




     The issue rating definitions are expressed in terms of default risk. As
     such, they pertain to senior obligations of an entity. Junior obligations
     are typically rated lower than senior obligations, to reflect the lower
     priority in bankruptcy, as noted above. Accordingly, in the case of junior
     debt, the rating may not conform exactly with the category definition.

     AAA            An obligation rated `AAA' has 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 obligor to meet its financial commitment on the
                    obligation.


                                      45
<PAGE>

     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.

     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              A subordinated debt or preferred stock obligation rated `C'
                    is CURRENTLY HIGHLY VULNERABLE to non-payment. The `C'
                    rating may be used to cover a situation where a bankruptcy
                    petition has been filed or similar action taken, but
                    payments on this obligation are being continued. A `C' will
                    also be assigned to a preferred stock issue in arrears on
                    dividends or sinking fund payments, but that is currently
                    paying.

     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.

     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.

     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 obligation
                    as a matter of policy.

     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.

Short-Term Issue Credit 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.

                                      46
<PAGE>


     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 obligations in
                    higher rating categories. However, the obligor's capacity to
                    meet its financial commitment on the obligation is
                    satisfactory.

     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.

Local Currency and Foreign Currency Risks

     Country risks considerations are a standard part of Standard & Poor's
     analysis for credit ratings on any issuer or issue. Currency of repayment
     is a key factor in this analysis. An obligor's capacity to repay foreign
     currency obligations may be lower than its capacity to repay obligations in
     its local currency due to the sovereign government's own relatively lower
     capacity to repay external versus domestic debt. These sovereign risk
     considerations are incorporated in the debt ratings assigned to specific
     issues. Foreign currency issuer ratings are also distinguished from local
     currency issuer ratings to identity those instances where sovereign risks
     make them different for the same issuer.


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
     AA-            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
     BBB-           sufficient for prudent investment. Considerable variability
                    in risk during economic cycles.

     BB+/BB/        Below investment grade but deemed likely to meet obligations
     BB-            when due. Present or prospective financial protection
                    factors fluctuate according to industry conditions. Overall
                    quality may move up or down frequently within this category.

                                      47
<PAGE>

     B+/B/B-        Below investment grade and possessing risk that obligation
                    will not be met 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.

     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.

                                      48
<PAGE>

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 of
                    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                 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.

  BBB               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. The ratings of obligations in this category are
                    based on their prospects for achieving partial or full
                    recovery in a reorganization or liquidation of the obligor.
                    While expected recovery values are highly speculative and
                    cannot be estimated with any precision, the following serve
                    as general guidelines. "DDD" obligations have the highest
                    potential for recovery, around 90%-100% of outstanding
                    amounts and accrued interest. "D" indicates potential
                    recoveries in the range of 50%-90%, and "D" the lowest
                    recovery potential, i.e., below 50%.

                    Entities rated in this category have defaulted on some or
                    all of their obligations. Entities rated "DDD" have the
                    highest prospect for resumption of performance or continued
                    operation with or without a formal reorganization process.
                    Entities rated "DD" and "D" are generally undergoing a
                    formal reorganization or liquidation process; those rated
                    "DD" are likely to satisfy a higher portion of their
                    outstanding obligations, while entities rated "D" have a
                    poor prospect for repaying all obligations.


                                      49
<PAGE>

International Short-Term Credit Ratings

  F1                Highest credit quality. Indicates the Best 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.


  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.



COMPARATIVE BENCHMARKS

  (alphabetically)

  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.

  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.

  Donoghue's Money Fund Average -- is an average of all major money market fund
  yields, published weekly for 7 and 30-day yields.

  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.



  Financial publications: Business Week, Changing Times, Financial World,
  Forbes, Fortune, Money, Barron's, Consumer's Digest, Financial Times, Global
  Investor, Investor's Daily, Lipper, Inc., Morningstar, Inc., The New York

                                      50
<PAGE>


  Times, Personal Investor, The Wall Street Journal and Weisenberger Investment
  Companies Service -- publications that rate fund performance over specified
  time periods.



  Historical data supplied by the research departments of First Boston
  Corporation, J.P. Morgan & Co, Inc., Salomon Smith Barney, Merrill Lynch &
  Co., Inc., Lehman Brothers, Inc. and Bloomberg L.P.



  IBC's Money Fund Average/All Taxable Index - an average of all major money
  market fund yields, published weekly for 7- and 30-day yields.

  IFC Investable Composite Index - an unmanaged market capitalization-weighted
  index maintained by the International Finance Corporation.  This index
  consists of over 890 companies in 26 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.

  Lehman Brothers Indices:
  ------------------------

  Lehman Brothers Aggregate Bond Index - an unmanaged fixed income market value-
  weighted index that combines the Lehman Government/Corporate Index and the
  Lehman Mortgage-Backed Securities Index, and includes treasury issues, agency
  issues, corporate bond issues and mortgage backed securities.  It includes
  fixed rate issuers of investment grade (BBB) or higher, with maturities of at
  least one year and outstanding par values of at least $100 million for U.S.
  government issues and $25 million for others.

  Lehman Brothers Corporate Bond Index - an unmanaged index of all publicly
  issued, fixed-rate, nonconvertible investment grade domestic corporate debt.
  Also included are yankee bonds, which are dollar-denominated SEC registered
  public, noncovertible debt issued or guaranteed by foreign sovereign
  governments, municipalities, or governmental agencies, or international
  agencies.

  Lehman Brothers Government Bond Index -an unmanaged treasury bond index
  including all public obligations of the U.S. Treasury, excluding flower bonds
  and foreign-targeted issues, and the Agency Bond Index (all publicly issued
  debt of U.S. government agencies and quasi-federal corporations, and corporate
  debt guaranteed by the U.S. government).  In addition to the aggregate index,
  sub-indices cover intermediate and long term issues.

  Lehman Brothers Government/Corporate Bond Index -- an unmanaged fixed income
  market value-weighted index that combines the Government and Corporate Bond
  Indices, including U.S. government treasury securities, corporate and yankee
  bonds.   All issues are investment grade (BBB) or higher, with maturities of
  at least one year and outstanding par value of at least $100 million of  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.

  Lehman Brothers High Yield Bond Index - an unmanaged index of fixed rate, non-
  investment grade debt.  All bonds included in the index are dollar
  denominated, noncovertible, have at least one year remaining to maturity and
  an outstanding par value of at least $100 million.

  Lehman Brothers Intermediate Government/Corporate Index - an unmanaged fixed
  income, market value-weighted index that combines the Lehman Brothers
  Government Bond Index (intermediate-term sub-index) and four corporate bond
  sectors.

  Lehman Brothers Mortgage-Backed Securities Index - an unmanaged index of all
  fixed-rate securities backed by mortgage pools of Government National Mortgage
  Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC),  and
  Federal National Mortgage Association (FNMA).

  Lipper, Inc./Lipper Indices/Lipper Averages
  -------------------------------------------

  The Lipper Indices are equally weighted indices for typically the 30 largest
  mutual funds within their respective portfolio investment objectives.  The
  indices are currently grouped in six categories:  U.S. Diversified Equity with
  12

                                      51
<PAGE>


  indices; Equity with 27 indices, Taxable Fixed-Income with 20 indices, Tax-
  Exempt Fixed-Income with 28 indices, Closed-End Funds with 16 indices, and
  Variable Annuity Funds with 18 indices.

  In September, 1999, Lipper, Inc. introduced its new portfolio-based mutual
  fund classification method in which peer comparisons are based upon
  characteristics of the specific stocks in the underlying funds, rather than
  upon a broader investment objective stated in a prospectus.  Certain of
  Lipper, Inc.'s classifications for general equity funds' investment objectives
  were changed while other equity objectives remain unchanged.  Changing
  investment objectives include Capital Appreciation Funds, Growth Funds, Mid-
  Cap Funds, Small-Cap Funds, Micro-Cap Funds, Growth & Income Funds, and Equity
  Income Funds.  Unchanged investment objectives include Sector Equity Funds,
  World Equity  Funds, Mixed Equity Funds, and certain other funds including all
  Fixed Income Funds and S&P(R) Index Funds.

  Criteria for the Lipper Indices are:  1) component funds are largest in group;
  2) number of component funds remains the same (30);  3) component funds are
  defined annually;  4) can be linked historically; and  5) are used as a
  benchmark for fund performance.

  Criteria for the Lipper Averages are:  1) includes all funds in the group in
  existence for the period;  2) number of component funds always changes;  3)
  universes are dynamic due to revisions for new funds, mergers, liquidations,
  etc.; and  4) will be inaccurate if historical averages are linked.

  Certain Lipper, Inc. indices/averages used by the UAM Funds may include, but
  are not limited to, the following:

  Lipper Short-Intermediate Investment Grade Debt Funds Average -- is an average
  of 100 funds that invest at least 65% of assets in investment grade debt
  issues (BBB or higher) with dollar-weighted average maturities of one to five
  years or less.  (Taxable Fixed-Income category)

  Lipper Balanced Fund Index - an unmanaged index of open-end equity funds whose
  primary objective is to conserve principal by maintaining at all times a
  balanced portfolio of both stocks and bonds.  Typically, the stock/bond ratio
  ranges around 60%/40%.  (Equity category)

  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.  (Equity category)

  Lipper Equity Mid Cap Fund Index - an unmanaged index of funds that by
  prospectus or portfolio practice invest primarily in companies with market
  capitalizations less than $5 billion at the time of purchase.  (Equity
  category)

  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.  (Equity
  category)

  Lipper Growth Fund Index - an unmanaged index composed of the 30 largest funds
  by asset size which invest in companies with long-term earnings expected to
  grow significantly faster than the earnings of the stocks represented in the
  major unmanaged stock indices.  (Equity category)

  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.



  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 (BBB or higher).



  Merrill Lynch 1-3 Year Treasury Index - an unmanaged index composed of U.S.
  treasury securities with maturities from 1 to 3 years.



  Morgan Stanley Capital International EAFE Index -- 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.

                                      52
<PAGE>

  Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
  yield, risk and total return for equity funds.

  NASDAQ Composite Index -- is a market capitalization, price only, unmanaged
  index that tracks the performance of domestic common stocks traded on the
  regular NASDAQ market as well as national market System traded foreign common
  stocks and ADRs.



  Nekkei Stock Average - a price weighted index of 225 selected leading stocks
  listed on the First Section of the Tokyo Stock Exchange.



  New York Stock Exchange composite or component indices -- capitalization-
  weighted unmanaged indices of all industrial, utilities, transportation and
  finance stocks listed on the New York Stock Exchange.



  Russell U.S. Equity Indexes:
  ----------------------------

  Russell 3000(R) Index - measures the performance of the 3,000 largest U.S.
  companies based on total market capitalization, which represents approximately
  98% of the investable U.S. equity market.

  Russell 1000(R) Index - an unmanaged index which measures the performance of
  the 1,000 largest companies in the Russell 3000 Index, which represents
  approximately 92% of the total market capitalization of the Russell 3000
  Index.

  Russell 2000(R) Index -- an unmanaged index which measures the performance of
  the 2,000 smallest companies in the Russell 3000 Index, which represents
  approximately 8% of the total market capitalization of the Russell 3000 Index.

  Russell Top 200(TM) Index - measures the performance of the 200 largest
  companies in the Russell 1000 Index, which represents approximately 74% of the
  total market capitalization of the Russell 1000 Index.

  Russell Mid-Cap(TM) Index -- measures the performance of the 800 smallest
  companies in the Russell 1000 Index, which represents approximately 26% of the
  total market capitalization of the Russell 1000 Index.

  Russell 2500(TM) Index - an unmanaged index which measures the performance of
  the 2,5000 smallest companies in the Russell 3000 Index, which represents
  approximately 17% of the total market capitalization of the Russell 3000
  Index.

  Russell 3000(R) Growth Index - measures the performance of those Russell 3000
  Index companies with higher price-to-book ratios and higher forecasted growth
  values.  The stocks in this index are also members of either the Russell 1000
  Growth or the Russell 2000 Growth indexes.

  Russell 3000(R) Value Index - measures the performance of those Russell 3000
  Index companies with lower price-to-book ratios and lower forecasted growth
  values.  The stocks in this index are also members of either the Russell 1000
  Value or the Russell 2000 Value indexes.

  Russell 1000(R) Growth Index - measures the performance of those Russell 1000
  companies with higher price-to-book ratios and higher forecasted growth
  values.

  Russell 1000(R) Value Index - measures the performance of those Russell 1000
  with lower price-to-book ratios and lower forecasted growth values.

  Russell 2000(R) Growth Index - measures the performance of  those Russell 2000
  companies with higher price-to-book ratios and higher forecasted growth
  values.

  Russell 2000(R) Value Index - measures the performance of those Russell 2000
  companies with lower price-to-book ratios and lower forecasted growth values.

  Russell Top 200(TM) Growth Index - measures the performance of those Russell
  Top 200 companies with higher price-to-book ratios and higher forecasted
  growth values.  The stocks re also members of the Russell 1000 Growth
  index.

                                      53
<PAGE>


  Russell Top 200(TM) Value Index - measures the performance of those Russell
  Top 200 companies with lower price-to-book ratios and lower forecasted growth
  values.  The stocks are also members of the Russell 1000 Value index.

  Russell Midcap(TM) Growth Index - measures the performance of those Russell
  Midcap companies with higher price-to-book ratios and higher forecasted growth
  values.  The stocks are also members of the Russell 1000 Growth index.

  Russell Midcap(TM) Value Index - measures the performance of those Russell
  Midcap companies with lower price-to-book ratios and lower forecasted growth
  values.  The stocks are also members of the Russell 1000 Value index.

  Russell 2500(TM) Growth Index - measures the performance of those Russell 2500
  companies with higher price-to-book ratios and higher forecasted growth
  values.

  Russell 2500(TM) Value Index - measures the performance of those Russell 2500
  companies with lower price-to-book ratios and lower forecasted growth values.

  Ryan Labs 5 Year GIC Master Index  - an arithmetic mean of market rates of $1
  million GIC contracts held for five years.  The market rates are
  representative of a diversified, investment grade portfolio of contracts
  issued by credit worthy insurance companies.  The index is unmanaged and does
  not reflect any transaction costs.  Direct investment in the index is not
  possible.

  Standard & Poor's U.S. Indices:
  -------------------------------

  In October, 1999,  Standard & Poor's and Morgan Stanley Capital International
  launched a new global industry classification standard consisting of 10
  economic sectors aggregated from 23 industry groups, 59 industries, and 123
  sub-industries covering almost 6,000 companies globally.  The new
  classification standard will be used with all of their respective indices.
  Features of the new classification include 10 economic sectors, rather than
  the 11 S&P currently uses.  Sector and industry gradations are less severe.
  Rather than jumping from 11 sectors to 115 industries under the former S&P
  system, the new system progresses from 10 sectors through 23 industry groups,
  50 industries and 123 sub-industries.

  S&P 500 Index - an unmanaged index composed of 400 industrial stocks, 40
  financial stocks, 40 utilities stocks and 20 transportation stocks. Widely
  regarded as the standard for  measuring large-cap U.S. stock market
  performance. It is used by 97% of U.S. money managers and pension plan
  sponsors. More than $1 trillion is indexed to the S&P 500.

  S&P MidCap 400 Index -- consists of 400 domestic stocks chosen for market
  size, liquidity, and industry group representation.  It is a market-value
  weighted index with each stock affecting the index in proportion to its market
  value. It is used by over 95% of U.S. managers and pension plan sponsors. More
  than $25 billion is indexed to the S&P Midcap400.

  S&P Small Cap 600 Index - an unmanaged index comprised of 600 domestic stocks
  chosen for market size, liquidity, and industry group representation.  The
  index is comprised of stocks from the industrial, utility, financial, and
  transportation sectors.  It is gaining wide acceptance as the preferred
  benchmark for both active and passive management due to its low turnover and
  greater liquidity.  Approximately $8 billion is indexed to the S&P SmallCap
  600.

  S&P SuperComposite 1500 - combines the S&P 500, MidCap 400, and SmallCap 600
  indices, representing 87% of the total U.S. equity market capitalization.

  S&P 100 Index - known by its ticker symbol OEX, this index measures large
  company U.S. stock market performance.  This market capitalization-weighted
  index is made up of 100 major, blue chip stocks across diverse industry
  groups.

  S&P/BARRA Growth and Value Indices - are constructed by dividing the
  securities in the S&P 500 Index according to price-to-book ratio.  The Value
  index contains the companies with the lower price-to-book ratios; while the
  companies with the higher price-to-book ratios are contained in the Growth
  index.

  S&P REIT Composite Index - launched in 1997, this benchmark tracks the market
  performance of U.S. Real Estate Investment Trusts, known as REITS.  The REIT
  Composite consists of 100 REITs chosen for their liquidity and importance in
  representing a diversified real estate portfolio.  The Index covers over 80%
  of the securitized U.S. real estate market.

                                      54
<PAGE>


  S&P Utilities Stock Price Index - a market capitalization weighted index
  representing three utility groups and, with the three groups, 43 of the
  largest utility companies listed on the New York Stock Exchange, including 23
  electric power companies, 12 natural gas distributors and 8 telephone
  companies.

  Standard & Poor's CANADA Indices:
  ---------------------------------

  S&P/TSE Canadian MidCap Index - measures the performance of the mid-size
  company segment of the Canadian equity market.

  S&P/TSE Canadian SmallCap Index - Measures the small company segment of the
  Canadian equity market.

  Standard & Poor's Global Indices:
  ---------------------------------

  S&P Global 1200 Index - aims to provide investors with an investable
  portfolio.  This index, which covers 29 countries and consists of seven
  regional components, offers global investors an easily accessible, tradable
  set of stocks and particularly suits the new generation of index products,
  such as exchange-traded funds (ETFs).

  S&P Euro  and S&P Euro Plus Indices - the S&P Euro Index covers the Eurobloc
  countries; the Euro Plus Index includes the Euro markets as well as Denmark,
  Norway, Sweden and Switzerland.  The S&P Euro Plus Index contains 200
  constituents, and the S&P Euro Index, a subset of Euro Plus, contains 160
  constituents.  Both indices provide geographic and economic diversity over 11
  industry sectors.

  S&P/TSE 60 Index  - developed with the Toronto Stock Exchange, is designed as
  the new Canadian large cap benchmark and will ultimately replace the Toronto
  35 and the TSE 100.

  S&P/TOPIX 150 -  includes 150 highly liquid securities selected from each
  major sector of the Tokyo market. It  is designed specifically to give
  portfolio managers and derivative traders an index that is broad enough to
  provide representation of the market, but narrow enough to ensure liquidity.

  S&P Asia Pacific 100 Index - includes highly liquid securities from each major
  economic sector of major Asia-Pacific equity markets. Seven countries --
  Australia, Hong Kong, Korea, Malaysia, New Zealand, Singapore, and Taiwan --
  are represented in the new index.

  S&P Latin America 40 Index -part of the S&P Global 1200 Index, includes highly
  liquid securities from major economic sectors of Mexican and South American
  equity markets. Companies from Mexico, Brazil, Argentina, and Chile are
  represented in the new index.

  S&P United Kingdom 150 Index - includes 150 highly liquid securities selected
  from each of the new S&P sectors. The S&P UK 150 is designed to be broad
  enough to provide representation of the market, but narrow enough to ensure
  liquidity.



  Salomon Smith Barney Global excluding U.S. Equity Index - an unmanaged index
  comprised of the smallest stocks (less than $1 billion market capitalization)
  of the Extended Market Index, of both developed and emerging markets.

  Salomon Smith Barney One to Three Year Treasury Index - an unmanaged index
  comprised of U.S. treasury notes and bonds with maturities of one year or
  greater, but less than three years.

  Salomon Smith Barney Three-Month T-Bill Average -- the average for all
  treasury bills for the previous three-month period.

  Salomon Smith Barney Three-Month U.S. Treasury Bill Index - a return
  equivalent yield average based on the last three 3-month Treasury bill issues.

  Savings and Loan Historical Interest Rates -- as published by the U.S. Savings
  and Loan League Fact Book.

  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.


                                      55
<PAGE>



  Target Large Company Value Index - an index comprised of large companies with
  market capitalizations currently extending down to approximately $1.9 billion
  that are monitored using a variety of relative value criteria in order to
  capture the most attractive value opportunities available.  A high quality
  profile is required and companies undergoing adverse financial pressures are
  eliminated.



  U.S. Three-Month Treasury Bill Average - the average return for all treasury
  bills for the previous three month period.



  Value Line Composite Index -- composed of over 1,600 stocks in the Value Line
  Investment Survey.



  Wilshire Real Estate Securities Index - a market capitalization-weighted index
  of publicly traded real estate securities, including real estate investment
  trusts, real estate operating companies and partnerships.  The index is used
  by the institutional investment community as a broad measure of the
  performance of public real estate equity for asset allocation and performance
  comparison.

  Wilshire REIT Index - includes 112 real estate investment trusts (REITs) but
  excludes seven real estate operating companies that are included in the
  Wilshire Real Estate Securities Index.

  Note:  With respect to the comparative measures of performance for equity
  securities described herein, comparisons of performance assume reinvestment of
  dividends, except as otherwise stated.

                                      56
<PAGE>

                                   UAM Funds
                                 PO Box 419081
                          Kansas City, MO  64141-6081
                     (Toll free) 1-877-UAM-LINK (826-5465)




                             The Sirach Portfolios

                            Sirach Growth Portfolio
                            Sirach Equity Portfolio
                        Sirach Special Equity Portfolio
                      Sirach Strategic Balanced Portfolio
                             Sirach Bond Portfolio


                           Institutional Class Shares
                       Institutional Service Class Shares

                     Statement of Additional Information
                               February 28, 2000

  This statement of additional information (SAI) is not a prospectus. However,
  you should read it in conjunction with the prospectuses of the portfolios
  dated February 28, 2000, as supplemented from time to time. You may obtain a
  prospectus for the portfolios by contacting the UAM Funds at the address
  listed above.
<PAGE>


<TABLE>
Table Of Contents
<S>                                                                   <C>
Description of Permitted Investments.................................  1
 What Investment Strategies May the Portfolios Use?..................  1
 Debt Securities.....................................................  2
 Derivatives.........................................................  9
 Equity Securities................................................... 17
 Foreign Securities.................................................. 18
 Investment Companies................................................ 22
 Repurchase Agreements............................................... 22
 Restricted Securities............................................... 23
 Securities Lending.................................................. 22
 When Issued Transactions............................................ 23
Investment Policies of the Portfolios................................ 24
 Fundamental Policies................................................ 24
 Non-Fundamental Policies............................................ 25
Management Of The Fund............................................... 26
Principal Shareholders............................................... 27
Investment Advisory and Other Services............................... 30
 Investment Adviser.................................................. 30
 Distributor......................................................... 33
 Service And Distribution Plans...................................... 33
 Administrative Services............................................. 36
 Custodian........................................................... 38
 Independent Accountants............................................. 38
Brokerage Allocation and Other Practices............................. 38
 Selection of Brokers................................................ 38
 Simultaneous Transactions........................................... 38
 Brokerage Commissions............................................... 38
Capital Stock and Other Securities................................... 39
 Description Of Shares And Voting Rights............................. 39
Purchase, Redemption and Pricing of Shares........................... 41
 Net Asset Value Per Share........................................... 41
 Purchase of Shares.................................................. 41
 Redemption of Shares................................................ 42
 Exchange Privilege.................................................. 44
 Transfer Of Shares.................................................. 44
Performance Calculations............................................. 44
 Total Return........................................................ 45
 Yield............................................................... 46
 Comparisons......................................................... 46
Financial Statements................................................. 47
Glossary............................................................. 47
Bond Ratings......................................................... 48
 Moody's Investors Service, Inc...................................... 48
 Standard & Poor's Ratings Services.................................. 50
 Duff & Phelps Credit Rating Co...................................... 53
 Fitch IBCA Ratings.................................................. 54
Comparative Benchmarks............................................... 55
</TABLE>

<PAGE>


Description of Permitted Investments


WHAT INVESTMENT STRATEGIES MAY THE PORTFOLIOS USE?
- --------------------------------------------------------------------------------

  The portfolios currently intend to use the securities and investment
  strategies listed below in seeking their objectives; however, they may at any
  time invest in any of the investment strategies described in this SAI.  This
  SAI describes each of these investments/strategies and their risks. A
  portfolio may not notify shareholders before employing new strategies, unless
  it expects such strategies to become principal strategies.  The investments
  that are italicized are principal strategies and you can find more information
  on these techniques in the prospectus of the portfolio. You can find more
  information concerning the limits on the ability of the portfolios to use
  these investments in "What Are the Investment Policies of the Portfolios?"

Growth Portfolio

   .  Equity securities.
   .  Short-term investments.
   .  Investment companies.
   .  Repurchase agreements.
   .  Restricted securities.
   .  Securities lending.
   .  When issued securities.

Equity Portfolio

   .  Equity securities.
   .  Short-term investments.
   .  Investment companies.
   .  Repurchase agreements.
   .  Restricted securities.
   .  Securities lending.
   .  When issued securities.

Special Equity Portfolio

   .  Equity securities.
   .  Short-term investments.
   .  Investment companies.
   .  Repurchase agreements.
   .  Restricted securities.
   .  Securities lending.
   .  When issued securities.


                                       1
<PAGE>


Strategic Balanced Portfolio

   .  Equity securities.
   .  Debt securities.
   .  Futures.
   .  Options.
   .  Investment companies.
   .  Repurchase agreements.
   .  Restricted securities.
   .  Securities lending.
   .  When issued securities.

Bond Portfolio

   .  Debt securities.
   .  Futures.
   .  Options.
   .  Investment companies.
   .  Repurchase agreements.
   .  Restricted securities.
   .  Securities lending.
   .  When issued securities.

DEBT SECURITIES
- --------------------------------------------------------------------------------

  Corporations and governments use debt securities 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.

Types of Debt Securities

  U.S. Government Securities

  U.S. government securities are securities that the U.S. Treasury has issued
  (treasury securities) and securities that a federal agency or a government-
  sponsored entity has issued (agency securities). Treasury securities include
  treasury notes, which have initial maturities of one to ten years and treasury
  bonds, which have initial maturities of at least ten years and certain types
  of mortgage-backed securities that are described under "Mortgage-Backed
  Securities" and "Other Asset-Backed Securities." This SAI discusses mortgage-
  backed treasury and agency securities in detail in the section called
  "Mortgage-Backed Securities" and "Other Asset-Backed Securities."

  The full faith and credit of the U.S. government supports treasury securities.
  Unlike treasury securities, the full faith and credit of the U.S. government
  generally do not back agency securities.  Agency securities are typically
  supported in one of three ways:

  .  by the right of the issuer to borrow from the U.S. Treasury;
  .  by the discretionary authority of the U.S. government to buy the
     obligations of the agency; or


                                  2
<PAGE>


  .  by the credit of the sponsoring agency.

  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

  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.


  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. Unlike most debt securities, which pay
  interest periodically and repay principal at maturity or on specified call
  dates, mortgage-backed securities make monthly payments that consist of both
  interest and principal payments. In effect, these payments are a "pass-
  through" of the monthly payments made by the individual borrowers on their
  mortgage loans, net of any fees paid to the issuer or guarantor of such
  securities.  Since homeowners usually have the option of paying either part or
  all of the loan balance before maturity, the effective maturity of a mortgage-
  backed security is often shorter than is stated.

  Governmental entities, private insurers and the mortgage poolers may insure or
  guarantee 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.  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 is the principal governmental guarantor of mortgage-related securities.
  GNMA is a wholly owned corporation of the U.S. government and it falls within
  the Department of Housing and Urban Development. Securities issued by GNMA are
  treasury securities, which means the full faith and credit of the U.S.
  government backs them.  GNMA 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 a
  portfolio's 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 is regulated by the Secretary of Housing and Urban
  development.  FNMA purchases conventional mortgages from a list of approved
  sellers and service providers, including state and federally-chartered savings
  and loan associations, mutual savings banks, commercial banks and



                                       3
<PAGE>


  credit unions and mortgage bankers. Securities issued by FNMA are agency
  securities, which means FNMA, but not the U.S. government, guarantees their
  timely payment of principal and interest.



     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. 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.



  Risks of Mortgage-Backed Securities

  Yield characteristics of mortgage-backed securities differ from those of
  traditional debt securities in a variety of ways, the most significant
  differences are mortgage-backed securities:

  .  payments of interest and principal are more frequent (usually monthly); and
  .  falling interest rates generally cause individual borrowers to pay off
     their mortgage earlier than expected forcing a portfolio to reinvest the
     money at a lower interest rate.

  In addition to risks associated with changes in interest rates described in
  "Factors Affecting the Value of Debt Securities," a variety of economic,
  geographic, social and other factors, such as the sale of the underlying
  property, refinancing or foreclosure, can cause investors to repay the loans
  underlying a mortgage-backed security 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.

  Other Asset-Backed Securities

  These securities are interests in pools of a broad range of assets other than
  mortgages, such as automobile loans, computer leases and credit card
  receivables.  Like mortgage-backed securities, these securities are pass-
  through. 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

                                       4
<PAGE>


  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 related asset-backed securities. Due to the quantity of
  vehicles involved and requirements under state laws, 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.



  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 prepay principal
  monthly. While whole mortgage loans may collateralize CMOs, 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.

  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 securities listed below, U.S. government securities and
  investment-grade corporate debt securities. Unless otherwise specified, a
  short-term debt security has a maturity of one year or less.

  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 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,


                                       5
<PAGE>


  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 is a short-term obligation with a maturity ranging from 1 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 "Bond Ratings" for a description
  of commercial paper ratings.

  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 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 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

                                       6
<PAGE>


  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 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.



Terms to Understand

  Maturity

  Every debt security has a stated maturity date when the issuer must repay the
  amount it borrowed (principal) from investors.  Some debt securities, however,
  are callable, meaning the issuer can repay the principal earlier, on or after
  specified dates (call dates).  Debt securities are most likely to be called
  when interest rates are falling because the issuer can refinance at a lower
  rate, similar to a homeowner refinancing a mortgage.  The effective maturity
  of a debt security is usually its nearest call date.

  A portfolio that invests in debt securities has no real maturity.  Instead, it
  calculates its weighted average maturity.  This number is an average of the
  stated maturity of each debt security held by a portfolio, with the maturity
  of each security weighted by the percentage of the assets of the portfolio it
  represents.

  Duration

  Duration is a calculation that seeks to measure the price sensitivity of a
  debt security, or a portfolio that invests in debt securities, to changes in
  interest rates.  It measures sensitivity more accurately than maturity because
  it takes into account the time value of cash flows generated over the life of
  a debt security.   Future interest payments and principal payments are
  discounted to reflect their present value and then are multiplied by the
  number of years they will be received to produce a value expressed in years --
  the duration.  Effective duration takes into account call features and sinking
  fund prepayments that may shorten the life of a debt security.

  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.

Factors Affecting the Value of Debt 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.


                                       7
<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).

  Prepayment Risk

  This risk effects mainly mortgage-backed securities.  Unlike other debt
  securities, falling interest rates can hurt mortgage-backed securities, which
  may cause your share price to fall.  Lower rates motivate people to pay off
  mortgage-backed and asset-backed securities earlier than expected.  A
  portfolio may then have to reinvest the proceeds from such prepayments at
  lower interest rates, which can reduce its yield. 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 a portfolio.  If
  left unattended, drifts in the average maturity of a portfolio can have the
  unintended effect of increasing or reducing the effective duration of the
  portfolio, which may adversely affect the expected performance of the
  portfolio.

  Extension Risk

  The other side of prepayment risk occurs when interest rates are rising.
  Rising interest rates can cause a portfolio's average maturity to lengthen
  unexpectedly due to a drop in mortgage prepayments.  This would increase the
  sensitivity of a portfolio to rising rates and its potential for price
  declines.  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.

  Credit Rating

  Coupon interest is offered to investors of debt securities as compensation for
  assuming risk, although short-term Treasury securities, such as 3-month
  treasury bills, are considered "risk free." Corporate securities offer higher
  yields than Treasury securities 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 Treasury securities.

  Changes in investor confidence regarding the certainty of interest and
  principal payments of a corporate debt 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.

  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.


                                       8
<PAGE>


  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 Moody's Investor
  Services ("Moody's"), Standard and Poor's Ratings Services ("S&P"), Duff &
  Phelps Rating Co. and Fitch IBCA. Credit ratings are only an agency's opinion,
  not an absolute standard of quality, and they do not reflect an evaluation of
  market risk. The section "Bond Ratings" 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.

DERIVATIVES
- --------------------------------------------------------------------------------
  Derivatives are financial instruments whose value is based on an underlying
  asset, such as a stock or a bond, an underlying economic factor, such as an
  interest rate or a market benchmark, such as an index. Investors can use
  derivatives to gain exposure to various markets in a cost efficient manner, to
  reduce transaction costs or to remain fully invested. They may also invest in
  derivatives to protect it 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.


Types of Derivatives

  Futures


  A futures contract is an agreement between two parties whereby one party sells
  and the other party agrees to buy a specified amount of a financial instrument
  at an agreed upon price and time. The financial instrument underlying the
  contract may be a stock, stock index, bond, bond index, interest rate, foreign
  exchange rate or other similar instrument. Agreeing to buy the underlying
  financial information is called buying a futures contract or taking a long
  position in the contract. Likewise, agreeing to sell the underlying financial
  instrument is called selling a futures contract or taking a short position in
  the contract.

  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.

  Unlike other securities, the parties to a futures contract do not have to pay
  for or deliver the underlying financial instrument until some future date (the
  delivery date). 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. This process is known
  as "marking to the market."

  Although the actual terms of a futures contract calls for the actual delivery
  of and payment for the underlying security, in many cases the parties may
  close the contract early by taking an opposite position in an identical
  contract. If the sale price upon closing out the contract is less than the
  original purchase price, the person closing out the contract will realize a
  loss. If the sale price upon closing out the contract is more that the
  original purchase price, the person closing out the contract will realize a
  gain. The opposite is also true. If the purchase price upon closing out the
  contract is more than the original sale price, the person closing

                                       9
<PAGE>


  out the contract will realize a loss. If the purchase price upon closing out
  the contract is less than the original sale price, the person closing out the
  contract will realize a gain.

  The portfolio will incur commission expenses in either opening, closing or
  possibly opening and closing futures positions.


  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
  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

                                      10
<PAGE>


  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
     and segregating cash or liquid securities in an amount equal to the
     difference between the exercise prices;

  .  Cash or liquid securities equal to at least the market value of the
     optioned securities, interest rate, foreign currency or futures contract;
     or

  .  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;

  .  Purchasing a put option on the same security, index, interest rate, foreign
     currency or futures contract with a lesser exercise price and segregating
     cash or liquid securities in an amount equal to the difference between the
     exercise prices; or

  .  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

                                      11
<PAGE>

  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 the 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.

  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).

  .  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 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.

                                      12
<PAGE>


  Foreign Currency Hedging Strategies

  A "settlement hedge" or "transaction hedge" is designed to protect the
  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. The 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.

  The portfolio may 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. The 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 the 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.

  The 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 the 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, the 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, the
  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.

  Swaps, Caps, Collars and Floors

  Swap Agreements

  A swap is a financial instrument that typically involves the exchange of cash
  flows between two parties on specified dates (settlement dates), where the
  cash flows are based on agreed-upon prices, rates, indices, etc. The nominal
  amount on which the cash flows are calculated is called the notional amount.
  Swaps are individually negotiated and structured to include exposure to a
  variety of different types of investments or market factors, such as interest
  rates, foreign currency rates, mortgage securities, corporate borrowing rates,
  security prices or inflation rates.

  Swap agreements may increase or decrease the overall volatility of the
  investments of the portfolio and its share price. The performance of swap
  agreements may be affected by a change in the specific interest rate,
  currency, or other factors that determine the amounts of payments due to and
  from the portfolio. If a swap agreement calls for payments by the portfolio,
  the portfolio must be prepared to make such payments when due. In addition, if
  the counter-party's creditworthiness declined, the value of a swap agreement
  would be likely to decline, potentially resulting in losses.

  Generally, swap agreements have a fixed maturity date that will be agreed upon
  by the parties. The agreement can be terminated before the maturity date only
  under limited circumstances, such as default by one of the parties or
  insolvency, among others, and

                                      13
<PAGE>


  can be transferred by a party only with the prior written consent of the other
  party. The portfolio may be able to eliminate its exposure under a swap
  agreement either by assignment or by other disposition, or by entering into an
  offsetting swap agreement with the same party or a similarly creditworthy
  party. If the counter-party is unable to meet its obligations under the
  contract, declares bankruptcy, defaults or becomes insolvent, the portfolio
  may not be able to recover the money it expected to receive under the
  contract.

