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PART B
UAM FUNDS
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CAMBIAR OPPORTUNITY PORTFOLIO
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STATEMENT OF ADDITIONAL INFORMATION -- April 8, 1998, as amended
June 30, 1998
This Statement is not a Prospectus but should be read in conjunction
with the Prospectus of the UAM Funds Trust (the "UAM Funds" or the "Fund") for
the Cambiar Opportunity Portfolio (the "Portfolio") Institutional Class Shares
dated April 8, 1998, as amended June 30, 1998. To obtain a Prospectus, please
call the UAM Funds Service Center at 1-800-638-7983.
Investment Adviser
Cambiar Investors, Inc. (Adviser)
Distributor
UAM Fund Distributors, Inc. (Distributor)
Administrator and Transfer Agent
UAM Fund Services, Inc. (FSI)
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TABLE OF CONTENTS
Investment Objective and Policies........................................2
Purchase of Shares.......................................................5
Redemption of Shares.....................................................5
Valuation of Shares......................................................6
Shareholder Services.....................................................6
Investment Limitations...................................................7
Management of the Fund...................................................8
Investment Adviser.......................................................9
Portfolio Transactions..................................................10
Administrative Services.................................................11
Custodian...............................................................12
Independent Accountants.................................................12
Distributor.............................................................12
Performance Calculations................................................12
General Information.....................................................13
Appendix A - Description of Securities and Ratings.....................A-1
Appendix B - Comparison, Publications, Indices and Averages............B-1
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INVESTMENT OBJECTIVE AND POLICIES
The following policies supplement the investment objective and policies
of the Cambiar Opportunity Portfolio as set forth in its Prospectus:
LENDING OF SECURITIES
The Portfolio may lend its investment securities to qualified brokers,
dealers, domestic and foreign banks or other financial institutions so long as
the terms, the structure and the aggregate amount of such loans are not
inconsistent with the Investment Company Act of 1940, as amended, (the "1940
Act") or the Rules and Regulations or interpretations of the Securities and
Exchange Commission (the "SEC" or "Commission") thereunder, which currently
require that (a) the borrower pledge and maintain with the Portfolio collateral
consisting of cash, an irrevocable letter of credit issued by a domestic U.S.
bank or securities issued or guaranteed by the United States Government having a
value at all times not less than 100% of the value of the securities loaned, (b)
the borrower add to such collateral whenever the price of the securities loaned
rises (i.e., the borrower "marks to the market" on a daily basis), (c) the loan
be made subject to termination by the Portfolio at any time, and (d) the
Portfolio receives reasonable interest on the loan (which may include the
Portfolio investing any cash collateral in interest bearing short-term
investments). As with other extensions of credit, there are risks of delay in
recovery or even loss of rights in the securities loaned if the borrower of the
securities fails financially. These risks are similar to the ones involved with
repurchase agreements as discussed in the Prospectus.
SHORT-TERM INVESTMENTS
In order to earn a return on uninvested assets, meet anticipated
redemptions, or for temporary defensive purposes, the Portfolio may invest a
portion of its assets in the short-term investments described below:
(1) Time deposits, certificates of deposit (including marketable variable
rate certificates of deposit) and bankers' acceptances issued by a
commercial bank or savings and loan association. Time deposits are
non-negotiable deposits maintained in a banking institution for a
specified period of time at a stated interest rate. Time deposits
maturing in more than seven days will not be purchased by the
Portfolio, and time deposits maturing from two business days through
seven calendar days will not exceed 15% of the total assets of the
Portfolio.
Certificates of deposit are negotiable short-term obligations issued by
commercial banks or savings and loan associations collateralized by funds
deposited in the issuing institution. Variable rate certificates of deposit are
certificates of deposit on which the interest rate is periodically adjusted
prior to their stated maturity based upon a specified market rate. A banker's
acceptance is a time draft drawn on a commercial bank by a borrower, usually in
connection with an international commercial transaction (to finance the import,
export, transfer or storage of goods).
The Portfolio will not invest in any security issued by a commercial
bank unless (i) the bank has total assets of at least $1 billion, or the
equivalent in other currencies, (ii) in the case of U.S. banks, it is a member
of the Federal Deposit Insurance Corporation, and (iii) in the case of foreign
branches of U.S. banks, the security is, in the opinion of the Adviser, of an
investment quality comparable with other debt securities which may be purchased
by the Portfolio;
(2) Commercial paper rated A-1 or A-2 by S&P or Prime-1 or Prime-2 by
Moody's or, if not rated, determined by the Adviser to be of comparable
quality;
(3) Short-term corporate obligations rated BBB or better by S&P or Baa by
Moody's;
(4) U.S. Government obligations including bills, notes, bonds and other
debt securities issued by the U.S. Treasury. These are direct
obligations of the U.S. Government and differ mainly in interest rates,
maturities and dates of issue;
(5) U.S. Government agency securities issued or guaranteed by U.S.
Government sponsored instrumentalities and Federal agencies. These
include securities issued by the Federal Home Loan Banks, Federal Land
Bank, Farmers Home Administration, Federal Farm Credit Banks, Federal
Intermediate Credit Bank, Federal National Mortgage Association,
Federal Financing Bank, the Tennessee Valley Authority, and others; and
(6) Repurchase agreements collateralized by securities listed above.
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FOREIGN INVESTMENTS (ADRs)
Investors in the Portfolio should recognize that investing in foreign
companies through the purchase of American Depositary Receipts ("ADRs") involves
certain special considerations which are not typically associated with investing
in U.S. companies. Since the securities of foreign companies are frequently
denominated in foreign currencies, investments may be affected favorably or
unfavorably by changes in currency rates and in exchange control regulations,
and may incur costs in connection with conversions between various currencies.
As foreign companies are not generally subject to uniform accounting,
auditing and financial reporting standards and they may have policies that are
not comparable to those of domestic companies, there may be less information
available about certain foreign companies than about domestic companies.
Securities of some foreign companies are generally less liquid and more volatile
than securities of comparable domestic companies. There is generally less
government supervision and regulation of stock exchanges, brokers and listed
companies than in the U.S. In addition, with respect to certain foreign
countries, there is the possibility of expropriation or confiscatory taxation,
political or social instability, or diplomatic developments which could affect
U.S. investments in those countries.
Certain foreign governments levy withholding taxes on dividend and
interest income. Although in some countries a portion of these taxes are
recoverable, the non-recoverable portion of foreign withholding taxes will
reduce the income received from the companies comprising the Portfolio's
investments. However, these foreign withholding taxes are not expected to have a
significant impact.