  A swap agreement can be a form of leverage, which can magnify a portfolio's
  gains or losses. In order to reduce the risk associated with leveraging, a
  portfolio will cover its current obligations under swap agreements according
  to guidelines established by the SEC. If the portfolio enters into a swap
  agreement on a net basis, it will segregate assets with a daily value at least
  equal to the excess, if any, of the portfolio's accrued obligations under the
  swap agreement over the accrued amount the portfolio is entitled to receive
  under the agreement. If the portfolio enters into a swap agreement on other
  than a net basis, it will segregate assets with a value equal to the full
  amount of the portfolio's accrued obligations under the agreement.

  Equity Swaps -- In a typical equity index swap, one party agrees to pay
  another party the return on a stock, stock index or basket of stocks in return
  for a specified interest rate. By entering into an equity index swap, for
  example, the index receiver can gain exposure to stocks making up the index of
  securities without actually purchasing those stocks. Equity index swaps
  involve not only the risk associated with investment in the securities
  represented in the index, but also the risk that the performance of such
  securities, including dividends, will not exceed the return on the interest
  rate that the portfolio will be committed to pay.

  Interest Rate Swaps -- Interest rate swaps are financial instruments that
  involve the exchange on one type of interest rate for another type of interest
  rate cash flow on specified dates in the future. Some of the different types
  of interest rate swaps are "fixed-for floating rate swaps," "termed basis
  swaps" and "index amortizing swaps." Fixed-for floating rate swap involve the
  exchange of fixed interest rate cash flows for floating rate cash flows.
  Termed basis swaps entail cash flows to both parties based on floating
  interest rates, where the interest rate indices are different. Index
  amortizing swaps are typically fixed-for floating swaps where the notional
  amount changes if certain conditions are met.

  Like a traditional investment in a debt security, a portfolio could lose money
  by investing in an interest rate swap if interest rates change adversely. For
  example, if the portfolio enters into a swap where it agrees to exchange a
  floating rate of interest for a fixed rate of interest, the portfolio may have
  to pay more money than it receives. Similarly, if the portfolio enters into a
  swap where it agrees to exchange a fixed rate of interest for a floating rate
  of interest, the portfolio may receive less money than it has agreed to pay.

  Currency Swaps -- A currency swap is an agreement between two parties in which
  one party agrees to make interest rate payments in one currency and the other
  promises to make interest rate payments in another currency. A portfolio may
  enter into a currency swap when it has one currency and desires a different
  currency. Typically the interest rates that determine the currency swap
  payments are fixed, although occasionally one or both parties may pay a
  floating rate of interest. Unlike an interest rate swap, however, the
  principal amounts are exchanged at the beginning of the contract and returned
  at the end of the contract. Changes in foreign exchange rates and changes in
  interest rates, as described above may negatively affect currency swaps.

  Caps, Collars and Floors

  Caps and floors have an effect similar to buying or writing options. In a
  typical cap or floor agreement, one party agrees to make payments only under
  specified circumstances, usually in return for payment of a fee by the other
  party. For example, the buyer of an interest rate cap obtains the right to
  receive payments to the extent that a specified interest rate exceeds an
  agreed-upon level. The seller of an interest rate floor is obligated to make
  payments to the extent that a specified interest rate falls below an agreed-
  upon level. An interest rate collar combines elements of buying a cap and
  selling a floor.

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.

                                      14
<PAGE>


  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.


  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
  expected.

  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; and

  .  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.
  Moreover, a portfolio may close out a futures contract only on the exchange
  the contract was initially traded. Although a portfolio intends to purchase
  options and futures only where there appears to be an active market, there is
  no guarantee that such a liquid market will exist. If there is no secondary
  market for the contract, or the market is illiquid, the portfolio may not be
  able to close out its position. In an illiquid market, the portfolio may:

  .  have to sell securities to meet its daily margin requirements at a time
     when it is disadvantageous to do so;

  .  have to purchase or sell the instrument underlying the contract;

                                      15
<PAGE>


  .  not be able to hedge its investments; and

  .  not be able realize profits or limit 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:

  .  an exchange may suspend or limit trading in a particular derivative
     instrument, an entire category of derivatives or all derivatives, which
     sometimes occurs because of increased market volatility;

  .  unusual or unforeseen circumstances may interrupt normal operations of an
     exchange;

  .  the facilities of the exchange may not be adequate to handle current
     trading volume;

  .  equipment failures, government intervention, insolvency of a brokerage firm
     or clearing house or other occurrences may disrupt normal trading activity;
     or

  .  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.

  Volatility and Leverage

  The prices of derivatives are volatile (i.e., they may change rapidly,
  substantially and unpredictably) and are influenced by a variety of factors,
  including:

  .  actual and anticipated changes in interest rates;

  .  fiscal and monetary policies; and

  .  national and international political events.

  Most exchanges limit the amount by which the price of a derivative can change
  during a single trading day. Daily trading limits establish the maximum amount
  that the price of a derivative may vary from the settlement price of that
  derivative at the end of trading on the previous day. Once the price of a
  derivative reaches this value, a portfolio may not trade that derivative at a
  price beyond that limit. The daily limit governs only price movements during a
  given day and does not limit potential gains or losses. Derivative prices have
  occasionally moved to the daily limit for several consecutive trading days,
  preventing prompt liquidation of the derivative.

  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-dealer with whom it has an open futures contract or related option
  becomes insolvent or declares bankruptcy.

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EQUITY SECURITIES
- --------------------------------------------------------------------------------

Types of Equity Securities


  Common Stocks

  Common stocks represent units of ownership in a company. Common stocks usually
  carry voting rights and earn dividends. Unlike preferred stocks, which are
  described below, dividends on common stocks are not fixed but are declared at
  the discretion of the company's board of directors.


  Preferred Stocks

  Preferred stocks are also units of ownership in a company. Preferred stocks
  normally have preference over common stock in the payment of dividends and the
  liquidation of the company. However, in all other respects, preferred stocks
  are subordinated to the liabilities of the issuer. Unlike common stocks,
  preferred stocks are generally not entitled to vote on corporate matters.
  Types of preferred stocks include adjustable-rate preferred stock, fixed
  dividend preferred stock, perpetual preferred stock, and sinking fund
  preferred stock. Generally, the market values of preferred stock with a fixed
  dividend rate and no conversion element varies inversely with interest rates
  and perceived credit risk.


  Convertible Securities

  Convertible securities are debt securities and preferred stocks that are
  convertible into common stock at a specified price or conversion ratio. 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. Their market price tends to go up if the stock price moves up.

  Convertible securities are subject to the same risks as similar securities
  without the convertible feature. The price of a convertible security is more
  volatile during times of steady interest rates than other types of debt
  securities.


  Rights and Warrants

  A right is a privilege granted to existing shareholders of a corporation to
  subscribe to shares of a new issue of common stock before it is issued. Rights
  normally have a short life, usually two to four weeks, are freely transferable
  and entitle the holder to buy the new common stock at a lower price than the
  public offering price. Warrants are securities that are usually issued
  together with a debt security or preferred stock and that give the holder the
  right to buy proportionate amount of common stock at a specified price.
  Warrants are freely transferable and are traded on major exchanges. Unlike
  rights, warrants normally have a life that is measured in years and entitles
  the holder to buy common stock of a company at a price that is usually higher
  than the market price at the time the warrant is issued. Corporations often
  issue warrants to make the accompanying debt security more attractive.

  An investment in warrants and rights may entail greater risks than certain
  other types of investments. Generally, rights and warrants do not carry 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. In addition, their value does not necessarily change with the
  value of the underlying securities, and they cease to have value if they are
  not exercised on or before their expiration date. Investing in rights and
  warrants increases the potential profit or loss to be realized from the
  investment as compared with investing the same amount in the underlying
  securities.


Risks of Investing in Equity Securities


  General Risks of Investing in Stocks

  While investing in stocks allows investors to participate in the benefits of
  owning a company, such investors must accept the risks of ownership. Unlike
  bondholders, who have preference to a company's earnings and cash flow,
  preferred stockholders, followed

                                      17
<PAGE>


  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.

  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; and

  .  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.

  Because preferred stock is generally 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.


  Small and Medium-Sized Companies

  Investors in small and medium-sized companies typically take on greater risk
  and price volatility than they would by investing in larger, more established
  companies. This increased risk may be due to the greater business risks of
  their small or medium size, limited markets and financial resources, narrow
  product lines and frequent lack of management depth. The securities of small
  and medium companies are often traded in the over-the-counter market and might
  not be traded in volumes typical of securities traded on a national securities
  exchange. Thus, the securities of small and medium capitalization companies
  are likely to be less liquid, and subject to more abrupt or erratic market
  movements, than securities of larger, more established companies.


  Technology Companies

  Stocks of technology companies have tended to be subject to greater volatility
  than securities of companies that are not dependent upon or associated with
  technological issues. Technology companies operate in various industries.
  Since these industries frequently share common characteristics, an event or
  issue affecting one industry may significantly influence other, related
  industries. For example, technology companies may be strongly affected by
  worldwide scientific or technological developments and their products and
  services may be subject to governmental regulation or adversely affected by
  governmental policies.


FOREIGN SECURITIES
- --------------------------------------------------------------------------------

Types of Foreign Securities

  Foreign securities are debt and equity securities that are traded in markets
  outside of the United States. The markets in which these securities are
  located can be developed or emerging. People can invest in foreign securities
  in a number of ways:

  .  They can invest directly in foreign securities denominated in a foreign
     currency;

  .  They can invest in American Depositary Receipts, European Depositary
     Receipts and other similar global instruments; and

  .  They can invest in 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

                                      18
<PAGE>


  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. EDRs are
  similar to ADRs, except that they are typically issued by European Banks or
  trust companies.


  Emerging Markets

  An "emerging country" is generally a country that 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 currently 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.


  Investment Funds

  Some emerging countries currently prohibit direct foreign investment in the
  securities of their companies. Certain emerging countries, however, permit
  indirect foreign investment in the securities of companies listed and traded
  on their stock exchanges through investment funds that they have specifically
  authorized. Investments in these investment funds are subject to the
  provisions of the 1940 Act. Shareholders of a UAM Fund that invests in such
  investment funds will bear not only their proportionate share of the expenses
  of the UAM Fund (including operating expenses and the fees of the adviser),
  but also will bear indirectly bear similar expenses of the underlying
  investment funds. In addition, these investment funds may trade at a premium
  over their net asset value.


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.


  Political and Economic Factors

  Local political, economic, regulatory, or social instability, military action
  or unrest, or adverse diplomatic developments may affect the value of foreign
  investments. Listed below are some of the more important political and
  economic factors that could negatively affect an investment in foreign
  securities:

  .  The economies of foreign countries may differ from the economy of the
     United States in such areas as growth of gross national product, rate of
     inflation, capital reinvestment, resource self-sufficiency, budget deficits
     and national debt;

  .  Foreign governments sometimes participate to a significant degree, through
     ownership interests or regulation, in their respective economies. Actions
     by these governments could significantly influence the market prices of
     securities and payment of dividends;

  .  The economies of many foreign countries are dependent on international
     trade and their trading partners and they could be severely affected if
     their trading partners were to enact protective trade barriers and economic
     conditions;

  .  The internal policies of a particular foreign country may be less stable
     than in the United States. Other countries face significant external
     political risks, such as possible claims of sovereignty by other countries
     or tense and sometimes hostile border clashes; and

  .  A foreign government may act adversely to the interests of U.S. investors,
     including expropriation or nationalization of assets, confiscatory taxation
     and other restrictions on U.S. investment. A country may restrict or
     control foreign investments

                                      19
<PAGE>


     in its securities markets. These restrictions could limit the portfolio's
     ability to invest in a particular country or make it very expensive for the
     portfolio to invest in that country. Some countries require prior
     governmental approval, limit the types or amount of securities or companies
     in which a foreigner can invest. Other countries may restrict the ability
     of foreign investors to repatriate their investment income and capital
     gains.

  Information and Supervision

  There is generally less publicly available information about foreign companies
  than companies based in the United States. For example, there are often no
  reports and ratings published about foreign companies comparable to the ones
  written about United States companies. Foreign companies are typically not
  subject to uniform accounting, auditing and financial reporting standards,
  practices and requirements comparable to those applicable to United States
  companies. The lack of comparable information makes investment decisions
  concerning foreign countries more difficult and less reliable than domestic
  companies.

  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 the markets in the
  United States. Foreign stocks markets tend to differ from those in the United
  States in a number of ways:

  .  They are generally not as developed or efficient as, and more volatile,
     than those in the United States;

  .  They have substantially less volume;

  .  Their securities tend to be less liquid and to experience rapid and erratic
     price movements;

  .  Commissions on foreign stocks are generally higher and subject to set
     minimum rates, as opposed to negotiated rates;

  .  Foreign security trading, settlement and custodial practices are often less
     developed than those in U.S. markets; and

  .  They may have different settlement practices, which may cause delays and
     increase the potential for failed settlements.


  Foreign Currency Risk


  While the UAM Funds denominate their net asset value in United States dollars,
  the securities of foreign companies are frequently denominated in foreign
  currencies. Thus, a change in the value of a foreign currency against the
  United States dollar will result in a corresponding change in value of
  securities denominated in that currency. Some of the factors that may impair
  the investments denominated in a foreign currency are:

  .  It may be expensive to convert foreign currencies into United States
     dollars and vice versa;

  .  Complex political and economic factors may significantly affect the values
     of various currencies, including United States dollars, and their 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 may be no systematic reporting of last sale information for foreign
     currencies or 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; and

  .

                                      20
<PAGE>

  .  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.



  Taxes

  Certain foreign governments levy withholding taxes on dividend and interest
  income. Although in some countries it is possible for the portfolio to recover
  a portion of these taxes, the portion that cannot be recovered 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.

  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 relatively unstable governments;

  .  Present greater risks of nationalization of businesses, restrictions on
     foreign ownership and prohibitions on the repatriation of assets;

  .  Offer less protection of property rights than more developed countries; and

  .  Have economies that are 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.



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 began 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 became denominations of the
  Euro at fixed rates according to practices prescribed by the European Monetary
  Institute and the Euro became available as a book-entry currency. On or about
  that date, member states began conducting financial market transactions in
  Euros and redenominating many investments, currency balances and transfer
  mechanisms into Euros. The portfolio also anticipates pricing, trading,
  settling and valuing investments whose nominal values remain in their existing
  domestic currencies in Euros. Accordingly, the portfolio expects the
  conversion to the Euro to impact investments in countries that 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?

                                      21
<PAGE>

  .  How will existing currencies be exchanged into Euro?

  .  Will suitable clearing and settlement payment systems for the new currency
     be created?



INVESTMENT COMPANIES
- -------------------------------------------------------------------------------
  A portfolio may buy and sell shares of other investment companies. Such
  investment companies may pay management and other fees that are similar to the
  fees currently paid by a portfolio. Like other shareholders, each portfolio
  would pay its proportionate share of those fees. Consequently, shareholders of
  a portfolio would pay not only the management fees of the portfolio, but also
  the management fees of the investment company in which the portfolio invests.
  A portfolio may invest up to 10% of its total assets in the securities of
  other investment companies, but may not invest more than 5% of its total
  assets in the securities of any one investment company or acquire more than 3%
  of the outstanding securities of any one investment company.

  The SEC has granted an order that allows a portfolio to invest the greater of
  5% of its total assets or $2.5 million in the UAM DSI Money Market Portfolio,
  provided that the investment is:

  .  For cash management purposes;

  .  Consistent with a portfolio's investment policies and restrictions; and

  .  The adviser to the investing portfolio waives any fees it earns on the
     assets of the portfolio that are invested 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, an investor agrees to buy a security (underlying
  security) from a securities dealer or bank that is a member of the Federal
  Reserve System (counter-party). At the time, the counter-party agrees to
  repurchase the underlying security for the same price, plus interest.
  Repurchase agreements are generally for a relatively short period (usually not
  more than 7 days). The portfolios normally use repurchase agreements to earn
  income on assets that are not invested.

  When a portfolio enters into a repurchase agreement it will:

  .  Pay for the underlying securities only upon physically receiving them or
     upon evidence of their receipt in book-entry form; and

  .  Require the counter party to add to the collateral whenever the price of
     the repurchase agreement rises above the value of the underlying security
     (i.e., it will require the borrower to "mark 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.

RESTRICTED SECURITIES
- -------------------------------------------------------------------------------
  The portfolios 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 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 the
  portfolio's investment limitations. The price realized from the sales of these
  securities could be more or less than those originally paid by a portfolio or
  less than what may be considered the fair value of such securities.

                                      22
<PAGE>


SECURITIES LENDING
- --------------------------------------------------------------------------------
  A portfolio may lend a portion of its total assets to broker- dealers or other
  financial institutions. It may then reinvest the collateral it receives in
  short-term securities and money market funds. When a portfolio lends its
  securities, it will follow the following guidelines:

  . The borrower must provide collateral at least equal to the market value of
    the securities loaned;

  . The collateral 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 must add to the collateral whenever the price of the securities
    loaned rises (i.e., the borrower "marks to the market" on a daily basis);

  . It must be able to terminate the loan at any time;

  . It must receive reasonable interest on the loan (which may include the
    portfolio investing any cash collateral in interest bearing short-term
    investments); and

  . It must determine that the borrower is an acceptable credit risk.

  These risks are similar to the ones involved with repurchase agreements. When
  the portfolio lends securities, there is a risk that the borrower will become
  financially unable to honor its contractual obligations.  If this happens, the
  portfolio could:

  .  Lose its rights in the collateral and not be able to retrieve the
     securities it lent to the borrower; and

  .  Experience delays in recovering its securities.


WHEN ISSUED 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 deliver 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 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, a
  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.

  A portfolio will segregate cash and liquid securities equal in value to
  commitments for the when-issued, delayed-delivery or forward delivery
  transaction. A portfolio will segregate additional liquid assets daily so that
  the value of such assets is equal to the amount of its commitments.


                                      23
<PAGE>

Investment Policies of the Portfolios
- -------------------------------------------------------------------------------
  A portfolio will determine investment limitation percentages (with the
  exception of a limitation relating to borrowing) immediately after and as a
  result of its acquisition of such security or other asset. Accordingly, a
  portfolio will not consider changes in values, net assets or other
  circumstances when determining whether the investment complies with its
  investment limitations.

FUNDAMENTAL POLICIES
- -------------------------------------------------------------------------------
  The following investment limitations are fundamental, which means a portfolio
  cannot change them without approval by the vote of a majority of the
  outstanding voting securities of the portfolio, as defined by the 1940 Act.

Strategic Balanced, Growth, Equity and Bond Portfolios

  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
     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 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 1940 Act or the rules and
     regulations or interpretations of the SEC 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.

  .  Underwrite the securities of other issuers.

Special Equity Portfolio

  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 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.

                                      24
<PAGE>

  .  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 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 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 1940 Act 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 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.

NON-FUNDAMENTAL POLICIES
- --------------------------------------------------------------------------------
  The following limitations are non-fundamental, which means a portfolio may
  change them without shareholder approval.

Strategic Balanced, Growth, Equity and Bond Portfolios

  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.

  .  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.

Strategic Balanced and Bond Portfolios

  The portfolios will not:

                                      25
<PAGE>

  .  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; and (2) not more than 20% of the portfolio's assets are invested
     in stock or bond futures and options on futures.

Sirach Bond Portfolio

  The portfolio will not:

  .  invest more than 10% of the portfolio's assets in any single non-
     governmental issue.

  In addition, the adviser intends to limit the Bond Portfolio's investments to
  investment grade securities; however, the adviser reserves the right to retain
  securities which are rated Ba or B by Moody's or BB or B by S&P if, in the
  adviser's judgement, maintaining a position in the securities is warranted.

Management Of The Fund

  The governing board manages the business of the Fund. The governing board
  elects officers to manage the day-to-day operations of the Fund and to execute
  policies the board has formulated. 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 and a $2,000 meeting fee. In
  addition, the Fund reimburses each independent board member 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 board members that are affiliated with the fund for their
  services as board members. UAM, its affiliates or SEI 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. The UAM Funds Complex is currently comprised of 51
  portfolios. Those people with an asterisk (*) beside their name are
  "interested persons" of the Fund as that term is defined in the 1940 Act. Mr.
  English does have an investment advisory relationship with Investment
  Counselors of Maryland, an investment adviser to one of the portfolios in the
  UAM Funds Complex. However, the Fund does not believe that the relationship is
  a material business relationship, and, therefore, does not consider him to be
  an "interested person" of the Fund. If these circumstances change, the Board
  will determine whether any action is required to change the composition of the
  Board.

<TABLE>
<CAPTION>
                                                                                                                     Aggregate
                                                                                               Aggregate           Compensation
                                                                                             Compensation         From the Fund
                                                                                             From the Fund        Complex as of
Name, Address,            Position       Principal Occupations During the                    as of October         October 31,
DOB                       with Fund      Past 5 years                                           31, 1999              1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S>                       <C>            <C>                                                   <C>                  <C>
John T. Bennett, Jr.      Board          President of Squam Investment Management                  $7,137              $10,625
College Road -- RFD 3     Member         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             Board          Financial Officer of World Wildlife Fund since            $7,137              $10,625
1250 24/th/ St., NW       Member         January 1999; Vice President for Finance and
Washington, DC 20037                     Administration and Treasurer of Radcliffe College
8/14/51                                  from 1991 to 1999.
- ----------------------------------------------------------------------------------------------------------------------------------
William A. Humenuk        Board          Executive Vice President and Chief Administrative         $7,137              $10,625
100 King Street West      Member         Officer of Philip Services Corp.; Formerly, a Partner
P.O. Box 2440, LCD-1                     in the Philadelphia office of the law firm Dechert
Hamilton  Ontario,                       Price & Rhoads and a Director of Hofler Corp.
Canada L8N-4J6
4/21/42
- ----------------------------------------------------------------------------------------------------------------------------------
Philip D. English         Board          President and Chief Executive Officer of Broventure       $7,137              $10,625
16 West Madison Street    Member         Company, Inc.; Chairman of the Board of Chektec
Baltimore, MD 21201                      Corporation and Cyber Scientific, Inc.
8/5/48
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                      26
<PAGE>



<TABLE>
<CAPTION>
                                                                                                                     Aggregate
                                                                                               Aggregate           Compensation
                                                                                             Compensation         From the Fund
                                                                                             From the Fund        Complex as of
Name, Address,            Position       Principal Occupations During the                    as of October         October 31,
DOB                       with Fund      Past 5 years                                           31, 1999              1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S>                       <C>            <C>                                                   <C>                  <C>
James P. Pappas*          Board          President of UAM Investment Services, Inc. since          0                   0
211 Congress Street       Member         March 1999; Vice President UAM Trust Company since
Boston, MA 02110                         January 1996; Principal of UAM Fund Distributors,
2/24/53                                  Inc. since December 1995; Vice President of UAM
                                         Investment Services, Inc. from January 1996 to March
                                         1999 and a Director and Chief Operating Officer of CS
                                         First Boston Investment Management from 1993-1995.
- ---------------------------------------------------------------------------------------------------------------------------------
Norton H. Reamer*         Board          Chairman, Chief Executive Officer and a Director of       0                   0
One International Place   Member;        United Asset Management Corporation; Director,
Boston, MA 02110          and            President Partner or Trustee of each of the
3/21/35                   Chairman       Investment Companies of the Eaton Vance Group of
                                         Mutual Funds.

- ----------------------------------------------------------------------------------------------------------------------------------
Peter M. Whitman, Jr.*    Board          President and Chief Investment Officer of Dewey           0                   0
One Financial Center      Member         Square Investors Corporation since 1988; Director and
Boston, MA 02111                         Chief Executive Officer of H.T. Investors, Inc.,
7/1/43                                   formerly a 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; Treasurer of the          0                   0
211 Congress Street                      Fidelity Group of Mutual Funds from 1991 to 1995;
Boston, MA 02110                         held various other offices with Fidelity Investments
7/4/51                                   from November 1990 to March 1995.
- ----------------------------------------------------------------------------------------------------------------------------------
Robert R. Flaherty        Assistant      Vice President of UAMFSI; Manager of Fund                 0                   0
211 Congress Street       Treasurer      Administration and Compliance of Chase Global Fund
Boston, MA 02110                         Services Company from 1995 to 1996; Senior Manager of
9/18/63                                  Deloitte & Touche LLP from 1985 to 1995,
- ----------------------------------------------------------------------------------------------------------------------------------
Robert J. DellaCroce      Assistant      Director, Mutual Fund Operations - SEI Investments;       0                   0
SEI Investments           Treasurer      Senior Manager at Arthur Andersen prior to 1994.
One Freedom Valley Rd.
Oaks, PA  19456
12/17/63
</TABLE>


Principal Shareholders


  As of February 1, 2000, the following persons or organizations held of record
  or beneficially 5% or more of the shares of a portfolio:

<TABLE>
<CAPTION>



Name and Address of                 Percentage of Shares
Shareholder                                Owned                      Portfolio                  Class
- -----------------------------------------------------------------------------------------------------------------------
<S>                                 <C>                               <C>                    <C>
UMBSC & CO.                                31.64%                     Sirach Bond             Institutional
FBO Interstate Brands                                                   Portfolio             Class Shares
Conservative Growth
PO Box 419260
Kansas City, MO 64141-6260
- -----------------------------------------------------------------------------------------------------------------------
Charles Schwab & CO INC.                   11.42%                     Sirach Bond             Institutional
Reinvest Account                                                        Portfolio             Class Shares
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94101-4122
</TABLE>

                                      27
<PAGE>

<TABLE>
<CAPTION>



Name and Address of                 Percentage of Shares
Shareholder                                Owned                      Portfolio                  Class
- -----------------------------------------------------------------------------------------------------------------------
<S>                                 <C>                               <C>                    <C>
Wendel & Co.                               7.46%                      Sirach Bond             Institutional
FBO AAA                                                                Portfolio              Class Shares
PO Box 1006
New York, NY 10286-0001
- -----------------------------------------------------------------------------------------------------------------------
Wilmington Trust CO TR                     6.86%                      Sirach Bond             Institutional
U/A 4/01/1998 FBO IBT 401K                                             Portfolio              Class Shares
c/o Mutual Funds UAM
PO Box 8971
Wilmington, DE 19899-8971
- -----------------------------------------------------------------------------------------------------------------------
UMBSC & Co.                                6.32%                      Sirach Bond             Institutional
FBO Interstate Brands                                                  Portfolio              Class Shares
Moderate Growth
PO Box 419260
Kansas City, MO 64141-6260
- -----------------------------------------------------------------------------------------------------------------------
Northwestern Trust Co.                     6.21%                      Sirach Bond             Institutional
1201 3rd Avenue, Suite 2010                                            Portfolio              Class Shares
Seattle, WA 98101-3026
- -----------------------------------------------------------------------------------------------------------------------
Wilmington Trust Co. TR                   99.99%                      Sirach Bond             Institutional
FBO Catholic Healthcare West Med                                       Portfolio               Service Class
c/o Mutual Funds                                                                                   Shares
PO Box 8971
Wilmington, DE 19899-8971
- -----------------------------------------------------------------------------------------------------------------------
UMBSC & Co.                               16.12%                      Sirach Equity           Institutional
FBO Interstate Brands                                                  Portfolio              Class Shares
Aggressive Growth
PO Box 419175
Kansas City, MO 64141-6175
- -----------------------------------------------------------------------------------------------------------------------
UMBSC & Co.                               14.35%                      Sirach Equity           Institutional
FBO Interstate Brands                                                   Portfolio             Class Shares
Conservative Growth
PO Box 419175
Kansas City, MO 64141-6175
- -----------------------------------------------------------------------------------------------------------------------
Lutsey Family Foundation, Inc.            13.21%                      Sirach Equity           Institutional
PO Box 22074                                                            Portfolio             Class Shares
Green Bay, WI 54305-2074
- -----------------------------------------------------------------------------------------------------------------------
Key Trust Company - PRISM                 11.91%                      Sirach Equity           Institutional
Lane Powell, LLP PSP                                                    Portfolio             Class Shares
4900 Tiedeman Road
Brooklyn, OH 44144-23338
- -----------------------------------------------------------------------------------------------------------------------
UMBSC & Co.                                9.92%                      Sirach Equity           Institutional
FBO Interstate Brands                                                   Portfolio             Class Shares
Moderate Growth
P.O. Box 419175
Kansas City, MO 64141-6175
- -----------------------------------------------------------------------------------------------------------------------
US Bank National Association TR            7.07%                      Sirach Equity           Institutional
FBO Icicle Sea Foods ESOP Sirach                                        Portfolio             Class Shares
PO Box 64010
Saint Paul, MN 55164-0010
- -----------------------------------------------------------------------------------------------------------------------
SO Alaska Defined                         26.48%                      Sirach Growth           Institutional
Contribution Pension Plan                                               Portfolio             Class Shares
Attn:  Carol Patton
PO Box 241266
Anchorage, AK 99524-1266
- -----------------------------------------------------------------------------------------------------------------------
NFSC FEBO                                 21.11%                      Sirach Growth           Institutional
First Interstate Bank Financial Svcs. D                                 Portfolio             Class Shares
Cash Account
PO Box 30918
Billings, MT 59116-0918
</TABLE>

                                      28
<PAGE>

<TABLE>
<CAPTION>



Name and Address of                 Percentage of Shares
Shareholder                                Owned                      Portfolio                  Class
- -----------------------------------------------------------------------------------------------------------------------
<S>                                 <C>                               <C>                    <C>
Wilmington Trust Co. TR                    8.84%                      Sirach Growth           Institutional
FBO IBT 401K                                                            Portfolio             Class Shares
Profit Sharing Plan
c/o Mutual Funds UAM
P.O. Box 8971
Wilmington, DE 19899-8971
- -----------------------------------------------------------------------------------------------------------------------
William M. Connor CUST                     7.20%                      Sirach Growth           Institutional
Connor Development CO                                                   Portfolio             Class Shares
Profit Sharing Plan
846 108/th/ Ave NW
Bellevue, WA 98004-4304
- -----------------------------------------------------------------------------------------------------------------------
Wilmington Trust Co. TR                    5.87%                      Sirach Growth           Institutional
FBO Cherokee Nation 401K Plan                                           Portfolio             Class Shares
c/o Mutual Funds UAM
PO Box 8971
Wilmington, DE 19899-8971
- -----------------------------------------------------------------------------------------------------------------------
UAM Trust Company CUST                     5.29%                      Sirach Growth           Institutional
IRA A/C William M. Conner                                               Portfolio             Class Shares
846 108/th/ NE
Bellevue, WA 98004-4304
- -----------------------------------------------------------------------------------------------------------------------
Wilmington Trust CO TR                    94.59%                      Sirach Growth           Institutional
FBO Allied Waste 401K Plan                                              Portfolio             Service Class
c/o Mutual Funds UAM                                                                              Shares
1100 N. Market Street
Wilmington, DE 19890-0001
- -----------------------------------------------------------------------------------------------------------------------
Bank of New York CUST                     16.23%                      Sirach Special          Institutional
Two Union Square                                                     Equity Portfolio         Class Shares
Automotive Machinists
601 Union Street, Suite 520
Seattle, WA 98101-2328
- -----------------------------------------------------------------------------------------------------------------------
Wells Fargo Bank NA                        6.95%                      Sirach Special          Institutional
FBO Hanford Oper. & Engineering                                      Equity Portfolio         Class Shares
Pension Plan
PO Box 9800
Calabasas, CA 91372-0800
- -----------------------------------------------------------------------------------------------------------------------
Northern Trust Company CUST                5.73%                      Sirach Special          Institutional
FBO Navajo Nation                                                    Equity Portfolio         Class Shares
PO Box 92956
Chicago, IL 60675-2956
- -----------------------------------------------------------------------------------------------------------------------
Dingle & CO                                5.34%                      Sirach Special          Institutional
c/o Comerica Bank Mutual Funds                                       Equity Portfolio         Class Shares
Operating Engineers 324 Pension Fund
PO Box 75000
Detroit, MI 48275-0001
- -----------------------------------------------------------------------------------------------------------------------
South Bay Hotel Employee &                13.31%                      Sirach Strategic        Institutional
Restaurant EE Pension Plan                                                Balanced            Class Shares
c/o United Admin Services                                                 Portfolio
PO Box 5057
San Jose, CA 95150-5057
- -----------------------------------------------------------------------------------------------------------------------
Alaska Bricklayers Retirement Plan        12.71%                      Sirach Strategic        Institutional
407 Denali Street                                                         Balanced            Class Shares
Anchorage, AK 99501-2615                                                 Portfolio
- -----------------------------------------------------------------------------------------------------------------------
SO Alaska Defined                          8.64%                      Sirach Strategic        Institutional
Contribution Pension Plan                                                  Balanced           Class Shares
P.O. Box 241266                                                            Portfolio
Anchorage, AK 99524-1266
- -----------------------------------------------------------------------------------------------------------------------
Montgomery & Purdue & Blankinship          8.27%                      Sirach Strategic        Institutional
& Austinn TR                                                              Balanced            Class Shares
Money Purchase Pension Plan                                               Portfolio
701 5th Avenue
Seattle, WA 98104-7097
</TABLE>

                                      29
<PAGE>

<TABLE>
<CAPTION>



Name and Address of                 Percentage of Shares
Shareholder                                Owned                      Portfolio                  Class
- -----------------------------------------------------------------------------------------------------------------------
<S>                                 <C>                               <C>                    <C>
Norwest Bank Colorado                      6.68%                      Sirach Strategic        Institutional
FBO Agrium Defined Benefit                                                 Balanced           Class Shares
Retirement Plan                                                            Portfolio
Agrium U.S. Inc.
1740 Broadway
Denver, CO 80274-0001
- -----------------------------------------------------------------------------------------------------------------------
NANA Regional Corporation Inc.             5.15%                      Sirach Strategic        Institutional
Employees Pension Plan                                                     Balanced           Class Shares
1001 E. Benson Blvd.                                                       Portfolio
Anchorage, AK 99508-4256
</TABLE>



Any shareholder 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. Shareholders controlling the portfolio 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. As of February 1, 2000,
the directors and officers of the Fund owned less than 1% of the outstanding
shares of the portfolios.


Investment Advisory and Other Services

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 is a subsidiary of UAM. 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 more than 50 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.

Portfolio Management

  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 brief description of their business
  experience.

  Growth and Equity Portfolios

  The adviser's Equity Management Team manages the Growth and Equity Portfolios.
  Listed below are the members of that team and a brief description of their
  business experience.

<TABLE>
<CAPTION>


Name & Title                    Experience
- --------------------------------------------------------------------------------
<S>                             <C>
Harvey G. Bateman               Mr. Bateman joined the adviser in 1988 as a
Principal/Portfolio Manager     Principal/Portfolio Manager, where he has
                                managed equity accounts since 1989.
</TABLE>



                                      30
<PAGE>


Name & Title                  Experience
- --------------------------------------------------------------------------------
Sharon Rowley, CFA            Ms. Rowley joined the adviser in 1998 as a
Principal/Portfolio Manager   Principal/Portfolio Manager. Before that she was a
                              Principal at Seafirst Investment Counselors where
                              she managed equity, bond and balanced accounts for
                              high net worth individuals and institutional
                              clients.
- --------------------------------------------------------------------------------
Karin L. Gibony               Ms. Gibony joined the adviser in 1990. She has
Principal/Portfolio Manager   managed equity and balanced funds for Sirach
                              Capital Management since 1991.
- --------------------------------------------------------------------------------
James P. Kieburtz             Mr. Kieburtz joined the adviser in 1994. Before
Principal/Portfolio Manager   that, he was a Systems Engineer specializing in
                              financial account applications at the accounting
                              firm of Hagen, Kurth & Perman.



Special Equity Portfolio

The adviser's Small Cap Equity Management Team manages the Special Equity
Portfolio. Listed below are the members of that team and a brief description of
their business experience.

Name & Title                  Experience
- --------------------------------------------------------------------------------
Harvey G. Bateman             You may find Mr. Bateman's biography under Equity
Principal/Portfolio Manager   Management Team above.
- --------------------------------------------------------------------------------
James P. Kieburtz             You may find Mr. Kieburtz's biography under
Principal/Portfolio Manager   Equity Management Team above.
- --------------------------------------------------------------------------------

Bond Portfolio

The adviser's Fixed Income Management Team manages the Bond Portfolio. Listed
below are the members of that team and a brief description of their business
experience.