FUTURES CONTRACTS
The Portfolio may enter into futures contracts, options, and options on
futures contracts for the purpose of remaining fully invested and reducing
transactions costs. Futures contracts provide for the future sale by one party
and purchase by another party of a specified amount of a specific security at a
specified future time and at a specified price. Futures contracts, which are
standardized as to maturity date and underlying financial instrument, are traded
on national futures exchanges. Futures exchanges and trading are regulated under
the Commodity Exchange Act by the Commodity Futures Trading Commission ("CFTC"),
a U.S. Government agency.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out an open futures position is done by taking an opposite position ("buying" a
contract which has previously "sold" or "selling" a contract previously
"purchased") in an identical contract to terminate the position. Brokerage
commissions are incurred when a futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in
cash or government securities with a broker or custodian to initiate and
maintain open positions in futures contracts. A margin deposit is intended to
assure completion of the contract (delivery or acceptance of the underlying
security) if it is not terminated prior to the specified delivery date. Minimal
initial margin requirements are established by the futures exchange and may be
changed. Brokers may establish deposit requirements which are higher than the
exchange minimums. Futures contracts are customarily purchased and sold on
margin that may range upward from less than 5% of the value of the contract
being traded.
After a futures contract position is opened, the value of the contract
is marked to market daily. If the futures contract price changes to the extent
that the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Fund
expects to earn interest income on its margin deposits.
Traders in futures contracts may be broadly classified as either
"hedgers" or "speculators." Hedgers use the futures market primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the securities underlying the futures contracts which they trade, and use
futures contracts with the expectation of realizing profits from a fluctuation
in interest rates. The Portfolio intends to use futures contracts only for
hedging purposes.
Regulations of the CFTC applicable to the Fund require that all of its
futures transactions constitute bona fide hedging transactions or that the
Fund's commodity futures and option positions be for other purposes, to the
extent that the
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aggregate initial margins and premiums required to establish such non-hedging
positions do not exceed five percent of the liquidation value of the Portfolio.
The Portfolio will only sell futures contracts to protect securities it owns
against price declines or purchase contracts to protect against an increase in
the price of securities it intends to purchase. As evidence of this hedging
interest, the Portfolio expects that approximately 75% of its futures contract
purchases will be "completed;" that is, equivalent amounts of related securities
will have been purchased or are being purchased by the Portfolio upon sale of
open futures contracts.
Although techniques other than the sale and purchase of futures
contracts could be used to control the Portfolio's exposure to market
fluctuations, the use of futures contracts may be a more effective means of
hedging this exposure. While the Portfolio will incur commission expenses in
both opening and closing out futures positions, these costs are lower than
transaction costs incurred in the purchase and sale of the underlying
securities.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS
The Portfolio will not enter into futures contract transactions to the
extent that, immediately thereafter, the sum of its initial margin deposits on
open contracts exceeds 5% of the market value of its total assets. In addition,
the Portfolio will not enter into futures contracts to the extent that its
outstanding obligations to purchase securities under these contracts would
exceed 20% of its total assets.
RISK FACTORS IN FUTURES TRANSACTIONS
The Portfolio will minimize the risk that it will be unable to close
out a futures contract by only entering into futures which are traded on
national futures exchanges and for which there appears to be a liquid secondary
market. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specified time. Thus, it may
not be possible to close a futures position. In the event of adverse price
movements, the Portfolio would continue to be required to make daily cash
payments to maintain its required margin. In such situations, if the Portfolio
has insufficient cash, it may have to sell Portfolio securities to meet daily
margin requirements at a time when it may be disadvantageous to do so. In
addition, the Portfolio may be required to make delivery of the instruments
underlying futures contracts it holds. The inability to close options and
futures positions also could have an adverse impact on the Portfolio's ability
to effectively hedge.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit if the contract were closed
out. Thus, a purchase or sale of a futures contract may result in losses in
excess of the amount invested in the contract. However, because the futures
strategies of the Portfolio are engaged in only for hedging purposes, the
Adviser does not believe that the Portfolio is subject to the risks of loss
frequently associated with futures transactions. The Portfolio would presumably
have sustained comparable losses if, instead of the futures contract, it had
invested in the underlying financial instrument and sold it after the decline.
Utilization of futures transactions by the Portfolio does involve the
risk of imperfect or no correlation where the securities underlying futures
contracts have different maturities than the Portfolio securities being hedged.
It is also possible that the Portfolio could lose money on futures contracts and
also experience a decline in value of Portfolio securities. There is also the
risk of loss by the Portfolio of margin deposits in the event of bankruptcy of a
broker with whom the Portfolio has an open position in a futures contract or
related option.
Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of a trading session.
Once the daily limit has been reached in a particular type of contract, no
trades may be made on that day at a price beyond that limit. The daily limit
governs only price movement during a particular trading day and therefore does
not limit potential losses, because the limit may prevent the liquidation of
unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days, with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses.
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FEDERAL TAX TREATMENT OF FUTURES CONTRACTS
Except for transactions the Portfolio has identified as hedging
transactions, the Portfolio is required for Federal income tax purposes to
recognize as income for each taxable year its net unrealized gains and losses on
regulated futures contracts as of the end of the year, as well as those actually
realized during the year. In most cases, any gain or loss recognized with
respect to a futures contract is considered to be 60% long-term capital gain or
loss and 40% short-term capital gain or loss, without regard to the holding
period of the contract. Furthermore, sales of futures contracts which are
intended to hedge against a change in the value of securities held by the
Portfolio may affect the holding period of such securities and, consequently,
the nature of the gain or loss on such securities upon disposition.
In order for the Portfolio to qualify for Federal income tax treatment
as a regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code"), at least 90% of its gross income, for a taxable year must
be derived from qualifying income; i.e., dividends, interest, income derived
from loans of securities, and gains from the sale of securities or foreign
currencies, or other income derived with respect to its business of investing in
such securities or currencies. It is anticipated that any net gain realized from
the closing out of futures contracts will be considered a gain from the sale of
securities and therefore will be qualifying income for purposes of the 90%
requirement.
The Portfolio will distribute to shareholders annually any net capital
gains which have been recognized for Federal income tax purposes (including
unrealized gains at the end of the Portfolio's fiscal year) on futures
transactions. Such distributions will be combined with distributions of capital
gains realized on the Portfolio's other investments and shareholders will be
advised on the nature of the payments.
PORTFOLIO TURNOVER
The portfolio turnover rate described in the Prospectus is calculated
by dividing the lesser of purchases or sales of portfolio securities for the
year by the monthly average of the value of the portfolio securities. The
calculation excludes all securities, including options, whose maturities at the
time of acquisition were one year or less. Portfolio turnover may vary greatly
from year to year as well as within a particular year, and may also be affected
by cash requirements for redemptions of shares.
PURCHASE OF SHARES
Shares of the Portfolio may be purchased without sales commission at
the net asset value per share next determined after an order is received in
proper form by the Fund, and payment is received by the Fund's custodian. The
minimum initial investment required is $2,500 with certain exceptions as may be
determined from time to time by the officers of the Fund. Other investment
minimums are: initial IRA investment, $500; initial spousal IRA investment,
$250; minimum additional investment for all accounts, $100. An order received in
proper form prior to the close of regular trading on the New York Stock Exchange
("Exchange") generally, 4:00 p.m. Eastern Time will be executed at the price
computed on the date of receipt; and an order received not in proper form or
after the 4:00 p.m. close of the Exchange will be executed at the price computed
on the next day the Exchange is open after proper receipt. The Exchange will be
closed on the following days: New Year's Day, Dr. Martin Luther King Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The Portfolio reserves the right in its sole discretion (1) to suspend
the offering of its shares, (2) to reject purchase orders when in the judgment
of management such rejection is in the best interests of the Fund, and (3) to
reduce or waive the minimum for initial and subsequent investment for certain
fiduciary accounts such as employee benefit plans or under circumstances where
certain economies can be achieved in sales of the Portfolio's shares.
REDEMPTION OF SHARES
The Portfolio may suspend redemption privileges or postpone the date of
payment (1) during any period that either the Exchange or custodian bank are
closed or trading on the Exchange is restricted as determined by the Commission,
(2) during any period when an emergency exists as defined by the rules of the
Commission as a result of which it is not reasonably practicable for the
Portfolio to dispose of securities owned by it or to fairly determine the value
of its assets, and (3) for such other periods as the Commission may permit. The
Fund has made an election with the Commission to pay in cash all redemptions
requested by any shareholder of record limited in amount during any 90-day
period to the lesser of $250,000 or 1% of the net assets of the
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Fund at the beginning of such period. Such commitment is irrevocable without the
prior approval of the Commission. Redemptions in excess of the above limits may
be paid, in whole or in part, in investment securities or in cash as the Board
of Trustees may deem advisable; however, payment will be made wholly in cash
unless the Board of Trustees believes that economic or market conditions exist
which would make such a practice detrimental to the best interests of the
Portfolio. If redemptions are paid in investment securities, such securities
will be valued as set forth in the Prospectus under "Valuation of Shares", and a
redeeming shareholder would normally incur brokerage expenses if those
securities were converted to cash.
No charge is made by the Portfolio for redemptions. Any redemption may
be more or less than the shareholder's initial cost depending on the market
value of the securities held by the Portfolio.
Signature Guarantees - To protect your account, the Fund and Chase
Global Funds Services Company ("CGFSC") from fraud, signature guarantees are
required for certain redemptions. The purpose of signature guarantees is to
verify the identity of the person who has authorized a redemption from your
account. Signature guarantees are required in connection with (1) all
redemptions when the proceeds are to be paid to someone other than the
registered owner(s) and/or registered address; or (2) share transfer requests.
Signatures must be guaranteed by an "eligible guarantor institution" as
defined in Rule Ad-15 under the Securities Exchange Act of 1934. Eligible
guarantor institutions include banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies and
savings associations. A complete definition of eligible guarantor institutions
is available from CGFSC. Broker-dealers guaranteeing signatures must be a member
of a clearing corporation or maintain net capital of at least $100,000. Credit
unions must be authorized to issue signature guarantees. Signature guarantees
will be accepted from any eligible guarantor institution which participates in a
signature guarantee program.
The signature guarantee must appear either: (1) on the written request
for redemption; (2) on a separate instrument for assignment ("stock power")
which should specify the total number of shares to be redeemed; or (3) on all
stock certificates tendered for redemption and, if shares held by the Fund are
also being redeemed, on the letter or stock power.
VALUATION OF SHARES
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, which are valued neither exceeding the current asked prices nor less
than the current 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.
Bonds and other fixed income securities are valued according to the
broadest and most representative market, which will ordinarily be the
over-the-counter market. Bonds and other fixed income securities may be valued
on the basis of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities.
Securities purchased with remaining maturities of 60 days or less are
valued at amortized cost using methods determined by the Board of Trustees.
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 Trustees.
SHAREHOLDER SERVICES
The following supplements the information set forth under "Shareholder
Services," in the Cambiar Opportunity Portfolio Prospectus:
EXCHANGE PRIVILEGE
Institutional Class Shares of the Portfolio may be exchanged for
Institutional Class Shares of a Portfolio included in the UAM Funds, which is
comprised of the Fund and UAM Funds Inc. (See the list of Portfolios,
"UAM -- Funds Institutional Class Shares" located at the end of the Cambiar
Opportunity Portfolio Institutional Class Shares Prospectus.) Exchange requests
should
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be made by calling the Fund (1-800-638-7983) or by writing to UAM Funds Trust,
UAM Funds Service Center, c/o Chase Global Funds Services Company, P.O. Box
2798, Boston, MA 02208-2798. The exchange privilege is only available with
respect to Portfolios that are qualified for sale in the shareholder's state of
residence.
Any such exchange will be based on the respective net asset values of
the shares involved. There is no sales commission or charge of any kind. Before
making an exchange into a Portfolio, a shareholder should read its Prospectus
and consider the investment objectives of the Portfolio to be purchased. You may
obtain a Prospectus for the Portfolio(s) you are interested in by calling the
UAM Funds Service Center at 1-800-638-7983.
Exchanges requests may be made either by mail or telephone. Telephone
exchanges will be accepted only if the certificates for the shares to be
exchanged have not been issued to the shareholder and if the registration of the
two accounts will be identical. Requests for exchanges received prior to 4:00
p.m. (Eastern Time) will be processed as of the close of business on the same
day. Requests received after these times will be processed on the next business
day.
Neither the Fund nor CGFSC will be responsible for the authenticity of
the exchange instructions received by telephone. Exchanges may also be subject
to limitations as to amounts or frequency and to other restrictions established
by the Fund's Board of Trustees to assure that such exchanges do not
disadvantage the Fund and its shareholders.
For Federal income tax purposes, an exchange between Portfolios is a
taxable event, and, accordingly, a capital gain or loss may be realized. In a
revenue ruling relating to circumstances similar to the Fund's, an exchange
between series of a Fund was also deemed to be a taxable event. It is likely,
therefore, that a capital gain or loss would be realized on an exchange between
Portfolios; you may want to consult your tax adviser for further information in
this regard. The exchange privilege may be modified or terminated at any time.
TRANSFER OF SHARES
Shareholders may transfer shares of the Portfolio to another person by
making a written request to the Fund. The request should clearly identify the
account and number of shares to be transferred, and include the signature of all
registered owners and all stock certificates, if any, which are subject to the
transfer. The signature on the letter of request, the stock certificate or any
stock power must be guaranteed in the same manner as described under "Redemption
of Shares." As in the case of redemptions, the written request must be received
in good order before any transfer can be made.
INVESTMENT LIMITATIONS
The following limitations supplement those set forth in the Prospectus.