Name & Title                  Experience
- --------------------------------------------------------------------------------
Craig F. Hintze               Mr. Hintze joined the adviser in 1996 as a
Principal/Portfolio Manager   Principal/Portfolio Manager when 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 the adviser in 1996 as a
Principal/Portfolio Manager   Principal/Portfolio Manager when 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 the adviser in 1991 as a
Principal/Portfolio Manager   Principal/Portfolio Manager. Before that, 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 the adviser in 1996 as a
Principal/Portfolio Manager   Principal/Portfolio Manager. Before that, 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.


Strategic Balanced Portfolio

The adviser's Equity Management Team manages the equity portion of the Strategic
Balanced Portfolio and the adviser's Fixed Income Management Team manages the
debt portion of the portfolio. You can find the composition of the teams and the
biographies of their members under the appropriate heading above.

                                      31
<PAGE>

Investment Advisory Agreement


  This section summarizes some of the important provisions the Investment
  Advisory Agreements.  The Fund has filed each agreement with the SEC as part
  of its registration statement on Form N-1A.

  Service Performed by Adviser


  Each adviser:

 .  Manages the investment and reinvestment of a portfolio's assets;

 .  Continuously reviews, supervises and administers the investment program of a
   portfolio; and

 .  Determines what portion of a portfolio's assets will be invested in
   securities and what portion will consist of cash.

  Limitation of Liability

  In the absence of (1) willful misfeasance, bad faith, or gross negligence on
  the part of the adviser in the performance of its obligations and duties under
  the Investment Advisory Agreement, (2) reckless disregard by the adviser of
  its obligations and duties under the Investment 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 Investment Advisory Agreement.

  Continuing an Investment Advisory Agreement

  An Investment Advisory Agreement continues in effect for periods of one year
  so long as such continuance is specifically approved at least annually by a:

  .  Majority of those Board Members who are not parties to the Investment
     Advisory Agreement or interested persons of any such party;  and

  .  (2) (a) majority of the Board Members or (b) a majority of the shareholders
     of the portfolio.

  Terminating an Investment Advisory Agreement

  The Fund may terminate an Investment Advisory Agreement at any time, without
  the payment of any penalty if:

  .  A majority of the portfolio's shareholders vote to do so or a majority of
     Board Members vote to do so; and
  .  It gives the adviser 60 days' written notice.

  The adviser may terminate the Investment Advisory Agreement at any time,
  without the payment of any penalty, upon 90 days' written notice to the Fund.

  An Investment Advisory Agreement will automatically and immediately terminate
  if it is assigned.

                                      32
<PAGE>


Advisory Fees

  For its services, each portfolio pays its adviser the following annual fees,
  which are expressed as a percentage of the average daily net assets of the
  portfolio. Due to the effect of fee waivers by the adviser, the actual
  percentage of average net assets that a portfolio pays in any given year may
  be different from the rate set forth in its contract with the adviser.  For
  the last three fiscal years, the portfolios paid the following in management
  fees to the adviser:


<TABLE>
<CAPTION>
                                   Investment Advisory Fees              Investment Advisory Fees       Total Investment Advisory
                                            Paid                                 Waived                            Fees
  ---------------------------------------------------------------------------------------------------------------------------------
  <S>                                 <C>                                <C>                             <C>
  Growth Portfolio
      1999                                     $  571,110                          $      0                   $  571,110
  ---------------------------------------------------------------------------------------------------------------------------------
      1998                                     $  942,815                          $      0                   $  942,815
  ---------------------------------------------------------------------------------------------------------------------------------
      1997                                     $  981,338                          $      0                   $  981,338
  ---------------------------------------------------------------------------------------------------------------------------------
  Equity Portfolio
      1999                                     $  294,707                          $155,576                   $  139,131
  ---------------------------------------------------------------------------------------------------------------------------------
      1998                                     $  129,597                          $105,815                   $   23,782
  ---------------------------------------------------------------------------------------------------------------------------------
      1997                                     $   18,699                          $ 82,349                   $        0
  ---------------------------------------------------------------------------------------------------------------------------------
  Special Equity Portfolio
      1999                                     $1,177,517                          $      0                   $1,177,517
  ---------------------------------------------------------------------------------------------------------------------------------
      1998                                     $1,849,841                          $      0                   $1,849,841
  ---------------------------------------------------------------------------------------------------------------------------------
      1997                                     $2,768,336                          $      0                   $2,768,336
  ---------------------------------------------------------------------------------------------------------------------------------
  Strategic Balanced Portfolio
      1999                                     $  508,834                          $      0                   $  508,834
  ---------------------------------------------------------------------------------------------------------------------------------
      1998                                     $  560,700                          $      0                   $  560,700
  ---------------------------------------------------------------------------------------------------------------------------------
      1997                                     $  550,068                          $      0                   $  550,068
  ---------------------------------------------------------------------------------------------------------------------------------
  Bond Portfolio
      1999                                     $        0                          $243,816                   $        0
  ---------------------------------------------------------------------------------------------------------------------------------
      1998                                     $        0                          $182,632                   $        0
  ---------------------------------------------------------------------------------------------------------------------------------
      1997                                         N/A                                N/A                         N/A
</TABLE>

DISTRIBUTOR
- --------------------------------------------------------------------------------

  UAMFDI is 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.

SERVICE AND DISTRIBUTION PLANS
- --------------------------------------------------------------------------------

  The Fund has adopted a Distribution Plan and a Shareholder Servicing Plan (the
  "Plans") for the portfolios' Institutional Service Class Shares pursuant to
  Rule 12b-1 under the 1940 Act.

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 a portfolio's 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 Institutional Service Class

                                      33
<PAGE>


  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.

  In addition, the Institutional 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.

                                      34
<PAGE>


  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.

<TABLE>
<CAPTION>
                                          Distribution Plan Expenses
  -----------------------------------------------------------------------
  <S>                                     <C>
  Growth Portfolio                                $34,812
    1999
  -----------------------------------------------------------------------
  Bond Portfolio                                  $ 3,032
    1999
</TABLE>


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

                                      35
<PAGE>


  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 a portfolio.



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 Board Members 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.


  The Fund Administration Agreement continues in effect from year to year if the
  Board specifically approves such continuance every year. 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
  automatically terminates upon its assignment by UAMFSI without the prior
  written consent of the Fund.



  UAMFSI will from time to time employ other people to assist it in performing
  its duties under the Fund Administration Agreement.  Such people may be
  officers and employees who are employed by both UAMFSI and the Fund. UAMFSI
  will pay such people for such employment.  The Fund will not incur any
  obligations with respect to such people.

                                      36
<PAGE>



Administration and Transfer Agency Services Fees

  Each portfolio pays a four-part fee to UAMFSI as follows:

  1.      In exchange for administrative services, a portfolio pays a fee to
          UAMFSI calculated at the annual rate of:

          .    $19,500 for the first operational class; plus

          .    $3,750 for each additional class; plus

          .    A fee calculated from the aggregate net assets of each portfolio
               at the following rates:
<TABLE>
<CAPTION>
                                                            Annual Rate
               -----------------------------------------------------------------------------------
               <S>                                          <C>
               Growth Portfolio                               0.043%
               -----------------------------------------------------------------------------------
               Equity Portfolio                               0.043%
               -----------------------------------------------------------------------------------
               Special Equity Portfolio                       0.043%
               -----------------------------------------------------------------------------------
               Strategic Balanced Portfolio                   0.063%
               -----------------------------------------------------------------------------------
               Bond Portfolio                                 0.043%
</TABLE>

  2.      Each portfolio also pays a fee to UAMFSI for sub-administration and
          other services provided by SEI. The fee, which UAMFSI pays to SEI, is
          calculated at the annual rate of:

          .    Not more than $35,000 for the first operational class; plus

          .    $5,000 for each additional operational class; plus

          .    0.03% of their pro rata share of the combined assets of the UAM
               Funds Complex.

  3.      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.

  4.      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.

  For the last three fiscal years the portfolios paid the following in
  administration and sub-administration fees:

<TABLE>
<CAPTION>
                                 Administrators Fee  Sub-Administrators Fee  Total Administration Fee
- -------------------------------------------------------------------------------------------------------------------------
<S>                              <C>                 <C>                     <C>
Growth Portfolio
  1999                               $ 47,716            $ 94,417             $142,133
- -------------------------------------------------------------------------------------------------------------------------
  1998                               $199,766            $137,236             $337,002
- -------------------------------------------------------------------------------------------------------------------------
  1997                               $ 60,383            $149,705             $210,088
- -------------------------------------------------------------------------------------------------------------------------
Equity Portfolio
  1999                               $ 27,368            $ 69,855             $ 97,223
- -------------------------------------------------------------------------------------------------------------------------
  1998                               $ 93,669            $ 76,332             $170,001
- -------------------------------------------------------------------------------------------------------------------------
  1997                               $  6,234            $ 47,783             $ 54,017
- -------------------------------------------------------------------------------------------------------------------------
Special Equity Portfolio
  1999                               $ 81,073            $123,173             $204,246
- -------------------------------------------------------------------------------------------------------------------------
  1998                               $358,557            $245,389             $603,946
- -------------------------------------------------------------------------------------------------------------------------
  1997                               $158,197            $386,035             $544,232
- -------------------------------------------------------------------------------------------------------------------------
Strategic Balanced Portfolio
  1999                               $ 58,484            $ 84,804             $143,288
- -------------------------------------------------------------------------------------------------------------------------
  1998                               $162,819            $107,247             $270,066
- -------------------------------------------------------------------------------------------------------------------------
  1997                               $ 50,769            $104,773             $155,542
- -------------------------------------------------------------------------------------------------------------------------
Bond Portfolio
  1999                               $ 39,507            $ 74,467             $113,974
- -------------------------------------------------------------------------------------------------------------------------
  1998                               $ 86,660            $ 63,143             $149,803
- -------------------------------------------------------------------------------------------------------------------------
  1997                                  N/A                 N/A                  N/A
</TABLE>


                                      37
<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 ACCOUNTANTS
- --------------------------------------------------------------------------------

  PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110,
  serves as independent accountant for the Fund.

BROKERAGE ALLOCATION AND OTHER PRACTICES


SELECTION OF BROKERS
- --------------------------------------------------------------------------------


  Each Investment Advisory Agreement authorizes the adviser to select the
  brokers or dealers that will execute the purchases and sales of investment
  securities for each portfolio.  The Investment Agreement also directs the
  adviser to use its best efforts to obtain the best execution with respect to
  all transactions for the 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
  Investment 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.



  It is not the practice of the Fund to allocate brokerage or effect principal
  transactions with dealers based on sales of shares that a broker-dealer firm
  makes.  However, the Fund may place trades with qualified broker-dealers who
  recommend the Fund or who act as agents in the purchase of Fund shares for
  their clients.

SIMULTANEOUS TRANSACTIONS
- --------------------------------------------------------------------------------


  The adviser makes investment decisions for each 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.


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, a portfolio 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

                                      38
<PAGE>

  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.



Commissions Paid

  For the last three fiscal years, the portfolios paid the following in
  brokerage commissions:


<TABLE>
<CAPTION>
                                          Brokerage Commissions
  ---------------------------------------------------------------------
  <S>                                     <C>
  Growth Portfolio                           $  251,774
    1999
  ---------------------------------------------------------------------
    1998                                     $  386,341
  ---------------------------------------------------------------------
    1997                                     $  337,150
  ---------------------------------------------------------------------
  Equity Portfolio                           $  124,840
    1999
  ---------------------------------------------------------------------
    1998                                     $   68,643
  ---------------------------------------------------------------------
    1997                                     $   41,994
  ---------------------------------------------------------------------
  Special Equity Portfolio                   $1,338,694
    1999
  ---------------------------------------------------------------------
    1998                                     $  503,483
  ---------------------------------------------------------------------
    1997                                     $  489,884
  ---------------------------------------------------------------------
  Strategic Balanced Portfolio               $  121,366
    1999
  ---------------------------------------------------------------------
    1998                                     $  128,495
  ---------------------------------------------------------------------
    1997                                     $  120,042
  ---------------------------------------------------------------------
  Bond Portfolio                             $        0
    1999
  ---------------------------------------------------------------------
    1998                                     $        0
  ---------------------------------------------------------------------
    1997                                         N/A
</TABLE>


Capital Stock And Other Securities



The Fund

  The Fund was organized under the name "The ICM Fund, Inc." as a Maryland
  corporation on October 11, 1988.  On January 18, 1989, the Fund changed its
  name 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 211
  Congress Street, Boston, MA  02110; however, shareholders should direct all
  correspondence to the address listed on the cover of this SAI.  The Fund is an
  open-end management company.



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

                                      39
<PAGE>

  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 1940 Act
  or other applicable law.



Dividend and Distribution Options

  There are three ways for shareholders to receive dividends and capital gains:

  .  Income dividends and capital gains distributions are reinvested in
     additional shares at net asset value;

  .  Income dividends are paid in cash and capital gains distributions are
     reinvested in additional shares at NAV; and

  .  Income dividends and capital gains distributions are paid in cash.

  Unless the shareholder elects otherwise in writing, the fund will
  automatically reinvest all dividends in additional shares of the portfolio at
  NAV (as of the business day following the record date).  Shareholders may
  change their dividend and distributions option by writing to the fund at least
  three days before the record date for income dividend or capital gain
  distribution.

  The fund sends account statements to shareholders whenever it pays an income
  dividend or capital gains distribution.





FEDERAL TAXES

  Each portfolio intends to qualify as a regulated investment company under
  Subchapter M of the Internal Revenue Code, and to distribute out its income to
  shareholders each year so that the portfolio itself generally will be relieved
  of federal income and excise taxes.  If a portfolio were to fail to so
  qualify: (1) it would be taxed at regular corporate rates without any
  deduction for distributions to shareholder; and (2) its shareholders would be
  taxed as if they received ordinary dividends, although corporate shareholders
  could be eligible for the dividends received deduction.

  A portfolios' dividends that are paid to their corporate shareholders and are
  attributable to qualifying dividends it received from U.S. domestic
  corporations may be eligible, in the hands of such shareholders, for the
  corporate dividends received deduction, subject to certain holding period
  requirements and debt financing limitations.



                                      40
<PAGE>

Purchase, Redemption And Pricing Of Shares

NET ASSET VALUE PER SHARE
- --------------------------------------------------------------------------------



Calculating NAV

  The purchase and redemption price of the shares of a portfolio is equal to the
  NAV of the portfolio.  The Fund calculates the NAV of a portfolio by
  subtracting its liabilities from its total assets and dividing the result by
  the total number of shares outstanding.  For purposes of this calculation:

  .  Liabilities include accrued expenses and dividends payable; and

  .  Total assets include the market value of the securities held by the
     portfolio, plus cash and other assets plus income accrued but not yet
     received.

  Each portfolio normally calculates its NAV as of the close of trading on the
  NYSE every day the NYSE is open for trading.  The NYSE usually closes at 4:00
  p.m.  The NYSE is closed on the following days: 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.

How the Fund Values it Assets

  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 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 governing board.



PURCHASE OF SHARES
- --------------------------------------------------------------------------------


  Service Agents may enter confirmed purchase orders on behalf of their
  customers. To do so, the Service Agent must receive your investment order
  before the close of trading on the NYSE and must transmit it to the fund
  before the close of its business day to receive that day's share price. The
  fund must receive proper payment for the order by the time the portfolio
  calculates its NAV 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.

                                      41
<PAGE>


     Shareholders can buy full and fractional (calculated to three decimal
     places) shares of a portfolio. The fund will not issue certificates for
     fractional shares and will only issue certificates for whole shares upon
     the written request of a shareholder.

     The Fund may 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


     At its discretion, the Fund may permit shareholders to purchase shares of
     the portfolio with securities, instead of cash. If the Fund allows a
     shareholder to make an in-kind purchase, it will value such securities
     according to the policies described under "How the Fund Values it Assets"
     at the next determination of net asset value after acceptance. The Fund
     will issue shares of the portfolio at the NAV of the portfolio determined
     as of the same time.

     The Fund will only acquire securities through an in-kind purchase for
     investment and not for immediate resale. The Fund will only accept in-kind
     purchases if the transaction meets the following conditions:

     .  The securities are eligible investments for the portfolio;

     .  The securities have readily available market quotations;

     .  The investor represents and agrees that the securities are liquid and
        that there are no restrictions on their resale imposed by the 1933 Act
        or otherwise;

     .  All dividends, interest, subscription, or other rights pertaining to
        such securities become the property of the portfolio and are delivered
        to the fund by the investor upon receipt from the issuer; and

     .  Immediately after the transaction is complete, the value of all
        securities of the same issuer held by the portfolio cannot exceed 5% of
        the net assets of the portfolio. This condition does not apply to U.S.
        government securities.


  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 the shareholder wishes to redeem signed by all registered
   owners of the shares in the exact names in which they are registered;

 .  Any required signature guarantees (see "Signature Guarantees"); and

 .  Any other necessary legal documents for estates, trusts, guardianships,
   custodianships, corporations, pension and profit sharing plans and other
   organizations.

By Telephone

                                      42
<PAGE>


   Shareholders may not do the following by telephone:

   .  Change the name of the commercial bank or the account designated to
      receive redemption proceeds. To change an account in this manner, you must
      submit a written request signed by each shareholder, with each signature
      guaranteed.

   .  Redeem shares represented by a certificate.

   The Fund and UAMSSC will employ reasonable procedures to confirm that
   instructions communicated by telephone are genuine, and they may be liable
   for any losses if they fail to do so. These procedures include requiring the
   investor to provide certain personal identification at the time an account is
   opened and before 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 UAMSSC may be liable for any losses due to
   unauthorized or fraudulent telephone instructions if the Fund or the UAMSSC
   does not employ the procedures described above. Neither the Fund nor the
   UAMSSC 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.



   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 Board 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



   The Fund requires signature guarantees for certain types of documents,
   including:

   .  Written requests for redemption;

   .  Separate instruments for assignment ("stock power"), which should specify
      the total number of shares to be redeemed; and

   .  On all stock certificates tendered for redemption.

   The purpose of signature guarantees is to verify the identity of the person
   who has authorized a redemption from your account and to protect your
   account, the Fund and its sub-transfer agent from fraud.

   The Fund will accept signature guarantees from any eligible guarantor
   institution, as defined by the Securities Exchange Act of 1934 that
   participates in a signature guarantee program. Eligible guarantor
   institutions include banks, brokers, dealers, credit unions, national
   securities exchanges, registered securities associations, clearing agencies
   and savings associations. You can get a complete definition of eligible
   guarantor institutions by calling 1-877-826-5465. 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.



                                      43
<PAGE>

Other Redemption Information


   Normally, the Fund will pay for all shares redeemed under proper procedures
   within seven days after it received your request.  However, the Fund will pay
   your redemption proceeds earlier as applicable law so requires.

   When the Fund may suspend redemption privileges or postpone the date of
   payment:

   .  when the NYSE and custodian bank are closed;

   .  when trading on the NYSE is restricted;

   .  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; or

   .  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 for exchanges.

   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.



Performance Calculations



   Each portfolio measures its performance by calculating its yield and total
   return. Yield and total return figures are based on historical earnings and
   are not intended to indicate future performance. The portfolio calculates its
   current yield and average annual total return information according to the
   methods required by the SEC. The performance is calculated separately for
   each Class of a portfolio. Dividends paid by a portfolio with respect to each
   Class 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 Institutional
   Service Class Shares will be borne exclusively by that class.



                                      44
<PAGE>

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. 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 fund calculates the average annual total return of a portfolio by finding
   the average annual compounded rates of return over one, five and ten-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.



   The fund calculates these figures 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).



   Set forth in the table below are the portfolios' average annual returns for
   the one-year period and the five-year period ended October 31, 1999 and the
   shorter of the ten-year period ended October 30, 1999 or the period from a
   portfolio's inception date through October 31, 1999.




<TABLE>
<CAPTION>
                                                                          Shorter of 10 Years or    30-Day
                                                   One Year  Five Years      Since Inception        Yields       Inception Date
- ---------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>       <C>          <C>                       <C>          <C>
Growth Portfolio
- ---------------------------------------------------------------------------------------------------------------------------------
  Institutional Class Shares                       26.90%       22.43%           18.11%             N/A            12/1/93
- ---------------------------------------------------------------------------------------------------------------------------------
  Institutional Service Class Shares               26.61%        N/A             21.47%             N/A            3/22/96
- ---------------------------------------------------------------------------------------------------------------------------------
Equity Portfolio
- ---------------------------------------------------------------------------------------------------------------------------------
  Institutional Class Shares                       26.17%        N/A             23.78%             N/A             7/1/96
- ---------------------------------------------------------------------------------------------------------------------------------
Special Equity Portfolio
- ---------------------------------------------------------------------------------------------------------------------------------
  Institutional Class Shares                       71.28%       19.51%           16.66%             N/A            10/2/89
- ---------------------------------------------------------------------------------------------------------------------------------
Strategic Balanced Portfolio
- ---------------------------------------------------------------------------------------------------------------------------------
  Institutional Class Shares                       15.74%       16.22%           12.72%             N/A            12/1/93
- ---------------------------------------------------------------------------------------------------------------------------------
Bond Portfolio
- ---------------------------------------------------------------------------------------------------------------------------------
  Institutional Class Shares                        1.14%        N/A              4.64%             6.51%          11/3/97
- ---------------------------------------------------------------------------------------------------------------------------------
  Institutional Service Class Shares                0.42%        N/A              4.38%             6.31%          11/7/97
</TABLE>


                                      45
<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 mutual 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
- --------------------------------------------------------------------------------

     A 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 this SAI. This information may also be included in
     sales literature and advertising.



     To help investors better evaluate how an investment in a portfolio 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 "Comparative Benchmarks" 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 a
         portfolio;

     .   that the indices and averages are generally unmanaged; and

     .   that the items included in the calculations of such averages may not be
         identical to the formula used by a portfolio to calculate its
         performance; and

     .   that shareholders cannot invest directly in such indices or averages.

  In addition, there can be no assurance that a portfolio will continue this
  performance as compared to such other averages.



                                      46
<PAGE>

Financial Statements



     The following documents are included in the portfolios' October 31, 1999
     Annual Report:

     .  Financial statements for the fiscal year ended October 31, 1999.

     .  Financial highlights for the respective periods presented

     .  The report of PricewaterhouseCoopers LLP.

     Each of the above-referenced documents is incorporated by reference into
     this SAI. However, no other parts of the portfolios' Annual Reports are
     incorporated by reference herein. Shareholders may get copies of the
     portfolios' Annual Reports free of charge by calling the UAM Funds at the
     telephone number appearing on the front page of this SAI.

Glossary

     All terms that this SAI does not otherwise define, have the same meaning in
     the SAI as they do in the prospectus(es) of the portfolios.

     1933 Act means the Securities Act of 1933, as amended.

     1934 Act means the Securities Exchange Act of 1934, as amended.

     1940 Act means the Investment Company Act of 1940, as amended.

     Adviser means the investment adviser to each portfolio.

     Board Member refers to a single member of the Fund's Board.

     Board refers to the Fund's Board of Trustees as a group.

     SEI is SEI Investments Mutual Funds Services, the Fund's sub-administrator.

     Distribution Plan refers to the Distribution Plan the Fund has adopted for
     its Service Class Shares pursuant to Rule 12b-1 under the 1940 Act.

     Fund refers to UAM Funds, Inc. II.

     Governing Board, see Board.

     NAV is the net asset value per share of a portfolio.

     NYSE is the New York Stock Exchange. Also known as "The Exchange" or "The
     Big Board," the NYSE is located on Wall Street and is the largest exchange
     in the United States.

     Plan member refers to 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.

     Plans refers to the Distribution and Shareholder Servicing Plans the Fund
     has adopted for its Service Class Shares pursuant to Rule 12b-1 under the
     1940 Act.

     Portfolio refers to a single series of the Fund, while portfolios refer to
     all of the series of the Fund.

     SEC is the Securities and Exchange Commission. The SEC is the federal
     agency that administers most of the federal securities laws in the United
     States. In particular, the SEC administers the 1933 Act, the 1940 Act and
     the 1934 Act.

     Service Plan refers to the Shareholder Servicing Plan the Fund has adopted
     for its Service Class Shares pursuant to Rule 12b-1 under the 1940 Act.

     Service Class means the Institutional Service Class shares of a portfolio.

     UAM Funds Complex includes UAM Funds, Inc., UAM Funds Trust, UAM Funds Inc.
     II and all of their portfolios.



                                      47
<PAGE>



     UAM is United Asset Management Corporation.

     UAMFDI is UAM Fund Distributors, Inc., the Fund's distributor.

     UAMFSI is UAM Fund Services, Inc., the Fund's administrator.

     UAMSSC is UAM Fund Shareholder Servicing Center, the Fund's
     sub-shareholder-servicing agent.

Bond 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 stocks.

   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 that 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 period 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.

   plus (+) or    Moody's applies numerical modifiers 1, 2, and 3 in each
   minus (-)      rating classification:  the modifier 1 indicates that the
                  security ranks in the higher end of its generic rating
                  catefory; 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.

                                      48
<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-grade
                  obligations. Factors giving security to principal and interest
                  are considered adequate, but elements may be present which
                  suggest a susceptibility to impairment sometime in the future.

   Baa            Bonds which are rated Baa are 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.


   Con. (...)     (This rating applies only to U.S. Tax-Exempt Municipals) Bonds
                  for which the security depends upon the completion of some act
                  or the fulfillment of some condition are rated conditionally.
                  These are bonds secured by (a) earnings of projects under
                  construction, (b) earnings of projects unseasoned in operating
                  experience, (c) rentals that begin when facilities are
                  completed, or (d) payments to which some other limiting
                  condition attaches. Parenthetical rating denotes probable
                  credit stature upon completion of construction or elimination
                  of basis of condition.


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.

                                      49
<PAGE>

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.

  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:

                    .  Leading market positions in well-established industries.

                    .  Conservative capitalization structure with moderate
                       reliance on debt and ample asset protection.

                    .  Broad 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
- --------------------------------------------------------------------------------



Long-Term Issue Credit Ratings



  Issue credit ratings are based, in varying degrees, on the following
  considerations:

  1.  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;

  2.  Nature of and provisions of the obligation;

  3.  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.



                                      50
<PAGE>



    The issue rating definitions are expressed in terms of default risk.  As
    such, they pertain to senior obligations of an entity.  Junior obligations
    are typically rated lower than senior obligations, to reflect the lower
    priority in bankruptcy, as noted above.  Accordingly, in the case of junior
    debt, the rating may not conform exactly with the category definition.


    AAA        An obligation rated 'AAA' has 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 obligor 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.

    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          A subordinated debt or preferred stock obligation rated 'C' is
               CURENTLY HIGHLY VULNERABLE to non-payment. The 'C' rating may be
               used to cover a situation where a bankruptcy petition has been
               filed or similar action taken, but payments on this obligation
               are being continued. A 'C' will also be assigned to a preferred
               stock issue in arrears on dividends or sinking fund payments, but
               that is currently paying.



    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.

                                      51
<PAGE>

   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.


   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 obligation as a matter of policy.


   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.

Short-Term Issue Credit 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 obligations in higher rating categories. However, the
          obligor's capacity to meet its financial commitment on the obligation
          is satisfactory.

   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.

Local Currency and Foreign Currency Risks

   Country risks considerations are a standard part of Standard & Poor's
   analysis for credit ratings on any issuer or issue. Currency of repayment is
   a key factor in this analysis. An obligor's capacity to repay foreign
   currency obligations may be lower than its capacity to repay obligations in
   its local currency due to the sovereign government's own relatively lower
   capacity to repay external versus domestic debt. These sovereign risk
   considerations are incorporated in the debt ratings assigned to specific
   issues. Foreign currency issuer ratings are also distinguished from local
   currency issuer ratings to identity those instances where sovereign risks
   make them different for the same issuer.



                                      52
<PAGE>

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
AA-       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 for
BBB-      prudent investment.  Considerable variability in risk during
          economic cycles.

BB+/BB/   Below investment grade but deemed likely to meet obligations when
BB-       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
          met 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.

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.

                                      53
<PAGE>

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 of 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         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.

BBB       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.

                                      54
<PAGE>


DDD,DD,D  Default. The ratings of obligations in this category are based on
          their prospects for achieving partial or full recovery in a
          reorganization or liquidation of the obligor. While expected recovery
          values are highly speculative and cannot be estimated with any
          precision, the following serve as general guidelines. "DDD"
          obligations have the highest potential for recovery, around 90%-100%
          of outstanding amounts and accrued interest. "D" indicates potential
          recoveries in the range of 50%-90%, and "D" the lowest recovery
          potential, i.e., below 50%. Entities rated in this category have
          defaulted on some or all of their obligations. Entities rated "DDD"
          have the highest prospect for resumption of performance or continued
          operation with or without a formal reorganization process. Entities
          rated "DD" and "D" are generally undergoing a formal reorganization or
          liquidation process; those rated "DD" are likely to satisfy a higher
          portion of their outstanding obligations, while entities rated "D"
          have a poor prospect for repaying all obligations.




International Short-Term Credit Ratings

   F1     Highest credit quality. Indicates the Best 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.


   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. Rating Alert is typically resolved over a
   relatively short period.


Comparative Benchmarks


(alphabetically)



                                      55
<PAGE>

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.

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.

Donoghue's Money Fund Average -- is an average of all major money market fund
yields, published weekly for 7 and 30-day yields.

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.


Financial publications: Business Week, Changing Times, Financial World, Forbes,
Fortune, Money, Barron's, Consumer's Digest, Financial Times, Global Investor,
Investor's Daily, Lipper, Inc., Morningstar, Inc., The New York Times, Personal
Investor, The Wall Street Journal and Weisenberger Investment Companies
Service --publications that rate fund performance over specified time periods.



Historical data supplied by the research departments of First Boston
Corporation, J.P. Morgan & Co, Inc., Salomon Smith Barney, Merrill Lynch & Co.,
Inc., Lehman Brothers, Inc. and Bloomberg L.P.


IBC's Money Fund Average/All Taxable Index - an average of all major money
market fund yields, published weekly for 7- and 30-day yields.

IFC Investable Composite Index - an unmanaged market capitalization-weighted
index maintained by the International Finance Corporation. This index consists
of over 890 companies in 26 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.

Lehman Brothers Indices:
- ------------------------

Lehman Brothers Aggregate Bond Index - an unmanaged fixed income market value-
weighted index that combines the Lehman Government/Corporate Index and the
Lehman Mortgage-Backed Securities Index, and includes treasury issues, agency
issues, corporate bond issues and mortgage backed securities. It includes fixed
rate issuers of investment grade (BBB) or higher, with maturities of at least
one year and outstanding par values of at least $100 million for U.S. government
issues and $25 million for others.

Lehman Brothers Corporate Bond Index - an unmanaged index of all publicly
issued, fixed-rate, nonconvertible investment grade domestic corporate debt.
Also included are yankee bonds, which are dollar-denominated SEC registered
public, noncovertible debt issued or guaranteed by foreign sovereign
governments, municipalities, or governmental agencies, or international
agencies.

Lehman Brothers Government Bond Index -an unmanaged treasury bond index
including all public obligations of the U.S. Treasury, excluding flower bonds
and foreign-targeted issues, and the Agency Bond Index (all publicly issued debt
of U.S. government agencies and quasi-federal corporations, and corporate debt
guaranteed by the U.S. government). In addition to the aggregate index, sub-
indices cover intermediate and long term issues.

Lehman Brothers Government/Corporate Bond Index -- an unmanaged fixed income
market value-weighted index that combines the Government and Corporate Bond
Indices, including U.S. government treasury securities, corporate and yankee
bonds. All issues are investment grade (BBB) or higher, with maturities of at
least one year and outstanding par value of at least $100 million of 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.



                                      56
<PAGE>



  Lehman Brothers High Yield Bond Index - an unmanaged index of fixed rate, non-
  investment grade debt. All bonds included in the index are dollar denominated,
  noncovertible, have at least one year remaining to maturity and an outstanding
  par value of at least $100 million.

  Lehman Brothers Intermediate Government/Corporate Index - an unmanaged fixed
  income, market value-weighted index that combines the Lehman Brothers
  Government Bond Index (intermediate-term sub-index) and four corporate bond
  sectors.

  Lehman Brothers Mortgage-Backed Securities Index - an unmanaged index of all
  fixed-rate securities backed by mortgage pools of Government National Mortgage
  Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC),  and
  Federal National Mortgage Associateion (FNMA).

  Lipper, Inc./Lipper Indices/Lipper Averages
  -------------------------------------------

  The Lipper Indices are equally weighted indices for typically the 30 largest
  mutual funds within their respective portfolio investment objectives.  The
  indices are currently grouped in six categories:  U.S. Diversified Equity with
  12 indices; Equity with 27 indices, Taxable Fixed-Income with 20 indices, Tax-
  Exempt Fixed-Income with 28 indices, Closed-End Funds with 16 indices, and
  Variable Annuity Funds with 18 indices.

  In September, 1999, Lipper, Inc. introduced its new portfolio-based mutual
  fund classification method in which peer comparisons are based upon
  characteristics of the specific stocks in the underlying funds, rather than
  upon a broader investment objective stated in a prospectus.  Certain of
  Lipper, Inc.'s classifications for general equity funds' investment objectives
  were changed while other equity objectives remain unchanged.  Changing
  investment objectives include Capital Appreciation Funds, Growth Funds, Mid-
  Cap Funds, Small-Cap Funds, Micro-Cap Funds, Growth & Income Funds, and Equity
  Income Funds.  Unchanged investment objectives include Sector Equity Funds,
  World Equity  Funds, Mixed Equity Funds, and certain other funds including all
  Fixed Income Funds and S&P(R) Index Funds.

  Criteria for the Lipper Indices are:  1) component funds are largest in group;
  2) number of component funds remains the same (30);  3) component funds are
  defined annually;  4) can be linked historically; and  5) are used as a
  benchmark for fund performance.

  Criteria for the Lipper Averages are:  1) includes all funds in the group in
  existence for the period;  2) number of component funds always changes;  3)
  universes are dynamic due to revisions for new funds, mergers, liquidations,
  etc.; and  4) will be inaccurate if historical averages are linked.

  Certain Lipper, Inc. indices/averages used by the UAM Funds may include, but
  are not limited to, the following:

  Lipper Short-Intermediate Investment Grade Debt Funds Average -- is an average
  of 100 funds that invest at least 65% of assets in investment grade debt
  issues (BBB or higher) with dollar-weighted average maturities of one to five
  years or less.  (Taxable Fixed-Income category)

  Lipper Balanced Fund Index - an unmanaged index of open-end equity funds whose
  primary objective is to conserve principal by maintaining at all times a
  balanced portfolio of both stocks and bonds.  Typically, the stock/bond ratio
  ranges around 60%/40%.  (Equity category)

  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.  (Equity category)

  Lipper Equity Mid Cap Fund Index - an unmanaged index of funds that by
  prospectus or portfolio practice invest primarily in companies with market
  capitalizations less than $5 billion at the time of purchase.  (Equity
  category)

  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.  (Equity
  category)

  Lipper Growth Fund Index - an unmanaged index composed of the 30 largest funds
  by asset size which invest in companies with long-term earnings expected to
  grow significantly faster than the earnings of the stocks represented in the
  major unmanaged stock indices.  (Equity category)



                                      57
<PAGE>



  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.



  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 (BBB or higher).



  Merrill Lynch 1-3 Year Treasury Index - an unmanaged index composed of U.S.
  treasury securities with maturities from 1 to 3 years.



  Morgan Stanley Capital International EAFE Index -- 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.

  Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
  yield, risk and total return for equity funds.

  NASDAQ Composite Index -- is a market capitalization, price only, unmanaged
  index that tracks the performance of domestic common stocks traded on the
  regular NASDAQ market as well as national market System traded foreign common
  stocks and ADRs.



  Nekkei Stock Average - a price weighted index of 225 selected leading stocks
  listed on the First Section of the Tokyo Stock Exchange.



  New York Stock Exchange composite or component indices -- capitalization-
  weighted unmanaged indices of all industrial, utilities, transportation and
  finance stocks listed on the New York Stock Exchange.



  Russell U.S. Equity Indexes:
  ----------------------------

  Russell 3000(R) Index - measures the performance of the 3,000 largest U.S.
  companies based on total market capitalization, which represents approximately
  98% of the investable U.S. equity market.

  Russell 1000(R) Index - an unmanaged index which measures the performance of
  the 1,000 largest companies in the Russell 3000 Index, which represents
  approximately 92% of the total market capitalization of the Russell 3000
  Index.

  Russell 2000(R) Index -- an unmanaged index which measures the performance of
  the 2,000 smallest companies in the Russell 3000 Index, which represents
  approximately 8% of the total market capitalization of the Russell 3000 Index.

  Russell Top 200(TM) Index - measures the performance of the 200 largest
  companies in the Russell 1000 Index, which represents approximately 74% of the
  total market capitalization of the Russell 1000 Index.

  Russell Mid-Cap(TM) Index -- measures the performance of the 800 smallest
  companies in the Russell 1000 Index, which represents approximately 26% of the
  total market capitalization of the Russell 1000 Index.

  Russell 2500(TM) Index - an unmanaged index which measures the performance of
  the 2,5000 smallest companies in the Russell 3000 Index, which represents
  approximately 17% of the total market capitalization of the Russell 3000
  Index.

  Russell 3000(R) Growth Index - measures the performance of those Russell 3000
  Index companies with higher price-to-book ratios and higher forecasted growth
  values.  The stocks in this index are also members of either the Russell 1000
  Growth or the Russell 2000 Growth indexes.



                                      58
<PAGE>



  Russell 3000(R) Value Index - measures the performance of those Russell 3000
  Index companies with lower price-to-book ratios and lower forecasted growth
  values.  The stocks in this index are also members of either the Russell 1000
  Value or the Russell 2000 Value indexes.

  Russell 1000(R) Growth Index - measures the performance of those Russell 1000
  companies with higher price-to-book ratios and higher forecasted growth
  values.

  Russell 1000(R) Value Index - measures the performance of those Russell 1000
  with lower price-to-book ratios and lower forecasted growth values.

  Russell 2000(R) Growth Index - measures the performance of  those Russell 2000
  companies with higher price-to-book ratios and higher forecasted growth
  values.

  Russell 2000(R) Value Index - measures the performance of those Russell 2000
  companies with lower price-to-book ratios and lower forecasted growth values.

  Russell Top 200(TM) Growth Index - measures the performance of those Russell
  Top 200 companies with higher price-to-book ratios and higher forecasted
  growth values.  The stocks re also members of the Russell 1000 Growth index.

  Russell Top 200(TM) Value Index - measures the performance of those Russell
  Top 200 companies with lower price-to-book ratios and lower forecasted growth
  values.  The stocks are also members of the Russell 1000 Value index.

  Russell Midcap(TM) Growth Index - measures the performance of those Russell
  Midcap companies with higher price-to-book ratios and higher forecasted growth
  values.  The stocks are also members of the Russell 1000 Growth index.

  Russell Midcap(TM) Value Index - measures the performance of those Russell
  Midcap companies with lower price-to-book ratios and lower forecasted growth
  values.  The stocks are also members of the Russell 1000 Value index.

  Russell 2500(TM) Growth Index - measures the performance of those Russell 2500
  companies with higher price-to-book ratios and higher forecasted growth
  values.

  Russell 2500(TM) Value Index - measures the performance of those Russell 2500
  companies with lower price-to-book ratios and lower forecasted growth values.

  Ryan Labs 5 Year GIC Master Index  - an arithmetic mean of market rates of $1
  million GIC contracts held for five years.  The market rates are
  representative of a diversified, investment grade portfolio of contracts
  issued by credit worthy insurance companies.  The index is unmanaged and does
  not reflect any transaction costs.  Direct investment in the index is not
  possible.

  Standard & Poor's U.S. Indices:
  -------------------------------

  In October, 1999,  Standard & Poor's and Morgan Stanley Capital International
  launched a new global industry classification standard consisting of 10
  economic sectors aggregated from 23 industry groups, 59 industries, and 123
  sub-industries covering almost 6,000 companies globally.  The new
  classification standard will be used with all of their respective indices.
  Features of the new classification include 10 economic sectors, rather than
  the 11 S&P currently uses.  Sector and industry gradations are less severe.
  Rather than jumping from 11 sectors to 115 industries under the former S&P
  system, the new system progresses from 10 sectors through 23 industry groups,
  50 industries and 123 sub-industries.

  S&P 500 Index - an unmanaged index composed of 400 industrial stocks, 40
  financial stocks, 40 utilities stocks and 20 transportation stocks. Widely
  regarded as the standard for  measuring large-cap U.S. stock market
  performance. It is used by 97% of U.S. money managers and pension plan
  sponsors. More than $1 trillion is indexed to the S&P 500.

  S&P MidCap 400 Index -- consists of 400 domestic stocks chosen for market
  size, liquidity, and industry group representation.  It is a market-value
  weighted index with each stock affecting the index in proportion to its market
  value. It is used by over 95% of U.S. managers and pension plan sponsors. More
  than $25 billion is indexed to the S&P Midcap400.

  S&P Small Cap 600 Index - an unmanaged index comprised of 600 domestic stocks
  chosen for market size, liquidity, and industry group representation.  The
  index is comprised of stocks from the industrial, utility, financial, and
  transportation sectors.  It is gaining wide acceptance as the preferred
  benchmark for both active and passive management due to its low turnover and
  greater liquidity.  Approximately $8 billion is indexed to the S&P SmallCap
  600.



                                      59
<PAGE>



  S&P SuperComposite 1500 - combines the S&P 500, MidCap 400, and SmallCap 600
  indices, representing 87% of the total U.S. equity market capitalization.

  S&P 100 Index - known by its ticker symbol OEX, this index measures large
  company U.S. stock market performance.  This market capitalization-weighted
  index is made up of 100 major, blue chip stocks across diverse industry
  groups.

  S&P/BARRA Growth and Value Indices - are constructed by dividing the
  securities in the S&P 500 Index according to price-to-book ratio.  The Value
  index contains the companies with the lower price-to-book ratios; while the
  companies with the higher price-to-book ratios are contained in the Growth
  index.

  S&P REIT Composite Index - launched in 1997, this benchmark tracks the market
  performance of U.S. Real Estate Investment Trusts, known as REITS.  The REIT
  Composite consists of 100 REITs chosen for their liquidity and importance in
  representing a diversified real estate portfolio.  The Index covers over 80%
  of the securitized U.S. real estate market.

  S&P Utilities Stock Price Index - a market capitalization weighted index
  representing three utility groups and, with the three groups, 43 of the
  largest utility companies listed on the New York Stock Exchange, including 23
  electric power companies, 12 natural gas distributors and 8 telephone
  companies.

  Standard & Poor's CANADA Indices:
  ---------------------------------

  S&P/TSE Canadian MidCap Index - measures the performance of the mid-size
  company segment of the Canadian equity market.

  S&P/TSE Canadian SmallCap Index - Measures the small company segment of the
  Canadian equity market.

  Standard & Poor's Global Indices:
  ---------------------------------

  S&P Global 1200 Index - aims to provide investors with an investable
  portfolio.  This index, which covers 29 countries and consists of seven
  regional components, offers global investors an easily accessible, tradable
  set of stocks and particularly suits the new generation of index products,
  such as exchange-traded funds (ETFs).

  S&P Euro  and S&P Euro Plus Indices - the S&P Euro Index covers the Eurobloc
  countries; the Euro Plus Index includes the Euro markets as well as Denmark,
  Norway, Sweden and Switzerland.  The S&P Euro Plus Index contains 200
  constituents, and the S&P Euro Index, a subset of Euro Plus, contains 160
  constituents.  Both indices provide geographic and economic diversity over 11
  industry sectors.

  S&P/TSE 60 Index  - developed with the Toronto Stock Exchange, is designed as
  the new Canadian large cap benchmark and will ultimately replace the Toronto
  35 and the TSE 100.

  S&P/TOPIX 150 -  includes 150 highly liquid securities selected from each
  major sector of the Tokyo market. It  is designed specifically to give
  portfolio managers and derivative traders an index that is broad enough to
  provide representation of the market, but narrow enough to ensure liquidity.

  S&P Asia Pacific 100 Index - includes highly liquid securities from each major
  economic sector of major Asia-Pacific equity markets. Seven countries --
  Australia, Hong Kong, Korea, Malaysia, New Zealand, Singapore, and Taiwan --
  are represented in the new index.

  S&P Latin America 40 Index -part of the S&P Global 1200 Index, includes highly
  liquid securities from major economic sectors of Mexican and South American
  equity markets. Companies from Mexico, Brazil, Argentina, and Chile are
  represented in the new index.

  S&P United Kingdom 150 Index - includes 150 highly liquid securities selected
  from each of the new S&P sectors. The S&P UK 150 is designed to be broad
  enough to provide representation of the market, but narrow enough to ensure
  liquidity.



  Salomon Smith Barney Global excluding U.S. Equity Index - an unmanaged index
  comprised of the smallest stocks (less than $1 billion market capitalization)
  of the Extended Market Index, of both developed and emerging markets.

  Salomon Smith Barney One to Three Year Treasury Index - an unmanaged index
  comprised of U.S. treasury notes and bonds with maturities of one year or
  greater, but less than three years.

                                      60
<PAGE>

  Salomon Smith Barney Three-Month T-Bill Average -- the average for all
  treasury bills for the previous three-month period.

  Salomon Smith Barney Three-Month U.S. Treasury Bill Index - a return
  equivalent yield average based on the last three 3-month Treasury bill issues.

  Savings and Loan Historical Interest Rates -- as published by the U.S. Savings
  and Loan League Fact Book.

  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.



  Target Large Company Value Index - an index comprised of large companies with
  market capitalizations currently extending down to approximately $1.9 billion
  that are monitored using a variety of relative value criteria in order to
  capture the most attractive value opportunities available.  A high quality
  profile is required and companies undergoing adverse financial pressures are
  eliminated.



  U.S. Three-Month Treasury Bill Average - the average return for all treasury
  bills for the previous three month period.



  Value Line Composite Index -- composed of over 1,600 stocks in the Value Line
  Investment Survey.



  Wilshire Real Estate Securities Index - a market capitalization-weighted index
  of publicly traded real estate securities, including real estate investment
  trusts, real estate operating companies and partnerships.  The index is used
  by the institutional investment community as a broad measure of the
  performance of public real estate equity for asset allocation and performance
  comparison.

  Wilshire REIT Index - includes 112 real estate investment trusts (REITs) but
  excludes seven real estate operating companies that are included in the
  Wilshire Real Estate Securities Index.

  Note:  With respect to the comparative measures of performance for equity
  securities described herein, comparisons of performance assume reinvestment of
  dividends, except as otherwise stated.

                                      61
<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



                        Statement of Additional Information
                                February 28, 2000







This statement of additional information (SAI) is not a prospectus. However, you
should read it in conjunction with the prospectus of the portfolios dated
February 28, 2000, as supplemented from time to time. You may obtain a
prospectus for the portfolios by contacting the UAM Funds at the address listed
above.
<PAGE>

<TABLE>
<CAPTION>
Table Of Contents
<S>                                                                                                                      <C>
Description of Permitted Investments.................................................................................     1
   What Investment Strategies May the Portfolios Use?................................................................     1
   Debt Securities...................................................................................................     2
   Derivatives.......................................................................................................     9
   Equity Securities.................................................................................................    17
   Foreign Securities................................................................................................    19
   Investment Companies..............................................................................................    22
   Repurchase Agreements.............................................................................................    23
   Restricted Securities.............................................................................................    23
   Securities Lending................................................................................................    23
   When Issued Transactions..........................................................................................    24
Investment Policies of the Portfolios................................................................................    24
   Fundamental Policies..............................................................................................    24
   Non-Fundamental Policies..........................................................................................    26
Management Of The Fund...............................................................................................    27
Principal Shareholders...............................................................................................    28
Investment Advisory and Other Services...............................................................................    29
   Investment Adviser................................................................................................    29
   Distributor.......................................................................................................    31
   Shareholder Servicing Arrangements................................................................................    31
   Administrative Services...........................................................................................    32
   Custodian.........................................................................................................    33
   Independent Accountants...........................................................................................    33
Brokerage Allocation and Other Practices.............................................................................    34
   Selection of Brokers..............................................................................................    34
   Simultaneous Transactions.........................................................................................    34
   Brokerage Commissions.............................................................................................    34
Capital Stock and Other Securities...................................................................................    35
   Description Of Shares And Voting Rights...........................................................................    35
Purchase, Redemption and Pricing of Shares...........................................................................    36
   Net Asset Value Per Share.........................................................................................    36
   Purchase of Shares................................................................................................    37
   Redemption of Shares..............................................................................................    38
   Exchange Privilege................................................................................................    40
   Transfer Of Shares................................................................................................    40
Performance Calculations.............................................................................................    40
   Total Return......................................................................................................    41
   Yield.............................................................................................................    41
   Comparisons.......................................................................................................    42
Financial Statements.................................................................................................    42
Glossary.............................................................................................................    43
Bond Ratings.........................................................................................................    43
   Moody's Investors Service, Inc....................................................................................    43
   Standard & Poor's Ratings Services................................................................................    46
   Duff & Phelps Credit Rating Co....................................................................................    48
   Fitch IBCA Ratings................................................................................................    49
Comparative Benchmarks...............................................................................................    51
</TABLE>
<PAGE>


DESCRIPTION OF PERMITTED INVESTMENTS

What Investment Strategies May the Portfolios Use?
- --------------------------------------------------------------------------------

     The portfolios currently intend to use the securities and investment
     strategies listed below in seeking their objectives; however, they may at
     any time invest in any of the investment strategies described in this SAI.
     This SAI describes each of these investments/strategies and their risks. A
     portfolio may not notify shareholders before employing new strategies,
     unless it expects such strategies to become principal strategies. The
     investments that are italicized are principal strategies and you can find
     more information on these techniques in the prospectus of the portfolio.
     You can find more information concerning the limits on the ability of the
     portfolios to use these investments in "What Are the Investment Policies of
     the Portfolios?"


Equity Portfolio

     .    Equity securities.

     .    Short-term investments.

     .    Futures.

     .    Options.

     .    Investment companies.

     .    Repurchase agreements.

     .    Restricted securities.

     .    Securities lending.

     .    When issued securities.


Small Cap Value Portfolio

     .    Equity securities.

     .    Short-term investments.

     .    Futures.

     .    Options.

     .    Investment companies.

     .    Repurchase agreements.

     .    Restricted securities.

     .    Securities lending.

     .    When issued securities.


Balanced Portfolio

     .    Equity securities.

     .    Debt securities.

     .    Futures.

                                       1
<PAGE>


     .    Options.

     .    Investment companies.

     .    Repurchase agreements.

     .    Restricted securities.

     .    Securities lending.

     .    When issued securities.


Debt Securities
- --------------------------------------------------------------------------------

     Corporations and governments use debt securities 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.


Types of Debt Securities

     U.S. Government Securities

     U.S. government securities are securities that the U.S. Treasury has issued
     (treasury securities) and securities that a federal agency or a
     government-sponsored entity has issued (agency securities). Treasury
     securities include treasury notes, which have initial maturities of one to
     ten years and treasury bonds, which have initial maturities of at least ten
     years and certain types of mortgage-backed securities that are described
     under "Mortgage-Backed Securities" and "Other Asset-Backed Securities."
     This SAI discusses mortgage-backed treasury and agency securities in detail
     in the section called "Mortgage-Backed Securities" and "Other Asset-Backed
     Securities."

     The full faith and credit of the U.S. government supports treasury
     securities. Unlike treasury securities, the full faith and credit of the
     U.S. government generally do not back agency securities. Agency securities
     are typically supported in one of three ways:

     .    by the right of the issuer to borrow from the U.S. Treasury;

     .    by the discretionary authority of the U.S. government to buy the
          obligations of the agency; or

     .    by the credit of the sponsoring agency.

     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

     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.


     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. Unlike most debt securities, which pay
     interest periodically and repay principal at maturity or on specified call
     dates, mortgage-backed securities make monthly

                                       2
<PAGE>


     payments that consist of both interest and principal payments. In effect,
     these payments are a "pass-through" of the monthly payments made by the
     individual borrowers on their mortgage loans, net of any fees paid to the
     issuer or guarantor of such securities. Since homeowners usually have the
     option of paying either part or all of the loan balance before maturity,
     the effective maturity of a mortgage-backed security is often shorter than
     is stated.

     Governmental entities, private insurers and the mortgage poolers may insure
     or guarantee 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. 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 is the principal governmental guarantor of mortgage-related
     securities. GNMA is a wholly owned corporation of the U.S. government and
     it falls within the Department of Housing and Urban Development. Securities
     issued by GNMA are treasury securities, which means the full faith and
     credit of the U.S. government backs them. GNMA 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 a portfolio's 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 is regulated by the Secretary of Housing and Urban
     development. FNMA purchases conventional mortgages from a list of approved
     sellers and service providers, including state and federally-chartered
     savings and loan associations, mutual savings banks, commercial banks and
     credit unions and mortgage bankers. Securities issued by FNMA are agency
     securities, which means FNMA, but not the U.S. government, guarantees their
     timely payment of principal and interest.

     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. 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

                                       3
<PAGE>

     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.

     Risks of Mortgage-Backed Securities

     Yield characteristics of mortgage-backed securities differ from those of
     traditional debt securities in a variety of ways, the most significant
     differences are mortgage-backed securities:

     .    payments of interest and principal are more frequent (usually
          monthly); and

     .    falling interest rates generally cause individual borrowers to pay off
          their mortgage earlier than expected forcing a portfolio to reinvest
          the money at a lower interest rate.

     In addition to risks associated with changes in interest rates described in
     "Factors Affecting the Value of Debt Securities," a variety of economic,
     geographic, social and other factors, such as the sale of the underlying
     property, refinancing or foreclosure, can cause investors to repay the
     loans underlying a mortgage-backed security 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.


     Other Asset-Backed Securities

     These securities are interests in pools of a broad range of assets other
     than mortgages, such as automobile loans, computer leases and credit card
     receivables. Like mortgage-backed securities, these securities are
     pass-through. 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 related
     asset-backed securities. Due to the quantity of vehicles involved and
     requirements under state laws, 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

                                       4
<PAGE>

     assets, the coupon rates on the securities, prevailing interest rates, the
     amount of administrative expenses and the actual prepayment experience on
     the underlying assets.



     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 prepay
     principal monthly. While whole mortgage loans may collateralize CMOs,
     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.


     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 securities listed below, U.S. government
     securities and investment-grade corporate debt securities. Unless otherwise
     specified, a short-term debt security has a maturity of one year or less.

     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 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. 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).

                                       5
<PAGE>


     Commercial Paper

     Commercial paper is a short-term obligation with a maturity ranging from 1
     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 "Bond Ratings" for a
     description of commercial paper ratings.


     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 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 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 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.

                                       6
<PAGE>

     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.


Terms to Understand

     Maturity

     Every debt security has a stated maturity date when the issuer must repay
     the amount it borrowed (principal) from investors. Some debt securities,
     however, are callable, meaning the issuer can repay the principal earlier,
     on or after specified dates (call dates). Debt securities are most likely
     to be called when interest rates are falling because the issuer can
     refinance at a lower rate, similar to a homeowner refinancing a mortgage.
     The effective maturity of a debt security is usually its nearest call date.

     A portfolio that invests in debt securities has no real maturity. Instead,
     it calculates its weighted average maturity. This number is an average of
     the stated maturity of each debt security held by a portfolio, with the
     maturity of each security weighted by the percentage of the assets of the
     portfolio it represents.


     Duration

     Duration is a calculation that seeks to measure the price sensitivity of a
     debt security, or a portfolio that invests in debt securities, to changes
     in interest rates. It measures sensitivity more accurately than maturity
     because it takes into account the time value of cash flows generated over
     the life of a debt security. Future interest payments and principal
     payments are discounted to reflect their present value and then are
     multiplied by the number of years they will be received to produce a value
     expressed in years -- the duration. Effective duration takes into account
     call features and sinking fund prepayments that may shorten the life of a
     debt security.

     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.


Factors Affecting the Value of Debt 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).

                                       7
<PAGE>

     Prepayment Risk

     This risk effects mainly mortgage-backed securities. Unlike other debt
     securities, falling interest rates can hurt mortgage-backed securities,
     which may cause your share price to fall. Lower rates motivate people to
     pay off mortgage-backed and asset-backed securities earlier than expected.
     A portfolio may then have to reinvest the proceeds from such prepayments at
     lower interest rates, which can reduce its yield. 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 a portfolio. If
     left unattended, drifts in the average maturity of a portfolio can have the
     unintended effect of increasing or reducing the effective duration of the
     portfolio, which may adversely affect the expected performance of the
     portfolio.

     Extension Risk

     The other side of prepayment risk occurs when interest rates are rising.
     Rising interest rates can cause a portfolio's average maturity to lengthen
     unexpectedly due to a drop in mortgage prepayments. This would increase the
     sensitivity of a portfolio to rising rates and its potential for price
     declines. 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.


     Credit Rating

     Coupon interest is offered to investors of debt securities as compensation
     for assuming risk, although short-term Treasury securities, such as 3-month
     treasury bills, are considered "risk free." Corporate securities offer
     higher yields than Treasury securities 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 Treasury securities.

     Changes in investor confidence regarding the certainty of interest and
     principal payments of a corporate debt 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.

     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.

     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 Moody's Investor
     Services ("Moody's"), Standard and Poor's Ratings Services ("S&P"), Duff &
     Phelps Rating Co. and Fitch IBCA. Credit ratings are only an agency's
     opinion, not an absolute standard of quality, and they do not reflect an
     evaluation of market risk.

                                       8
<PAGE>


     The section "Bond Ratings" 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.


DERIVATIVES
- --------------------------------------------------------------------------------

     Derivatives are financial instruments whose value is based on an underlying
     asset, such as a stock or a bond, an underlying economic factor, such as an
     interest rate or a market benchmark, such as an index. Investors can use
     derivatives to gain exposure to various markets in a cost efficient manner,
     to reduce transaction costs or to remain fully invested. They may also
     invest in derivatives to protect it 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.


Types of Derivatives


     Futures

     A futures contract is an agreement between two parties whereby one party
     sells and the other party agrees to buy a specified amount of a financial
     instrument at an agreed upon price and time. The financial instrument
     underlying the contract may be a stock, stock index, bond, bond index,
     interest rate, foreign exchange rate or other similar instrument. Agreeing
     to buy the underlying financial information is called buying a futures
     contract or taking a long position in the contract. Likewise, agreeing to
     sell the underlying financial instrument is called selling a futures
     contract or taking a short position in the contract.

     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.

     Unlike other securities, the parties to a futures contract do not have to
     pay for or deliver the underlying financial instrument until some future
     date (the delivery date). 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. This process is known as "marking to the market."

     Although the actual terms of a futures contract calls for the actual
     delivery of and payment for the underlying security, in many cases the
     parties may close the contract early by taking an opposite position in an
     identical contract. If the sale price upon closing out the contract is less
     than the original purchase price, the person closing out the contract will
     realize a loss. If the sale price upon closing out the contract is more
     that the original purchase price, the person closing out the contract will
     realize a gain. The opposite is also true. If the purchase price upon
     closing out the contract is more than

                                       9
<PAGE>


     the original sale price, the person closing out the contract will realize a
     loss. If the purchase price upon closing out the contract is less than the
     original sale price, the person closing out the contract will realize a
     gain.

     The portfolio will incur commission expenses in either opening, closing or
     possibly opening and closing futures positions.


     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 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.

                                      10
<PAGE>


     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 and segregating cash or liquid securities in an amount equal to
          the difference between the exercise prices;

     .    Cash or liquid securities equal to at least the market value of the
          optioned securities, interest rate, foreign currency or futures
          contract; or

     .    In 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;

     .    Purchasing a put option on the same security, index, interest rate,
          foreign currency or futures contract with a lesser exercise price and
          segregating cash or liquid securities in an amount equal to the
          difference between the exercise prices; or

     .    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

                                      11
<PAGE>

     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 the 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.


     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:

                                      12
<PAGE>


     .    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 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 the
     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. The 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.

     The portfolio may 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. The 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 the 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.

     The 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 the
     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, the 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,
     the 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.


     Swaps, Caps, Collars and Floors


     Swap Agreements

     A swap is a financial instrument that typically involves the exchange of
     cash flows between two parties on specified dates (settlement dates), where
     the cash flows are based on agreed-upon prices, rates, indices, etc. The
     nominal amount

                                      13
<PAGE>


     on which the cash flows are calculated is called the notional amount. Swaps
     are individually negotiated and structured to include exposure to a variety
     of different types of investments or market factors, such as interest
     rates, foreign currency rates, mortgage securities, corporate borrowing
     rates, security prices or inflation rates.

     Swap agreements may increase or decrease the overall volatility of the
     investments of the portfolio and its share price. The performance of swap
     agreements may be affected by a change in the specific interest rate,
     currency, or other factors that determine the amounts of payments due to
     and from the portfolio. If a swap agreement calls for payments by the
     portfolio, the portfolio must be prepared to make such payments when due.
     In addition, if the counter-party's creditworthiness declined, the value of
     a swap agreement would be likely to decline, potentially resulting in
     losses.

     Generally, swap agreements have a fixed maturity date that will be agreed
     upon by the parties. The agreement can be terminated before the maturity
     date only under limited circumstances, such as default by one of the
     parties or insolvency, among others, and can be transferred by a party only
     with the prior written consent of the other party. The portfolio may be
     able to eliminate its exposure under a swap agreement either by assignment
     or by other disposition, or by entering into an offsetting swap agreement
     with the same party or a similarly creditworthy party. If the counter-party
     is unable to meet its obligations under the contract, declares bankruptcy,
     defaults or becomes insolvent, the portfolio may not be able to recover the
     money it expected to receive under the contract.

     A swap agreement can be a form of leverage, which can magnify a portfolio's
     gains or losses. In order to reduce the risk associated with leveraging, a
     portfolio will cover its current obligations under swap agreements
     according to guidelines established by the SEC. If the portfolio enters
     into a swap agreement on a net basis, it will segregate assets with a daily
     value at least equal to the excess, if any, of the portfolio's accrued
     obligations under the swap agreement over the accrued amount the portfolio
     is entitled to receive under the agreement. If the portfolio enters into a
     swap agreement on other than a net basis, it will segregate assets with a
     value equal to the full amount of the portfolio's accrued obligations under
     the agreement.

     Equity Swaps -- In a typical equity index swap, one party agrees to pay
     another party the return on a stock, stock index or basket of stocks in
     return for a specified interest rate. By entering into an equity index
     swap, for example, the index receiver can gain exposure to stocks making up
     the index of securities without actually purchasing those stocks. Equity
     index swaps involve not only the risk associated with investment in the
     securities represented in the index, but also the risk that the performance
     of such securities, including dividends, will not exceed the return on the
     interest rate that the portfolio will be committed to pay.

     Interest Rate Swaps -- Interest rate swaps are financial instruments that
     involve the exchange on one type of interest rate for another type of
     interest rate cash flow on specified dates in the future. Some of the
     different types of interest rate swaps are "fixed-for floating rate swaps,"
     "termed basis swaps" and "index amortizing swaps." Fixed-for floating rate
     swap involve the exchange of fixed interest rate cash flows for floating
     rate cash flows. Termed basis swaps entail cash flows to both parties based
     on floating interest rates, where the interest rate indices are different.
     Index amortizing swaps are typically fixed-for floating swaps where the
     notional amount changes if certain conditions are met.

     Like a traditional investment in a debt security, a portfolio could lose
     money by investing in an interest rate swap if interest rates change
     adversely. For example, if the portfolio enters into a swap where it agrees
     to exchange a floating rate of interest for a fixed rate of interest, the
     portfolio may have to pay more money than it receives. Similarly, if the
     portfolio enters into a swap where it agrees to exchange a fixed rate of
     interest for a floating rate of interest, the portfolio may receive less
     money than it has agreed to pay.

     Currency Swaps -- A currency swap is an agreement between two parties in
     which one party agrees to make interest rate payments in one currency and
     the other promises to make interest rate payments in another currency. A
     portfolio may enter into a currency swap when it has one currency and
     desires a different currency. Typically the interest rates that determine
     the currency swap payments are fixed, although occasionally one or both
     parties may pay a floating rate of interest. Unlike an interest rate swap,
     however, the principal amounts are exchanged at the beginning of the
     contract and returned at the end of the contract. Changes in foreign
     exchange rates and changes in interest rates, as described above may
     negatively affect currency swaps.

                                      14
<PAGE>


     Caps, Collars and Floors

     Caps and floors have an effect similar to buying or writing options. In a
     typical cap or floor agreement, one party agrees to make payments only
     under specified circumstances, usually in return for payment of a fee by
     the other party. For example, the buyer of an interest rate cap obtains the
     right to receive payments to the extent that a specified interest rate
     exceeds an agreed-upon level. The seller of an interest rate floor is
     obligated to make payments to the extent that a specified interest rate
     falls below an agreed-upon level. An interest rate collar combines elements
     of buying a cap and selling a floor.


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.


     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 expected.

     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; and

     .    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-

                                      15
<PAGE>


     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. Moreover, a portfolio may close out a futures contract only on
     the exchange the contract was initially traded. Although a portfolio
     intends to purchase options and futures only where there appears to be an
     active market, there is no guarantee that such a liquid market will exist.
     If there is no secondary market for the contract, or the market is
     illiquid, the portfolio may not be able to close out its position. In an
     illiquid market, the portfolio may:

     .    have to sell securities to meet its daily margin requirements at a
          time when it is disadvantageous to do so;

     .    have to purchase or sell the instrument underlying the contract;

     .    not be able to hedge its investments; and

     .    not be able realize profits or limit 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:

     .    an exchange may suspend or limit trading in a particular derivative
          instrument, an entire category of derivatives or all derivatives,
          which sometimes occurs because of increased market volatility;

     .    unusual or unforeseen circumstances may interrupt normal operations of
          an exchange;

     .    the facilities of the exchange may not be adequate to handle current
          trading volume;

     .    equipment failures, government intervention, insolvency of a brokerage
          firm or clearing house or other occurrences may disrupt normal trading
          activity; or

     .    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.


     Volatility and Leverage

     The prices of derivatives are volatile (i.e., they may change rapidly,
     substantially and unpredictably) and are influenced by a variety of
     factors, including:

     .    actual and anticipated changes in interest rates;

     .    fiscal and monetary policies; and

                                      16
<PAGE>


     .    national and international political events.

     Most exchanges limit the amount by which the price of a derivative can
     change during a single trading day. Daily trading limits establish the
     maximum amount that the price of a derivative may vary from the settlement
     price of that derivative at the end of trading on the previous day. Once
     the price of a derivative reaches this value, a portfolio may not trade
     that derivative at a price beyond that limit. The daily limit governs only
     price movements during a given day and does not limit potential gains or
     losses. Derivative prices have occasionally moved to the daily limit for
     several consecutive trading days, preventing prompt liquidation of the
     derivative.

     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-dealer with whom it has an open futures
     contract or related option becomes insolvent or declares bankruptcy.


EQUITY SECURITIES
- --------------------------------------------------------------------------------

Types of Equity Securities


     Common Stocks

     Common stocks represent units of ownership in a company. Common stocks
     usually carry voting rights and earn dividends. Unlike preferred stocks,
     which are described below, dividends on common stocks are not fixed but are
     declared at the discretion of the company's board of directors.


     Preferred Stocks

     Preferred stocks are also units of ownership in a company. Preferred stocks
     normally have preference over common stock in the payment of dividends and
     the liquidation of the company. However, in all other respects, preferred
     stocks are subordinated to the liabilities of the issuer. Unlike common
     stocks, preferred stocks are generally not entitled to vote on corporate
     matters. Types of preferred stocks include adjustable-rate preferred stock,
     fixed dividend preferred stock, perpetual preferred stock, and sinking fund
     preferred stock. Generally, the market values of preferred stock with a
     fixed dividend rate and no conversion element varies inversely with
     interest rates and perceived credit risk.


     Convertible Securities

     Convertible securities are debt securities and preferred stocks that are
     convertible into common stock at a specified price or conversion ratio. 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. Their market price tends to go up if the stock price moves up.

     Convertible securities are subject to the same risks as similar securities
     without the convertible feature. The price of a convertible security is
     more volatile during times of steady interest rates than other types of
     debt securities.

                                      17
<PAGE>


     Rights and Warrants

     A right is a privilege granted to existing shareholders of a corporation to
     subscribe to shares of a new issue of common stock before it is issued.
     Rights normally have a short life, usually two to four weeks, are freely
     transferable and entitle the holder to buy the new common stock at a lower
     price than the public offering price. Warrants are securities that are
     usually issued together with a debt security or preferred stock and that
     give the holder the right to buy proportionate amount of common stock at a
     specified price. Warrants are freely transferable and are traded on major
     exchanges. Unlike rights, warrants normally have a life that is measured in
     years and entitles the holder to buy common stock of a company at a price
     that is usually higher than the market price at the time the warrant is
     issued. Corporations often issue warrants to make the accompanying debt
     security more attractive.

     An investment in warrants and rights may entail greater risks than certain
     other types of investments. Generally, rights and warrants do not carry 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. In addition, their value does not necessarily change with
     the value of the underlying securities, and they cease to have value if
     they are not exercised on or before their expiration date. Investing in
     rights and warrants increases the potential profit or loss to be realized
     from the investment as compared with investing the same amount in the
     underlying securities.


Risks of Investing in Equity Securities

     General Risks of Investing in Stocks

     While investing in stocks allows investors to participate in the benefits
     of owning a company, such investors 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.

     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; and

     .    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.

     Because preferred stock is generally 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.


     Small and Medium-Sized Companies

     Investors in small and medium-sized companies typically take on greater
     risk and price volatility than they would by investing in larger, more
     established companies. This increased risk may be due to the greater
     business risks of their small or medium size, limited markets and financial
     resources, narrow product lines and frequent lack of management depth. The
     securities of small and medium companies are often traded in the
     over-the-counter market and might not be traded in volumes typical of
     securities traded on a national securities exchange. Thus, the securities
     of small and medium capitalization companies are likely to be less liquid,
     and subject to more abrupt or erratic market movements, than securities of
     larger, more established companies.

                                      18
<PAGE>


     Technology Companies

     Stocks of technology companies have tended to be subject to greater
     volatility than securities of companies that are not dependent upon or
     associated with technological issues. Technology companies operate in
     various industries. Since these industries frequently share common
     characteristics, an event or issue affecting one industry may significantly
     influence other, related industries. For example, technology companies may
     be strongly affected by worldwide scientific or technological developments
     and their products and services may be subject to governmental regulation
     or adversely affected by governmental policies.


Foreign Securities
- --------------------------------------------------------------------------------

Types of Foreign Securities

     Foreign securities are debt and equity securities that are traded in
     markets outside of the United States. The markets in which these securities
     are located can be developed or emerging. People can invest in foreign
     securities in a number of ways:

     .    They can invest directly in foreign securities denominated in a
          foreign currency;

     .    They can invest in American Depositary Receipts, European Depositary
          Receipts and other similar global instruments; and

     .    They can invest in 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. EDRs are
     similar to ADRs, except that they are typically issued by European Banks or
     trust companies.


     Emerging Markets

     An "emerging country" is generally a country that 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 currently 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.


     Investment Funds

     Some emerging countries currently prohibit direct foreign investment in the
     securities of their companies. Certain emerging countries, however, permit
     indirect foreign investment in the securities of companies listed and
     traded on their stock exchanges through investment funds that they have
     specifically authorized. Investments in these investment funds are subject
     to the provisions of the 1940 Act. Shareholders of a UAM Fund that invests
     in such investment funds will bear not only their proportionate share of
     the expenses of the UAM Fund (including operating expenses and the fees of

                                      19
<PAGE>


     the adviser), but also will bear indirectly bear similar expenses of the
     underlying investment funds. In addition, these investment funds may trade
     at a premium over their net asset value.


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.


     Political and Economic Factors

     Local political, economic, regulatory, or social instability, military
     action or unrest, or adverse diplomatic developments may affect the value
     of foreign investments. Listed below are some of the more important
     political and economic factors that could negatively affect an investment
     in foreign securities:

     .    The economies of foreign countries may differ from the economy of the
          United States in such areas as growth of gross national product, rate
          of inflation, capital reinvestment, resource self-sufficiency, budget
          deficits and national debt;

     .    Foreign governments sometimes participate to a significant degree,
          through ownership interests or regulation, in their respective
          economies. Actions by these governments could significantly influence
          the market prices of securities and payment of dividends;

     .    The economies of many foreign countries are dependent on international
          trade and their trading partners and they could be severely affected
          if their trading partners were to enact protective trade barriers and
          economic conditions;

     .    The internal policies of a particular foreign country may be less
          stable than in the United States. Other countries face significant
          external political risks, such as possible claims of sovereignty by
          other countries or tense and sometimes hostile border clashes; and

     .    A foreign government may act adversely to the interests of U.S.
          investors, including expropriation or nationalization of assets,
          confiscatory taxation and other restrictions on U.S. investment. A
          country may restrict or control foreign investments in its securities
          markets. These restrictions could limit the portfolio's ability to
          invest in a particular country or make it very expensive for the
          portfolio to invest in that country. Some countries require prior
          governmental approval, limit the types or amount of securities or
          companies in which a foreigner can invest. Other countries may
          restrict the ability of foreign investors to repatriate their
          investment income and capital gains.