Whenever an investment limitation sets forth a percentage limitation on
investment or utilization of assets, such limitation shall be determined
immediately after and as a result of the Portfolio's acquisition of such
security or other asset. Accordingly, any later increase or decrease resulting
from a change in values, net assets or other circumstances will not be
considered when determining whether the investment complies with the Portfolio's
investment limitations. Investment limitations (1), (2), (3), (4) and (5) are
classified as fundamental. The Portfolio's fundamental investment limitations
cannot be changed without approval by a majority of the outstanding shares of
the Portfolio. The Portfolio will not:
(1) invest in physical commodities or contracts on physical
commodities;
(2) 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;
(3) make loans except (i) by purchasing debt securities in
accordance with its investment objectives 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;
(4) underwrite the securities of other issuers;
(5) invest in futures and/or options on futures unless (i) 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
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be excluded in computing such 5% and (ii) not more than 20% of
the Portfolio's assets are invested in futures and options;
(6) issue senior securities, as defined in the 1940 Act, except
that this restriction shall not be deemed to prohibit the
Portfolio from (i) making any permitted borrowings, mortgages
or pledges, or (ii) entering into repurchase transactions;
(7) purchase on margin or sell short;
(8) 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;
and
(9) invest for the purpose of exercising control over management of
any company.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
The Officers of the Fund manage its day-to-day operations and are
responsible to the Fund's Board of Trustees. The Trustees set broad policies for
the Fund and elect its Officers. The following is a list of the Trustees and
Officers of the Fund, their addresses and dates of birth, and a brief statement
of their present positions and principal occupations during the past five years.
As of April 30, 1998, the Trustees and Officers of the Fund owned less than 1%
of the Fund's outstanding shares.
John T. Bennett, Jr. (1/26/29), Trustee; College Road--RFD 3, Meredith, NH
03253; President of Squam Investment Management Company, Inc. and Great Island
Investment Company, Inc.; President of Bennett Management Company from 1988 to
1993.
Nancy J. Dunn (8/14/51), Trustee; 10 Garden Street, Cambridge, MA 02138; Vice
President for Finance and Administration and Treasurer of Radcliffe College
since 1991.
Philip D. English (8/5/48), Trustee; 16 West Madison Street, Baltimore, MD
21201; President and Chief Executive Officer of Broventure Company, Inc.;
Chairman of the Board of Chektec Corporation and Cyber Scientific, Inc.
William A. Humenuk (4/21/42), Trustee; 4000 Bell Atlantic Tower, 1717 Arch
Street, Philadelphia, PA 19103; Partner in the Philadelphia office of the law
firm Dechert Price & Rhoads; Director, Hofler Corp.
Norton H. Reamer* (3/21/35), Trustee; One International Place, Boston, MA 02110;
President and Chairman of the Fund; President, Chief Executive Officer and a
Director of United Asset Management Corporation; Director, Partner or Trustee of
each of the Investment Companies of the Eaton Vance Group of Mutual Funds.
Charles H. Salisbury, Jr.* (8/24/40), Trustee; One International Place, Boston,
MA 02110; Executive Vice President of United Asset Management Corporation;
formerly an executive officer and Director of T. Rowe Price and President and
Chief Investment Officer of T. Rowe Price Trust Company.
Peter M. Whitman, Jr.* (7/1/43), Trustee; One Financial Center, Boston, MA
02111; President and Chief Investment Officer of Dewey Square Investors
Corporation since 1988; Director and Chief Executive Officer of H. T. Investors,
Inc., formerly a subsidiary of Dewey Square.
William H. Park (9/19/47), Vice President; One International Place, Boston, MA
02110; Executive Vice President and Chief Financial Officer of United Asset
Management Corporation.
Gary L. French (7/4/51), Treasurer; 211 Congress Street, Boston, MA 02110;
President of UAM Fund Services, Inc. and UAM Fund Distributors, Inc.; formerly
Vice President of Operations, Development and Control of Fidelity Investment in
1995; Treasurer of the Fidelity Group of Mutual Funds from 1991 to 1995.
Michael E. DeFao (2/28/68), Secretary; 211 Congress Street, Boston, MA 02110;
Vice President and General Counsel of UAM Fund Services, Inc. and UAM Fund
Distributors, Inc.; Associate Attorney of Ropes & Gray (a law firm) from 1993 to
1995.
Robert R. Flaherty (9/18/63), Assistant Treasurer; 211 Congress Street, Boston,
MA 02110; Vice President of UAM Fund Services, Inc.; formerly Manager of Fund
Administration and Compliance of Chase Global Fund Services Company from 1995 to
1996; Senior Manager of Deloitte & Touche LLP from 1985 to 1995.
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Michelle Azrialy (4/12/69), Assistant Secretary; 73 Tremont Street, Boston, MA
02108; Assistant Treasurer of Chase Global Funds Services Company since 1996.
Senior Public Accountant with Price Waterhouse LLP from 1991 to 1994.
Gordon M. Shone (7/30/56), Assistant Treasurer; 73 Tremont Street, Boston, MA
02108; Vice President of Fund Administration and Compliance of Chase Global
Funds Services Company; formerly Senior Audit Manager of Coopers & Lybrand LLP
(1983-1996).
* Messrs. Reamer, Salisbury and Whitman are deemed to be "interested persons" of
the Fund as that term is defined in the 1940 Act.
REMUNERATION OF TRUSTEES AND OFFICERS
The Fund pays each Trustee, who is not also an officer or affiliated
person, a $150 quarterly retainer fee per active Portfolio which currently
amounts to $1,350 per quarter. In addition, each unaffiliated Trustee receives a
$2,000 meeting fee which is aggregated for all the Trustees allocated
proportionately among the Portfolios of the Fund and UAM Funds, Inc. and
reimbursement for travel and other expenses incurred while attending Board
meetings. Trustees who are also officers or affiliated persons receive no
remuneration for their service as Trustees. The Fund's officers and employees
are paid by either the Adviser, United Asset Management Corporation ("UAM"), the
Administrator, or CGFSC and receive no compensation from the Fund.
The following table shows aggregate compensation paid to each of the
Fund's unaffiliated Trustees by the Fund and total compensation paid by the
Fund, and UAM Funds, Inc. (collectively the "Fund Complex") in the fiscal year
ended April 30, 1998.
COMPENSATION TABLE
[CAPTION]
<TABLE>
Pension or Total
Aggregate Retirement Estimated Compensation
Compensation Benefits Accrued Annual from Registrant and
From as Part of Benefits Upon Fund Complex
Name of Person, Position Registrant Fund Expenses Retirement Paid to Trustees
- ------------------------ ---------- ------------- ---------- ----------------
<S> <C> <C> <C> <C>
John T. Bennett, Jr.......... $6,149 0 0 $33,500
Trustee
Philip D. English............ $6,149 0 0 $33,500
Trustee
William A. Humenuk........... $6,149 0 0 $33,500
Trustee
Nancy J. Dunn................ $4,668 0 0 $25,200
Trustee
</TABLE>
INVESTMENT ADVISER
CONTROL OF ADVISER
The Adviser is a wholly-owned subsidiary of UAM, a holding company
incorporated in Delaware in December 1980 for the purpose of acquiring and
owning firms engaged primarily in institutional investment management. Since its
first acquisition in August 1983, UAM has acquired or organized approximately 45
such wholly-owned affiliated firms (the "UAM Affiliated Firms"). UAM believes
that permitting UAM Affiliated Firms to retain control over their investment
advisory decisions is necessary to allow them to continue to provide investment
management services that are intended to meet the particular needs of their
respective clients.
Accordingly, after acquisition by UAM, UAM Affiliated Firms continue to
operate under their own firm name, with their own leadership and individual
investment philosophy and approach. Each UAM Affiliated Firm manages its own
business independently on a day-to-day basis. Investment strategies employed and
securities selected by UAM Affiliated Firms are separately chosen by each of
them. Several UAM Affiliated Firms also act as investment advisers to separate
series or Portfolios of UAM Funds, Inc., a registered investment company.
9
<PAGE>
SERVICES PERFORMED BY ADVISER
Pursuant to an Investment Advisory Agreement ("Agreement") between the
Fund and the Adviser, the Adviser has agreed to manage the investment and
reinvestment of the Portfolio's assets, to continuously review, supervise and
administer the Portfolio's investment program, and to determine in its
discretion the securities to be purchased or sold and the portion of the
Portfolio's assets to be held uninvested.
In the absence of (i) willful misfeasance, bad faith or gross
negligence on the part of the Adviser in the performance of its obligations and
duties under the Agreement, (ii) reckless disregard by the Adviser of its
obligations and duties under the Agreement, or (iii) 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, or to any shareholder of the Fund, for any error or judgment, mistake of
law or any other act or omission in the course of, or connected with, rendering
services under the Agreement.
Unless sooner terminated, the Agreement shall continue for a period of
one year so long as such continuance is specifically approved at least annually
(a) by the vote of a majority of those members of the Board of Trustees of the
Fund who are not parties to the Agreement or interested persons of any such
party, cast in person at a meeting called for the purpose of voting on such
approval, and (b) by the Board of Trustees of the Fund or (c) by vote of a
majority of the outstanding voting securities of the Portfolio. The Agreement
may be terminated at any time by the Portfolio, without the payment of any
penalty, by vote of a majority of the entire Board of Trustees of the Fund or by
vote of a majority of the outstanding voting securities of the Portfolio on 60
days' written notice to the Adviser. The Agreement may be terminated by the
Adviser at any time, without the payment of any penalty, upon 90 days' written
notice to the Fund. The Agreement will automatically and immediately terminate
in the event of its assignment.
PHILOSOPHY AND STYLE
The Adviser pursues a relative value philosophy investing in stocks of
companies that possess above-average financial characteristics in terms of
balance sheet strength and profitability measures and are attractively valued
relative to the market and to the prices at which such stocks have sold on a
historical basis.
REPRESENTATIVE INSTITUTIONAL CLIENTS
As of the date of this Statement of Additional Information, the
Adviser's representative institutional clients included: United Airlines, Frank
Russell Trust Company, City Public Service of San Antonio and Boeing Company.
In compiling this client list, the Adviser used objective criteria such
as account size, geographic location and client classification. The Adviser did
not use any performance-based criteria. It is not known whether these clients
approve or disapprove of the Adviser or the advisory services provided.
ADVISORY FEES
As compensation for services rendered by the Adviser under the
Investment Advisory Agreement, the Portfolio pays the Adviser an annual fee in
monthly installments, calculated by applying the following annual percentage
rate to the Portfolio's average daily net assets for the month:
Cambiar Opportunity Portfolio.................1.00%
PORTFOLIO TRANSACTIONS
The Investment Advisory Agreement authorizes the Adviser to select the
brokers or dealers that will execute the purchases and sales of investment
securities for the Portfolio and directs the Adviser to use its best efforts to
obtain the best execution with respect to all transactions for the Portfolio. In
doing so, a Portfolio may pay higher commission rates than the lowest rate
available when the Adviser believes it is reasonable to do so in light of the
value of the research, statistical, and pricing services provided by the broker
effecting the transaction. It is not the Fund's practice to allocate brokerage
or effect principal transactions with dealers on the basis of sales of Fund
shares which may be made through broker-dealer firms. However, the Adviser may
place portfolio orders with qualified broker-dealers who recommend the Fund's
Portfolios or who act as agents in the purchase of shares of the Portfolio for
their clients.
10
<PAGE>
Some securities considered for investment by the Portfolio may also be
appropriate for other clients served by the Adviser. If purchases or sales of
securities consistent with the investment policies of the Portfolio and one or
more of these other clients served by the Adviser is considered at or about the
same time, transactions in such securities will be allocated among the Portfolio
and clients in a manner deemed fair and reasonable by the Adviser. Although
there is no specified formula for allocating such transactions, the various
allocation methods used by the Adviser, and the results of such allocations, are
subject to periodic review by the Fund's Board of Trustees.
ADMINISTRATIVE SERVICES
The Board of Trustees of the Fund approved a Fund Administration
Agreement, effective April 15, 1996, ("Fund Administration Agreement"), between
UAM Fund Services, Inc., a wholly-owned subsidiary of UAM, and the Fund.
Pursuant to the terms of the Fund Administration Agreement, UAMFSI manages,
administers and conducts the general business activities of the Fund other than
those which have been contracted to other third parties by the Fund.
Additionally, UAMFSI has agreed to provide transfer agency services to the
Portfolios pursuant to the terms of the Agreement.
UAMFSI has subcontracted some of these services to Chase Global Funds
Services Company ("CGFSC"), an affiliate of The Chase Manhattan Bank, pursuant
to a Mutual Funds Service Agreement between UAMFSI and CGFSC (collectively, with
the Fund Administration Agreement between UAMFSI and the Fund, the
"Agreements").
Pursuant to the terms of the Agreements, the Portfolio pays UAMFSI a
two part monthly fee: a Portfolio specific fee which is retained by UAMFSI and a
sub-administration fee which UAMFSI in turn pays to CGFSC. The following
portfolio specific fees are calculated from the aggregate net assets of each
Portfolio:
Annual Rate
-----------
Cambiar Opportunity Portfolio................. 0.04%
CFGSC's monthly fee for its services is calculated on an annualized
basis as follows:
0.19 of 1% of the first $200 million of combined UAM Fund assets;
0.11 of 1% of the next $800 million of combined UAM Fund assets;
0.07 of 1% of combined UAM Fund assets in excess of $1 billion but less
than $3 billion;
0.05 of 1% of combined UAM Fund assets in excess of $3 billion
Fees are allocated among the Portfolios on the basis of their relative
assets and are subject to a graduated minimum fee schedule per Portfolio, which
starts at $2,000 per month and increases to $70,000 annually after two years. If
a separate class of shares is added to a Portfolio, its minimum annual fee
increases by $20,000.
Prior to April 15, 1996, CGFSC or its predecessor, Mutual Funds Service
Company, provided certain administrative services to the Fund under an
Administration Agreement between the Fund and U.S. Trust Company of New York.
UAMFSI bears all expenses in connection with the performance of its
services under the Agreement. Other expenses to be incurred in the operation of
the Fund are borne by the Fund or other parties, including taxes, interest,
brokerage fees and commissions, if any, salaries and fees of officers and
members of the Board who are not officers, directors, shareholders or employees
of UAMFSI, or the Fund's investment adviser or distributor, 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; and any extraordinary expenses
and other customary Fund expenses.