     Information and Supervision

     There is generally less publicly available information about foreign
     companies than companies based in the United States. For example, there are
     often no reports and ratings published about foreign companies comparable
     to the ones written about United States companies. Foreign companies are
     typically not subject to uniform accounting, auditing and financial
     reporting standards, practices and requirements comparable to those
     applicable to United States companies. The lack of comparable information
     makes investment decisions concerning foreign countries more difficult and
     less reliable than domestic companies.


     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 the
     markets in the United States. Foreign stocks markets tend to differ from
     those in the United States in a number of ways:

                                      20
<PAGE>


     .    They are generally not as developed or efficient as, and more
          volatile, than those in the United States;

     .    They have substantially less volume;

     .    Their securities tend to be less liquid and to experience rapid and
          erratic price movements;

     .    Commissions on foreign stocks are generally higher and subject to set
          minimum rates, as opposed to negotiated rates;

     .    Foreign security trading, settlement and custodial practices are often
          less developed than those in U.S. markets; and

     .    They may have different settlement practices, which may cause delays
          and increase the potential for failed settlements.


     Foreign Currency Risk

     While the UAM Funds denominate their net asset value in United States
     dollars, the securities of foreign companies are frequently denominated in
     foreign currencies. Thus, a change in the value of a foreign currency
     against the United States dollar will result in a corresponding change in
     value of securities denominated in that currency. Some of the factors that
     may impair the investments denominated in a foreign currency are:

     .    It may be expensive to convert foreign currencies into United States
          dollars and vice versa;

     .    Complex political and economic factors may significantly affect the
          values of various currencies, including United States dollars, and
          their 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 may be no systematic reporting of last sale information for
          foreign currencies or 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; and

     .    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.


     Taxes

     Certain foreign governments levy withholding taxes on dividend and interest
     income. Although in some countries it is possible for the portfolio to
     recover a portion of these taxes, the portion that cannot be recovered 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.


     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:

                                      21
<PAGE>


     .    Have relatively unstable governments;

     .    Present greater risks of nationalization of businesses, restrictions
          on foreign ownership and prohibitions on the repatriation of assets;

     .    Offer less protection of property rights than more developed
          countries; and

     .    Have economies that are 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.

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 began 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 became denominations of
     the Euro at fixed rates according to practices prescribed by the European
     Monetary Institute and the Euro became available as a book-entry currency.
     On or about that date, member states began conducting financial market
     transactions in Euros and redenominating many investments, currency
     balances and transfer mechanisms into Euros. The portfolio also anticipates
     pricing, trading, settling and valuing investments whose nominal values
     remain in their existing domestic currencies in Euros. Accordingly, the
     portfolio expects the conversion to the Euro to impact investments in
     countries that 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?


Investment Companies
- --------------------------------------------------------------------------------

     A portfolio may buy and sell shares of other investment companies. Such
     investment companies may pay management and other fees that are similar to
     the fees currently paid by a portfolio. Like other shareholders, each
     portfolio would pay its proportionate share of those fees. Consequently,
     shareholders of a portfolio would pay not only the management fees of the
     portfolio, but also the management fees of the investment company in which
     the portfolio invests. A portfolio may invest up to 10% of its total assets
     in the securities of other investment companies, but may not invest more
     than 5% of its total assets in the securities of any one investment company
     or acquire more than 3% of the outstanding securities of any one investment
     company.

                                      22
<PAGE>

     The SEC has granted an order that allows a portfolio to invest the greater
     of 5% of its total assets or $2.5 million in the UAM DSI Money Market
     Portfolio, provided that the investment is:

     .    For cash management purposes;

     .    Consistent with a portfolio's investment policies and restrictions;
          and

     .    The adviser to the investing portfolio waives any fees it earns on the
          assets of the portfolio that are invested 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, an investor agrees to buy a security (underlying
     security) from a securities dealer or bank that is a member of the Federal
     Reserve System (counter-party). At the time, the counter-party agrees to
     repurchase the underlying security for the same price, plus interest.
     Repurchase agreements are generally for a relatively short period (usually
     not more than 7 days). The portfolios normally use repurchase agreements to
     earn income on assets that are not invested.

     When a portfolio enters into a repurchase agreement it will:

     .    Pay for the underlying securities only upon physically receiving them
          or upon evidence of their receipt in book-entry form; and

     .    Require the counter party to add to the collateral whenever the price
          of the repurchase agreement rises above the value of the underlying
          security (i.e., it will require the borrower to "mark 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.


Restricted Securities
- --------------------------------------------------------------------------------

     The portfolios 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 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 the portfolio's investment limitations. The price realized from
     the sales of these securities could be more or less than those originally
     paid by a portfolio or less than what may be considered the fair value of
     such securities.


Securities Lending
- --------------------------------------------------------------------------------

     A portfolio may lend a portion of its total assets to broker- dealers or
     other financial institutions. It may then reinvest the collateral it
     receives in short-term securities and money market funds. When a portfolio
     lends its securities, it will follow the following guidelines:

     .    The borrower must provide collateral at least equal to the market
          value of the securities loaned;

     .    The collateral 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 must add to the collateral whenever the price of the
          securities loaned rises (i.e., the borrower "marks to the market" on a
          daily basis);

     .    It must be able to terminate the loan at any time;

                                      23
<PAGE>


     .    It must receive reasonable interest on the loan (which may include the
          portfolio investing any cash collateral in interest bearing short-term
          investments); and

     .    It must determine that the borrower is an acceptable credit risk.

     These risks are similar to the ones involved with repurchase agreements.
     When the portfolio lends securities, there is a risk that the borrower will
     become financially unable to honor its contractual obligations. If this
     happens, the portfolio could:

     .    Lose its rights in the collateral and not be able to retrieve the
          securities it lent to the borrower; and

     .    Experience delays in recovering its securities.


When Issued 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 deliver 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 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, a 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.

     A portfolio will segregate cash and liquid securities equal in value to
     commitments for the when-issued, delayed-delivery or forward delivery
     transaction. A portfolio will segregate additional liquid assets daily so
     that the value of such assets is equal to the amount of its commitments.


Investment Policies of the Portfolios

     A portfolio will determine investment limitation percentages (with the
     exception of a limitation relating to borrowing) immediately after and as a
     result of its acquisition of such security or other asset. Accordingly, a
     portfolio will not consider changes in values, net assets or other
     circumstances when determining whether the investment complies with its
     investment limitations.


Fundamental Policies
- --------------------------------------------------------------------------------

     The following investment limitations are fundamental, which means a
     portfolio cannot change them without approval by the vote of a majority of
     the outstanding voting securities of the portfolio, as defined by the 1940
     Act.

                                      24
<PAGE>

Balanced and Equity Portfolios

     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 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.

     .    Borrow, 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.

     .    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 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 lending its portfolio securities to banks, brokers,
          dealers and other financial institutions so long as the loans are made
          in compliance 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 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.

     .    Purchase or retain securities of an issuer if those officers and Board
          members 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.

     .    Write or acquire options or interests in oil, gas or other mineral
          exploration or development programs.


Small Cap Value Portfolio

     The portfolio will not:

                                      25
<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.

     .    Borrow, except from banks and as a temporary measure for extraordinary
          or emergency purposes and than, in no event, in excess of 133 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 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 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 total assets at fair market value.

     .    Purchase additional securities when borrowings exceed 5% of total
          gross assets.

     .    Purchase on margin or sell short.

     .    Purchase or retain securities of an issuer if those officers and Board
          members 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.

     .    Write or acquire options or interests in oil, gas or other mineral
          exploration or development programs.


Non-Fundamental Policies
- --------------------------------------------------------------------------------

     The following limitations are non-fundamental, which means a portfolio may
     change them without shareholder approval.

     The portfolios will not:

                                      26
<PAGE>

     .    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; and (2) not more than 20% of the portfolio's assets are
          invested in stock or bond futures and options on futures.

     .    Invest more than 20% of the portfolio's assets in foreign securities.

     In addition, the adviser intends to limit the Balanced Portfolio's fixed
     income investments to investment grade securities; however, the adviser
     reserves the right to retain securities which are rated Ba or B by Moody's
     or BB or B by S&P if, in the adviser's judgement, maintaining a position in
     the securities is warranted.


Management of The Fund

     The governing board manages the business of the Fund. The governing board
     elects officers to manage the day-to-day operations of the Fund and to
     execute policies the board has formulated. 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 and a $2,000 meeting
     fee. In addition, the Fund reimburses each independent board member 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 board members that are affiliated with
     the fund for their services as board members. UAM, its affiliates or SEI
     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. The UAM Funds Complex is currently comprised of 51
     portfolios. Those people with an asterisk (*) beside their name are
     "interested persons" of the Fund as that term is defined in the 1940 Act.
     Mr. English does have an investment advisory relationship with Investment
     Counselors of Maryland, an investment adviser to one of the portfolios in
     the UAM Funds Complex. However, the Fund does not believe that the
     relationship is a material business relationship, and, therefore, does not
     consider him to be an "interested person" of the Fund. If these
     circumstances change, the Board will determine whether any action is
     required to change the composition of the Board.

<TABLE>
<CAPTION>
                                                                                                               Aggregate
                                                                                            Aggregate       Compensation From
                                                                                        Compensation From    the Fund Complex
                              Position     Principal Occupations During the Past         the Fund as of           as of
     Name, Address, DOB       with Fund    5 years                                       October 31, 1999    October 31, 1999
     ---------------------------------------------------------------------------------------------------------------------------
     <S>                      <C>          <C>                                          <C>                 <C>
     John T. Bennett, Jr.     Board        President of Squam Investment Management          $7,137              $10,625
     College Road-- RFD 3     Member       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            Board        Financial Officer of World Wildlife Fund          $7,137              $10,625
     1250 24th St., NW        Member       since January 1999; Vice President for
     Washington, DC 20037                  Finance and Administration and Treasurer
     8/14/51                               of Radcliffe College from 1991 to 1999.
     ---------------------------------------------------------------------------------------------------------------------------
     William A. Humenuk       Board        Executive Vice President and Chief                $7,137              $10,625
     100 King Street West     Member       Administrative Officer of Philip Services
     P.O. Box 2440, LCD-1                  Corp.; Formerly, a Partner in the
     Hamilton Ontario,                     Philadelphia office of the law firm
     Canada L8N-4J6                        Dechert Price & Rhoads and a Director  of
     4/21/42                               Hofler Corp.
     ---------------------------------------------------------------------------------------------------------------------------
     Philip D. English        Board        President and Chief Executive Officer of          $7,137              $10,625
     16 West Madison Street   Member       Broventure Company, Inc.; Chairman of the
     Baltimore, MD 21201                   Board of Chektec Corporation and Cyber
     8/5/48                                Scientific, Inc.
     ---------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      27
<PAGE>

<TABLE>
<CAPTION>
                                                                                                                  Aggregate
                                                                                              Aggregate       Compensation From
                                                                                          Compensation From    the Fund Complex
                              Position     Principal Occupations During the Past           the Fund as of            as of
     Name, Address, DOB       with Fund    5 years                                         October 31, 1999     October 31, 1999
     ---------------------------------------------------------------------------------------------------------------------------
     <S>                      <C>          <C>                                            <C>                 <C>
     James P. Pappas*         Board        President of UAM Investment Services,                   0                   0
     211 Congress Street      Member       Inc. since March 1999; Vice President UAM
     Boston, MA  02110                     Trust Company since January 1996;
     2/24/53                               Principal of UAM Fund Distributors, Inc.
                                           since December 1995; Vice President of
                                           UAM Investment Services, Inc. from
                                           January 1996 to March 1999 and a Director
                                           and Chief Operating Officer of CS First
                                           Boston Investment Management from
                                           1993-1995.
     ---------------------------------------------------------------------------------------------------------------------------
     Norton H. Reamer*        Board        Chairman, Chief  Executive Officer and a                0                   0
     One International Place  Member;      Director of United Asset Management
     Boston, MA 02110         President    Corporation; Director, Partner or Trustee
     3/21/35                  and          of each of the Investment Companies of
                              Chairman     the Eaton Vance Group of Mutual Funds.
     ---------------------------------------------------------------------------------------------------------------------------
     Peter M. Whitman, Jr.*   Board        President and Chief Investment Officer of               0                   0
     One Financial Center     Member       Dewey Square Investors Corporation since
     Boston, MA 02111                      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; Treasurer               0                   0
     211 Congress Street                   of the Fidelity Group of Mutual Funds
     Boston, MA 02110                      from 1991 to 1995; held various other
     7/4/51                                offices with Fidelity Investments from
                                           November 1990 to March 1995.
     ---------------------------------------------------------------------------------------------------------------------------
     Robert R. Flaherty       Assistant    Vice President of UAMFSI; Manager of Fund               0                   0
     211 Congress Street      Treasurer    Administration and Compliance of Chase
     Boston, MA 02110                      Global Fund Services Company from 1995 to
     9/18/63                               1996; Senior Manager of Deloitte & Touche
                                           LLP from 1985 to 1995,
     ---------------------------------------------------------------------------------------------------------------------------
     Robert J. DellaCroce     Assistant    Director, Mutual Fund Operations - SEI                  0                   0
     SEI Investments          Treasurer    Investments; Senior Manager at Arthur
     One Freedom Valley Rd.                Andersen prior to 1994.
     Oaks, PA 19456
     12/17/63
</TABLE>


PRINCIPAL SHAREHOLDERS

     As of February 1, 2000, the following persons or organizations held of
     record or beneficially 5% or more of the shares of a portfolio:

<TABLE>
<CAPTION>
     Name and Address of Shareholder           Percentage of Shares Owned              Portfolio                 Class
     -----------------------------------------------------------------------------------------------------------------------
     <S>                                       <C>                            <C>                             <C>
     UMBSC & Co.                                         21.06%               Sterling Partners' Balanced     Institutional
     FBO Interstate Brands                                                             Portfolio              Class Shares
     Conservative Growth
     P.O. Box 419175
     Kansas City, MO 64141-6175
     -----------------------------------------------------------------------------------------------------------------------
     Centura Bank                                        11.26%               Sterling Partners' Balanced     Institutional
     P.O. Box 1220                                                                     Portfolio              Class Shares
     Attn: Roxanne Moore
     131 N. Church Street
     Rocky Mount, NC 27804-5433
</TABLE>

                                      28
<PAGE>

<TABLE>
<CAPTION>
     Name and Address of Shareholder           Percentage of Shares Owned              Portfolio                 Class
     -----------------------------------------------------------------------------------------------------------------------
     <S>                                       <C>                            <C>                             <C>
     UMBSC & Co.                                          9.81%               Sterling Partners' Balanced     Institutional
     FBO Interstate Brands                                                             Portfolio              Class Shares
     Moderate Growth
     P.O. Box 419175
     Kansas City, MO 64141-6175
     -----------------------------------------------------------------------------------------------------------------------
     Charles Schwab & Co., Inc.                           6.70%               Sterling Partners' Balanced     Institutional
     Reinvest Account                                                                  Portfolio              Class Shares
     Attn: Mutual Funds
     101 Montgomery Street
     San Francisco, CA 94104-4122
     -----------------------------------------------------------------------------------------------------------------------
     Charles Schwab & Co., Inc.                          11.93%                Sterling Partners' Equity      Institutional
     Reinvest Account                                                                  Portfolio              Class Shares
     Attn: Mutual Funds
     101 Montgomery Street
     San Francisco, CA 94104-4122
     -----------------------------------------------------------------------------------------------------------------------
     ENJAYCO                                              8.04%                Sterling Partners' Equity      Institutional
     FBO Smith Anderson 401K Plan 90483                                                Portfolio              Class Shares
     P.O. Box 17909
     Milwaukee, WI 53217-0909
     -----------------------------------------------------------------------------------------------------------------------
     First Citizens Bank & Trust Co. TR                   5.91%                Sterling Partners' Equity      Institutional
     FBO Sanger Clinic                                                                 Portfolio              Class Shares
     P.O. Box 29522
     Raleigh, NC 27626-0522
     -----------------------------------------------------------------------------------------------------------------------
     Charles Schwab & Co., Inc.                          18.09%               Sterling Partners Small Cap     Institutional
     Reinvest Account                                                               Value Portfolio           Class Shares
     Attn: Mutual Funds
     101 Montgomery Street
     San Francisco, CA 94104-4122
     -----------------------------------------------------------------------------------------------------------------------
     Northern Trust Company CUST                          9.71%                 Sterling Partners' Small      Institutional
     FBO Holly Cross Employee                                                     Cap Value Portfolio         Class Shares
     Retirement Trust HLT Plan
     P.O. Box 92956
     Chicago, IL 60675-2956
     -----------------------------------------------------------------------------------------------------------------------
     Wilmington Trust Co. TR                              7.41%                 Sterling Partners' Small      Institutional
     Capital 401K & PSP                                                           Cap Value Portfolio         Class Shares
     c/o Mutual Funds UAM
     P.O. Box 8971
     Wilmington,  DE 19890-0001
</TABLE>


     Any shareholder 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. Shareholders controlling the portfolio
     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. As of
     February 1, 2000, the directors and officers of the Fund owned less than 1%
     of the outstanding shares of the portfolios.


Investment Advisory and Other Services

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.

                                      29
<PAGE>


     The adviser is a subsidiary of UAM. 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 more than 50 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


     This section summarizes some of the important provisions the Investment
     Advisory Agreements. The Fund has filed each agreement with the SEC as part
     of its registration statement on Form N-1A.



     Service Performed by Adviser


     Each adviser:

     .   Manages the investment and reinvestment of a portfolio's assets;

     .   Continuously reviews, supervises and administers the investment program
         of a portfolio; and

     .   Determines what portion of a portfolio's assets will be invested in
         securities and what portion will consist of cash.



     Limitation of Liability

     In the absence of (1) willful misfeasance, bad faith, or gross negligence
     on the part of the adviser in the performance of its obligations and duties
     under the Investment Advisory Agreement, (2) reckless disregard by the
     adviser of its obligations and duties under the Investment 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 Investment Advisory Agreement.


     Continuing an Investment Advisory Agreement


     An Investment Advisory Agreement continues in effect for periods of one
     year so long as such continuance is specifically approved at least annually
     by a:

     .   Majority of those Board Members who are not parties to the Investment
         Advisory Agreement or interested persons of any such party; and

     .   (2) (a) majority of the Board Members or (b) a majority of the
         shareholders of the portfolio.




                                       32
<PAGE>


     Terminating an Investment Advisory Agreement

     The Fund may terminate an Investment Advisory Agreement at any time,
     without the payment of any penalty if:

     .   A majority of the portfolio's shareholders vote to do so or a majority
         of Board Members vote to do so; and

     .   It gives the adviser 60 days' written notice.

     The adviser may terminate the Investment Advisory Agreement at any time,
     without the payment of any penalty, upon 90 days' written notice to the
     Fund.

     An Investment Advisory Agreement will automatically and immediately
     terminate if it is assigned.




Advisory Fees

     For its services, each portfolio pays its adviser the following annual
     fees, which are expressed as a percentage of the average daily net assets
     of the portfolio. Due to the effect of fee waivers by the adviser, the
     actual percentage of average net assets that a portfolio pays in any given
     year may be different from the rate set forth in its contract with the
     adviser. For the last three fiscal years, the portfolios paid the following
     in management fees to the adviser:


<TABLE>
<CAPTION>

                       Investment Advisory Fees Paid  Investment Advisory Fees Waived Total Investment Advisory Fees
     ---------------------------------------------------------------------------------------------------------------------
<S>                                    <C>                           <C>                             <C>
     Equity Portfolio
          1999                         $361,802                       $111,131                        $250,671
     ---------------------------------------------------------------------------------------------------------------------
          1998                         $363,308                        $48,983                        $314,325
     ---------------------------------------------------------------------------------------------------------------------
          1997                         $266,244                        $70,708                        $195,536
     ---------------------------------------------------------------------------------------------------------------------
     Small Cap Value Portfolio
          1999                         $411,436                       $104,588                        $306,848
     ---------------------------------------------------------------------------------------------------------------------
          1998                         $243,325                        $73,508                        $169,817
     ---------------------------------------------------------------------------------------------------------------------
          1997                         $11,374                         $66,275                           $0
     ---------------------------------------------------------------------------------------------------------------------
     Balanced Portfolio
          1999                         $558,088                        $64,548                        $523,540
     ---------------------------------------------------------------------------------------------------------------------
          1998                         $608,044                          $0                           $608,044
     ---------------------------------------------------------------------------------------------------------------------
          1997                         $542,796                          $0                           $542,796


</TABLE>

DISTRIBUTOR
- --------------------------------------------------------------------------------

     UAMFDI is 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.


SHAREHOLDER SERVICING ARRANGEMENTS
- --------------------------------------------------------------------------------


     UAM and each 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 or
     the 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.


                                       33
<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 Board Members 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.


     The Fund Administration Agreement continues in effect from year to year if
     the Board specifically approves such continuance every year. 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 automatically terminates upon its assignment by UAMFSI without
     the prior written consent of the Fund.


     UAMFSI will from time to time employ other people to assist it in
     performing its duties under the Fund Administration Agreement. Such people
     may be officers and employees who are employed by both UAMFSI and the Fund.
     UAMFSI will pay such people for such employment. The Fund will not incur
     any obligations with respect to such people.



                                       34
<PAGE>


Administration and Transfer Agency Services Fees

     Each portfolio pays a four-part fee to UAMFSI as follows:

1.        In exchange for administrative services, a portfolio pays a fee to
          UAMFSI calculated at the annual rate of:

          .    $19,500 for the first operational class; plus

          .    $3,750 for each additional class; plus

          .    A fee calculated from the aggregate net assets of each portfolio
               at the following rates:

<TABLE>
<CAPTION>
                                                                                                    Annual Rate
              --------------------------------------------------------------------------------------------------------------
              <S>                                                                                   <C>
              Equity Portfolio                                                                         0.063%
              --------------------------------------------------------------------------------------------------------------
              Small Cap Value Portfolio                                                                0.043%
              --------------------------------------------------------------------------------------------------------------
              Balanced Portfolio                                                                       0.063%
</TABLE>

2.        Each portfolio also pays a fee to UAMFSI for sub-administration and
          other services provided by SEI. The fee, which UAMFSI pays to SEI, is
          calculated at the annual rate of:

          .    Not more than $35,000 for the first operational class; plus

          .    $5,000 for each additional operational class; plus

          .    0.03% of their pro rata share of the combined assets of the UAM
               Funds Complex.

3.        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.

4.        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.

     For the last three fiscal years the portfolios paid the following in
administration and sub-administration fees:


<TABLE>
<CAPTION>
                                                                                                    Total Administration
                                     Administrators Fee               Sub-Administrators Fee                 Fee
  -------------------------------------------------------------------------------------------------------------------------
  <S>                                <C>                              <C>                           <C>
  Equity Portfolio
       1999                                $39,049                           $71,925                      $110,974
  -------------------------------------------------------------------------------------------------------------------------
       1998                                $35,899                           $77,210                      $113,109
  -------------------------------------------------------------------------------------------------------------------------
       1997                                $26,971                           $76,637                      $103,608
  -------------------------------------------------------------------------------------------------------------------------
  Small Cap Value Portfolio
       1999                                $25,532                           $68,387                       $93,919
  -------------------------------------------------------------------------------------------------------------------------
       1998                                $15,483                           $66,555                       $82,038
  -------------------------------------------------------------------------------------------------------------------------
       1997                                $3,106                            $27,344                       $30,450
  -------------------------------------------------------------------------------------------------------------------------
  Balanced Portfolio
       1999                                $56,040                           $81,638                      $137,678
  -------------------------------------------------------------------------------------------------------------------------
       1998                                $51,575                           $82,561                      $134,136
  -------------------------------------------------------------------------------------------------------------------------
       1997                                $43,421                           $81,424                      $124,845
</TABLE>


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 ACCOUNTANTS
- --------------------------------------------------------------------------------

     PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts
     02110, serves as independent accountant for the Fund.

                                       35
<PAGE>

BROKERAGE ALLOCATION AND OTHER PRACTICES

SELECTION OF BROKERS
- --------------------------------------------------------------------------------


     Each Investment Advisory Agreement authorizes the adviser to select the
     brokers or dealers that will execute the purchases and sales of investment
     securities for each portfolio. The Investment Agreement also directs the
     adviser to use its best efforts to obtain the best execution with respect
     to all transactions for the 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
     Investment 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.


     It is not the practice of the Fund to allocate brokerage or effect
     principal transactions with dealers based on sales of shares that a
     broker-dealer firm makes. However, the Fund may place trades with qualified
     broker-dealers who recommend the Fund or who act as agents in the purchase
     of Fund shares for their clients.


SIMULTANEOUS TRANSACTIONS
- --------------------------------------------------------------------------------


     The adviser makes investment decisions for each 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.



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, a portfolio 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.



                                       36
<PAGE>


Commissions Paid

     For the last three fiscal years, the portfolios paid the following in
brokerage commissions:

<TABLE>
<CAPTION>

                                                            Brokerage Commissions
     -----------------------------------------------------------------------------------------------------------
     <S>                                                    <C>
     Equity Portfolio
          1999                                                    $132,831
     -----------------------------------------------------------------------------------------------------------
          1998                                                     $93,953
     -----------------------------------------------------------------------------------------------------------
          1997                                                     $87,354
     -----------------------------------------------------------------------------------------------------------
     Small Cap Value Portfolio
          1999                                                    $134,535
     -----------------------------------------------------------------------------------------------------------
          1998                                                    $163,245
     -----------------------------------------------------------------------------------------------------------
          1997                                                     $54,402
     -----------------------------------------------------------------------------------------------------------
     Balanced Portfolio
          1999                                                    $134,507
     -----------------------------------------------------------------------------------------------------------
          1998                                                     $89,004
     -----------------------------------------------------------------------------------------------------------
          1997                                                    $110,763

</TABLE>



CAPITAL STOCK AND OTHER SECURITIES


The Fund

     The Fund was organized under the name "The ICM Fund, Inc." as a Maryland
     corporation on October 11, 1988. On January 18, 1989, the Fund changed its
     name 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 211 Congress Street, Boston, MA 02110; however, shareholders should
     direct all correspondence to the address listed on the cover of this SAI.
     The Fund is an open-end management company.



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.

                                       37
<PAGE>

     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 1940
Act or other applicable law.



Dividend and Distribution Options

     There are three ways for shareholders to receive dividends and capital
gains:

     .   Income dividends and capital gains distributions are reinvested in
         additional shares at net asset value;

     .   Income dividends are paid in cash and capital gains distributions are
         reinvested in additional shares at NAV; and

     .   Income dividends and capital gains distributions are paid in cash.

     Unless the shareholder elects otherwise in writing, the fund will
     automatically reinvest all dividends in additional shares of the portfolio
     at NAV (as of the business day following the record date). Shareholders may
     change their dividend and distributions option by writing to the fund at
     least three days before the record date for income dividend or capital gain
     distribution.

     The fund sends account statements to shareholders whenever it pays an
income dividend or capital gains distribution.





FEDERAL TAXES

     Each portfolio intends to qualify as a regulated investment company under
     Subchapter M of the Internal Revenue Code, and to distribute out its income
     to shareholders each year so that the portfolio itself generally will be
     relieved of federal income and excise taxes. If a portfolio were to fail to
     so qualify: (1) it would be taxed at regular corporate rates without any
     deduction for distributions to shareholder; and (2) its shareholders would
     be taxed as if they received ordinary dividends, although corporate
     shareholders could be eligible for the dividends received deduction.

     A portfolios' dividends that are paid to their corporate shareholders and
     are attributable to qualifying dividends it received from U.S. domestic
     corporations may be eligible, in the hands of such shareholders, for the
     corporate dividends received deduction, subject to certain holding period
     requirements and debt financing limitations.



PURCHASE, REDEMPTION AND PRICING OF SHARES

Net Asset Value Per Share
- --------------------------------------------------------------------------------



                                       38
<PAGE>


Calculating NAV

     The purchase and redemption price of the shares of a portfolio is equal to
     the NAV of the portfolio. The Fund calculates the NAV of a portfolio by
     subtracting its liabilities from its total assets and dividing the result
     by the total number of shares outstanding. For purposes of this
     calculation:

     .    Liabilities include accrued expenses and dividends payable; and

     .    Total assets include the market value of the securities held by the
          portfolio, plus cash and other assets plus income accrued but not yet
          received.

     Each portfolio normally calculates its NAV as of the close of trading on
     the NYSE every day the NYSE is open for trading. The NYSE usually closes at
     4:00 p.m. The NYSE is closed on the following days: 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.


How the Fund Values it Assets


     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 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 governing board.




PURCHASE OF SHARES
- --------------------------------------------------------------------------------


     Service Agents may enter confirmed purchase orders on behalf of their
     customers. To do so, the Service Agent must receive your investment order
     before the close of trading on the NYSE and must transmit it to the fund
     before the close of its business day to receive that day's share price. The
     fund must receive proper payment for the order by the time the portfolio
     calculates its NAV 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.

     Shareholders can buy full and fractional (calculated to three decimal
     places) shares of a portfolio. The fund will not issue certificates for
     fractional shares and will only issue certificates for whole shares upon
     the written request of a shareholder.

                                       39
<PAGE>


     The Fund may 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


     At its discretion, the Fund may permit shareholders to purchase shares of
     the portfolio with securities, instead of cash. If the Fund allows a
     shareholder to make an in-kind purchase, it will value such securities
     according to the policies described under "How the Fund Values it Assets"
     at the next determination of net asset value after acceptance. The Fund
     will issue shares of the portfolio at the NAV of the portfolio determined
     as of the same time.

     The Fund will only acquire securities through an in-kind purchase for
     investment and not for immediate resale. The Fund will only accept in-kind
     purchases if the transaction meets the following conditions:

     .    The securities are eligible investments for the portfolio;

     .    The securities have readily available market quotations;

     .    The investor represents and agrees that the securities are liquid and
          that there are no restrictions on their resale imposed by the 1933 Act
          or otherwise;

     .    All dividends, interest, subscription, or other rights pertaining to
          such securities become the property of the portfolio and are delivered
          to the fund by the investor upon receipt from the issuer; and

     .    Immediately after the transaction is complete, the value of all
          securities of the same issuer held by the portfolio cannot exceed 5%
          of the net assets of the portfolio. This condition does not apply to
          U.S. government securities.


     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 the shareholder wishes to redeem signed by all
          registered owners of the shares in the exact names in which they are
          registered;

     .    Any required signature guarantees (see "Signature Guarantees"); and

     .    Any other necessary legal documents for estates, trusts,
          guardianships, custodianships, corporations, pension and profit
          sharing plans and other organizations.


By Telephone



                                       40
<PAGE>


     Shareholders may not do the following by telephone:

     .    Change the name of the commercial bank or the account designated to
          receive redemption proceeds. To change an account in this manner, you
          must submit a written request signed by each shareholder, with each
          signature guaranteed.

     .    Redeem shares represented by a certificate.

     The Fund and UAMSSC will employ reasonable procedures to confirm that
     instructions communicated by telephone are genuine, and they may be liable
     for any losses if they fail to do so. These procedures include requiring
     the investor to provide certain personal identification at the time an
     account is opened and before 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 UAMSSC may be liable
     for any losses due to unauthorized or fraudulent telephone instructions if
     the Fund or the UAMSSC does not employ the procedures described above.
     Neither the Fund nor the UAMSSC 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.



     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 Board 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


     The Fund requires signature guarantees for certain types of documents,
     including:

     .    Written requests for redemption;

     .    Separate instruments for assignment ("stock power"), which should
          specify the total number of shares to be redeemed; and

     .    On all stock certificates tendered for redemption.

     The purpose of signature guarantees is to verify the identity of the person
     who has authorized a redemption from your account and to protect your
     account, the Fund and its sub-transfer agent from fraud.

     The Fund will accept signature guarantees from any eligible guarantor
     institution, as defined by the Securities Exchange Act of 1934 that
     participates in a signature guarantee program. Eligible guarantor
     institutions include banks, brokers, dealers, credit unions, national
     securities exchanges, registered securities associations, clearing agencies
     and savings associations. You can get a complete definition of eligible
     guarantor institutions by calling 1-877-826-5465. Broker-

                                       41
<PAGE>


     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.

Other Redemption Information


     Normally, the Fund will pay for all shares redeemed under proper procedures
     within seven days after it received your request. However, the Fund will
     pay your redemption proceeds earlier as applicable law so requires.

     When the Fund may suspend redemption privileges or postpone the date of
     payment:

     .   when the NYSE and custodian bank are closed;

     .   when trading on the NYSE is restricted;

     .   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; or

     .   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 for exchanges.

     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.




Performance Calculations

     Each portfolio measures its performance by calculating its yield and total
     return. Yield and total return figures are based on historical earnings and
     are not intended to indicate future performance. The portfolio calculates
     its current yield and average annual total return information according to
     the methods required by the SEC. The performance is calculated separately
     for each portfolio.

                                      40
<PAGE>

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. 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 fund calculates the average annual total return of a portfolio by
     finding the average annual compounded rates of return over one, five and
     ten-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.

     The fund calculates these figures 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).


     Set forth in the table below are the portfolios' average annual returns for
     the one-year period and the five-year period ended October 31, 1999 and the
     shorter of the ten-year period ended October 30, 1999 or the period from a
     portfolio's inception date through October 31, 1999.

<TABLE>
<CAPTION>
                                                                                       Shorter of
                                                                                       10 Years or
                                                   One Year          Five Years      Since Inception       Inception Date
     --------------------------------------------------------------------------------------------------------------------
     <S>                                           <C>               <C>             <C>                   <C>
     Equity Portfolio                               9.94%              17.20%            13.76%               5/15/91
     --------------------------------------------------------------------------------------------------------------------
     Small Cap Value Portfolio                      9.02%               N/A              11.08%                1/2/97
     --------------------------------------------------------------------------------------------------------------------
     Balanced Portfolio                             5.12%              12.62%            10.26%               3/15/91
     --------------------------------------------------------------------------------------------------------------------
</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 mutual 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.

                                      41
<PAGE>

     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
- --------------------------------------------------------------------------------

     A 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 this SAI. This information may also be included in
     sales literature and advertising.

     To help investors better evaluate how an investment in a portfolio 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 "Comparative Benchmarks" 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 a
         portfolio;

     .   that the indices and averages are generally unmanaged; and

     .   that the items included in the calculations of such averages may not be
         identical to the formula used by a portfolio to calculate its
         performance; and

     .   that shareholders cannot invest directly in such indices or averages.

     In addition, there can be no assurance that a portfolio will continue this
     performance as compared to such other averages.


Financial Statements

     The following documents are included in the portfolios' October 31, 1999
     Annual Report:

     .   Financial statements for the fiscal year ended October 31, 1999.

     .   Financial highlights for the respective periods presented

     .   The report of PricewaterhouseCoopers LLP.

     Each of the above-referenced documents is incorporated by reference into
     this SAI. However, no other parts of the portfolios' Annual Reports are
     incorporated by reference herein. Shareholders may get copies of the
     portfolios' Annual Reports free of charge by calling the UAM Funds at the
     telephone number appearing on the front page of this SAI.

                                      42
<PAGE>


Glossary

     All terms that this SAI does not otherwise define, have the same meaning in
     the SAI as they do in the prospectus(es) of the portfolios.

     1933 Act means the Securities Act of 1933, as amended.

     1934 Act means the Securities Exchange Act of 1934, as amended.

     1940 Act means the Investment Company Act of 1940, as amended.

     Adviser means the investment adviser to each portfolio.

     Board Member refers to a single member of the Fund's Board.

     Board refers to the Fund's Board of Trustees as a group.

     SEI is SEI Investments Mutual Funds Services, the Fund's sub-administrator.

     Fund refers to UAM Funds, Inc.

     Governing Board, see Board.

     NAV is the net asset value per share of a portfolio.

     NYSE is the New York Stock Exchange. Also known as "The Exchange" or "The
     Big Board," the NYSE is located on Wall Street and is the largest exchange
     in the United States.

     Portfolio refers to a single series of the Fund, while portfolios refer to
     all of the series of the Fund.

     SEC is the Securities and Exchange Commission. The SEC is the federal
     agency that administers most of the federal securities laws in the United
     States. In particular, the SEC administers the 1933 ACT, the 1940 ACT and
     the 1934 ACT.

     UAM Funds Complex includes UAM Funds, Inc., UAM Funds Trust, UAM Funds Inc.
     II and all of their portfolios.

     UAM is United Asset Management Corporation.

     UAMFDI is UAM Fund Distributors, Inc., the Fund's distributor.

     UAMFSI is UAM Fund Services, Inc., the Fund's administrator.