Unless sooner terminated, the Agreement shall continue in effect from
year to year provided such continuance is
11
<PAGE>
specifically approved at least annually by the Board. The Agreement is
terminable, without penalty, by the Board or by UAMFSI, on not less than ninety
(90) days' written notice. The Agreement shall automatically terminate upon its
assignment by UAMFSI without the prior written consent of the Fund.
UAMFSI will from time to time employ or associate with such person or
persons as my be fit to assist them in the performance of the Agreement. Such
person or persons may be officers and employees who are employed by both UAMFSI
and the Fund. The compensation of such person or persons for such employment
shall be paid by UAMFSI and no obligation will be incurred by or on behalf of
the Fund in such respect.
Effective February 28, 1997, the Fund entered into an Account Services
Agreement (the "Services Agreement") with UAM Retirement Plan Services, Inc.
(the "Service Provider"), a wholly-owned subsidiary of UAM. Under the Services
Agreement, the Service Provider agrees to perform certain services for
participants in a self-directed, defined contribution plan, and for whom the
Service Provider provides participant recordkeeping. Pursuant to the Services
Agreement, the Service Provider is entitled to receive, after the end of each
month, a fee at the annual rate of 0.15% of the average aggregate daily net
asset value of shares of the Portfolios in the accounts for which they provide
services.
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
Price Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as independent accountants for the Fund.
DISTRIBUTOR
UAM Fund Distributors, Inc., a wholly-owned subsidiary of UAM, serves
as the Fund's distributor. Shares of the Fund are offered continuously. While
the Distributor will use its best efforts to sell shares of the Fund, it is not
obligated to sell any particular amount of shares.
PERFORMANCE CALCULATIONS
The Portfolio may from time to time quote various performance figures
to illustrate past performance. Performance quotations by investment companies
are subject to rules adopted by the Commission, which require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the Fund be accompanied by
certain standardized performance information computed as required by the
Commission. Current yield and average annual compounded total return quotations
used by the Portfolio are based on the standardized methods of computing
performance mandated by the Commission. An explanation of those and other
methods used to compute or express performance follows.
TOTAL RETURN
The average annual total return of the Portfolio is determined by
finding the average annual compounded rates of return over 1, 5 and 10 year
periods that would equate an initial hypothetical $1,000 investment to its
ending redeemable value. The calculation assumes that all dividends and
distributions are reinvested when paid. The quotation assumes the amount was
completely redeemed at the end of each 1, 5 and 10 year period and the deduction
of all applicable Fund expenses on an annual basis.
The following formula would be used to calculate quotations.
P(1 + T)/n/ = ERV
where:
P = a hypothetical initial payment of $1,000
12
<PAGE>
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the 1, 5 or 10 year periods at the end of the
1, 5 or 10 year periods (or fractional portion thereof).
YIELD
Current yield reflects the income per share earned by a Portfolio's
investments. The current yield of the Portfolio is determined by dividing the
net investment income per share earned during a 30-day base period by the
maximum offering price per share on the last day of the period and annualizing
the result. Expenses accrued for the period include any fees charged to all
shareholders during the base period.
Yield is obtained using the following formula:
Yield = 2 [(a - b + 1)/6/ - 1]
------
cd
where:
a= dividends and interest earned during the period
b= expenses accrued for the period (net of reimbursements)
c= the average daily number of shares outstanding during the period that
were entitled to receive income distributions
d= the maximum offering price per share on the last day of the period.
COMPARISONS
To help investors better evaluate how an investment in 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 Appendix B for publications, indices and averages which may be used.
In assessing such comparisons of performance, an investor should keep
in mind that the composition of the investments in the reported indices and
averages is not identical to the composition of investments in the Portfolio,
that the averages are generally unmanaged, and that the items included in the
calculations of such averages may not be identical to the formula used by the
Portfolio to calculate its performance. In addition, there can be no assurance
that the Portfolio will continue this performance as compared to such other
averages.
GENERAL INFORMATION
DESCRIPTION OF SHARES AND VOTING RIGHTS
The Fund was organized under the name The Regis Fund II as a Delaware
business trust on May 18, 1994. On October 31, 1995, the name of the Fund was
changed to "UAM Funds Trust." The Fund's principal executive office is located
at One International Place, 44th Floor, Boston, MA 02110; however, all investor
correspondence should be directed to the Fund at UAM Funds Service Center, c/o
Chase Global Funds Services Company, P.O. Box 2798, Boston, MA 02208-2798. The
Fund's Agreement and Declaration of Trust permits the Fund to issue an unlimited
number of shares of beneficial interest, without par value. The Trustees have
the power to designate one or more series ("Portfolios") or classes of shares of
beneficial interest without further action by shareholders.
The shares of the Portfolio of the Fund, when issued and paid for as
provided for in the Prospectus, will be fully paid and nonassessable, have no
preference as to conversion, exchange, dividends, retirement or other features
and have no preemptive rights. The shares of the Fund have noncumulative voting
rights, which means that the holders of more than 50% of the shares voting for
the election of Trustees can elect 100% of the Trustees if they choose to do so.
A shareholder is entitled to one vote for each full share held (and a fractional
vote for each fractional share held), then standing in his or her name on the
books of the Fund.
In the event of liquidation of the Fund, the holders of the shares of
each Portfolio or any class thereof that has been
13
<PAGE>
established and designated shall be entitled to receive, when and as declared by
the Trustees, the excess of the assets belonging to that Portfolio, or in the
case of a class, belonging to that Portfolio and allocable to that class, over
the liabilities belonging to that Portfolio or class. The assets so
distributable to the holders of shares of any particular Portfolio or class
thereof shall be distributed to the holders 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 Trustees then in office.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Fund's policy is to distribute substantially all of the Portfolio's
net investment income, if any, together with any net realized capital gains
annually in the amount and at the times that will avoid both income (including
capital gains) taxes incurred and the imposition of the Federal excise tax on
undistributed income and capital gains. The amounts of any income dividends or
capital gains distributions cannot be predicted. See discussion under
"Dividends, Capital Gains Distributions and Taxes" in the Prospectus.
Any dividend or distribution paid shortly after the purchase of shares
of the Portfolio by an investor may have the effect of reducing the per share
net asset value of the Portfolio by the per share amount of the dividend or
distribution. Furthermore, such dividends or distributions, although in effect a
return of capital, are subject to income taxes as set forth in the Prospectus.
As set forth in the Prospectus, unless the shareholder elects otherwise
in writing, all dividend and capital gains distributions are automatically
received in additional shares of the respective Portfolio of the Fund at net
asset value (as of the business day following the record date). This will remain
in effect until the Fund is notified by the shareholder in writing at least
three days prior to the record date that either the Income Option (income
dividends in cash and capital gains distributions in additional shares at net
asset value) or the Cash Option (both income dividends and capital gains
distributions in cash) has been elected. An account statement is sent to
shareholders whenever an income dividend or capital gains distribution is paid.
Each Portfolio of the Fund will be treated as a separate entity (and
hence as a separate "regulated investment company") for Federal tax purposes.
Any net capital gains recognized by the Portfolio will be distributed to its
investors without need to offset (for Federal income tax purposes) such gains
against any net capital losses of another Portfolio.
FEDERAL TAXES
In order for a Portfolio to qualify for Federal income tax treatment as
a regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code"), at least 90% of the Portfolio's gross income for a taxable
year must be derived from certain qualifying income, i.e., dividends, interest,
income derived from loans of securities and gains from the sale or other
disposition of stock or securities, or other related income, derived with
respect to its business investing in stock or securities. Any net gain realized
from the closing out of futures contracts will, therefore, generally be
qualifying income for purposes of the 90% requirement.
The Portfolio will distribute to shareholders annually any net capital
gains which have been recognized for Federal income tax purposes (including
unrealized gains at the end of the Portfolio's taxable year) on futures
transactions. Such distribution will be combined with distributions of capital
gains realized on the Portfolio's other investments, and shareholders will be
advised on the character of the payment.
CODE OF ETHICS
The Fund has adopted a Code of Ethics which restricts to a certain
extent personal transactions by access persons of the Fund and imposes certain
disclosure and reporting obligations.
14
<PAGE>
APPENDIX A -- DESCRIPTION OF SECURITIES AND RATINGS
I. DESCRIPTION OF BOND RATINGS
Excerpts from Moody's Investors Service, Inc. ("Moody's") description
of its highest bond ratings: Aaa -- judges to be the best quality; carry the
smallest degree of investment risk; Aa -- judged to be of high quality by all
standards; A -- possess many favorable investment attributes and are to be
considered as higher medium grade obligations; Baa -- considered as lower medium
grade obligations, i.e. they are neither highly protected nor poorly secured.
Excerpts from Standard & Poor's Ratings Services ("S&P") description of
its highest bond ratings: AA -- highest grade obligations; possess the ultimate
degree of protection as to principal and interest; AA -- also qualify as high
grade obligations, and in the majority of instances differs from AAA issues only
in small degree; A -- regarded as upper medium grade; have considerable
investment strength but are not entirely free from adverse effects of changes in
economic and trade conditions. Interest and principal are regarded as safe; BBB
- -- regarded as borderline between definitely sound obligations and those where
the speculative element begins to predominate; this group is the lowest which
qualifies for commercial bank investment.
II. DESCRIPTION OF U.S. GOVERNMENT SECURITIES
The term "U.S. Government Securities" refers to a variety of securities
which are issued or guaranteed by the United States Government, and by various
instrumentalities which have been established or sponsored by the United States
Government.
U.S. Treasury securities are backed by the "full faith and credit"
of the United States. Securities issued or guaranteed by Federal agencies and
U.S. Government sponsored instrumentalities may or may not be backed by the full
faith and credit of the United States.
In the case of securities not backed by the full faith and credit of
the United States, the investor must look principally to the agency or
instrumentality issuing or guaranteeing the obligation for ultimate repayment,
and may not be able to assert a claim against the United States itself in the
event the agency or instrumentality does not meet its commitment. Agencies which
are backed by the full faith and credit of the United States include the
Export-Import Bank, Farmers Home Administration, Federal Financing Bank, and
others. Certain agencies and instrumentalities, such as the Government National
Mortgage Association are, in effect, backed by the full faith and credit of the
United States through provisions in their charters that they may make
"indefinite and unlimited" drawings on the U.S. Treasury, if needed to service
its debt. Debt from certain other agencies and instrumentalities, including the
Federal Home Loan Bank and Federal National Mortgage Association, is not
guaranteed by the United States, but those institutions are protected by the
discretionary authority of the U.S. Treasury to purchase certain amounts of
their securities to assist the institution in meeting its debt obligations.
Finally, other agencies and instrumentalities, such as the Farm Credit System
and Federal Home Loan Mortgage Corporation, are federally chartered institutions
under Government supervision, but their debt securities are backed only by the
credit worthiness of those institutions, not the U.S. Government.
Some of the U.S. Government agencies that issue or guarantee securities
include the Export-Import Bank of the United States, Farmers Home
Administration, Federal Housing Administration, Maritime Administration, Small
Business Administration, and the Tennessee Valley Authority.
III. DESCRIPTION OF COMMERCIAL PAPER
The Portfolio may invest in commercial paper (including variable amount
master demand notes) rated A-1 or better by S&P or Prime-1 by Moody's or by S&P
(or if unrated, issued by a corporation having an outstanding unsecured debt
issue rated A or better by Moody's or S&P). Commercial paper refers to
short-term, unsecured promissory notes issued by corporations to finance
short-term credit needs. Commercial paper is usually sold on a discount basis
and has a maturity at the time of issuance not exceeding nine months. Variable
amount master demand notes are demand obligations that permit the investment of
fluctuating amounts at varying market rates of interest pursuant to arrangement
between the issuer and a commercial bank acting as agent for the payees of such
notes, whereby both parties have the right to vary the amount of the outstanding
indebtedness on the notes. Because variable amount master demand notes are
direct lending arrangements between a lender and a borrower, it is not generally
contemplated that such instruments will be traded, and there is no secondary
market for these notes, although they are redeemable (and thus immediately
repayable by the borrower) at face value, plus accrued interest, at any time. In
connection with the Portfolio's investment in variable amount master demand
notes, the Adviser's investment management staff will monitor, on an ongoing
basis, the earning power, cash flow and other liquidity ratios of the issuer and
the borrower's ability to
A-1
<PAGE>
pay principal and interest on demand.
Commercial paper rated A-1 by S&P has the following characteristics:
(1) liquidity ratios are adequate to meet cash requirements; (2) long-term
senior debt is rated "A" or better; (3) the issuer has access to at least two
additional channels of borrowing; (4) basic earnings and cash flow have an
upward trend with allowance made for unusual circumstances; (5) typically, the
issuer's industry is well established, and the issuer has a strong position
within the industry; and (6) the reliability and quality of management are
unquestioned. Relative strength or weakness of the above factors determine
whether the issuer's commercial paper is A-1, A-2 or A-3. The rating Prime-1 is
the highest commercial paper rating assigned by Moody's. Among the factors
considered by Moody's in assigning ratings are the following: (1) evaluation of
the management of the issuer; (2) economic evaluation of the issuer's industry
or industries and the appraisal of speculative-type risks which may be inherent
in certain areas; (3) evaluation of the issuer's products in relation to
completion and customer acceptance; (4) liquidity; (5) amount and quality of
long term debt; (6) trend of earnings over a period of ten years; (7) financial
strength of a parent company and the relationships which exist with the issuer;
and (8) recognition by the management of issuer of obligations which may be
present or may arise as a result of public interest questions and preparations
to meet such obligations.
IV. DESCRIPTION OF BANK OBLIGATIONS
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate.
Certificates of deposit are negotiable short-term obligations of commercial
banks. Variable rate certificates of deposit are certificates of deposit on
which the interest rate is periodically adjusted prior to their stated maturity
based upon a specified market rate. As a result of these adjustments, the
interest rate on these obligations may increase or decrease periodically.