     UAMSSC is UAM Fund Shareholder Servicing Center, the Fund's
     sub-shareholder-servicing agent.


Bond 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 stocks.

     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.

                                      43
<PAGE>

     baa          An issue that 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 period 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.

     plus (+) or  Moody's applies numerical modifiers 1, 2, and 3 in each
     minus (-)    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.

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-grade
                  obligations. Factors giving security to principal and interest
                  are considered adequate, but elements may be present which
                  suggest a susceptibility to impairment sometime in the future.

     Baa          Bonds which are rated Baa are 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.

                                      44
<PAGE>

     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.

     Con. (...)
                  (This rating applies only to U.S. Tax-Exempt Municipals) Bonds
                  for which the security depends upon the completion of some act
                  or the fulfillment of some condition are rated conditionally.
                  These are bonds secured by (a) earnings of projects under
                  construction, (b) earnings of projects unseasoned in operating
                  experience, (c) rentals that begin when facilities are
                  completed, or (d) payments to which some other limiting
                  condition attaches. Parenthetical rating denotes probable
                  credit stature upon completion of construction or elimination
                  of basis of condition.

     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.

     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:

                    .   Leading market positions in well-established industries.

                    .   Conservative capitalization structure with moderate
                        reliance on debt and ample asset protection.

                    .   Broad 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.

                                      45
<PAGE>

     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
- --------------------------------------------------------------------------------



Long-Term Issue Credit Ratings

     Issue credit ratings are based, in varying degrees, on the following
     considerations:

     1.  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;

     2.  Nature of and provisions of the obligation;

     3.  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.

         The issue rating definitions are expressed in terms of default risk. As
         such, they pertain to senior obligations of an entity. Junior
         obligations are typically rated lower than senior obligations, to
         reflect the lower priority in bankruptcy, as noted above. Accordingly,
         in the case of junior debt, the rating may not conform exactly with the
         category definition.



     AAA          An obligation rated 'AAA' has 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 obligor 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.

                                      46
<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
                  A subordinated debt or preferred stock obligation rated `C' is
                  CURENTLY HIGHLY VULNERABLE to non-payment. The `C' rating may
                  be used to cover a situation where a bankruptcy petition has
                  been filed or similar action taken, but payments on this
                  obligation are being continued. A `C' will also be assigned to
                  a preferred stock issue in arrears on dividends or sinking
                  fund payments, but that is currently paying.

     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.

     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.

     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 obligation
                  as a matter of policy.

     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.


Short-Term Issue Credit 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 obligations in higher rating
                  categories. However, the obligor's capacity to meet its
                  financial commitment on the obligation is satisfactory.

                                      47
<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.

Local Currency and Foreign Currency Risks

     Country risks considerations are a standard part of Standard & Poor's
     analysis for credit ratings on any issuer or issue. Currency of repayment
     is a key factor in this analysis. An obligor's capacity to repay foreign
     currency obligations may be lower than its capacity to repay obligations in
     its local currency due to the sovereign government's own relatively lower
     capacity to repay external versus domestic debt. These sovereign risk
     considerations are incorporated in the debt ratings assigned to specific
     issues. Foreign currency issuer ratings are also distinguished from local
     currency issuer ratings to identity those instances where sovereign risks
     make them different for the same issuer.


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
     AA-          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
     BBB-         sufficient for prudent investment. Considerable variability in
                  risk during economic cycles.

     BB+/BB/      Below investment grade but deemed likely to meet obligations
     BB-          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 met 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.

                                      48
<PAGE>

     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. 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 of financial
                  commitments. This capacity is highly unlikely to be adversely
                  affected by foreseeable events.

                                      49
<PAGE>

     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            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.

     BBB          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. The ratings of obligations in this category are based
                  on their prospects for achieving partial or full recovery in a
                  reorganization or liquidation of the obligor. While expected
                  recovery values are highly speculative and cannot be estimated
                  with any precision, the following serve as general guidelines.
                  "DDD" obligations have the highest potential for recovery,
                  around 90%-100% of outstanding amounts and accrued interest.
                  "D" indicates potential recoveries in the range of 50%-90%,
                  and "D" the lowest recovery potential, i.e., below 50%.

                        Entities rated in this category have defaulted on some
                  or all of their obligations. Entities rated "DDD" have the
                  highest prospect for resumption of performance or continued
                  operation with or without a formal reorganization process.
                  Entities rated "DD" and "D" are generally undergoing a formal
                  reorganization or liquidation process; those rated "DD" are
                  likely to satisfy a higher portion of their outstanding
                  obligations, while entities rated "D" have a poor prospect for
                  repaying all obligations.


International Short-Term Credit Ratings

     F1           Highest credit quality. Indicates the Best 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.

                                      50
<PAGE>

     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.


     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.



Comparative Benchmarks
     (alphabetically)

     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.

     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.

     Donoghue's Money Fund Average -- is an average of all major money market
     fund yields, published weekly for 7 and 30-day yields.

     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.

     Financial publications: Business Week, Changing Times, Financial World,
     Forbes, Fortune, Money, Barron's, Consumer's Digest, Financial Times,
     Global Investor, Investor's Daily, Lipper, Inc., Morningstar, Inc., The New
     York Times, Personal Investor, The Wall Street Journal and Weisenberger
     Investment Companies Service -- publications that rate fund performance
     over specified time periods.

     Historical data supplied by the research departments of First Boston
     Corporation, J.P. Morgan & Co, Inc., Salomon Smith Barney, Merrill Lynch &
     Co., Inc., Lehman Brothers, Inc. and Bloomberg L.P.

                                      51
<PAGE>



     IBC's Money Fund Average/All Taxable Index - an average of all major money
     market fund yields, published weekly for 7- and 30-day yields.

     IFC Investable Composite Index - an unmanaged market capitalization-
     weighted index maintained by the International Finance Corporation. This
     index consists of over 890 companies in 26 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.

     Lehman Brothers Indices:
     -----------------------

     Lehman Brothers Aggregate Bond Index - an unmanaged fixed income market
     value-weighted index that combines the Lehman Government/Corporate Index
     and the Lehman Mortgage-Backed Securities Index, and includes treasury
     issues, agency issues, corporate bond issues and mortgage backed
     securities. It includes fixed rate issuers of investment grade (BBB) or
     higher, with maturities of at least one year and outstanding par values of
     at least $100 million for U.S. government issues and $25 million for
     others.

     Lehman Brothers Corporate Bond Index - an unmanaged index of all publicly
     issued, fixed-rate, nonconvertible investment grade domestic corporate
     debt. Also included are yankee bonds, which are dollar-denominated SEC
     registered public, noncovertible debt issued or guaranteed by foreign
     sovereign governments, municipalities, or governmental agencies, or
     international agencies.

     Lehman Brothers Government Bond Index -an unmanaged treasury bond index
     including all public obligations of the U.S. Treasury, excluding flower
     bonds and foreign-targeted issues, and the Agency Bond Index (all publicly
     issued debt of U.S. government agencies and quasi-federal corporations, and
     corporate debt guaranteed by the U.S. government). In addition to the
     aggregate index, sub-indices cover intermediate and long term issues.

     Lehman Brothers Government/Corporate Bond Index -- an unmanaged fixed
     income market value-weighted index that combines the Government and
     Corporate Bond Indices, including U.S. government treasury securities,
     corporate and yankee bonds. All issues are investment grade (BBB) or
     higher, with maturities of at least one year and outstanding par value of
     at least $100 million of 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.

     Lehman Brothers High Yield Bond Index - an unmanaged index of fixed rate,
     non-investment grade debt. All bonds included in the index are dollar
     denominated, noncovertible, have at least one year remaining to maturity
     and an outstanding par value of at least $100 million.

     Lehman Brothers Intermediate Government/Corporate Index - an unmanaged
     fixed income, market value-weighted index that combines the Lehman Brothers
     Government Bond Index (intermediate-term sub-index) and four corporate bond
     sectors.

     Lehman Brothers Mortgage-Backed Securities Index - an unmanaged index of
     all fixed-rate securities backed by mortgage pools of Government National
     Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation
     (FHLMC), and Federal National Mortgage Association (FNMA).

     Lipper, Inc./Lipper Indices/Lipper Averages
     -------------------------------------------

     The Lipper Indices are equally weighted indices for typically the 30
     largest mutual funds within their respective portfolio investment
     objectives. The indices are currently grouped in six categories: U.S.
     Diversified Equity with 12 indices; Equity with 27 indices, Taxable
     Fixed-Income with 20 indices, Tax-Exempt Fixed-Income with 28 indices,
     Closed-End Funds with 16 indices, and Variable Annuity Funds with 18
     indices.

     In September, 1999, Lipper, Inc. introduced its new portfolio-based mutual
     fund classification method in which peer comparisons are based upon
     characteristics of the specific stocks in the underlying funds, rather than
     upon a broader investment objective stated in a prospectus. Certain of
     Lipper, Inc.'s classifications for general equity funds' investment
     objectives were changed while other equity objectives remain unchanged.
     Changing investment objectives include Capital Appreciation Funds, Growth
     Funds, Mid-Cap Funds, Small-Cap Funds, Micro-Cap Funds, Growth & Income


                                      52
<PAGE>


     Funds, and Equity Income Funds. Unchanged investment objectives include
     Sector Equity Funds, World Equity Funds, Mixed Equity Funds, and certain
     other funds including all Fixed Income Funds and S&P(R) Index Funds.

     Criteria for the Lipper Indices are: 1) component funds are largest in
     group; 2) number of component funds remains the same (30); 3) component
     funds are defined annually; 4) can be linked historically; and 5) are used
     as a benchmark for fund performance.

     Criteria for the Lipper Averages are: 1) includes all funds in the group in
     existence for the period; 2) number of component funds always changes; 3)
     universes are dynamic due to revisions for new funds, mergers,
     liquidations, etc.; and 4) will be inaccurate if historical averages are
     linked.

     Certain Lipper, Inc. indices/averages used by the UAM Funds may include,
     but are not limited to, the following:

     Lipper Short-Intermediate Investment Grade Debt Funds Average -- is an
     average of 100 funds that invest at least 65% of assets in investment grade
     debt issues (BBB or higher) with dollar-weighted average maturities of one
     to five years or less. (Taxable Fixed-Income category)

     Lipper Balanced Fund Index - an unmanaged index of open-end equity funds
     whose primary objective is to conserve principal by maintaining at all
     times a balanced portfolio of both stocks and bonds. Typically, the
     stock/bond ratio ranges around 60%/40%. (Equity category)

     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. (Equity category)

     Lipper Equity Mid Cap Fund Index - an unmanaged index of funds that by
     prospectus or portfolio practice invest primarily in companies with market
     capitalizations less than $5 billion at the time of purchase. (Equity
     category)

     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. (Equity
     category)

     Lipper Growth Fund Index - an unmanaged index composed of the 30 largest
     funds by asset size which invest in companies with long-term earnings
     expected to grow significantly faster than the earnings of the stocks
     represented in the major unmanaged stock indices. (Equity category)

     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.

     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 (BBB
     or higher).


     Merrill Lynch 1-3 Year Treasury Index - an unmanaged index composed of U.S.
     treasury securities with maturities from 1 to 3 years.

     Morgan Stanley Capital International EAFE Index -- 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.

     Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
     yield, risk and total return for equity funds.

     NASDAQ Composite Index -- is a market capitalization, price only, unmanaged
     index that tracks the performance of domestic common stocks traded on the
     regular NASDAQ market as well as national market System traded foreign
     common stocks and ADRs.

                                      53
<PAGE>


     Nekkei Stock Average - a price weighted index of 225 selected leading
     stocks listed on the First Section of the Tokyo Stock Exchange.

     New York Stock Exchange composite or component indices -- capitalization-
     weighted unmanaged indices of all industrial, utilities, transportation and
     finance stocks listed on the New York Stock Exchange.

     Russell U.S. Equity Indexes:
     ---------------------------

     Russell 3000(R) Index - measures the performance of the 3,000 largest U.S.
     companies based on total market capitalization, which represents
     approximately 98% of the investable U.S. equity market.

     Russell 1000(R) Index - an unmanaged index which measures the performance
     of the 1,000 largest companies in the Russell 3000 Index, which represents
     approximately 92% of the total market capitalization of the Russell 3000
     Index.

     Russell 2000(R) Index -- an unmanaged index which measures the performance
     of the 2,000 smallest companies in the Russell 3000 Index, which represents
     approximately 8% of the total market capitalization of the Russell 3000
     Index.

     Russell Top 200(TM) Index - measures the performance of the 200 largest
     companies in the Russell 1000 Index, which represents approximately 74% of
     the total market capitalization of the Russell 1000 Index.

     Russell Mid-Cap(TM) Index -- measures the performance of the 800 smallest
     companies in the Russell 1000 Index, which represents approximately 26% of
     the total market capitalization of the Russell 1000 Index.

     Russell 2500(TM) Index - an unmanaged index which measures the performance
     of the 2,5000 smallest companies in the Russell 3000 Index, which
     represents approximately 17% of the total market capitalization of the
     Russell 3000 Index.

     Russell 3000(R) Growth Index - measures the performance of those Russell
     3000 Index companies with higher price-to-book ratios and higher forecasted
     growth values. The stocks in this index are also members of either the
     Russell 1000 Growth or the Russell 2000 Growth indexes.

     Russell 3000(R) Value Index - measures the performance of those Russell
     3000 Index companies with lower price-to-book ratios and lower forecasted
     growth values. The stocks in this index are also members of either the
     Russell 1000 Value or the Russell 2000 Value indexes.

     Russell 1000(R) Growth Index - measures the performance of those Russell
     1000 companies with higher price-to-book ratios and higher forecasted
     growth values.

     Russell 1000(R) Value Index - measures the performance of those Russell
     1000 with lower price-to-book ratios and lower forecasted growth values.

     Russell 2000(R) Growth Index - measures the performance of those Russell
     2000 companies with higher price-to-book ratios and higher forecasted
     growth values.

     Russell 2000(R) Value Index - measures the performance of those Russell
     2000 companies with lower price-to-book ratios and lower forecasted growth
     values.

     Russell Top 200(TM) Growth Index - measures the performance of those
     Russell Top 200 companies with higher price-to-book ratios and higher
     forecasted growth values. The stocks re also members of the Russell 1000
     Growth index.

     Russell Top 200(TM) Value Index - measures the performance of those Russell
     Top 200 companies with lower price-to-book ratios and lower forecasted
     growth values. The stocks are also members of the Russell 1000 Value index.

     Russell Midcap(TM) Growth Index - measures the performance of those Russell
     Midcap companies with higher price-to-book ratios and higher forecasted
     growth values. The stocks are also members of the Russell 1000 Growth
     index.

     Russell Midcap(TM) Value Index - measures the performance of those Russell
     Midcap companies with lower price-to-book ratios and lower forecasted
     growth values. The stocks are also members of the Russell 1000 Value index.


                                      54
<PAGE>


     Russell 2500(TM) Growth Index - measures the performance of those Russell
     2500 companies with higher price-to-book ratios and higher forecasted
     growth values.

     Russell 2500(TM) Value Index - measures the performance of those Russell
     2500 companies with lower price-to-book ratios and lower forecasted growth
     values.

     Ryan Labs 5 Year GIC Master Index - an arithmetic mean of market rates of
     $1 million GIC contracts held for five years. The market rates are
     representative of a diversified, investment grade portfolio of contracts
     issued by credit worthy insurance companies. The index is unmanaged and
     does not reflect any transaction costs. Direct investment in the index is
     not possible.

     Standard & Poor's U.S. Indices:
     ------------------------------

     In October, 1999, Standard & Poor's and Morgan Stanley Capital
     International launched a new global industry classification standard
     consisting of 10 economic sectors aggregated from 23 industry groups, 59
     industries, and 123 sub-industries covering almost 6,000 companies
     globally. The new classification standard will be used with all of their
     respective indices. Features of the new classification include 10 economic
     sectors, rather than the 11 S&P currently uses. Sector and industry
     gradations are less severe. Rather than jumping from 11 sectors to 115
     industries under the former S&P system, the new system progresses from 10
     sectors through 23 industry groups, 50 industries and 123 sub-industries.

     S&P 500 Index - an unmanaged index composed of 400 industrial stocks, 40
     financial stocks, 40 utilities stocks and 20 transportation stocks. Widely
     regarded as the standard for measuring large-cap U.S. stock market
     performance. It is used by 97% of U.S. money managers and pension plan
     sponsors. More than $1 trillion is indexed to the S&P 500.

     S&P MidCap 400 Index -- consists of 400 domestic stocks chosen for market
     size, liquidity, and industry group representation. It is a market-value
     weighted index with each stock affecting the index in proportion to its
     market value. It is used by over 95% of U.S. managers and pension plan
     sponsors. More than $25 billion is indexed to the S&P Midcap400.

     S&P Small Cap 600 Index - an unmanaged index comprised of 600 domestic
     stocks chosen for market size, liquidity, and industry group
     representation. The index is comprised of stocks from the industrial,
     utility, financial, and transportation sectors. It is gaining wide
     acceptance as the preferred benchmark for both active and passive
     management due to its low turnover and greater liquidity. Approximately $8
     billion is indexed to the S&P SmallCap 600.

     S&P SuperComposite 1500 - combines the S&P 500, MidCap 400, and SmallCap
     600 indices, representing 87% of the total U.S. equity market
     capitalization.

     S&P 100 Index - known by its ticker symbol OEX, this index measures large
     company U.S. stock market performance. This market capitalization-weighted
     index is made up of 100 major, blue chip stocks across diverse industry
     groups.

     S&P/BARRA Growth and Value Indices - are constructed by dividing the
     securities in the S&P 500 Index according to price-to-book ratio. The Value
     index contains the companies with the lower price-to-book ratios; while the
     companies with the higher price-to-book ratios are contained in the Growth
     index.

     S&P REIT Composite Index - launched in 1997, this benchmark tracks the
     market performance of U.S. Real Estate Investment Trusts, known as REITS.
     The REIT Composite consists of 100 REITs chosen for their liquidity and
     importance in representing a diversified real estate portfolio. The Index
     covers over 80% of the securitized U.S. real estate market.

     S&P Utilities Stock Price Index - a market capitalization weighted index
     representing three utility groups and, with the three groups, 43 of the
     largest utility companies listed on the New York Stock Exchange, including
     23 electric power companies, 12 natural gas distributors and 8 telephone
     companies.

     Standard & Poor's CANADA Indices:
     --------------------------------

     S&P/TSE Canadian MidCap Index - measures the performance of the mid-size
     company segment of the Canadian equity market.

                                      55
<PAGE>


     S&P/TSE Canadian SmallCap Index - Measures the small company segment of the
     Canadian equity market.

     Standard & Poor's Global Indices:
     --------------------------------

     S&P Global 1200 Index - aims to provide investors with an investable
     portfolio. This index, which covers 29 countries and consists of seven
     regional components, offers global investors an easily accessible, tradable
     set of stocks and particularly suits the new generation of index products,
     such as exchange-traded funds (ETFs).

     S&P Euro and S&P Euro Plus Indices - the S&P Euro Index covers the Eurobloc
     countries; the Euro Plus Index includes the Euro markets as well as
     Denmark, Norway, Sweden and Switzerland. The S&P Euro Plus Index contains
     200 constituents, and the S&P Euro Index, a subset of Euro Plus, contains
     160 constituents. Both indices provide geographic and economic diversity
     over 11 industry sectors.

     S&P/TSE 60 Index - developed with the Toronto Stock Exchange, is designed
     as the new Canadian large cap benchmark and will ultimately replace the
     Toronto 35 and the TSE 100.

     S&P/TOPIX 150 - includes 150 highly liquid securities selected from each
     major sector of the Tokyo market. It is designed specifically to give
     portfolio managers and derivative traders an index that is broad enough to
     provide representation of the market, but narrow enough to ensure
     liquidity.

     S&P Asia Pacific 100 Index - includes highly liquid securities from each
     major economic sector of major Asia-Pacific equity markets. Seven countries
     -- Australia, Hong Kong, Korea, Malaysia, New Zealand, Singapore, and
     Taiwan -- are represented in the new index.

     S&P Latin America 40 Index -part of the S&P Global 1200 Index, includes
     highly liquid securities from major economic sectors of Mexican and South
     American equity markets. Companies from Mexico, Brazil, Argentina, and
     Chile are represented in the new index.

     S&P United Kingdom 150 Index - includes 150 highly liquid securities
     selected from each of the new S&P sectors. The S&P UK 150 is designed to be
     broad enough to provide representation of the market, but narrow enough to
     ensure liquidity.

     Salomon Smith Barney Global excluding U.S. Equity Index - an unmanaged
     index comprised of the smallest stocks (less than $1 billion market
     capitalization) of the Extended Market Index, of both developed and
     emerging markets.

     Salomon Smith Barney One to Three Year Treasury Index - an unmanaged index
     comprised of U.S. treasury notes and bonds with maturities of one year or
     greater, but less than three years.

     Salomon Smith Barney Three-Month T-Bill Average -- the average for all
     treasury bills for the previous three-month period.

     Salomon Smith Barney Three-Month U.S. Treasury Bill Index - a return
     equivalent yield average based on the last three 3-month Treasury bill
     issues.

     Savings and Loan Historical Interest Rates -- as published by the U.S.
     Savings and Loan League Fact Book.

     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.

     Target Large Company Value Index - an index comprised of large companies
     with market capitalizations currently extending down to approximately $1.9
     billion that are monitored using a variety of relative value criteria in
     order to capture the most attractive value opportunities available. A high
     quality profile is required and companies undergoing adverse financial
     pressures are eliminated.

     U.S. Three-Month Treasury Bill Average - the average return for all
     treasury bills for the previous three month period.

                                      56
<PAGE>


     Value Line Composite Index -- composed of over 1,600 stocks in the Value
     Line Investment Survey.

     Wilshire Real Estate Securities Index - a market capitalization-weighted
     index of publicly traded real estate securities, including real estate
     investment trusts, real estate operating companies and partnerships. The
     index is used by the institutional investment community as a broad measure
     of the performance of public real estate equity for asset allocation and
     performance comparison.

     Wilshire REIT Index - includes 112 real estate investment trusts (REITs)
     but excludes seven real estate operating companies that are included in the
     Wilshire Real Estate Securities Index.

     Note: With respect to the comparative measures of performance for equity
     securities described herein, comparisons of performance assume reinvestment
     of dividends, except as otherwise stated.

                                      57
<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
                               February 28, 2000

  This statement of additional information (SAI) is not a prospectus. However,
  you should read it in conjunction with the prospectus of the portfolios dated
  February 28, 2000, as supplemented from time to time. You may obtain a
  prospectus for the portfolios by contacting the UAM Funds at the address
  listed above.
<PAGE>


<TABLE>
<CAPTION>
Table Of Contents
<S>                                                                   <C>
Description of Permitted Investments.................................  1
 What Investment Strategies May the Portfolios Use?..................  1
 Debt Securities.....................................................  2
 Derivatives.........................................................  9
 Equity Securities................................................... 17
 Foreign Securities.................................................. 18
 Investment Companies................................................ 22
 Repurchase Agreements............................................... 22
 Restricted Securities............................................... 22
 Securities Lending.................................................. 23
 When Issued Transactions............................................ 23
Investment Policies of the Portfolios................................ 24
 Fundamental Policies................................................ 24
 Non-Fundamental Policies............................................ 26
Management Of The Fund............................................... 27
Principal Shareholders............................................... 28
Investment Advisory and Other Services............................... 29
 Investment Adviser.................................................. 29
 Distributor......................................................... 32
 Shareholder Servicing Arrangements.................................. 32
 Administrative Services............................................. 32
 Custodian........................................................... 34
 Independent Accountants............................................. 34
Brokerage Allocation and Other Practices............................. 34
 Selection of Brokers................................................ 34
 Simultaneous Transactions........................................... 35
 Brokerage Commissions............................................... 35
Capital Stock and Other Securities................................... 36
 Description Of Shares And Voting Rights............................. 36
Purchase, Redemption and Pricing of Shares........................... 37
 Net Asset Value Per Share........................................... 37
 Purchase of Shares.................................................. 38
 Redemption of Shares................................................ 39
 Exchange Privilege.................................................. 41
 Transfer Of Shares.................................................. 41
Performance Calculations............................................. 41
 Total Return........................................................ 41
 Yield............................................................... 42
 Comparisons......................................................... 42
Financial Statements................................................. 43
Glossary............................................................. 43
Bond Ratings......................................................... 44
 Moody's Investors Service, Inc...................................... 44
 Standard & Poor's Ratings Services.................................. 46
 Duff & Phelps Credit Rating Co...................................... 49
 Fitch IBCA Ratings.................................................. 50
Comparative Benchmarks............................................... 51
</TABLE>

<PAGE>


Description of Permitted Investments

WHAT INVESTMENT STRATEGIES MAY THE PORTFOLIOS USE?
- --------------------------------------------------------------------------------
  The portfolios currently intend to use the securities and investment
  strategies listed below in seeking their objectives; however, they may at any
  time invest in any of the investment strategies described in this SAI.  This
  SAI describes each of these investments/strategies and their risks. A
  portfolio may not notify shareholders before employing new strategies, unless
  it expects such strategies to become principal strategies.  The investments
  that are italicized are principal strategies and you can find more information
  on these techniques in the prospectus of the portfolio. You can find more
  information concerning the limits on the ability of the portfolios to use
  these investments in "What Are the Investment Policies of the Portfolios?"

Equity Portfolio
 .  Equity securities.
 .  Short-term investments.
 .  Investment companies.
 .  Repurchase agreements.
 .  Restricted securities.
 .  Securities lending.
 .  When issued securities.

International Equity Portfolio
 .  Foreign securities.
 .  Equity securities.
 .  Short-term investments.
 .  Futures.
 .  Options.
 .  Swaps.
 .  Forward currency exchange contracts.
 .  Investment companies.
 .  Repurchase agreements.
 .  Restricted securities.
 .  Securities lending.
 .  When issued securities.

Fixed Income Portfolio
 .  Foreign securities.
 .  Debt securities.
 .  Investment companies.


                                       1
<PAGE>


 .  Repurchase agreements.
 .  Restricted securities.
 .  Securities lending.
 .  When issued securities.

Balanced Portfolio
 .  Foreign securities.
 .  Equity securities.
 .  Debt securities.
 .  Investment companies.
 .  Repurchase agreements.
 .  Restricted securities.
 .  Securities lending.
 .  When issued securities.

DEBT SECURITIES
- --------------------------------------------------------------------------------
  Corporations and governments use debt securities 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.

Types of Debt Securities

  U.S. Government Securities

  U.S. government securities are securities that the U.S. Treasury has issued
  (treasury securities) and securities that a federal agency or a government-
  sponsored entity has issued (agency securities). Treasury securities include
  treasury notes, which have initial maturities of one to ten years and treasury
  bonds, which have initial maturities of at least ten years and certain types
  of mortgage-backed securities that are described under "Mortgage-Backed
  Securities" and "Other Asset-Backed Securities." This SAI discusses mortgage-
  backed treasury and agency securities in detail in the section called
  "Mortgage-Backed Securities" and "Other Asset-Backed Securities."

  The full faith and credit of the U.S. government supports treasury securities.
  Unlike treasury securities, the full faith and credit of the U.S. government
  generally do not back agency securities.  Agency securities are typically
  supported in one of three ways:

  .  by the right of the issuer to borrow from the U.S. Treasury;
  .  by the discretionary authority of the U.S. government to buy the
     obligations of the agency; or
  .  by the credit of the sponsoring agency.

  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.


                                       2
<PAGE>


  Corporate Bonds

  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.


  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. Unlike most debt securities, which pay
  interest periodically and repay principal at maturity or on specified call
  dates, mortgage-backed securities make monthly payments that consist of both
  interest and principal payments. In effect, these payments are a "pass-
  through" of the monthly payments made by the individual borrowers on their
  mortgage loans, net of any fees paid to the issuer or guarantor of such
  securities.  Since homeowners usually have the option of paying either part or
  all of the loan balance before maturity, the effective maturity of a mortgage-
  backed security is often shorter than is stated.

  Governmental entities, private insurers and the mortgage poolers may insure or
  guarantee 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.  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 is the principal governmental guarantor of mortgage-related securities.
  GNMA is a wholly owned corporation of the U.S. government and it falls within
  the Department of Housing and Urban Development. Securities issued by GNMA are
  treasury securities, which means the full faith and credit of the U.S.
  government backs them.  GNMA 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 a
  portfolio's 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 is regulated by the Secretary of Housing and Urban
  development.  FNMA purchases conventional mortgages from a list of approved
  sellers and service providers, including state and federally-chartered savings
  and loan associations, mutual savings banks, commercial banks and credit
  unions and mortgage bankers. Securities issued by FNMA are agency securities,
  which means FNMA, but not the U.S. government, guarantees their timely payment
  of principal and interest.




     Federal Home Loan Mortgage Corporation (FHLMC)


                                       3
<PAGE>


  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. 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.



Risks of Mortgage-Backed Securities
  Yield characteristics of mortgage-backed securities differ from those of
  traditional debt securities in a variety of ways, the most significant
  differences are mortgage-backed securities:

  .  payments of interest and principal are more frequent (usually monthly); and
  .  falling interest rates generally cause individual borrowers to pay off
     their mortgage earlier than expected forcing a portfolio to reinvest the
     money at a lower interest rate.

  In addition to risks associated with changes in interest rates described in
  "Factors Affecting the Value of Debt Securities," a variety of economic,
  geographic, social and other factors, such as the sale of the underlying
  property, refinancing or foreclosure, can cause investors to repay the loans
  underlying a mortgage-backed security 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.

  Other Asset-Backed Securities

  These securities are interests in pools of a broad range of assets other than
  mortgages, such as automobile loans, computer leases and credit card
  receivables.  Like mortgage-backed securities, these securities are pass-
  through. 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 related asset-backed securities.  Due
  to the quantity of vehicles involved and requirements under state laws, asset-
  backed securities backed by automobile receivables may not have a proper
  security interest in all of the obligations backing such receivables.



                                       4
<PAGE>

  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.



  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 prepay principal
  monthly. While whole mortgage loans may collateralize CMOs, 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.

  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 securities listed below, U.S. government securities and
  investment-grade corporate debt securities. Unless otherwise specified, a
  short-term debt security has a maturity of one year or less.

  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 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.
  A portfolio may only purchase time deposits maturing from two business days
  through seven calendar days.



                                       5
<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 a short-term obligation with a maturity ranging from 1 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 "Bond Ratings" for a description
  of commercial paper ratings.

  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 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 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


                                       6
<PAGE>



  sold separately or grouped with other coupons with like maturity dates and
  sold bundled in such form. The underlying 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.



Terms to Understand

  Maturity

  Every debt security has a stated maturity date when the issuer must repay the
  amount it borrowed (principal) from investors.  Some debt securities, however,
  are callable, meaning the issuer can repay the principal earlier, on or after
  specified dates (call dates).  Debt securities are most likely to be called
  when interest rates are falling because the issuer can refinance at a lower
  rate, similar to a homeowner refinancing a mortgage.  The effective maturity
  of a debt security is usually its nearest call date.

  A portfolio that invests in debt securities has no real maturity.  Instead, it
  calculates its weighted average maturity.  This number is an average of the
  stated maturity of each debt security held by a portfolio, with the maturity
  of each security weighted by the percentage of the assets of the portfolio it
  represents.

  Duration

  Duration is a calculation that seeks to measure the price sensitivity of a
  debt security, or a portfolio that invests in debt securities, to changes in
  interest rates.  It measures sensitivity more accurately than maturity because
  it takes into account the time value of cash flows generated over the life of
  a debt security.  Future interest payments and principal payments are
  discounted to reflect their present value and then are multiplied by the
  number of years they will be received to produce a value expressed in years --
  the duration.  Effective duration takes into account call features and sinking
  fund prepayments that may shorten the life of a debt security.

  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.

Factors Affecting the Value of Debt 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).


                                       7
<PAGE>


  Prepayment Risk

  This risk effects mainly mortgage-backed securities.  Unlike other debt
  securities, falling interest rates can hurt mortgage-backed securities, which
  may cause your share price to fall.  Lower rates motivate people to pay off
  mortgage-backed and asset-backed securities earlier than expected.  A
  portfolio may then have to reinvest the proceeds from such prepayments at
  lower interest rates, which can reduce its yield. 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 a portfolio.  If
  left unattended, drifts in the average maturity of a portfolio can have the
  unintended effect of increasing or reducing the effective duration of the
  portfolio, which may adversely affect the expected performance of the
  portfolio.

  Extension Risk

  The other side of prepayment risk occurs when interest rates are rising.
  Rising interest rates can cause a portfolio's average maturity to lengthen
  unexpectedly due to a drop in mortgage prepayments.  This would increase the
  sensitivity of a portfolio to rising rates and its potential for price
  declines.  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.

  Credit Rating

  Coupon interest is offered to investors of debt securities as compensation for
  assuming risk, although short-term Treasury securities, such as 3-month
  treasury bills, are considered "risk free." Corporate securities offer higher
  yields than Treasury securities 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 Treasury securities.

  Changes in investor confidence regarding the certainty of interest and
  principal payments of a corporate debt 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.

  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.

  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 Moody's Investor
  Services ("Moody's"), Standard and Poor's Ratings Services ("S&P"), Duff &
  Phelps Rating Co. and Fitch IBCA. Credit ratings are only an agency's opinion,
  not an absolute standard of quality, and they do not reflect an evaluation of
  market risk.

                                       8
<PAGE>


  The section "Bond Ratings" 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.

DERIVATIVES
- --------------------------------------------------------------------------------
  Derivatives are financial instruments whose value is based on an underlying
  asset, such as a stock or a bond, an underlying economic factor, such as an
  interest rate or a market benchmark, such as an index. Investors can use
  derivatives to gain exposure to various markets in a cost efficient manner, to
  reduce transaction costs or to remain fully invested.  They may also invest in
  derivatives to protect it 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.

Types of Derivatives

  Futures

  A futures contract is an agreement between two parties whereby one party sells
  and the other party agrees to buy a specified amount of a financial instrument
  at an agreed upon price and time. The financial instrument underlying the
  contract may be a stock, stock index, bond, bond index, interest rate, foreign
  exchange rate or other similar instrument. Agreeing to buy the underlying
  financial information is called buying a futures contract or taking a long
  position in the contract. Likewise, agreeing to sell the underlying financial
  instrument is called selling a futures contract or taking a short position in
  the contract.

  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.

  Unlike other securities, the parties to a futures contract do not have to pay
  for or deliver the underlying financial instrument until some future date (the
  delivery date). 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.  This process is known
  as "marking to the market."

  Although the actual terms of a futures contract calls for the actual delivery
  of and payment for the underlying security, in many cases the parties may
  close the contract early by taking an opposite position in an identical
  contract. If the sale price upon closing out the contract is less than the
  original purchase price, the person closing out the contract will realize a
  loss.  If the sale price upon closing out the contract is more that the
  original purchase price, the person closing out the contract will realize a
  gain.  The opposite is also true.  If the purchase price upon closing out the
  contract is more than

                                       9
<PAGE>


  the original sale price, the person closing out the contract will realize a
  loss. If the purchase price upon closing out the contract is less than the
  original sale price, the person closing out the contract will realize a gain.

  The portfolio will incur commission expenses in either opening, closing or
  possibly opening and closing futures positions.


  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
  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



                                      10
<PAGE>


  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
     and segregating cash or liquid securities in an amount equal to the
     difference between the exercise prices;

  .  Cash or liquid securities equal to at least the market value of the
     optioned securities, interest rate, foreign currency or futures contract;
     or

  .  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;

  .  Purchasing a put option on the same security, index, interest rate, foreign
     currency or futures contract with a lesser exercise price and segregating
     cash or liquid securities in an amount equal to the difference between the
     exercise prices; or

  .  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.

                                      11
<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.


  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 the 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.


  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).

  .  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 only on exchanges regulated by the CFTC.

  .  Do not require an initial margin deposit.

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<PAGE>


  .  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 the
  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. The 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.

  The portfolio may 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. The 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 the 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.

  The 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 the 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, the 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, the
  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.

  Swaps, Caps, Collars and Floors


Swap Agreements

  A swap is a financial instrument that typically involves the exchange of cash
  flows between two parties on specified dates (settlement dates), where the
  cash flows are based on agreed-upon prices, rates, indices, etc. The nominal
  amount on which the cash flows are calculated is called the notional amount.
  Swaps are individually negotiated and structured to include exposure to a
  variety of different types of investments or market factors, such as interest
  rates, foreign currency rates, mortgage securities, corporate borrowing rates,
  security prices or inflation rates.