Frequently, dealers selling variable rate certificates of deposit to the
Portfolio will agree to repurchase such instruments, at the Portfolio's option,
at par on or near the coupon dates. The dealers' obligations to repurchase these
instruments are subject to conditions imposed by various dealers; such
conditions typically are the continued credit standing of the issuer and the
existence of reasonably orderly market conditions. The Portfolio is also able to
sell variable rate certificates of deposit in the secondary market. Variable
rate certificates of deposit normally carry a higher interest rate than
comparable fixed rate certificates of deposit. A banker's acceptance is a time
draft drawn on a commercial bank by a borrower usually in connection with an
international commercial transaction (to finance the import, export, transfer or
storage of goods). The borrower is liable for payment as well as the bank which
unconditionally guarantees to pay the draft at its face amount on the maturity
date. Most acceptances have maturities of six months or less and are traded in
the secondary markets prior to maturity.
A-1
<PAGE>
APPENDIX B - COMPARISON PUBLICATIONS, INDICES AND AVERAGES
(a) Dow Jones Composite Average or its component averages -- an unmanaged index
composed of 30 blue-chip industrial corporation stocks (Dow Jones
Industrial Average), 15 utilities company stocks and 20 transportation
stocks. Comparisons of performance assume reinvestment of dividends.
(b) Standard & Poor's 500 Stock Index or its component indices -- an unmanaged
index composed of 400 industrial stocks, 40 financial stocks, 40 utilities
stocks and 20 transportation stocks. Comparisons of performance assume
reinvestment of dividends.
(c) Standard & Poor's 400 Mid Cap Index - consists of 400 domestic stocks
chosen for market size, liquidity, and industry group representation. It is
also a market-value weighted index and was the first benchmark of mid cap
stock price movement. Comparisons of performance assume reinvestment of
dividends.
(d) The New York Stock Exchange composite or component indices -- unmanaged
indices of all industrial, utilities, transportation and finance stocks
listed on the New York Stock Exchange comparisons of performance assume
reinvestment of dividends.
(e) Wilshire 5000 Equity Index or its component indices -- represents the
return on the market value of all common equity securities for which daily
pricing is available. Comparisons of performance assume reinvestment of
dividends
(f) Lipper -- Mutual Fund Performance Analysis and Lipper -- Fixed Income Fund
Performance Analysis -- measure total return and average current yield for
the mutual fund industry. Rank individual mutual fund performance over
specified time periods, assuming reinvestment of all distributions,
exclusive of any applicable sales charges.
(g) Lipper Capital Appreciation Funds Index - a fund that aims at maximum
capital appreciation, frequently by means of 100% or more portfolio
turnover, leveraging, purchasing unregistered securities, purchasing
options, etc. The fund may take large cash positions.
(h) Lipper Small Cap Funds Index- a fund that by prospectus or portfolio
practice invests primarily in companies with market capitalizations of less
than $1 billion at the time of purchase.
(i) Morgan Stanley Capital International EAFE Index and World Index --
respectively, arithmetic, market value-weighted averages of the performance
of over 900 securities listed on the stock exchanges of countries in
Europe, Australia and the Far East, and over 1,400 securities listed on the
stock exchanges of these continents, including North America.
(j) Goldman Sachs 100 Convertible Bond Index -- currently includes 67 bonds and
33 preferred. The original list of names was generated by screening for
convertible issues of 100 million or greater in market capitalization. The
index is priced monthly.
(k) Salomon Brothers GNMA Index -- includes pools of mortgages originated by
private lenders and guaranteed by the mortgage pools of the Government
National Mortgage Association.
(l) Salomon Brothers High Grade Corporate Bond Index -- consists of publicly
issued, non-convertible corporate bonds rated AA or AAA. It is a value-
weighted, total return index, including approximately 800 issues with
maturities of 12 years or greater.
(m) Salomon Brothers Broad Investment Grade Bond Index -- is a market-weighted
index that contains approximately 4,700 individually priced investment
grade corporate bonds rated BBB or better, U.S. Treasury/agency issues and
mortgage pass-through securities.
(n) Lehman Brothers Long-Term Treasury Bond Index -- is composed of all bonds
covered by the Lehman Brothers Treasury Bond Index with maturities of 10
years or greater.
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(o) Lehman Brothers Government/Corporate Index -- is a combination of the
Government and Corporate Bond Indices. The Government Index includes public
obligations of the U.S. Treasury, issues of Government agencies, and
corporate debt backed by the U.S. Government. The Corporate Bond Index
includes fixed-rate nonconvertible corporate debt. Also included are Yankee
Bonds and nonconvertible debt issued by or guaranteed by foreign or
international governments and agencies. All issues are investment grade
(BBB) or higher, with maturities of at least one year and an outstanding
par value of at least $100 million for U.S. Government issues and $25
million for others. Any security downgraded during the month is held in the
index until month-end and then removed. All returns are market value
weighted inclusive of accrued income.
(p) NASDAQ Industrial Index -- is composed of more than 3,000 industrial
issues. It is a value-weighted index calculated on price change only and
does not include income.
(q) Value Line -- composed of over 1,600 stocks in the Value Line
Investment Survey.
(r) Russell 2000 Index -- composed of the 2,000 smallest stocks in the Russell
3000, a market value-weighted index of the 3,000 largest U.S. publicly-
traded companies.
(s) Salomon Brothers 3 Month T-Bill Average - the average return for all
Treasury bills for the previous three month period.
(t) Composite Indices -- 60% Standard & Poor's 500 Stock Index, 30% Lehman
Brothers Long-Term Treasury Bond and 10% U.S. Treasury Bills; 70% Standard
& Poor's 500 Stock Index and 30% NASDAQ Industrial Index; 35% Standard &
Poor's 500 Stock Index and 65% Salomon Brothers High Grade Bond Index; all
stocks on the NASDAQ system exclusive of those traded on an exchange, and
65% Standard & Poor's 500 Stock Index and 35% Salomon Brothers High Grade
Bond Index.
(u) CDA Mutual Fund Report published by CDA Investment Technologies, Inc. --
analyzes price, current yield, risk, total return and average rate of
return (average compounded growth rate) over specified time periods for the
mutual fund industry.
(v) Mutual Fund Source Book published by Morningstar, Inc. -- analyzes
price, yield, risk and total return for equity funds.
(w) Financial publications: Business Week, Changing Times, Financial World,
Forbes, Fortune, Money, Barron's, Consumer's Digest, Financial Times,
Global Investor, Investor's Daily, Lipper Analytical Services, Inc.,
Morningstar, Inc., New York Times, Personal Investor, Wall Street Journal
and Weisenberger Investment Companies Service -- publications that rate
fund performance over specified time periods.
(x) 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.
(y) 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.
(z) Savings and Loan Historical Interest Rates -- as published by the
U.S. Savings & Loan League Fact Book.
(aa) Historical data supplied by the research departments of First Boston
Corporation; the J.P. Morgan companies; Salomon Brothers; Merrill Lynch,
Pierce, Fenner & Smith; Lehman Brothers, Inc.; and Bloomberg L.P.
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