  Swap agreements may increase or decrease the overall volatility of the
  investments of the portfolio and its share price. The performance of swap
  agreements may be affected by a change in the specific interest rate,
  currency, or other factors that determine the amounts of payments due to and
  from the portfolio. If a swap agreement calls for payments by the

                                      13
<PAGE>


  portfolio, the portfolio must be prepared to make such payments when due. In
  addition, if the counter-party's creditworthiness declined, the value of a
  swap agreement would be likely to decline, potentially resulting in losses.

  Generally, swap agreements have a fixed maturity date that will be agreed upon
  by the parties. The agreement can be terminated before the maturity date only
  under limited circumstances, such as default by one of the parties or
  insolvency, among others, and can be transferred by a party only with the
  prior written consent of the other party. The portfolio may be able to
  eliminate its exposure under a swap agreement either by assignment or by other
  disposition, or by entering into an offsetting swap agreement with the same
  party or a similarly creditworthy party. If the counter-party is unable to
  meet its obligations under the contract, declares bankruptcy, defaults or
  becomes insolvent, the portfolio may not be able to recover the money it
  expected to receive under the contract.

  A swap agreement can be a form of leverage, which can magnify a portfolio's
  gains or losses. In order to reduce the risk associated with leveraging, a
  portfolio will cover its current obligations under swap agreements according
  to guidelines established by the SEC. If the portfolio enters into a swap
  agreement on a net basis, it will segregate assets with a daily value at least
  equal to the excess, if any, of the portfolio's accrued obligations under the
  swap agreement over the accrued amount the portfolio is entitled to receive
  under the agreement. If the portfolio enters into a swap agreement on other
  than a net basis, it will segregate assets with a value equal to the full
  amount of the portfolio's accrued obligations under the agreement.

  Equity Swaps -- In a typical equity index swap, one party agrees to pay
  another party the return on a stock, stock index or basket of stocks in return
  for a specified interest rate. By entering into an equity index swap, for
  example, the index receiver can gain exposure to stocks making up the index of
  securities without actually purchasing those stocks. Equity index swaps
  involve not only the risk associated with investment in the securities
  represented in the index, but also the risk that the performance of such
  securities, including dividends, will not exceed the return on the interest
  rate that the portfolio will be committed to pay.

  Interest Rate Swaps -- Interest rate swaps are financial instruments that
  involve the exchange on one type of interest rate for another type of interest
  rate cash flow on specified dates in the future. Some of the different types
  of interest rate swaps are "fixed-for floating rate swaps," "termed basis
  swaps" and "index amortizing swaps." Fixed-for floating rate swap involve the
  exchange of fixed interest rate cash flows for floating rate cash flows.
  Termed basis swaps entail cash flows to both parties based on floating
  interest rates, where the interest rate indices are different. Index
  amortizing swaps are typically fixed-for floating swaps where the notional
  amount changes if certain conditions are met.

  Like a traditional investment in a debt security, a portfolio could lose money
  by investing in an interest rate swap if interest rates change adversely. For
  example, if the portfolio enters into a swap where it agrees to exchange a
  floating rate of interest for a fixed rate of interest, the portfolio may have
  to pay more money than it receives. Similarly, if the portfolio enters into a
  swap where it agrees to exchange a fixed rate of interest for a floating rate
  of interest, the portfolio may receive less money than it has agreed to pay.

  Currency Swaps -- A currency swap is an agreement between two parties in which
  one party agrees to make interest rate payments in one currency and the other
  promises to make interest rate payments in another currency. A portfolio may
  enter into a currency swap when it has one currency and desires a different
  currency. Typically the interest rates that determine the currency swap
  payments are fixed, although occasionally one or both parties may pay a
  floating rate of interest. Unlike an interest rate swap, however, the
  principal amounts are exchanged at the beginning of the contract and returned
  at the end of the contract. Changes in foreign exchange rates and changes in
  interest rates, as described above may negatively affect currency swaps.


Caps, Collars and Floors

  Caps and floors have an effect similar to buying or writing options. In a
  typical cap or floor agreement, one party agrees to make payments only under
  specified circumstances, usually in return for payment of a fee by the other
  party. For example, the buyer of an interest rate cap obtains the right to
  receive payments to the extent that a specified interest rate exceeds an
  agreed-upon level. The seller of an interest rate floor is obligated to make
  payments to the extent that a specified interest rate falls below an agreed-
  upon level. An interest rate collar combines elements of buying a cap and
  selling a floor.

                                      14
<PAGE>


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.

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
  expected.

  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; and

  .  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



                                      15
<PAGE>


  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.
  Moreover, a portfolio may close out a futures contract only on the exchange
  the contract was initially traded. Although a portfolio intends to purchase
  options and futures only where there appears to be an active market, there is
  no guarantee that such a liquid market will exist. If there is no secondary
  market for the contract, or the market is illiquid, the portfolio may not be
  able to close out its position. In an illiquid market, the portfolio may:

  .  have to sell securities to meet its daily margin requirements at a time
     when it is disadvantageous to do so;

  .  have to purchase or sell the instrument underlying the contract;

  .  not be able to hedge its investments; and

  .  not be able realize profits or limit 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:

  .  an exchange may suspend or limit trading in a particular derivative
     instrument, an entire category of derivatives or all derivatives, which
     sometimes occurs because of increased market volatility;

  .  unusual or unforeseen circumstances may interrupt normal operations of an
     exchange;

  .  the facilities of the exchange may not be adequate to handle current
     trading volume;

  .  equipment failures, government intervention, insolvency of a brokerage firm
     or clearing house or other occurrences may disrupt normal trading activity;
     or

  .  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.

  Volatility and Leverage
  The prices of derivatives are volatile (i.e., they may change rapidly,
  substantially and unpredictably) and are influenced by a variety of factors,
  including:

  .  actual and anticipated changes in interest rates;

  .  fiscal and monetary policies; and

  .  national and international political events.

  Most exchanges limit the amount by which the price of a derivative can change
  during a single trading day. Daily trading limits establish the maximum amount
  that the price of a derivative may vary from the settlement price of that
  derivative at the end of trading on the previous day. Once the price of a
  derivative reaches this value, a portfolio may not trade that derivative at a
  price beyond that limit. The daily limit governs only price movements during a
  given day and does not limit potential gains or losses. Derivative prices have
  occasionally moved to the daily limit for several consecutive trading days,
  preventing prompt liquidation of the derivative.

                                      16
<PAGE>

  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-dealer with whom it has an open futures contract or related option
  becomes insolvent or declares bankruptcy.

EQUITY SECURITIES
- --------------------------------------------------------------------------------

Types of Equity Securities

  Common Stocks

  Common stocks represent units of ownership in a company. Common stocks usually
  carry voting rights and earn dividends. Unlike preferred stocks, which are
  described below, dividends on common stocks are not fixed but are declared at
  the discretion of the company's board of directors.


  Preferred Stocks

  Preferred stocks are also units of ownership in a company. Preferred stocks
  normally have preference over common stock in the payment of dividends and the
  liquidation of the company. However, in all other respects, preferred stocks
  are subordinated to the liabilities of the issuer. Unlike common stocks,
  preferred stocks are generally not entitled to vote on corporate matters.
  Types of preferred stocks include adjustable-rate preferred stock, fixed
  dividend preferred stock, perpetual preferred stock, and sinking fund
  preferred stock. Generally, the market values of preferred stock with a fixed
  dividend rate and no conversion element varies inversely with interest rates
  and perceived credit risk.


  Convertible Securities

  Convertible securities are debt securities and preferred stocks that are
  convertible into common stock at a specified price or conversion ratio.  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. Their market price tends to go up if the stock price moves up.

  Convertible securities are subject to the same risks as similar securities
  without the convertible feature. The price of a convertible security is more
  volatile during times of steady interest rates than other types of debt
  securities.


  Rights and Warrants

  A right is a privilege granted to existing shareholders of a corporation to
  subscribe to shares of a new issue of common stock before it is issued. Rights
  normally have a short life, usually two to four weeks, are freely transferable
  and entitle the holder to buy the new common stock at a lower price than the
  public offering price. Warrants are securities that are usually issued
  together with a debt security or preferred stock and that give the holder the
  right to buy proportionate amount of common stock at a specified price.
  Warrants are freely transferable and are traded on major exchanges. Unlike
  rights, warrants normally have a life that is measured in years and entitles
  the holder to buy common stock of a company at a price that is usually higher
  than the market price at the time the warrant is issued. Corporations often
  issue warrants to make the accompanying debt security more attractive.

  An investment in warrants and rights may entail greater risks than certain
  other types of investments. Generally, rights and warrants do not carry 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. In addition, their value does not necessarily change with the
  value of the underlying securities, and they cease to have value if they are
  not exercised on or before

                                      17
<PAGE>


  their expiration date. Investing in rights and warrants increases the
  potential profit or loss to be realized from the investment as compared with
  investing the same amount in the underlying securities.


Risks of Investing in Equity Securities

  General Risks of Investing in Stocks

  While investing in stocks allows investors to participate in the benefits of
  owning a company, such investors 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.

  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; and

  .  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.

  Because preferred stock is generally 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.


  Small and Medium-Sized Companies

  Investors in small and medium-sized companies typically take on greater risk
  and price volatility than they would by investing in larger, more established
  companies. This increased risk may be due to the greater business risks of
  their small or medium size, limited markets and financial resources, narrow
  product lines and frequent lack of management depth. The securities of small
  and medium companies are often traded in the over-the-counter market and might
  not be traded in volumes typical of securities traded on a national securities
  exchange. Thus, the securities of small and medium capitalization companies
  are likely to be less liquid, and subject to more abrupt or erratic market
  movements, than securities of larger, more established companies.


  Technology Companies

  Stocks of technology companies have tended to be subject to greater volatility
  than securities of companies that are not dependent upon or associated with
  technological issues. Technology companies operate in various industries.
  Since these industries frequently share common characteristics, an event or
  issue affecting one industry may significantly influence other, related
  industries. For example, technology companies may be strongly affected by
  worldwide scientific or technological developments and their products and
  services may be subject to governmental regulation or adversely affected by
  governmental policies.

FOREIGN SECURITIES
- --------------------------------------------------------------------------------

Types of Foreign Securities

  Foreign securities are debt and equity securities that are traded in markets
  outside of the United States. The markets in which these securities are
  located can be developed or emerging. People can invest in foreign securities
  in a number of ways:

  .  They can invest directly in foreign securities denominated in a foreign
     currency;

                                      18
<PAGE>


  .  They can invest in American Depositary Receipts, European Depositary
     Receipts and other similar global instruments; and

  .  They can invest in 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. EDRs are similar to ADRs, except that they are
  typically issued by European Banks or trust companies.

  Emerging Markets

  An "emerging country" is generally a country that 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 currently 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.

  Investment Funds

  Some emerging countries currently prohibit direct foreign investment in the
  securities of their companies.  Certain emerging countries, however, permit
  indirect foreign investment in the securities of companies listed and traded
  on their stock exchanges through investment funds that they have specifically
  authorized.  Investments in these investment funds are subject to the
  provisions of the 1940 Act.  Shareholders of a UAM Fund that invests in such
  investment funds will bear not only their proportionate share of the expenses
  of the UAM Fund (including operating expenses and the fees of the adviser),
  but also will bear indirectly bear similar expenses of the underlying
  investment funds.  In addition, these investment funds may trade at a premium
  over their net asset value.

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.

  Political and Economic Factors

  Local political, economic, regulatory, or social instability, military action
  or unrest, or adverse diplomatic developments may affect the value of foreign
  investments.  Listed below are some of the more important political and
  economic factors that could negatively affect an investment in foreign
  securities:

  .  The economies of foreign countries may differ from the economy of the
     United States in such areas as growth of gross national product, rate of
     inflation, capital reinvestment, resource self-sufficiency, budget deficits
     and national debt;

                                      19
<PAGE>


  .  Foreign governments sometimes participate to a significant degree, through
     ownership interests or regulation, in their respective economies. Actions
     by these governments could significantly influence the market prices of
     securities and payment of dividends;

  .  The economies of many foreign countries are dependent on international
     trade and their trading partners and they could be severely affected if
     their trading partners were to enact protective trade barriers and economic
     conditions;

  .  The internal policies of a particular foreign country may be less stable
     than in the United States. Other countries face significant external
     political risks, such as possible claims of sovereignty by other countries
     or tense and sometimes hostile border clashes; and

  .  A foreign government may act adversely to the interests of U.S. investors,
     including expropriation or nationalization of assets, confiscatory taxation
     and other restrictions on U.S. investment. A country may restrict or
     control foreign investments in its securities markets. These restrictions
     could limit the portfolio's ability to invest in a particular country or
     make it very expensive for the portfolio to invest in that country. Some
     countries require prior governmental approval, limit the types or amount of
     securities or companies in which a foreigner can invest. Other countries
     may restrict the ability of foreign investors to repatriate their
     investment income and capital gains.

  Information and Supervision

  There is generally less publicly available information about foreign companies
  than companies based in the United States. For example, there are often no
  reports and ratings published about foreign companies comparable to the ones
  written about United States companies. Foreign companies are typically not
  subject to uniform accounting, auditing and financial reporting standards,
  practices and requirements comparable to those applicable to United States
  companies. The lack of comparable information makes investment decisions
  concerning foreign countries more difficult and less reliable than domestic
  companies.

  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 the markets in the
  United States. Foreign stocks markets tend to differ from those in the United
  States in a number of ways:

  .  They are generally not as developed or efficient as, and more volatile,
     than those in the United States;

  .  They have substantially less volume;

  .  Their securities tend to be less liquid and to experience rapid and erratic
     price movements;

  .  Commissions on foreign stocks are generally higher and subject to set
     minimum rates, as opposed to negotiated rates;

  .  Foreign security trading, settlement and custodial practices are often less
     developed than those in U.S. markets; and

  .  They may have different settlement practices, which may cause delays and
     increase the potential for failed settlements.

  Foreign Currency Risk

  While the UAM Funds denominate their net asset value in United States dollars,
  the securities of foreign companies are frequently denominated in foreign
  currencies. Thus, a change in the value of a foreign currency against the
  United States dollar will result in a corresponding change in value of
  securities denominated in that currency.   Some of the factors that may impair
  the investments denominated in a foreign currency are:

  .  It may be expensive to convert foreign currencies into United States
     dollars and vice versa;

                                      20
<PAGE>


  .   Complex political and economic factors may significantly affect the values
      of various currencies, including United States dollars, and their 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 may be no systematic reporting of last sale information for foreign
      currencies or 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; and

  .   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.


  Taxes

  Certain foreign governments levy withholding taxes on dividend and interest
  income. Although in some countries it is possible for the portfolio to recover
  a portion of these taxes, the portion that cannot be recovered 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.

  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 relatively unstable governments;

  .  Present greater risks of nationalization of businesses, restrictions on
     foreign ownership and prohibitions on the repatriation of assets;

  .  Offer less protection of property rights than more developed countries; and

  .  Have economies that are 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.

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 began 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 became denominations of the
  Euro at fixed rates according to practices prescribed by the European Monetary
  Institute and the Euro became available as a book-entry currency. On or
  about

                                      21
<PAGE>


  that date, member states began conducting financial market transactions in
  Euros and redenominating many investments, currency balances and transfer
  mechanisms into Euros. The portfolio also anticipates pricing, trading,
  settling and valuing investments whose nominal values remain in their existing
  domestic currencies in Euros. Accordingly, the portfolio expects the
  conversion to the Euro to impact investments in countries that 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?


INVESTMENT COMPANIES
- --------------------------------------------------------------------------------
  A portfolio may buy and sell shares of other investment companies. Such
  investment companies may pay management and other fees that are similar to the
  fees currently paid by a portfolio. Like other shareholders, each portfolio
  would pay its proportionate share of those fees. Consequently, shareholders of
  a portfolio would pay not only the management fees of the portfolio, but also
  the management fees of the investment company in which the portfolio invests.
  A portfolio may invest up to 10% of its total assets in the securities of
  other investment companies, but may not invest more than 5% of its total
  assets in the securities of any one investment company or acquire more than 3%
  of the outstanding securities of any one investment company.

  The SEC has granted an order that allows a portfolio to invest the greater of
  5% of its total assets or $2.5 million in the UAM DSI Money Market Portfolio,
  provided that the investment is:

  .  For cash management purposes;

  .  Consistent with a portfolio's investment policies and restrictions; and

  .  The adviser to the investing portfolio waives any fees it earns on the
     assets of the portfolio that are invested 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, an investor agrees to buy a security (underlying
  security) from a securities dealer or bank that is a member of the Federal
  Reserve System (counter-party). At the time, the counter-party agrees to
  repurchase the underlying security for the same price, plus interest.
  Repurchase agreements are generally for a relatively short period (usually not
  more than 7 days). The portfolios normally use repurchase agreements to earn
  income on assets that are not invested.

  When a portfolio enters into a repurchase agreement it will:

  .  Pay for the underlying securities only upon physically receiving them or
     upon evidence of their receipt in book-entry form; and

  .  Require the counter party to add to the collateral whenever the price of
     the repurchase agreement rises above the value of the underlying security
     (i.e., it will require the borrower to "mark to the market" on a daily
     basis).

                                      22
<PAGE>


  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.

RESTRICTED SECURITIES
- --------------------------------------------------------------------------------
  The portfolios 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 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 the
  portfolio's investment limitations. The price realized from the sales of these
  securities could be more or less than those originally paid by a portfolio or
  less than what may be considered the fair value of such securities.

SECURITIES LENDING
- --------------------------------------------------------------------------------
  A portfolio may lend a portion of its total assets to broker- dealers or other
  financial institutions. It may then reinvest the collateral it receives in
  short-term securities and money market funds. When a portfolio lends its
  securities, it will follow the following guidelines:

  .  The borrower must provide collateral at least equal to the market value of
     the securities loaned;

  .  The collateral 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 must add to the collateral whenever the price of the
     securities loaned rises (i.e., the borrower "marks to the market" on a
     daily basis);

  .  It must be able to terminate the loan at any time;

  .  It must receive reasonable interest on the loan (which may include the
     portfolio investing any cash collateral in interest bearing short-term
     investments); and

  .  It must determine that the borrower is an acceptable credit risk.

  These risks are similar to the ones involved with repurchase agreements. When
  the portfolio lends securities, there is a risk that the borrower will become
  financially unable to honor its contractual obligations. If this happens, the
  portfolio could:

  .  Lose its rights in the collateral and not be able to retrieve the
     securities it lent to the borrower; and

  .  Experience delays in recovering its securities.

WHEN ISSUED 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 deliver 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.

                                      23
<PAGE>

  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, a
  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.

  A portfolio will segregate cash and liquid securities equal in value to
  commitments for the when-issued, delayed-delivery or forward delivery
  transaction. A portfolio will segregate additional liquid assets daily so that
  the value of such assets is equal to the amount of its commitments.

Investment Policies of the Portfolios

  A portfolio will determine investment limitation percentages (with the
  exception of a limitation relating to borrowing) immediately after and as a
  result of its acquisition of such security or other asset. Accordingly, a
  portfolio will not consider changes in values, net assets or other
  circumstances when determining whether the investment complies with its
  investment limitations.

FUNDAMENTAL POLICIES
- --------------------------------------------------------------------------------
  The following investment limitations are fundamental, which means a portfolio
  cannot change them without approval by the vote of a majority of the
  outstanding voting securities of the portfolio, as defined by the 1940 Act.

Balanced Portfolio

  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 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 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 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)

                                      24
<PAGE>

     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.

  .  Purchase additional securities when borrowings exceed 5% of total gross
     assets.

Equity and Fixed Income Portfolios

  Each of 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 (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 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 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 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 10% of its assets at fair market value.

  .  Purchase additional securities when borrowings exceed 5% of total gross
     assets.

International Portfolio

  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 (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.

                                      25
<PAGE>

  .  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 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 options
     and futures 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 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 10% of its assets at fair market value.

  .  Purchase additional securities when borrowings exceed 5% of total gross
     assets.

NON-FUNDAMENTAL POLICIES
- --------------------------------------------------------------------------------
  The following limitations are non-fundamental, which means a portfolio may
  change them without shareholder approval.

Balanced Portfolio

  The portfolio will not:

  .  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.

Equity Portfolio

  The portfolio will not:

  .  Invest more than 20% of the portfolio's assets in American Depositary
     Receipts.

  .  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 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.

Fixed Income Portfolio

  The portfolio will not:

  .  Invest in commodities.

  .  Invest more than 20% of the portfolio's assets in obligations or foreign
     governments, agencies, or corporations denominated either in U.S. dollars
     or foreign currencies.

  .  Purchase on margin or sell short except as specified above.

                                      26
<PAGE>

  .  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.

  In addition, the adviser intends to limit the TS&W Fixed Income Portfolio's
  investments to investment grade securities; however, the adviser reserves the
  right to retain securities which are rated Ba or B by Moody's or BB or B by
  S&P if, in the adviser's judgement, maintaining a position in the securities
  is warranted.

International Portfolio

  The portfolio will not:

  .  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 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.

  .  Invest in stock or bond futures and/or options on futures unless not more
     than 5% of the portfolio's assets are invested in stock or bond futures and
     options on futures.

  .  Purchase on margin or sell short except as specified above.

  .  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.

Management Of The Fund

  The governing board manages the business of the Fund. The governing board
  elects officers to manage the day-to-day operations of the Fund and to execute
  policies the board has formulated. 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 and a $2,000 meeting fee. In
  addition, the Fund reimburses each independent board member 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 board members that are affiliated with the fund for their
  services as board members. UAM, its affiliates or SEI 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. The UAM Funds Complex is currently comprised of 51
  portfolios. Those people with an asterisk (*) beside their name are
  "interested persons" of the Fund as that term is defined in the 1940 Act. Mr.
  English does have an investment advisory relationship with Investment
  Counselors of Maryland, an investment adviser to one of the portfolios in the
  UAM Funds Complex. However, the Fund does not believe that the relationship is
  a material business relationship, and, therefore, does not consider him to be
  an "interested person" of the Fund. If these circumstances change, the Board
  will determine whether any action is required to change the composition of the
  Board.

                                      27
<PAGE>

<TABLE>
<CAPTION>
                                                                                                                       Aggregate
                                                                                                   Aggregate          Compensation
                                                                                                  Compensation        From the Fund
                                                                                                  From the Fund       Complex as of
                          Position with                                                           as of October        October 31,
Name, Address, DOB        Fund           Principal Occupations During the Past 5 years              31, 1999              1999
- -----------------------------------------------------------------------------------------------------------------------------------
<S>                       <C>            <C>                                                      <C>                 <C>
John T. Bennett, Jr.      Board Member   President of Squam Investment Management Company,            $7,137            $10,625
College Road -- RFD 3                    Inc. and Great Island Investment Company, Inc.;
Meredith, NH 03253                       President of Bennett Management Company from 1988 to
1/26/29                                  1993.
- -----------------------------------------------------------------------------------------------------------------------------------
Nancy J. Dunn             Board Member   Financial Officer of World Wildlife Fund since               $7,137            $10,625
1250 24th St., NW                        January 1999; Vice President for Finance and
Washington, DC  20037                    Administration and Treasurer of Radcliffe College
8/14/51                                  from 1991 to 1999.
- -----------------------------------------------------------------------------------------------------------------------------------
William A. Humenuk        Board Member   Executive Vice President and Chief Administrative            $7,137            $10,625
100 King Street West                     Officer of Philip Services Corp.; Formerly, a Partner
P.O. Box 2440, LCD-1                     in the Philadelphia office of the law firm Dechert
Hamilton  Ontario,                       Price & Rhoads and a Director of Hofler Corp.
Canada L8N-4J6
4/21/42
- -----------------------------------------------------------------------------------------------------------------------------------
Philip D. English         Board Member   President and Chief Executive Officer of Broventure          $7,137            $10,625
16 West Madison Street                   Company, Inc.; Chairman of the Board of Chektec
Baltimore, MD 21201                      Corporation and Cyber Scientific, Inc.
8/5/48
- -----------------------------------------------------------------------------------------------------------------------------------
James P. Pappas*          Board Member   President of UAM Investment Services, Inc. since                0                 0
211 Congress Street                      March 1999; Vice President UAM Trust Company since
Boston, MA  02110                        January 1996; Principal of UAM Fund Distributors,
2/24/53                                  Inc. since December 1995; Vice President of UAM
                                         Investment Services, Inc. from January 1996 to March
                                         1999 and a Director and Chief Operating Officer of CS
                                         First Boston Investment Management from 1993-1995.
- -----------------------------------------------------------------------------------------------------------------------------------
Norton H. Reamer*         Board Member;  Chairman, Chief Executive Officer and a Director of             0                 0
One International Place   President and  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.*    Board Member   President and Chief Investment Officer of Dewey                 0                 0
One Financial Center                     Square Investors Corporation since 1988; Director and
Boston, MA 02111                         Chief Executive Officer of H.T. Investors, Inc.,
7/1/43                                   formerly a 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; Treasurer of the                0                 0
211 Congress Street                      Fidelity Group of Mutual Funds from 1991 to 1995;
Boston, MA 02110                         held various other offices with Fidelity Investments
7/4/51                                   from November 1990 to March 1995.
- -----------------------------------------------------------------------------------------------------------------------------------
Robert R. Flaherty        Assistant      Vice President of UAMFSI; Manager of Fund                       0                 0
211 Congress Street       Treasurer      Administration and Compliance of Chase Global Fund
Boston, MA 02110                         Services Company from 1995 to 1996; Senior Manager of
9/18/63                                  Deloitte & Touche LLP from 1985 to 1995,
- -----------------------------------------------------------------------------------------------------------------------------------
Robert J. DellaCroce      Assistant      Director, Mutual Fund Operations - SEI Investments;             0                 0
SEI Investments           Treasurer      Senior Manager at Arthur Andersen prior to 1994.
One Freedom Valley Rd.
Oaks, PA  19456
12/17/63
</TABLE>

                                      28
<PAGE>

Principal Shareholders


     As of February 1, 2000, the following persons or organizations held of
     record or beneficially 5% or more of the shares of a portfolio:

<TABLE>
<CAPTION>
                                                  Percentage of Shares
     Name and Address of Shareholder                    Owned                        Portfolio                   Class
     -------------------------------------------------------------------------------------------------------------------------------
     <S>                                          <C>                              <C>                    <C>
     New York Life Trust Company                        9.34%                        TS&W Equity          Institutional Class
     51 Madison Ave, RM 117A                                                          Portfolio                 Shares
     New York,  NY  10010-1603
     -------------------------------------------------------------------------------------------------------------------------------
     Lewis Gale Clinic, Inc.                            8.71%                        TS&W Equity          Institutional Class
     c/o Gil Coblintz                                                                 Portfolio                 Shares
     1802 Braeburn Drive
     Salem,  VA 24153-7306
     -------------------------------------------------------------------------------------------------------------------------------
     Crestar Bank                                      10.65%                      TS&W Fixed Income      Institutional Class
     FBO C B Fleet DEF Benefit PP TRSTE                                               Portfolio                 Shares
     Attn:  Jan Rittenhouse
     P.O. Box  105870
     Center 3144
     Atlanta,  GA  30348-5870
     -------------------------------------------------------------------------------------------------------------------------------
     Lewis Gale Clinic, Inc.                            7.26%                      TS&W Fixed Income      Institutional Class
     c/o Gil Coblentz                                                                 Portfolio                 Shares
     1802 Braeburn Drive
     Salem,  VA 24153-7399
     -------------------------------------------------------------------------------------------------------------------------------
     F & M Company                                      6.07%                      TS&W Fixed Income      Institutional Class
     Reinvest Account                                                                 Portfolio                 Shares
     PO Box 2800
     Winchester,  VA  22604-2000
     -------------------------------------------------------------------------------------------------------------------------------
     Charles Schwab & C., Inc.                          5.38%                      TS&W Fixed Income      Institutional Class
     Reinvest Account                                                                 Portfolio                 Shares
     Attn:  Mutual Funds
     101 Montgomery Street
     San Francisco,  Ca  94104-4122
     -------------------------------------------------------------------------------------------------------------------------------
     Riverside Health Care Foundation                  13.04%                      TS&W International     Institutional Class
     606 Denbigh Blvd., Suite 601                                                   Equity Portfolio            Shares
     Newport News,  VA  23608-4442
</TABLE>

     Any shareholder 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. Shareholders controlling the portfolio
     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. As of
     February 1, 2000, the directors and officers of the Fund owned less than 1%
     of the outstanding shares of the portfolios.


Investment Advisory and Other Services

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

                                      29
<PAGE>


     The adviser is a subsidiary of UAM. 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 more than 50 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.


Portfolio Management

     Balanced, Equity and Fixed Income Portfolios

     Investment committees are primarily responsible for the day-today-
     management of the 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.


     Name & Title                       Experience
     ---------------------------------------------------------------------------
     John T Siegel, CFA                 Princeton University, B.A., 1961;
     Managing Director                  United States Navy, 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.
     Managing Director                  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,           University of Virginia, B.S. Commerce,
     CFA, CPA                           1978; Chartered Financial Analyst;
     Senior Vice President              Chartered Investment Counsel; Thompson,
                                        Siegel & Walmsley, Inc., 1986-Present.
     ---------------------------------------------------------------------------
     Paul A. Ferwerda, CFA              Auburn University, B.S. finance, 1979;
     Senior Vice President              Duke University, Fuqua School of
                                        Business, M.B.A., 1982; Chartered
                                        Financial Analyst; Chartered Investment
                                        Counsel; Thompson, Siegel & Walmsley,
                                        Inc., 1987-Present.
     ---------------------------------------------------------------------------
     Charles A. Gomer, III              University of North Carolina, Chapel
     Vice President                     Hill, A.B., 1971; University of
                                        Richmond, M.S., 1978; Thompson, Siegel &
                                        Walmsley, Inc., 1991-Present.
     ---------------------------------------------------------------------------
     G.D. Rothenberg, CFA               University of Virginia, B.A., 1975;
     Vice President                     UCLA Graduate School of 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.
     Vice President                     Economics, 1985; 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
     Vice President                     Management, 1985; Chartered Financial
                                        Analyst; Thompson, Siegel & Walmsley,
                                        Inc., 1987-Present.
     ---------------------------------------------------------------------------
     Stuart R.Davies, CFA               Birmingham Southern College, B.S.
     Vice President                     Chemistry/Economics, 1985; Virginia
                                        Commonwealth University, M.S. Finance,
                                        1994; Chartered Financial Analyst;
                                        Chartered Investment Counsel; Thompson,
                                        Siegel, Walmsley, Inc. 1992-Present.
     ---------------------------------------------------------------------------
     J. Shelton Horsley, IV, CFA        University of Virginia, B.A., 1985;
                                        University of Virginia,


                                      30
<PAGE>


     Name & Title                       Experience
     ---------------------------------------------------------------------------
     Vice President                     M.B.A., 1991; Thompson, Siegel &
                                        Walmsley, Inc., 1994-Present.
     ---------------------------------------------------------------------------
     Brandon H. Harrell, CFA            Wake Forest University, B.A. Economics,
     Vice President                     1982; George Mason University, M.B.A.,
                                        1990; Chartered Financial Analyst;
                                        Thompson, Siegel & Walmsley, Inc.,
                                        1996-Present.
     ---------------------------------------------------------------------------
     Gordon Goodykoontz, CFA            Virginia Polytechnic Institute, BA
     Senior Vice President              Business, 1962; University of Virginia,
                                        MBA, 1966; Chartered Financial Analyst;
                                        Thompson, Siegel & Walmsley, Inc.,
                                        1997-Present.


     International Equity Portfolio

     G.D. Rothenberg is primarily responsible for the day-to-day management of
     the 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 Stuart R. Davies. The biographical
     information of Messrs. Rothenberg and Davies is set forth above.


Investment Advisory Agreement

     This section summarizes some of the important provisions the Investment
     Advisory Agreements. The Fund has filed each agreement with the SEC as part
     of its registration statement on Form N-1A.


     Service Performed by Adviser

     Each adviser:

     .  Manages the investment and reinvestment of a portfolio's assets;

     .  Continuously reviews, supervises and administers the investment program
        of a portfolio; and

     .  Determines what portion of a portfolio's assets will be invested in
        securities and what portion will consist of cash.


  Limitation of Liability

  In the absence of (1) willful misfeasance, bad faith, or gross negligence on
  the part of the adviser in the performance of its obligations and duties under
  the Investment Advisory Agreement, (2) reckless disregard by the adviser of
  its obligations and duties under the Investment 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 Investment Advisory Agreement.

  Continuing an Investment Advisory Agreement

  An Investment Advisory Agreement continues in effect for periods of one year
  so long as such continuance is specifically approved at least annually by a:

  .  Majority of those Board Members who are not parties to the Investment
     Advisory Agreement or interested persons of any such party;  and

  .  (2) (a) majority of the Board Members or (b) a majority of the shareholders
     of the portfolio.


                                      31
<PAGE>


  Terminating an Investment Advisory Agreement
  The Fund may terminate an Investment Advisory Agreement at any time, without
  the payment of any penalty if:

  .  A majority of the portfolio's shareholders vote to do so or a majority of
     Board Members vote to do so; and

  .  It gives the adviser 60 days' written notice.

  The adviser may terminate the Investment Advisory Agreement at any time,
  without the payment of any penalty, upon 90 days' written notice to the Fund.

  An Investment Advisory Agreement will automatically and immediately terminate
  if it is assigned.





Advisory Fees

  For its services, each portfolio pays its adviser the following annual fees,
  which are expressed as a percentage of the average daily net assets of the
  portfolio. Due to the effect of fee waivers by the adviser, the actual
  percentage of average net assets that a portfolio pays in any given year may
  be different from the rate set forth in its contract with the adviser.  For
  the last three fiscal years, the portfolios paid the following in management
  fees to the adviser:

                                          Investment Advisory Fees Paid
- ------------------------------------------------------------------------------
Equity Portfolio                                     $  682,600
  1999
- ------------------------------------------------------------------------------
  1998                                               $  740,063
- ------------------------------------------------------------------------------
  1997                                               $  684,525
- ------------------------------------------------------------------------------
International Equity Portfolio                       $1,145,893
  1999
- ------------------------------------------------------------------------------
  1998                                               $1,187,016
- ------------------------------------------------------------------------------
  1997                                               $1,164,469
- ------------------------------------------------------------------------------
Fixed Income Portfolio                               $  312,298
  1999
- ------------------------------------------------------------------------------
  1998                                               $  323,555
- ------------------------------------------------------------------------------
  1997                                               $  286,323
- ------------------------------------------------------------------------------
Balanced Portfolio                                       N/A
  1999
- ------------------------------------------------------------------------------
  1998                                                   N/A
- ------------------------------------------------------------------------------

  1997                                                   N/A


DISTRIBUTOR
- --------------------------------------------------------------------------------
  UAMFDI is 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.

SHAREHOLDER SERVICING ARRANGEMENTS
- --------------------------------------------------------------------------------

  UAM and each 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 or the 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.


                                      32
<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 Board Members 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.


  The Fund Administration Agreement continues in effect from year to year if the
  Board specifically approves such continuance every year. 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
  automatically terminates upon its assignment by UAMFSI without the prior
  written consent of the Fund.



  UAMFSI will from time to time employ other people to assist it in performing
  its duties under the Fund Administration Agreement.  Such people may be
  officers and employees who are employed by both UAMFSI and the Fund. UAMFSI
  will pay such people for such employment.  The Fund will not incur any
  obligations with respect to such people.


                                      33
<PAGE>


Administration and Transfer Agency Services Fees

  Each portfolio pays a four-part fee to UAMFSI as follows:

  1.  In exchange for administrative services, a portfolio pays a fee to UAMFSI
      calculated at the annual rate of:

      .   $19,500 for the first operational class; plus

      .   $3,750 for each additional class; plus

      .   A fee calculated from the aggregate net assets of each portfolio at
the following rates:

                                                                 Annual Rate
          ------------------------------------------------------------------
          Equity Portfolio                                             0.063%
          ------------------------------------------------------------------
          International Equity Portfolio                               0.063%
          ------------------------------------------------------------------
          Fixed Income Portfolio                                       0.043%
          ------------------------------------------------------------------
          Balanced Portfolio                                           0.063%

  2.  Each portfolio also pays a fee to UAMFSI for sub-administration and other
      services provided by SEI. The fee, which UAMFSI pays to SEI, is calculated
      at the annual rate of:

      .   Not more than $35,000 for the first operational class; plus

      .   $5,000 for each additional operational class; plus

      .   0.03% of their pro rata share of the combined assets of the UAM Funds
          Complex.

  3.  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.

  4.  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.

  For the last three fiscal years the portfolios paid the following in
  administration and sub-administration fees:

<TABLE>
<CAPTION>
                                      Administrators Fee  Sub-Administrators Fee  Total Administration Fee
- ----------------------------------------------------------------------------------------------------------
<S>                                   <C>                 <C>                     <C>
Equity Portfolio                            $66,475                $ 87,270                  $153,745
  1999
- ----------------------------------------------------------------------------------------------------------
  1998                                      $62,586                $ 97,605                  $160,191
- ----------------------------------------------------------------------------------------------------------
  1997                                      $54,738                $ 91,762                  $146,500
- ----------------------------------------------------------------------------------------------------------
International Equity Portfolio              $81,536                $ 99,204                  $180,740
  1999
- ----------------------------------------------------------------------------------------------------------
  1998                                      $75,355                $113,008                  $188,363
- ----------------------------------------------------------------------------------------------------------
  1997                                      $69,862                $120,691                  $190,553
- ----------------------------------------------------------------------------------------------------------
Fixed Income Portfolio                      $37,612                $ 79,215                  $116,827
  1999
- ----------------------------------------------------------------------------------------------------------
  1998                                      $31,772                $ 82,844                  $114,616
- ----------------------------------------------------------------------------------------------------------
  1997                                      $25,439                $ 79,951                  $105,390
- ----------------------------------------------------------------------------------------------------------
Balanced Portfolio                            N/A                     N/A                      N/A
  1999
- ----------------------------------------------------------------------------------------------------------
  1998                                        N/A                     N/A                      N/A
- ----------------------------------------------------------------------------------------------------------
  1997                                        N/A                     N/A                      N/A
</TABLE>


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.

                                      34
<PAGE>

INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
  PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110,
  serves as independent accountant for the Fund.


Brokerage Allocation and Other Practices


SELECTION OF BROKERS

  Each Investment Advisory Agreement authorizes the adviser to select the
  brokers or dealers that will execute the purchases and sales of investment
  securities for each portfolio.  The Investment Agreement also directs the
  adviser to use its best efforts to obtain the best execution with respect to
  all transactions for the 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
  Investment 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.

  It is not the practice of the Fund to allocate brokerage or effect principal
  transactions with dealers based on sales of shares that a broker-dealer firm
  makes.  However, the Fund may place trades with qualified broker-dealers who
  recommend the Fund or who act as agents in the purchase of Fund shares for
  their clients.

SIMULTANEOUS TRANSACTIONS
- --------------------------------------------------------------------------------

  The adviser makes investment decisions for each 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.

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, a portfolio 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.

                                      35
<PAGE>


Commissions Paid

  For the last three fiscal years, the portfolios paid the following in
  brokerage commissions:

<TABLE>
<CAPTION>
                                                      Brokerage Commissions
- ---------------------------------------------------------------------------
<S>                                                   <C>
Equity Portfolio
  1999                                                             $106,846
- ---------------------------------------------------------------------------
  1998                                                             $147,944
- ---------------------------------------------------------------------------
  1997                                                             $ 96,579
- ---------------------------------------------------------------------------
International Equity Portfolio
  1999                                                             $203,738
- ---------------------------------------------------------------------------
  1998                                                             $221,995
- ---------------------------------------------------------------------------
  1997                                                             $359,324
- ---------------------------------------------------------------------------
Fixed Income Portfolio
  1999                                                             $      0
- ---------------------------------------------------------------------------
  1998                                                             $      0
- ---------------------------------------------------------------------------
  1997                                                             $      0
- ---------------------------------------------------------------------------
Balanced Portfolio
  1999                                                                  N/A
- ---------------------------------------------------------------------------
  1998                                                                  N/A
- ---------------------------------------------------------------------------
  1997                                                                  N/A
</TABLE>



Capital Stock and Other Securities


The Fund

  The Fund was organized under the name "The ICM Fund, Inc." as a Maryland
  corporation on October 11, 1988.  On January 18, 1989, the Fund changed its
  name 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 211
  Congress Street, Boston, MA  02110; however, shareholders should direct all
  correspondence to the address listed on the cover of this SAI.  The Fund is an
  open-end management company.


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

                                      36
<PAGE>

  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 1940 Act
  or other applicable law.


Dividend and Distribution Options

  There are three ways for shareholders to receive dividends and capital gains:

  .  Income dividends and capital gains distributions are reinvested in
     additional shares at net asset value;

  .  Income dividends are paid in cash and capital gains distributions are
     reinvested in additional shares at NAV; and

  .  Income dividends and capital gains distributions are paid in cash.

  Unless the shareholder elects otherwise in writing, the fund will
  automatically reinvest all dividends in additional shares of the portfolio at
  NAV (as of the business day following the record date). Shareholders may
  change their dividend and distributions option by writing to the fund at least
  three days before the record date for income dividend or capital gain
  distribution.

  The fund sends account statements to shareholders whenever it pays an income
  dividend or capital gains distribution.


FEDERAL TAXES

  Each portfolio intends to qualify as a regulated investment company under
  Subchapter M of the Internal Revenue Code, and to distribute out its income to
  shareholders each year so that the portfolio itself generally will be relieved
  of federal income and excise taxes.  If a portfolio were to fail to so
  qualify: (1) it would be taxed at regular corporate rates without any
  deduction for distributions to shareholder; and (2) its shareholders would be
  taxed as if they received ordinary dividends, although corporate shareholders
  could be eligible for the dividends received deduction.

  A portfolios' dividends that are paid to their corporate shareholders and are
  attributable to qualifying dividends it received from U.S. domestic
  corporations may be eligible, in the hands of such shareholders, for the
  corporate dividends received deduction, subject to certain holding period
  requirements and debt financing limitations.

                                      37
<PAGE>

Purchase, Redemption and Pricing of Shares

NET ASSET VALUE PER SHARE
- --------------------------------------------------------------------------------

Calculating NAV

  The purchase and redemption price of the shares of a portfolio is equal to the
  NAV of the portfolio.  The Fund calculates the NAV of a portfolio by
  subtracting its liabilities from its total assets and dividing the result by
  the total number of shares outstanding.  For purposes of this calculation:

  .  Liabilities include accrued expenses and dividends payable; and

  .  Total assets include the market value of the securities held by the
     portfolio, plus cash and other assets plus income accrued but not yet
     received.

  Each portfolio normally calculates its NAV as of the close of trading on the
  NYSE every day the NYSE is open for trading.  The NYSE usually closes at 4:00
  p.m.  The NYSE is closed on the following days: 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.

How the Fund Values it Assets

  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 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 governing board.

PURCHASE OF SHARES
- --------------------------------------------------------------------------------

  Service Agents may enter confirmed purchase orders on behalf of their
  customers. To do so, the Service Agent must receive your investment order
  before the close of trading on the NYSE and must transmit it to the fund
  before the close of its business day to receive that day's share price. The
  fund must receive proper payment for the order by the time the portfolio
  calculates its NAV 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.

                                      38
<PAGE>


  Shareholders can buy full and fractional (calculated to three decimal places)
  shares of a portfolio. The fund will not issue certificates for fractional
  shares and will only issue certificates for whole shares upon the written
  request of a shareholder.

  The Fund may 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


  At its discretion, the Fund may permit shareholders to purchase shares of the
  portfolio with securities, instead of cash.  If the Fund allows a shareholder
  to make an in-kind purchase, it will value such securities according to the
  policies described under "How the Fund Values it Assets" at the next
  determination of net asset value after acceptance. The Fund will issue shares
  of the portfolio at the NAV of the portfolio determined as of the same time.

  The Fund will only acquire securities through an in-kind purchase for
  investment and not for immediate resale. The Fund will only accept in-kind
  purchases if the transaction meets the following conditions:

  .  The securities are eligible investments for the portfolio;
  .  The securities have readily available market quotations;
  .  The investor represents and agrees that the securities are liquid and that
     there are no restrictions on their resale imposed by the 1933 Act or
     otherwise;

  .  All dividends, interest, subscription, or other rights pertaining to such
     securities become the property of the portfolio and are delivered to the
     fund by the investor upon receipt from the issuer; and

  .  Immediately after the transaction is complete, the value of all securities
     of the same issuer held by the portfolio cannot exceed 5% of the net assets
     of the portfolio. This condition does not apply to U.S. government
     securities.

  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 the shareholder wishes to redeem signed by all registered
     owners of the shares in the exact names in which they are registered;

  .  Any required signature guarantees (see "Signature Guarantees"); and

  .  Any other necessary legal documents for estates, trusts, guardianships,
     custodianships, corporations, pension and profit sharing plans and other
     organizations.

                                      39
<PAGE>

By Telephone


  Shareholders may not do the following by telephone:

  .  Change the name of the commercial bank or the account designated to receive
     redemption proceeds. To change an account in this manner, you must submit a
     written request signed by each shareholder, with each signature guaranteed.

  .  Redeem shares represented by a certificate.

  The Fund and UAMSSC will employ reasonable procedures to confirm that
  instructions communicated by telephone are genuine, and they may be liable for
  any losses if they fail to do so. These procedures include requiring the
  investor to provide certain personal identification at the time an account is
  opened and before 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 UAMSSC may be liable for any losses due to
  unauthorized or fraudulent telephone instructions if the Fund or the UAMSSC
  does not employ the procedures described above. Neither the Fund nor the
  UAMSSC 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.


  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 Board 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


  The Fund requires signature guarantees for certain types of documents,
  including:

  .  Written requests for redemption;

  .  Separate instruments for assignment ("stock power"), which should specify
     the total number of shares to be redeemed; and

  .  On all stock certificates tendered for redemption.

  The purpose of signature guarantees is to verify the identity of the person
  who has authorized a redemption from your account and to protect your account,
  the Fund and its sub-transfer agent from fraud.

  The Fund will accept signature guarantees from any eligible guarantor
  institution, as defined by the Securities Exchange Act of 1934 that
  participates in a signature guarantee program. Eligible guarantor institutions
  include banks, brokers, dealers, credit unions, national securities exchanges,
  registered securities associations, clearing agencies and savings

                                      40
<PAGE>


  associations. You can get a complete definition of eligible guarantor
  institutions by calling 1-877-826-5465. 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.

Other Redemption Information


  Normally, the Fund will pay for all shares redeemed under proper procedures
  within seven days after it received your request.  However, the Fund will pay
  your redemption proceeds earlier as applicable law so requires.

  When the Fund may suspend redemption privileges or postpone the date of
  payment:

  .  when the NYSE and custodian bank are closed;

  .  when trading on the NYSE is restricted;

  .  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; or

  .  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 for exchanges.

  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.



Performance Calculations


  Each portfolio measures its performance by calculating its yield and total
  return. Yield and total return figures are based on historical earnings and
  are not intended to indicate future performance. The portfolio calculates its
  current yield and average annual total return information according to the
  methods required by the SEC.  The performance is calculated separately for
  each portfolio.

                                      41
<PAGE>

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. 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 fund calculates the average annual total return of a portfolio by finding
  the average annual compounded rates of return over one, five and ten-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.


  The fund calculates these figures 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).


  Set forth in the table below are the portfolios' average annual returns for
  the one-year period and the  five-year period ended October 31, 1999 and the
  shorter of the ten-year period ended October 30, 1999 or the period from a
  portfolio's inception date through October 31, 1999.

<TABLE>
<CAPTION>
                                                                       Shorter of
                                                                       10 Years or    30-Day
                                              One Year   Five Years  Since Inception   Yield         Inception Date
- --------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>        <C>         <C>              <C>            <C>
Equity Portfolio                              14.64%      17.04%         13.83%            N/A             7/17/92
- --------------------------------------------------------------------------------------------------------------------------
International Equity Portfolio                33.78%       9.77%         12.27%            N/A            12/18/92
- --------------------------------------------------------------------------------------------------------------------------
Fixed Income Portfolio                        1.71%        6.98%          5.66%           5.69%            7/17/92
</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 mutual 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.

                                     42
<PAGE>

  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
- --------------------------------------------------------------------------------

  A 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 this SAI. This information may also be included in sales
  literature and advertising.


  To help investors better evaluate how an investment in a portfolio 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 "Comparative Benchmarks" 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 a
      portfolio;

  .   that the indices and averages are generally unmanaged; and

  .   that the items included in the calculations of such averages may not be
      identical to the formula used by a portfolio to calculate its performance;
      and

  .   that shareholders cannot invest directly in such indices or averages.

  In addition, there can be no assurance that a portfolio will continue this
  performance as compared to such other averages.


Financial Statements


  The following documents are included in the portfolios' October 31, 1999
  Annual Report:

  .  Financial statements for the fiscal year ended October 31, 1999.

  .  Financial highlights for the respective periods presented

  .  The report of PricewaterhouseCoopers LLP.

                                      43
<PAGE>


  Each of the above-referenced documents is incorporated by reference into this
  SAI. However, no other parts of the portfolios' Annual Reports are
  incorporated by reference herein. Shareholders may get copies of the
  portfolios' Annual Reports free of charge by calling the UAM Funds at the
  telephone number appearing on the front page of this SAI.

Glossary

  All terms that this SAI does not otherwise define, have the same meaning in
  the SAI as they do in the prospectus(es) of the portfolios.

  1933 Act means the Securities Act of 1933, as amended.

  1934 Act means the Securities Exchange Act of 1934, as amended.

  1940 Act means the Investment Company Act of 1940, as amended.

  Adviser means the investment adviser to each portfolio.

  Board Member refers to a single member of the Fund's Board.

  Board refers to the Fund's Board of Trustees as a group.

  SEI is SEI Investments Mutual Funds Services, the Fund's sub-administrator.

  Fund refers to UAM Funds, Inc.

  Governing Board, see Board.

  NAV is the net asset value per share of a portfolio.

  NYSE is the New York Stock Exchange.  Also known as "The Exchange" or "The Big
  Board," the NYSE is located on Wall Street and is the largest exchange in the
  United States.

  Portfolio refers to a single series of the Fund, while portfolios refer to all
  of the series of the Fund.

  SEC is the Securities and Exchange Commission.  The SEC is the federal agency
  that administers most of the federal securities laws in the United States.  In
  particular, the SEC administers the 1933 Act, the 1940 Act and the 1934 Act.

  UAM Funds Complex includes UAM Funds, Inc., UAM Funds Trust, UAM Funds Inc. II
  and all of their portfolios.

  UAM is United Asset Management Corporation.

  UAMFDI is UAM Fund Distributors, Inc., the Fund's distributor.

  UAMFSI is UAM Fund Services, Inc., the Fund's administrator.

  UAMSSC is UAM Fund Shareholder Servicing Center, the Fund's sub-shareholder-
  servicing agent

Bond 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 stocks.

                                      44
<PAGE>

     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 that 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 period 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.

     plus (+) or    Moody's applies numerical modifiers 1, 2, and 3 in each
     minus (-)      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.

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-grade
                    obligations. Factors giving security to principal and
                    interest are considered adequate, but elements may be
                    present which suggest a susceptibility to impairment
                    sometime in the future.

                                      45
<PAGE>

     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.

     Con. (...)     (This rating applies only to U.S. Tax-Exempt Municipals)
                    Bonds for which the security depends upon the completion of
                    some act or the fulfillment of some condition are rated
                    conditionally. These are bonds secured by (a) earnings of
                    projects under construction, (b) earnings of projects
                    unseasoned in operating experience, (c) rentals that begin
                    when facilities are completed, or (d) payments to which some
                    other limiting condition attaches. Parenthetical rating
                    denotes probable credit stature upon completion of
                    construction or elimination of basis of condition.

     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.

     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:

                    .  Leading market positions in well-established industries.

                    .  Conservative capitalization structure with moderate
                       reliance on debt and ample asset protection.

                    .  Broad 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.


                                      46

<PAGE>

  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
- --------------------------------------------------------------------------------



Long-Term Issue Credit Ratings

  Issue credit ratings are based, in varying degrees, on the following
  considerations:

  1. 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;

  2. Nature of and provisions of the obligation;

  3. 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.

     The issue rating definitions are expressed in terms of default risk. As
     such, they pertain to senior obligations of an entity. Junior obligations
     are typically rated lower than senior obligations, to reflect the lower
     priority in bankruptcy, as noted above. Accordingly, in the case of junior
     debt, the rating may not conform exactly with the category definition.

  AAA     An obligation rated 'AAA' has 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 obligor to meet its
          financial commitment on the obligation.

                                      47
<PAGE>

  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.

  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       A subordinated debt or preferred stock obligation rated 'C' is
          CURENTLY HIGHLY VULNERABLE to non-payment. The 'C' rating may be used
          to cover a situation where a bankruptcy petition has been filed or
          similar action taken, but payments on this obligation are being
          continued. A 'C' will also be assigned to a preferred stock issue in
          arrears on dividends or sinking fund payments, but that is currently
          paying.

  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.

  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.

  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 obligation as a matter of
          policy.

  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.

Short-Term Issue Credit 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.

                                      48
<PAGE>


  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 obligations in higher rating categories. However,
            the obligor's capacity to meet its financial commitment on the
            obligation is satisfactory.

  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.

Local Currency and Foreign Currency Risks

  Country risks considerations are a standard part of Standard & Poor's analysis
  for credit ratings on any issuer or issue.  Currency of repayment is a key
  factor in this analysis.  An obligor's capacity to repay foreign currency
  obligations may be lower than its capacity to repay obligations in its local
  currency due to the sovereign government's own relatively lower capacity to
  repay external versus domestic debt.  These sovereign risk considerations are
  incorporated in the debt ratings assigned to specific issues.  Foreign
  currency issuer ratings are also distinguished from local currency issuer
  ratings to identity those instances where sovereign risks make them different
  for the same issuer.

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
  AA-       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 for
  BBB-      prudent investment. Considerable variability in risk during
            economic cycles.

  BB+/BB/   Below investment grade but deemed likely to meet obligations when
  BB-       due. Present or prospective financial protection factors fluctuate
            according to industry conditions. Overall quality may move up or
            down frequently within this category.

                                      49
<PAGE>

  B+/B/B-   Below investment grade and possessing risk that obligation will not
            be met 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.

  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 of financial commitments. This
            capacity is highly unlikely to be adversely affected by foreseeable
            events.

                                      50
<PAGE>

  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         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.

  BBB       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. The ratings of obligations in this category are based on
            their prospects for achieving partial or full recovery in a
            reorganization or liquidation of the obligor. While expected
            recovery values are highly speculative and cannot be estimated with
            any precision, the following serve as general guidelines. "DDD"
            obligations have the highest potential for recovery, around 90%-100%
            of outstanding amounts and accrued interest. "D" indicates potential
            recoveries in the range of 50%-90%, and "D" the lowest recovery
            potential, i.e., below 50%. Entities rated in this category have
            defaulted on some or all of their obligations.

               Entities rated "DDD" have the highest prospect for resumption of
            performance or continued operation with or without a formal
            reorganization process. Entities rated "DD" and "D" are generally
            undergoing a formal reorganization or liquidation process; those
            rated "DD" are likely to satisfy a higher portion of their
            outstanding obligations, while entities rated "D" have a poor
            prospect for repaying all obligations.

International Short-Term Credit Ratings

  F1        Highest credit quality. Indicates the Best 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.

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  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.

  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.


Comparative Benchmarks

  (alphabetically)

  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.

  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.

  Donoghue's Money Fund Average -- is an average of all major money market fund
  yields, published weekly for 7 and 30-day yields.

  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.

  Financial publications: Business Week, Changing Times, Financial World,
  Forbes, Fortune, Money, Barron's, Consumer's Digest, Financial Times, Global
  Investor, Investor's Daily, Lipper, Inc., Morningstar, Inc., The New York
  Times, Personal Investor, The Wall Street Journal and Weisenberger Investment
  Companies Service -- publications that rate fund performance over specified
  time periods.

  Historical data supplied by the research departments of First Boston
  Corporation, J.P. Morgan & Co, Inc., Salomon Smith Barney, Merrill Lynch &
  Co., Inc., Lehman Brothers, Inc. and Bloomberg L.P.


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  IBC's Money Fund Average/All Taxable Index - an average of all major money
  market fund yields, published weekly for 7- and 30-day yields.

  IFC Investable Composite Index - an unmanaged market capitalization-weighted
  index maintained by the International Finance Corporation.  This index
  consists of over 890 companies in 26 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.

  Lehman Brothers Indices:
  ------------------------

  Lehman Brothers Aggregate Bond Index - an unmanaged fixed income market value-
  weighted index that combines the Lehman Government/Corporate Index and the
  Lehman Mortgage-Backed Securities Index, and includes treasury issues, agency
  issues, corporate bond issues and mortgage backed securities.  It includes
  fixed rate issuers of investment grade (BBB) or higher, with maturities of at
  least one year and outstanding par values of at least $100 million for U.S.
  government issues and $25 million for others.

  Lehman Brothers Corporate Bond Index - an unmanaged index of all publicly
  issued, fixed-rate, nonconvertible investment grade domestic corporate debt.
  Also included are yankee bonds, which are dollar-denominated SEC registered
  public, noncovertible debt issued or guaranteed by foreign sovereign
  governments, municipalities, or governmental agencies, or international
  agencies.

  Lehman Brothers Government Bond Index -an unmanaged treasury bond index
  including all public obligations of the U.S. Treasury, excluding flower bonds
  and foreign-targeted issues, and the Agency Bond Index (all publicly issued
  debt of U.S. government agencies and quasi-federal corporations, and corporate
  debt guaranteed by the U.S. government).  In addition to the aggregate index,
  sub-indices cover intermediate and long term issues.

  Lehman Brothers Government/Corporate Bond Index -- an unmanaged fixed income
  market value-weighted index that combines the Government and Corporate Bond
  Indices, including U.S. government treasury securities, corporate and yankee
  bonds. All issues are investment grade (BBB) or higher, with maturities of
  at least one year and outstanding par value of at least $100 million of  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.

  Lehman Brothers High Yield Bond Index - an unmanaged index of fixed rate, non-
  investment grade debt.  All bonds included in the index are dollar
  denominated, noncovertible, have at least one year remaining to maturity and
  an outstanding par value of at least $100 million.

  Lehman Brothers Intermediate Government/Corporate Index - an unmanaged fixed
  income, market value-weighted index that combines the Lehman Brothers
  Government Bond Index (intermediate-term sub-index) and four corporate bond
  sectors.

  Lehman Brothers Mortgage-Backed Securities Index - an unmanaged index of all
  fixed-rate securities backed by mortgage pools of Government National Mortgage
  Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC),  and
  Federal National Mortgage Associateion (FNMA).

  Lipper, Inc./Lipper Indices/Lipper Averages
  -------------------------------------------

  The Lipper Indices are equally weighted indices for typically the 30 largest
  mutual funds within their respective portfolio investment objectives.  The
  indices are currently grouped in six categories:  U.S. Diversified Equity with
  12 indices; Equity with 27 indices, Taxable Fixed-Income with 20 indices, Tax-
  Exempt Fixed-Income with 28 indices, Closed-End Funds with 16 indices, and
  Variable Annuity Funds with 18 indices.

  In September, 1999, Lipper, Inc. introduced its new portfolio-based mutual
  fund classification method in which peer comparisons are based upon
  characteristics of the specific stocks in the underlying funds, rather than
  upon a broader investment objective stated in a prospectus.  Certain of
  Lipper, Inc.'s classifications for general equity funds' investment objectives
  were changed while other equity objectives remain unchanged.  Changing
  investment objectives include Capital Appreciation Funds, Growth Funds, Mid-
  Cap Funds, Small-Cap Funds, Micro-Cap Funds, Growth & Income

                                      53
<PAGE>


  Funds, and Equity Income Funds. Unchanged investment objectives include Sector
  Equity Funds, World Equity Funds, Mixed Equity Funds, and certain other funds
  including all Fixed Income Funds and S&P(R) Index Funds.

  Criteria for the Lipper Indices are: 1) component funds are largest in group;
  2) number of component funds remains the same (30); 3) component funds are
  defined annually; 4) can be linked historically; and 5) are used as a
  benchmark for fund performance.

  Criteria for the Lipper Averages are: 1) includes all funds in the group in
  existence for the period; 2) number of component funds always changes; 3)
  universes are dynamic due to revisions for new funds, mergers, liquidations,
  etc.; and 4) will be inaccurate if historical averages are linked.

  Certain Lipper, Inc. indices/averages used by the UAM Funds may include, but
  are not limited to, the following:

  Lipper Short-Intermediate Investment Grade Debt Funds Average -- is an average
  of 100 funds that invest at least 65% of assets in investment grade debt
  issues (BBB or higher) with dollar-weighted average maturities of one to five
  years or less.  (Taxable Fixed-Income category)

  Lipper Balanced Fund Index - an unmanaged index of open-end equity funds whose
  primary objective is to conserve principal by maintaining at all times a
  balanced portfolio of both stocks and bonds.  Typically, the stock/bond ratio
  ranges around 60%/40%.  (Equity category)

  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.  (Equity category)

  Lipper Equity Mid Cap Fund Index - an unmanaged index of funds that by
  prospectus or portfolio practice invest primarily in companies with market
  capitalizations less than $5 billion at the time of purchase.  (Equity
  category)

  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.  (Equity
  category)

  Lipper Growth Fund Index - an unmanaged index composed of the 30 largest funds
  by asset size which invest in companies with long-term earnings expected to
  grow significantly faster than the earnings of the stocks represented in the
  major unmanaged stock indices.  (Equity category)

  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.

  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 (BBB or higher).


  Merrill Lynch 1-3 Year Treasury Index - an unmanaged index composed of U.S.
  treasury securities with maturities from 1 to 3 years.

  Morgan Stanley Capital International EAFE Index -- 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.

  Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
  yield, risk and total return for equity funds.

  NASDAQ Composite Index -- is a market capitalization, price only, unmanaged
  index that tracks the performance of domestic common stocks traded on the
  regular NASDAQ market as well as national market System traded foreign common
  stocks and ADRs.

                                      54
<PAGE>


  Nekkei Stock Average - a price weighted index of 225 selected leading stocks
  listed on the First Section of the Tokyo Stock Exchange.

  New York Stock Exchange composite or component indices -- capitalization-
  weighted unmanaged indices of all industrial, utilities, transportation and
  finance stocks listed on the New York Stock Exchange.

  Russell U.S. Equity Indexes:
  ----------------------------

  Russell 3000(R) Index - measures the performance of the 3,000 largest U.S.
  companies based on total market capitalization, which represents approximately
  98% of the investable U.S. equity market.

  Russell 1000(R) Index - an unmanaged index which measures the performance of
  the 1,000 largest companies in the Russell 3000 Index, which represents
  approximately 92% of the total market capitalization of the Russell 3000
  Index.

  Russell 2000(R) Index -- an unmanaged index which measures the performance of
  the 2,000 smallest companies in the Russell 3000 Index, which represents
  approximately 8% of the total market capitalization of the Russell 3000 Index.

  Russell Top 200(TM) Index - measures the performance of the 200 largest
  companies in the Russell 1000 Index, which represents approximately 74% of the
  total market capitalization of the Russell 1000 Index.

  Russell Mid-Cap(TM) Index -- measures the performance of the 800 smallest
  companies in the Russell 1000 Index, which represents approximately 26% of the
  total market capitalization of the Russell 1000 Index.

  Russell 2500(TM) Index - an unmanaged index which measures the performance of
  the 2,5000 smallest companies in the Russell 3000 Index, which represents
  approximately 17% of the total market capitalization of the Russell 3000
  Index.

  Russell 3000(R) Growth Index - measures the performance of those Russell 3000
  Index companies with higher price-to-book ratios and higher forecasted growth
  values.  The stocks in this index are also members of either the Russell 1000
  Growth or the Russell 2000 Growth indexes.

  Russell 3000(R) Value Index - measures the performance of those Russell 3000
  Index companies with lower price-to-book ratios and lower forecasted growth
  values.  The stocks in this index are also members of either the Russell 1000
  Value or the Russell 2000 Value indexes.

  Russell 1000(R) Growth Index - measures the performance of those Russell 1000
  companies with higher price-to-book ratios and higher forecasted growth
  values.

  Russell 1000(R) Value Index - measures the performance of those Russell 1000
  with lower price-to-book ratios and lower forecasted growth values.

  Russell 2000(R) Growth Index - measures the performance of  those Russell 2000
  companies with higher price-to-book ratios and higher forecasted growth
  values.

  Russell 2000(R) Value Index - measures the performance of those Russell 2000
  companies with lower price-to-book ratios and lower forecasted growth values.

  Russell Top 200(TM) Growth Index - measures the performance of those Russell
  Top 200 companies with higher price-to-book ratios and higher forecasted
  growth values.  The stocks re also members of the Russell 1000 Growth index.

  Russell Top 200(TM) Value Index - measures the performance of those Russell
  Top 200 companies with lower price-to-book ratios and lower forecasted growth
  values.  The stocks are also members of the Russell 1000 Value index.

  Russell Midcap(TM) Growth Index - measures the performance of those Russell
  Midcap companies with higher price-to-book ratios and higher forecasted growth
  values.  The stocks are also members of the Russell 1000 Growth index.

  Russell Midcap(TM) Value Index - measures the performance of those Russell
  Midcap companies with lower price-to-book ratios and lower forecasted growth
  values.  The stocks are also members of the Russell 1000 Value index.

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<PAGE>


  Russell 2500(TM) Growth Index - measures the performance of those Russell 2500
  companies with higher price-to-book ratios and higher forecasted growth
  values.

  Russell 2500(TM) Value Index - measures the performance of those Russell 2500
  companies with lower price-to-book ratios and lower forecasted growth values.

  Ryan Labs 5 Year GIC Master Index  - an arithmetic mean of market rates of $1
  million GIC contracts held for five years.  The market rates are
  representative of a diversified, investment grade portfolio of contracts
  issued by credit worthy insurance companies.  The index is unmanaged and does
  not reflect any transaction costs.  Direct investment in the index is not
  possible.

  Standard & Poor's U.S. Indices:
  -------------------------------

  In October, 1999,  Standard & Poor's and Morgan Stanley Capital International
  launched a new global industry classification standard consisting of 10
  economic sectors aggregated from 23 industry groups, 59 industries, and 123
  sub-industries covering almost 6,000 companies globally.  The new
  classification standard will be used with all of their respective indices.
  Features of the new classification include 10 economic sectors, rather than
  the 11 S&P currently uses.  Sector and industry gradations are less severe.
  Rather than jumping from 11 sectors to 115 industries under the former S&P
  system, the new system progresses from 10 sectors through 23 industry groups,
  50 industries and 123 sub-industries.

  S&P 500 Index - an unmanaged index composed of 400 industrial stocks, 40
  financial stocks, 40 utilities stocks and 20 transportation stocks. Widely
  regarded as the standard for  measuring large-cap U.S. stock market
  performance. It is used by 97% of U.S. money managers and pension plan
  sponsors. More than $1 trillion is indexed to the S&P 500.

  S&P MidCap 400 Index -- consists of 400 domestic stocks chosen for market
  size, liquidity, and industry group representation.  It is a market-value
  weighted index with each stock affecting the index in proportion to its market
  value. It is used by over 95% of U.S. managers and pension plan sponsors. More
  than $25 billion is indexed to the S&P Midcap400.

  S&P Small Cap 600 Index - an unmanaged index comprised of 600 domestic stocks
  chosen for market size, liquidity, and industry group representation.  The
  index is comprised of stocks from the industrial, utility, financial, and
  transportation sectors.  It is gaining wide acceptance as the preferred
  benchmark for both active and passive management due to its low turnover and
  greater liquidity.  Approximately $8 billion is indexed to the S&P SmallCap
  600.

  S&P SuperComposite 1500 - combines the S&P 500, MidCap 400, and SmallCap 600
  indices, representing 87% of the total U.S. equity market capitalization.

  S&P 100 Index - known by its ticker symbol OEX, this index measures large
  company U.S. stock market performance.  This market capitalization-weighted
  index is made up of 100 major, blue chip stocks across diverse industry
  groups.

  S&P/BARRA Growth and Value Indices - are constructed by dividing the
  securities in the S&P 500 Index according to price-to-book ratio.  The Value
  index contains the companies with the lower price-to-book ratios; while the
  companies with the higher price-to-book ratios are contained in the Growth
  index.

  S&P REIT Composite Index - launched in 1997, this benchmark tracks the market
  performance of U.S. Real Estate Investment Trusts, known as REITS.  The REIT
  Composite consists of 100 REITs chosen for their liquidity and importance in
  representing a diversified real estate portfolio.  The Index covers over 80%
  of the securitized U.S. real estate market.

  S&P Utilities Stock Price Index - a market capitalization weighted index
  representing three utility groups and, with the three groups, 43 of the
  largest utility companies listed on the New York Stock Exchange, including 23
  electric power companies, 12 natural gas distributors and 8 telephone
  companies.

  Standard & Poor's CANADA Indices:
  ---------------------------------

  S&P/TSE Canadian MidCap Index - measures the performance of the mid-size
  company segment of the Canadian equity market.

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  S&P/TSE Canadian SmallCap Index - Measures the small company segment of the
  Canadian equity market.

  Standard & Poor's Global Indices:
  ---------------------------------

  S&P Global 1200 Index - aims to provide investors with an investable
  portfolio.  This index, which covers 29 countries and consists of seven
  regional components, offers global investors an easily accessible, tradable
  set of stocks and particularly suits the new generation of index products,
  such as exchange-traded funds (ETFs).

  S&P Euro  and S&P Euro Plus Indices - the S&P Euro Index covers the Eurobloc
  countries; the Euro Plus Index includes the Euro markets as well as Denmark,
  Norway, Sweden and Switzerland.  The S&P Euro Plus Index contains 200
  constituents, and the S&P Euro Index, a subset of Euro Plus, contains 160
  constituents.  Both indices provide geographic and economic diversity over 11
  industry sectors.

  S&P/TSE 60 Index  - developed with the Toronto Stock Exchange, is designed as
  the new Canadian large cap benchmark and will ultimately replace the Toronto
  35 and the TSE 100.

  S&P/TOPIX 150 -  includes 150 highly liquid securities selected from each
  major sector of the Tokyo market. It  is designed specifically to give
  portfolio managers and derivative traders an index that is broad enough to
  provide representation of the market, but narrow enough to ensure liquidity.

  S&P Asia Pacific 100 Index - includes highly liquid securities from each major
  economic sector of major Asia-Pacific equity markets. Seven countries --
  Australia, Hong Kong, Korea, Malaysia, New Zealand, Singapore, and Taiwan --
  are represented in the new index.

  S&P Latin America 40 Index -part of the S&P Global 1200 Index, includes highly
  liquid securities from major economic sectors of Mexican and South American
  equity markets. Companies from Mexico, Brazil, Argentina, and Chile are
  represented in the new index.

  S&P United Kingdom 150 Index - includes 150 highly liquid securities selected
  from each of the new S&P sectors. The S&P UK 150 is designed to be broad
  enough to provide representation of the market, but narrow enough to ensure
  liquidity.

  Salomon Smith Barney Global excluding U.S. Equity Index - an unmanaged index
  comprised of the smallest stocks (less than $1 billion market capitalization)
  of the Extended Market Index, of both developed and emerging markets.

  Salomon Smith Barney One to Three Year Treasury Index - an unmanaged index
  comprised of U.S. treasury notes and bonds with maturities of one year or
  greater, but less than three years.

  Salomon Smith Barney Three-Month T-Bill Average -- the average for all
  treasury bills for the previous three-month period.

  Salomon Smith Barney Three-Month U.S. Treasury Bill Index - a return
  equivalent yield average based on the last three 3-month Treasury bill issues.

  Savings and Loan Historical Interest Rates -- as published by the U.S. Savings
  and Loan League Fact Book.

  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.

  Target Large Company Value Index - an index comprised of large companies with
  market capitalizations currently extending down to approximately $1.9 billion
  that are monitored using a variety of relative value criteria in order to
  capture the most attractive value opportunities available.  A high quality
  profile is required and companies undergoing adverse financial pressures are
  eliminated.

  U.S. Three-Month Treasury Bill Average - the average return for all treasury
  bills for the previous three month period.

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  Value Line Composite Index -- composed of over 1,600 stocks in the Value Line
  Investment Survey.

  Wilshire Real Estate Securities Index - a market capitalization-weighted index
  of publicly traded real estate securities, including real estate investment
  trusts, real estate operating companies and partnerships.  The index is used
  by the institutional investment community as a broad measure of the
  performance of public real estate equity for asset allocation and performance
  comparison.

  Wilshire REIT Index - includes 112 real estate investment trusts (REITs) but
  excludes seven real estate operating companies that are included in the
  Wilshire Real Estate Securities Index.

  Note:  With respect to the comparative measures of performance for equity
  securities described herein, comparisons of performance assume reinvestment of
  dividends, except as otherwise stated.

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